Not one of the most observant journalist-pundits who ever put pen to paper, New York Times columnist Farhad Manjoo finally realized some days ago that the tech-industry deck is stacked. He was still expressing his surprise and dismay a week later at the oligopolistic practices of the dominant firms. Among other revelations, it dawned on him that the repeal of Net Neutrality under Trump appointee Ajit Pai, the new chairman of the Federal Communications Commission, will lock in the already-overwhelming dominance of a few companies (Amazon, Apple, Facebook, Microsoft and Alphabet) and fence out the rest.
This move by Pai, which will create “premium” lanes on the Internet, will also empower a few old line companies that were teetering on the brink of commoditization (i.e., Comcast, Verizon, and AT&T).
I have been writing about various aspects of the “lovely walled gardens” where we all compute for a long time. Here’s an example from 2011. But my awareness of the land grab goes back 40 years. The fencing of the frontier has been underway for decades. It’s amazing it took Manjoo this long to notice.
Because of my vantage point, I see how this hegemony has become a nightmare for software developers. Once able to install apps directly on endpoints with an installer package, developers are now relegated to app stores where, in the mobile world, two companies — Apple and Google — take a 30% tithe of every unit sold. That’s a high commission, and notice that the price is identical in both venues. Think that’s a coincidence, just like two gas stations having the same per-gallon price? Can you say collusion by a duopoly? But who you gonna call? In the mobile world, there are only those two. And both Microsoft and Apple are trying to convert their desktop environments to the permanent-subjugation model of app stores, big tithes, and monthly payments. Amazon loves having Prime customers, whose annual subscriptions are reliable and easy to renew. The bigs just want to hook an intravenous feed up to your bank account.
And, in the face of this oligopoly, we Americans have lost our taste for antitrust prosecutions. The last meaningful one was the Microsoft case in 2000. And although nominally convicted of being a monopoly and using that power to extract excess rents from other market participants, kill off competitors, and reduce consumer choice, Microsoft never really had to give up much. On the monopoly front, Judge Thomas Penfield Jackson succeeded in beating back the Redmond behemoth only temporarily. It has since come roaring back.
The fact is, the tech industry has by and large been able to steer around the legal and political sectors because most of those participants don’t really understand what technology is or does. Until he gets run to earth, Uber CEO Travis Kalanick will have for the most part been able to outfox the public authorities with technological prestidigitation.
For consumers, this means shut up and sit down: this is what you’re getting. Just leave us your credit-card information and all other personal details, which we’ll monetize as we see fit ad infinitum. Thank you very much.
For my friends, the developers, this means no clear way through the forest without being beset by highwaymen. What company can form capital when a gatekeeper is taking 30% off the top? What kind of margins do you suppose most developers make? But it’s worse than that. If any of the gatekeepers decide that your software competes with anything they do — or are even thinking of doing — your app gets dropped down a well into darkness forever. With no explanation provided. Just an “it doesn’t meet our standards” delivered by some faceless employee from whom there is no appeal.
But a special hell is reserved for partners. In the latest, Apple managed to punch erstwhile graphics supplier Imagination in the kidneys until it coughed blood. And, as I pointed out here, Imagination is only one of three intellectual property suppliers that Apple has leaned on in just the past few months — because it can. Dialog and Qualcomm have been subjected to nearly the same treatment.
Qualcomm is the supplier of the cellular technology that turns an iPod into an iPhone. The value of this technology in an iPhone starts at $400 per unit. Using Qualcomm’s nominal pricing formula (5% of the value of the handset), we arrive at a conservative number of $32 that Qualcomm is supposed to receive per set (.05 x $649), and that’s probably high. So, if Apple paid royalties due according to its own contracts, Apple would be making only a 1250% ($400/$32) return on its investment in cellular technology. And yet that’s not enough in a world where sales of Apple’s single hit product, the iPhone, are slowing down.
And for disputing Apple’s right to take whatever it wants, Qualcomm is being punished in legal forums around the world and through direct commercial actions (i.e., withholding payments from Qualcomm suppliers).
Maybe, because I’ve witnessed this sort of behavior for decades, I’m a bit jaded. And you can see how I’d cast a jaundiced eye at these companies’ advertising copy, which features high-production-value images of charming people in beautiful settings living amazing lives enhanced by digital devices and services. Those images are for the unwashed hordes, who have long since ceased to ask why they pay such large monthly bills. They can’t remember it being any other way.
And, to Manjoo, who only recently discovered, to his outrage, that the house is rigged, I would say, “Easy, lad. We were a long time in getting here, and not much has really changed.”