Has Apple Finally Become a Monopoly Like Microsoft?

by James R. Stoup Mar 31, 2006

Recently Mac users everywhere have been faced with a very disturbing thought. Most try not to say it out loud for fear it might be true. Others attempt to rationalize their point of view regardless of the facts. What could be causing such trouble? What is giving so many loyal Mac users a sinking feeling in the pit of their stomachs? Why, the simple notion that Apple might have finally become a monopoly just like Microsoft. That is a statement loaded with implications and to better understand all of the ramifications first we need to start with a definition:

mo·nop·o·ly ~

A situation in which a single company owns all or nearly all of the market for a given type of product or service. This would happen in the case that there is a barrier to entry into the industry that allows the single company to operate without competition (for example, vast economies of scale, barriers to entry, or governmental regulation). In such an industry structure, the producer will often produce a volume that is less than the amount which would maximize social welfare.

To begin to understand this issue first we must decide, is Microsoft a monopoly? Yes, I believe they are. Though they weren’t convicted by the time the entire trial had run its course, Microsoft had, and continues to maintain, a monopoly in the operating system market. So, according to the definition previously stated, Microsoft is indeed a monopoly. However, this doesn’t automatically mean that they are doing anything illegal (and before you say they are doing something wrong remember, wrong and illegal are two different things)

So, if simply having a monopoly is well within the law, what was the trial all about? Well, as it turns out, they were breaking the law. You see, while it is legal to be a monopoly it is illegal to use that monopoly to ensure your position in the market, force smaller companies out of business or otherwise stifle competition. If you are to retain a monopoly it must either be government sanctioned or maintained in such a way that no laws are broken. That last point is where Microsoft ran into trouble.

Many people have argued (though I don’t share this point of view) that even if Microsoft had a monopoly and even if they were engaging in illegal business practices, all of that should be over looked because in the end Microsoft did more good than harm. This is the rationalization argument that basically boils down to the ends justify the means. However, history has proven that monopolies consistently do two things:  They always stifle innovation and (with the possible exception of heavily regulated monopolies) they always produce an inferior product compared to what a “normal” market would produce.

Before we move on to Apple let us recap what we have decided so far: Microsoft is a monopoly, they engage in illegal business activities (to maintain their position) and they create a product that does not maximize the social welfare. For anyone in search of proof for that last point need only to look at Internet Explorer. When Netscape was a true competitor the IE team had over 100 people on it. After Netscape’s demise the team was reduced to 2 people and the product was left to stagnate for 5 years. It wasn’t until Firefox came along that any real innovation was started up again.

Now let’s look at Apple. Are they a monopoly? In the area of digital music players and digital content delivery, I must conclude that they are. Their 80+% market-share gives them a de facto monopoly in this sector. That Apple has reached this position through innovation (quite unlike Microsoft) doesn’t change the fact that both companies are monopolies.

We, as consumers, must be ever vigilant for illegal activity. So, has Apple done anything illegal to maintain their dominance? The answer is no, not yet at least. So far Apple has played by the rules. They have been accused of infringing on several patents, but those cases don’t directly bear on their status as a monopoly. So far, other than producing superior products, they have yet to do anything that would harm their competition. Now, they haven’t made any mistakes, nor have they done anything to help their competition, but that just means they are clever, not crooks. In this aspect they differ greatly from Microsoft. Throughout its history Microsoft has been many things but seldom were they an innovator.

Now comes the hardest question, does Apple’s dominance in this market maximize the social welfare? This is a difficult question to answer for the simple reason that so far, Apple has gone above and beyond the expectations of the market. They have consistently improved their products and driven down their cost. They dominate for the simple reason that they produce the highest quality experience for the lowest total cost. And yet, history tells us that, in the long run, this cannot last. If Apple becomes secure enough in their position then innovation will slow and consumers will pay the price. And despite their current progress, true competition is the only way to ensure superior products in the years to come.

Where does this leave us? We have concluded that Microsoft and Apple are both monopolies. And while Apple’s reign is benevolent, this trend cannot continue forever. Both Microsoft and Apple need competition to keep them “honest.” This of course raises the question of should Apple be broken up? Should they undergo the same type of trail that Microsoft endured during the 90’s?

To that I must answer no. In the same sense that you can’t damn Microsoft for being a monopoly while arguing that Apple isn’t one, you can’t lobby for separating the iPod/iTMS until you are ready to break up Microsoft too. It is either all or nothing. Either they are both monopolies that harm the market and the government should intervene or you believe the market will correct itself and the government should do nothing. Personally I believe that the government should have taken action against Microsoft when it had the chance. And while I would like to see them broken apart now, I feel that the market is in the process of correcting itself and will soon solve this problem for us. By either forcing Microsoft to compete on the merits of its products, or shifting market-share to other operating systems.

In conclusion, there are really only two main differences between the MS and Apple monopolies. Business practices and quality of product. Microsoft has repeatedly engaged in unlawful business practices over the years as it fights to maintain its dominance. So far, Apple has not broken the law. Likewise the quality of Microsoft’s products has fallen as time goes on while Apple has continued to innovate rigorously. This means that in the OS monopoly consumers are getting a very poor product while in the MP3 player monopoly consumers are getting a very high quality product. This situation could change for the worse, however, if Apple continues to dominate this market. It is very hard to drive for perfection when there isn’t a strong competitor in the market to motivate you. Thus, I can only conclude that, in the long run, the best deal for consumers is to hope that Apple loses market-share. How this could come about barring government interference I do not know. But the time could come soon enough when consumers might wish for a few more options in this ever more profitable market.



    SERIOUSLY! - OMFGLOLZ!!!1111one


    Luke Mildenhall-Ward had this to say on Apr 03, 2006 Posts: 299
  • tundraboy, what industry do you work in?

    Benji had this to say on Apr 06, 2006 Posts: 927
  • I am reading this on a laptop made by Lenovo (upgraded with a 7200 rpm hard drive from Hitachi I bought on Newegg).  I am using a browser made by Google (Chrome).  I use software made by at least 20 different companies.  I don’t buy much music online for my Zune and my Cowon, but have bought from at least 3 music vendors, none of them Microsoft.  You are reading on a iMac, powerbook, or iphone that was manufactured by Apple.  Your upgrades were produced and sold to you buy apple, as was your software.  Your Apple IPod purchases songs only from iTunes.  You’re operating system (Leopard) was made and sold by Apple, and all your other software is made by or licensed by Apple.
    So, Apple is the good guy and Bill Gates (who powered the roaring economy of the 80’s and 90’s) is the devil?  I suppose Obama deserved the Noble prize?  Only in America.

    carm had this to say on Oct 28, 2009 Posts: 1
  • Apple is currently in a lawsuit against Psystar for building and attempting to sell Mac clones. These machines work just like Macs but are cheaper. Apple is a monopoly. Apple will proactively remove any competitor in sales within that market segment. People will argue that they compete with Microsoft in the OS software market so it’s not a monopoly. But within that segment of the OS market they do take part in unfair practices. It would be akin to MS creating it’s own hardware to exclusively sell it’s OS, while taking legal action to prevent HP, Gateway, et al. from selling their PCs with the Windows OS.

    myangeldust had this to say on Nov 24, 2009 Posts: 5
  • Apple as an innovator? In product design and aesthetics they win outright. Mostly because other designs are of Asian origin which places function over user-friendliness. Apple designers have condensed their functions to as few buttons as possible. However, in functionality they’ve done nothing new. Touchscreens, audio recognition, WiFi, small form factors have been incorporated in various devices over the years and those companies have been working at making these better. Apple simply pairs some -not all- of those innovations with their aesthetically pleasing devices.

    myangeldust had this to say on Nov 24, 2009 Posts: 5
  • Apple has gone above and beyond the expectations of the market. They have consistently improved their products and driven down their cost. They dominate for the simple reason that they produce the highest quality experience for the lowest total cost.

    Above and beyond? Lets go back to when the first generation iPhone came out. The device was limited to the Apps it came with, forcing people to rely on jailbroken software to meet their application needs. It also lacked features that most other smart phones had such as video recording, MMS, as well as other simple features such as internet downloading and copy and paste. In fact, Apple was so uptight about open source software from the jailbreaking process, that it went on a witch hunt, filing lawsuits with several providers of jailbreaking software. And then, out of the blue, when Apple released their 2nd generation iPhone, they opened up their Appstore and encouraged everyone to try to make apps. Why did they do this? Because the Jailbreaking process did not benefit or profit Apple in anyway. The Appstore provides apple with an average of 1.1 million dollars in profits every month.

    Microsoft is a monopoly, they engage in illegal business activities (to maintain their position) and they create a product that does not maximize the social welfare
    A product that does not maximize social welfare? Microsoft created windows in order to benefit social welfare. The whole reason Windows DOS was made back in the 80’s was to create a system which could be put into a personal home computer system for everyone to use. Back then, there was only Unix and Linux (and a few other not too popular OS’s). Unix was for corporate use and Linux was still in its developer stage. Steve Jobs was the one who took the Linux code, because it was open source, and added a bit of his own stuff and called it Macintosh software. Even today, if you look at it Leopard’s terminal, you will find that many of the commands used are Linux commands, because Leopard and all of Apples Operating Systems are based of Linux, not much ingenuity on Steve Jobs’ part i believe.

    nightbreeze109 had this to say on Feb 12, 2010 Posts: 2
  • Was Microsoft guilty of unfair practices? Yes. Mostly against DOS (their other product). None of these PC makers were going to install Linux or BeOS or any other OS that had no support system or office applications at the time. At the most, the PC makers would’ve sold their machines blank - without any OS.

    Does this make Microsoft a monopoly? No. It’s not Standard Oil, for Pete’s sake. PC Makers could have installed any other OS or left the machines blank. Though their choices were limited at the time, they could have even installed Apple’s OS. Oh, wait they couldn’t. Apple would not have allowed it.

    myangeldust had this to say on Jun 12, 2010 Posts: 5
  • A co-worker of mine, and Apple-lover, said that Apple is not a monopoly because it is a “verticle niche” product. Seriously. He said that Apple makes is a combination product that includes integrated software and hardware. And that since neither can operate without the other, Apple isn’t actually competing against another company.

    Of course, not being a nerd, he doesn’t (wouldn’t) understand that Apple’s hardware can run other operating systems, and the Apple OS can run on other computers. He was adamant about it, telling me that his Windows HP was the worst thing he ever purchased.

    Having an Apple is a lifestyle choice. It’s OS is not easier to operate than any other GUI. People like the look and feel of the product. Macs display few problems because Apple restricts third-party apps and devices to approved vendors. Mac are more proprietary and offer little scalability which means fewer “upgrade issues”. And their OS code is not readily available, making it out of reach to most hackers and virus-writers. Sounds like a benevolent dictatorship. Apple is like China.

    myangeldust had this to say on Jun 12, 2010 Posts: 5
  • Does anyone here own a Zune HD? Do you also own an iPod Touch? Compare the two for the rest of us.

    myangeldust had this to say on Jun 12, 2010 Posts: 5
  • I do not own either but I have used both extensively and i have found the Zune HD to have a somewhat refreshing and modern look. The Zune HD is capable of all the basic functions an iPod Touch is. However, the iPod Touch could still be considered the better product because of the large developer population providing an exceedingly large number of apps for the iPod Touch. Another interesting thing to note is the lack of shock buffers in the iPod Touch which the Zune HD does have. If you drop your iPod Touch on its side on a hard floor (like concrete or asphalt) the entire screen will crack, whereas on the Zune HD, only the frame will chip an possibly the area of the screen closest to the spot of impact.

    nightbreeze109 had this to say on Nov 30, 2010 Posts: 2
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