Good morning,

In case you missed it yesterday, I announced that today will be the last Daily Update of the week, and that I will be taking four Summer Days over the next five weeks (see the Daily Update Schedule for details).

On to the update:

Lobbying Congress

From the New York Times:

In the days after lawmakers introduced legislation that could break the dominance of tech companies, Apple’s chief executive, Tim Cook, called Speaker Nancy Pelosi and other members of Congress to deliver a warning. The antitrust bills were rushed, he said. They would crimp innovation. And they would hurt consumers by disrupting the services that power Apple’s lucrative iPhone, Mr. Cook cautioned at various points, according to five people with knowledge of the conversations.

The calls by Mr. Cook are part of a forceful and wide-ranging pushback by the tech industry since the proposals were announced this month. Executives, lobbyists, and more than a dozen think tanks and advocacy groups paid by tech companies have swarmed Capitol offices, called and emailed lawmakers and their staff members, and written letters arguing there will be dire consequences for the industry and the country if the ideas become law.

The bills, which I wrote about last week in The Cicilline Salvo, are being debated and likely voted on by the House Judiciary Committee today; that may seem “rushed” relative to their introduction, but as I have been writing for years now, and with increased urgency over the last several months, this moment has been coming for a while. What continues to baffle me is how it is that Apple in particular has only just now woken up to the threat to their business.

One possibility is that the company assumed that the activities of the antitrust subcommittee were simply part of the so-called “techlash”, particularly bipartisan frustration with Facebook, and that it was Facebook and Google that needed to worry about Washington. Mark Zuckerberg, for example, has been called before Congress multiple times over the last few years, and Tim Cook only once.

Moreover, the one time Cook was in front of Congress, he was mostly ignored; I wrote last year in Antitrust Politics:

It was obvious that the committee only invited Apple because they wanted to say that they invited all of the large consumer tech CEOs. The questions for Cook were hilariously uninformed about the App Store, making it easy for Apple’s CEO to run out the clock (often without any interruption). This was certainly disappointing given that many of Apple’s policies are clearly anticompetitive (which, as I noted above, is different than being illegal), but for now the takeaway is that Congress doesn’t know and doesn’t care.

Ah — that moment when you realize you are accusing a company of something that you yourself were guilty of! Looking back, I think there are two things that changed the equation for Apple.

First, one of the reasons I have continually sought to distinguish between platforms and Aggregators is that the former are more fraught in terms of potential abuse and, on the flipside, the regulatory responses to that abuse are more straightforward. From 2019’s A Framework for Regulating Competition on the Internet:

This is where the distinction between platforms and Aggregators is critical. Platforms are the most powerful economic and innovation engines in technology: they create the possibility for products that never existed previously, and are the foundation for huge amounts of innovation. It is in the interest of society that there be more and larger platforms, not fewer and smaller. At the same time, the danger of platform abuse is significantly greater, because users and 3rd-party developers have no other alternative. That means that not only are anticompetitive actions unfair to products that already exist, they also foreclose the creation of an untold number of new products. To that end, regulators should simultaneously encourage the formation of new platforms while ensuring those platforms do not abuse their position…

For the same reason, though, Aggregators are less of a problem. Third parties can — and should! — go around Aggregators to connect to consumers directly; the presence of an Aggregator is just as likely to spur innovation on the part of a third party in an attempt to attract consumers without having to pay an Aggregator for access. Moreover, there is a Sisyphean aspect to regulating power predicated on consumer choice: look no further than the European Union, where regulators are frustrated that remedies for the Google shopping case aren’t working, even though those same regulators were happy with the remedies in theory; the problem was trying to regulate consumer choice in the first place.

I cited Apple and the App Store as a concrete example of how platforms can be abused, which leads to my second point: I suspect that April’s Congressional hearing about App Stores was a real turning point in Apple’s position in Congress. I noted in a Daily Update:

The biggest takeaway, though, was the complete unanimity on the subcommittee that Google and especially Apple were in the wrong. Senator Richard Blumenthal spoke for both sides of the aisle with this observation:

It’s difficult to overstate just how disgusted the entire committee — both Democrats and Republicans — were by Apple’s App Store policies, particularly the company’s anti-steering provisions. That has resulted in a bit of a perfect storm: a bipartisan contingent of Congress wants to do something about big tech; platforms are more “regularizable”, if I can make up a term; and Apple doesn’t have much sympathy these days.

Apple’s Report

Apple isn’t just calling up members of Congress; from the Wall Street Journal:

Apple Inc. is stepping up its fight to maintain tight controls over which apps can be installed onto customers’ iPhones, as political pressure grows in Washington, D.C. and Brussels to upend those restrictions. In a report released Wednesday, the company argues that allowing users to download apps directly onto their iPhones without having to use Apple’s App Store would harm customers by threatening privacy protections, complicating parental controls and potentially exposing users’ data to ransomware attacks. Apple’s defense of its mobile operating system, or iOS, comes ahead of an expected debate Wednesday in the House Judiciary Committee on a package of bills aimed at reining in the nation’s largest tech companies.

Apple’s report, entitled “Building a Trusted Ecosystem for Millions of Apps”, is here. The report echoes many of the arguments the company made in the Epic case, making the case that the App Store model, including App Review, makes the iPhone more secure and protects user privacy, and that allowing side-loading or third-party app stores would do the opposite, and harm developers as well, since users would be less willing to download apps.

The report makes some good points, but it does ring a bit hollow in parts, particularly the bits about App Review:

The goal of App Review is to ensure that apps on the App Store are trustworthy and that the information provided on an app’s App Store page accurately represents how the app works and what data it will access. We are constantly improving this process: we update and refine our tools and our methodology continuously…

In addition to the protections provided by App Review, we design our devices’ hardware and software to provide a last line of defense in case a harmful app is downloaded on the device. For example, apps downloaded on iPhone from the App Store are “sandboxed,” meaning they are not able to access files stored by other apps or make changes to the device unless explicitly permitted by the user…

Through the App Review process, we work to ensure apps come from vetted sources and are free of known malicious components. We also check that the apps aren’t trying to trick you into making unwanted purchases or providing access to personal data. We screen developers and users, expelling those who misbehave. While App Review processes do not prevent the distribution of every single low-quality app, we continue to innovate and improve its technology, practices, and processes.

There are two issues I have with these explanations of App Review.

The first one is technical, and has to do with the second paragraph in the excerpt. All apps on an iPhone, whether downloaded from the App Store or not, are sandboxed, and sandboxing is not the just-in-case line of defense, but the primary line of defense. Apple explains in its Apple Platform Security whitepaper:

All third-party apps are “sandboxed,” so they are restricted from accessing files stored by other apps or from making changes to the device. Sandboxing is designed to prevent apps from gathering or modifying information stored by other apps. Each app has a unique home directory for its files, which is randomly assigned when the app is installed. If a third-party app needs to access information other than its own, it does so only by using services
explicitly provided by iOS and iPadOS.

System files and resources are also shielded from the users’ apps. Most iOS and iPadOS system files and resources run as the nonprivileged user “mobile,” as do all third-party apps. The entire operating system partition is mounted as read-only. Unnecessary tools, such as remote login services, aren’t included in the system software, and APIs don’t allow apps to escalate their own privileges to modify other apps or iOS and iPadOS.

The only way to get around sandboxing, which is enforced by the operating system, not App Review, is to exploit a bug in the operating system itself; these kinds of bugs could of course be exploited by apps installed outside of the App Store, but they are also exploited by apps installed via the App Store, or by malicious websites. In short, Apple’s framing is not technically false, but it is misleading.

The second issue is that these explanations — and the report as a whole — have nothing to say about how fabulously profitable the App Store model is. I get the reasoning — I suppose it is unseemly to admit that enforcing seemingly arbitrary rules results in billions of dollars in profit — but at the same time, isn’t that the entire reason that Apple’s approach is under threat? The reality is that multiple things can be true at once: App Review can have real benefits for consumers, and it can make Apple a lot of money. I wonder if admitting that the latter is true might make it easier to convince folks that the former is true as well. Apple, though, by only ever talking about consumer benefit, ends up coming across as self-serving and duplicitous.

What About Consumers?

I worry about how Apple’s message lands because I’m not sure that anyone in Congress is thinking about consumer welfare either. To return to the initial New York Times story:

Another outspoken critic is the Chamber of Progress, a left-leaning trade group formed in March by a former Google executive, Adam Kovacevich…He drafted and organized support for a letter that was sent this week urging members of the Judiciary Committee to oppose two of the bills. It warned that the bills would hurt consumers, resulting in Amazon without Prime, the iPhone without text or phone capabilities preinstalled, and Google without Maps. The letter was signed by Mr. Kovacevich’s group and an unusual mix of 12 other organizations, including tech associations, free-market conservative outfits and consumer groups, most of which have received funding from Amazon, Apple, Facebook or Google…

The fact that groups opposed to these bills receive funding from the big tech companies was a constant refrain in the article, which I find frustrating for two reasons. First, attacking funding sources has the potential to confuse cause and effect: do these groups take the positions they do because of their funding, or do they receive funding because of positions they already hold? Second, arguments matter, no matter the funding source — just because an argument comes from a group funded in part by tech companies doesn’t mean the argument is wrong.

Even then, some bill supporters went further than that:

Representative Pramila Jayapal, a Democrat from Washington and a co-sponsor of the bills, said the lobbying is “making our case that they have way too much power in terms of monopoly power and in terms of money and politics.” “Small business and consumers have no hope of competing with this amount of money and power,” she said.

This sort of rhetoric is maddening: simply standing up for yourself is apparently evidence that you are guilty. Again, Apple doesn’t help itself by studiously ignoring the fact that the App Store is a great business, but there are real benefits to not only the App Store but also to integration generally. More broadly, the stature and impact of tech that has led to it being a Congressional focus implies that the tech platforms have massive consumer benefits; Congress really ought to carefully consider the unintended consequences of regulating an industry with little regards to the complexities involved.

---

This Daily Update will be available as a podcast later today. To receive it in your podcast player, visit Stratechery.

The Daily Update is intended for a single recipient, but occasional forwarding is totally fine! If you would like to order multiple subscriptions for your team with a group discount (minimum 5), please contact me directly.

Thanks for being a supporter, and have a great day!