For now, the world’s most valuable company is seeing its software operations thrive in China. The iPhone App Store – over which the company has almost total control and charges a typical 30 percent cut in all payments – is the quintessential closed ecosystem.
Fortnite maker Epic Games has sued Apple this year for monopolistic behavior, ending a long-standing complaint from developers around the world that the iOS model unfairly squeezes creators with its so-called Apple tax. South Korea passed a law in August requiring Apple and Google to open their mobile stores to different payment options. US lawmakers are calling for similar measures.
In September, the Supreme Court of China gave the green light to a case filed by an individual consumer alleging that Apple’s application fees are unfair, allowing it to pursue similar lawsuits. Apple declined to comment on the decision or for this article. The company claims that the App Store fees it charges are justified by the security and peace of mind it provides to users, while providing developers with a global showcase for their apps.
‘On the opposite side’
“Apple stands on the opposite side of consumers and developers,” said Wang Qiongfei, an attorney with Hangzhou-based law firm Kinding representing Jin Xin, the plaintiff. “Due to the closed monopoly system he created, Apple can increase the price as it sees fit.”
It’s hard to overstate Apple’s dependence on China, where partners like Foxconn make most of the world’s iPhones and a consumer market that generates about a fifth of its $ 275 billion in revenue. annual. The local App Store has generated more revenue than its US counterpart in four of the past five years. Consumer spending on the iOS platform topped $ 9.1 billion in China in the first half of 2021 alone, up 25% from the previous year, according to App Annie.
The country’s internet population topped one billion this year, and it is already the largest market for games and electric vehicles in the world, making it critical to Apple’s present and future ambitions.
That’s part of why Apple is making sure it stays on the safe side of Beijing. It runs a range of social and educational programs, employs millions of people in its supply chain, and awards coveted contracts to Chinese companies like Luxshare Precision Industry and BOE Technology Group. It allows a state-backed company to manage all of its local data and comply with censorship demands. This has helped protect him from the wider assault on tech giants, observers say.
At a time when China seems determined to train model citizens, Apple has been acting as such for years, but only after a few initial clashes with the authorities.
State media, which typically report in government sanctioned lines, lashed out at Apple as early as 2013, when chief executive Tim Cook was forced to apologize after state broadcaster CCTV criticized the company’s customer service standards. A year later, the same outlet accused the iPhone of posing security risks. In 2017, Beijing investigated antitrust complaints relating to Apple’s dominance in smartphones. Meanwhile, pressure from regulators has also forced Apple to shut down key services like iTunes Movies and iBooks, which remain down.
Respect censorship
Since agreeing in 2017 to host Chinese user data with a state-owned company in Guizhou, the California-based company has shown itself to be a willing partner in Beijing, complying with censorship and takedown requests and resisting pressure from Washington to decouple its activities from China.
“These actions by Apple have earned it some favor from Beijing,” said Doug Fuller, associate professor at the City University of Hong Kong.
In the first half of 2020, Apple complied with 94% of Chinese government user requests for information about devices – the highest in the world for any country with more than a handful. That’s up from 82 percent in the United States, 81 percent in Germany and 48 percent in Australia. Many concerned “tax and customs investigations,” he said in his latest transparency report.
Last year, the company purged more than 140,000 unlicensed games from its Chinese app store, and it now requires developers to enter a valid license registration before their game can be released, according to Niko Partners.
The company “says respect for privacy and human rights are its guiding principles – something that is difficult to reconcile with its current approach to China,” said Nicholas Bequelin of Yale Law School Paul Tsai China Center.
The Internet crackdown in Beijing, which is entering its 12th month, is already having an indirect impact on Apple. Restrictions on games like a three-hour weekly time limit for minors and slowing approvals of new games will weigh on revenue growth. But there are longer-term grounds for concern.
The administration has attacked tech companies in part because officials have become concerned about their potential to destabilize society, given the wealth of data they collect from hundreds of millions of users. Apple’s data is considered valuable because its users tend to be early and more affluent users.
The same sprawling, China-centric supply chain that underpins Apple’s success is also another potential area of concern for regulators.
Apple’s manufacturing partners of Foxconn, also known as Hon Hai Precision Industry, and Catcher Technology at Luxshare and BOE collectively employ millions of people to assemble the various parts that go into iPhones, Macs, and iPads. The blue-collar jobs they offer in factories are seen as lucrative for those with no higher education, such as migrant workers looking to make a living in the city for their families back home.
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Yet numbers and lack of visibility into the supply chain are also a risk. Social unrest over the growing wealth gap is seen as one of the main threats to stability, and Apple’s partners, including Catcher and Hon Hai, have already faced large-scale protests, especially after the suicides of several Foxconn employees in 2016 brought attention to what critics say the working conditions were inhumane.
Beijing has once criticized its own tech companies for overworking. In Apple’s case, its army of assembly-line workers – who often earn less than the U.S. minimum wage – is key to maintaining its 40 percent profit margin.
To date, Apple’s stance and its strict content controls are okay with Beijing, with the company imposing restrictions and removing apps as authorities demand it. But the iOS ecosystem itself could call for scrutiny.
“Apple, as a distribution platform, will have to adhere to content rules and ensure that they do not use anti-competitive practices,” said Rui Ma, founder of Tech Buzz China.