I warned Apple (2 years back)

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US-Department-Of-Justice-Seal

I am a staunch supporter of Apple and have been for more than 20 years, before the fair-weather friends hopped aboard. Simply because I could see them very early build a better foundation of innovation, designed to the social economic benefit of a broader base than just technocrats. I only own Apple computers and acquired and use almost their complete product repertoire.

Yet I always remained critical to the one-eyed king in the land of the blind, and I warned them on November 17 in 2010 that their iTunes stance is in violation of free-market principles.

On April 11, 2012 the U.S. Department of Justice (DOJ) announced it is suing Apple.

Apple’s macro-economic stream of violations
Now whether the exact circumstances of the alleged collusion between booksellers and Apple insinuated by the DOJ hold any merit in a court of law remains to be seen. What is more important is that the desired role of Apple is in violation of free-market principles (even without collusion), is unsustainable macro-economically, will prevent unencumbered growth and is simply bad karma.

Apple should play the role of ultimate distributor, not the creator of artificial advantage or disadvantage to the content it does not own. Marketplaces, in which Apple plays the role of intermediary thrive and can become winner-takes-all propositions if – and only if – it complies the seminal rules of free-markets. Apple violated the majority of those rules with music, videos and even (iOS) applications in the same way it violates them most recently with electronic books.

Technology does not displace economics
The most important rule of a winner-takes-all marketplace stipulates that the participants of the marketplace (composed of suppliers and buyers) have the freedom to decide how they want to trade goods and services, and that the intermediary (Apple in this case) merely provides the conduit for that exchange to establish that dynamic freedom (within the bounds of the constitutional laws).

Meaning, Apple’s iTunes store should not predicate what the price of a song is (it does not, or should not own). Rather it should provide the record labels with the pricing mechanisms it desires to sell it any way it deems appropriate. Fixed pricing, variable pricing, rent, rent-to-own, auction, reverse auction etc. should all be options Apple should have made available to the sellers and buyers, combined with full marketplace transparency. Apple should also abstain from promoting content it favors, and let the marketplace decided what it organically favors (a topic Neil Young somewhat discombobulated hinted on in an interview with Walt Mossberg).

Easy pickings
So, macro-economically Apple agenda has been flawed from the beginning and only now has it yielded enough power to catch the eye of the DOJ. In the same way Microsoft’s many years of improper marketplace behavior came to light to the DOJ after some fifteen years. The single company offenders are easy targets for the DOJ compared to the multi-sourced demi-cartel formed by Venture Capitalists who have colluded and abused the value and perpetuity of their underlying asset (innovation) for at least all of the 17 years I have witnessed it in Silicon Valley. I would have no problem proving the latter for the betterment of innovation discovery and value.

Collusion and sub-priming are default outcomes of marketplaces that are in violation of free-market principles. And having studied our financial systems extensively, most of our financial systems (including the stock market) are in violation of it. Void of a strong economic framework that pays our constitution more than lip service and allows, enables and promotes the creation of marketplaces that are in violation of free-market principles, the DOJ as the cleanup crew has its work cut out.

Apple’s correction
Steve Jobs was a fantastic entrepreneur and I wrote a piece from the heart soon after his passing summing up his phenomenal contribution to the technology industry. But as all people he also had his limitations. I believe his fear towards not wanting to lose out again to (Microsoft and) others drove him to build the most controlled and user-friendly computing experience one could image, and a less desirable extension of that controlling behavior into forcing the owners of content to comply with his wishes. Steve Jobs went a bridge too far. I too loved the Beatles, but his aggressive role in determining what content should prevail is in violation with the ever-changing wants and needs of the people who populate the marketplace.

Go Tim
This lawsuit by the DOJ is the perfect impetus for Tim Cook to show his leadership. To demonstrate how technology is there to serve the needs of the people, not to dictate it. To restore the economic freedoms of those who own digital content and become an ever better conduit to how sellers want to sell and consumers enjoy it.

I have no doubt that when Apple keeps making the fantastic products it has to date, the halo of a marketplace that adheres to free-market principles will continue to sprinkle a massive consumer adoption greenfield with Apple’s phenomenal technology prowess.

 

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About Georges van Hoegaerden

Georges is a serial entrepreneur, venture catalyst, 4x CEO, board director turned innovation economist (by fate). His ideas have raised $14M in venture capital and produced over $100M in returns. More.