I attributed Apple’s ability to eliminate many of those small annoyances to its vertical integration, which had long been out of fashion: For the most of its history, the vast majority of PC purchasers have been businesses, who have bought PCs on speeds, feeds, and ultimately, price… Again, though, Christensen’s research is tilted towards business buyers. They are not the user, and so items that change how a product feels or that eliminate small annoyances simply don’t make it into their rational decision making process. The business buyer, famously, does not care about the user experience. The problem with these predictions, as I wrote in What Clayton Christensen Got Wrong, is that they drastically undervalued the experience of using Apple’s integrated products. When Stratechery started in 2013, the media was filled with predictions of the iPhone’s imminent demise at the hands of Android: there were simply too many other manufacturers making too many smartphones at too many price points that Apple could not or would not match, which would inevitably lead to developers fleeing iOS and Apple fighting for its life. What is funny about calling this strategy “anticompetitive” is that it wasn’t that long ago that most pundits were sure Apple was anti-competing themselves into the ground. The company has traditionally made its money by selling physical devices which run Apple’s proprietary operating systems its device-manufacturing competitors, meanwhile, have had to rely on an operating system that they could license, primarily Windows for PCs, and Android for mobile devices. The specific case of Apple and the iPhone raises an additional angle: should the importance of the market in the question make a difference as well? Apple’s Vertical IntegrationĪpple’s business model, which uses software to differentiate hardware, is designed to be anticompetitive. A small business can generally be as anticompetitive as it wants to be, while a much larger business is much more constrained in how anticompetitively it can act (as a quick aside, for the first part of this essay I am painting in broad strokes as far as questions of specific legality go). What makes this distinction particularly challenging is that the question as to what is anticompetitive and what is simply good business changes as a business scales. The distinction Callahan was drawing, though, is necessary if you interpret “anticompetitive” as being “illegal”: businesses should compete, but they should not break the law along the way. This is, admittedly, a distinction I have not seen before, but it is perhaps a useful one, for the simple reason that being a successful business by definition means being anticompetitive: without some sort of differentiation and/or superior cost structure any sort of margin a business has will be competed away, and so preserving that differentiation and/or cost structure - being anticompetitive - should be the goal of any business. This case asks us to draw the line between anticompetitive behavior, which is illegal under federal antitrust law, and hypercompetitive behavior, which is not. Callahan, in last week’s decision by the Court of Appeals for the Ninth Circuit, reversing the District Court’s ruling that Qualcomm was guilty of antitrust violations, opened her opinion thusly:
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