China targets Apple’s business practices; maybe the company should adapt

They say great art reflects its time. When it comes to Apple’s business, just as the iMac and iPod matched the zeitgeist, the company must now develop its business to meet the complex demands of a divided, post-globalist world struggling with economic and climate insecurity. Apple should bear that in mind as it faces its latest regulatory nightmare, this time in China, where its practices concerning in-app purchases and external payment services face fresh scrutiny.

Apple has been in disputes about in-app payments with big Chinese developers Tencent and ByteDance for some time. It argues that loopholes in their apps let them avoid the in-app commission it demands. With China’s State Administration for Market Regulation (SAMR) commencing scrutiny of Apple’s business practices, regulators may advise Apple to make changes to its approach. And it faces the threat of a formal investigation if it resists those recommendations.

Tension and mistrust

But this isn’t just a business practice investigation. The scrutiny comes at a time of growing tension between China and the United States. The US has implemented tariffs on some Chinese imports, which China is expected to reciprocate. Apple is undeniably a proud US firm, and while it has a strong and mutually profitable business relationship in China, it continues to face challenges. In the US, tariffs directly threaten Apple’s business. Apple is stuck between a rock and a hard place.

Apple has danced delicately around both nations so far, while also taking steps to protect its business from further disruption, principally through investing in new production centers and its growing services business. The biggest hardware change is to establish production in India, where around 25% of all iPhones sold worldwide will be manufactured soon. China has pushed back against this strategy and has already disrupted travel between China and India for key Foxconn engineers. 

That Apple now faces regulatory challenges in China is completely predictable in the circumstances, particularly as China recently began a similar investigation against Google. Scrutiny of Apple’s App Store business is, of course, far from being a China-only problem. Apple faces similar regulatory challenges now in most major markets, with the EU and UK already leading the charge in terms of forcing platform decay through changed business practices. 

The fight for platform integrity

So far, the company seems to have approached these challenges on a market-by-market basis. But that may not be the best long-term approach, as it runs the risk of fragmenting the company’s business. Think about it — fragmentation is inevitable as each nation will apply slightly different restrictions on business practices, generating friction for Apple, Apple developers, and Apple customers as each market adopts different approaches.

This increases complexity at the risk of the user experience and platform integrity.

With this in mind, it would perhaps be better now for Apple to embrace the inevitability of change and attempt to put together a set of core business practice proposals likely to be approved by most regulators. Doing so now would show fresh willingness to embrace change, while perhaps giving the company a chance to protect platform integrity.

That integrity is currently being chipped away by regulators who seem deaf to many of Apple’s arguments. It is inarguable that Apple is not prevailing, and while I am one of many who thinks many of its arguments are solid, those voices aren’t being heard.

It’s hard to ignore the political dimensions of these discussions, as one of the world’s biggest US companies sees parts of its business chipped away by various nations for many reasons: Europe, for example, wants to open the tech market up to create opportunity for European firms, while the UK doesn’t seem to know what it wants, tending to the worst available approach, while muttering platitudes about “growth”.

These ambitions seem to reflect an entirely different era — of growth and of trade — but those old iPod-eyed days are done. We are witnessing the old world struggle while a new one seeks to be born. Meanwhile, others work to exploit this insecurity for their own benefit.

Complex times, Complex discussions

Facing such complexity, Apple cannot be certain that it will prevail in defending its existing business models in the courts; laws have and will change in response to some of the global forces in play.

Despite the strength of many Apple arguments, the company might well achieve better outcomes if it chooses to negotiate and embrace change, rather than remaining a victim of decisions reached by politically-led courts.

Like it or not, (and many of us don’t), the company needs a vision for the future of its business that better reflects the current zeitgeist, while also laying much-needed bricks in the road toward a better, perhaps more unified, age.

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