The U.S. Justice Department is reportedly preparing to file a major antitrust lawsuit against Apple over its control of the iOS App Store, according to sources familiar with the matter. If filed, it would represent one of the most significant legal threats to Apple’s lucrative services business, which generated over $85 billion in 2022.
Long-Running Investigation Reaches Final Stages
The potential lawsuit caps a years-long investigation by the Justice Department into whether Apple engages in anti-competitive behavior with its total control over app distribution on iPhones and iPads.
As the sole gatekeeper of iOS apps, Apple requires developers distribute apps through its App Store, where it collects up to a 30% commission on sales and subscriptions. It also requires developers use Apple’s in-app purchase system, allowing Apple to collect a share of revenue from in-app transactions.
This arrangement has drawn increasing scrutiny from regulators and criticism from developers like Epic Games, which argue Apple’s policies stifle competition and inflate costs for consumers. Last year, regulation in the Netherlands forced Apple to allow alternative payment methods for some developers, cutting into Apple’s commissions.
Now according to the New York Times, the Justice Department has spent months assembling an antitrust case accusing the iPhone maker of monopolizing the $100 billion market for mobile apps with the App Store.
The agency believes Apple unlawfully maintains a monopoly that stifles smaller rivals and harms consumers by inflating prices. The case may finally spur legal changes that could upend Apple’s services business.
Lawsuit Would Seek to End App Store Monopoly
The potential antitrust lawsuit aims to end Apple’s monopoly over app distribution on iOS by allowing a competitive landscape for how apps reach consumer devices.
“They seem locked, loaded and ready to bring the case early this year,” said Gene Kimmelman, a senior adviser at Washington-based consumer advocacy group Public Knowledge. “It will be one of the most consequential antitrust cases in a generation.”
If successful, the lawsuit could force Apple to support alternatives to the App Store like sideloading, where users could download apps directly from developers’ websites without using Apple’s platform.
This would enable developers to avoid Apple’s commissions and allow for competing app stores that offer different policies, pricing, and features. Currently, iOS users are prohibited from sideloading apps or using any app store except Apple’s.
The lawsuit may also require changes around Apple’s anti-steering policies that prohibit developers from directing users to alternative payment methods outside iOS apps. This would make it easier for services like Spotify and Netflix to avoid Apple’s commissions.
Potential Impact of App Store Changes
| Change | Impact |
|---|---|
| Allow sideloading | Users could install apps without App Store, avoiding commissions |
| Enable alternate payment methods | Services could process payments without Apple’s cut |
| Allow competing app stores | Other stores may provide lower fees, more features |
While monumental for the app economy, these outcomes could substantially disrupt Apple’s fast-growing services segment. The App Store alone may account for over $85 billion in consumer spending on digital goods and services in 2024 according to Morgan Stanley.
Apple Shares Fall Over Lawsuit Fears
News of the impending lawsuit sent Apple shares falling nearly 3% on January 5th. Investors are increasingly concerned about potential earnings impacts as Apple’s services business comes under greater legal scrutiny.
Last year, changes forced upon Apple’s app policies in the Netherlands were estimated to have cut the company’s 2023 revenue by $742 million. That was based on allowing alternative payment systems for just dating apps in one country.
The lawsuits now targeting the App Store threaten an even larger portion of Apple’s services revenue, which may face death by a thousand regulatory cuts. Apple itself has warned investors that legal changes around payments and commissions could materially impact its financial results.
Apple share price over past 5 days. Via MarketWatch.
What’s Next: Services Under Pressure
With the Justice Department lawsuit apparently nearing completion, Apple now faces threats to its App Store policies on multiple fronts.
In 2023, the company was forced to allow alternative app stores in the Netherlands for dating apps. Now with US regulators also taking aim, analysts expect app policy changes allowing more payment choice and competition in additional countries during 2024.
These mounting challenges form a dark regulatory cloud over Apple’s booming services segment. While hardware products like the iPhone continue generating the majority of Apple’s profits, services like the App Store have become indispensable to the company’s growth story.
Facing $85 billion in App Store consumer spending now at risk, Apple will vigorously contest the Justice Department’s lawsuit when filed. But with global scrutiny rising, 2024 shapes up as a pivotal year in determining just how much revenue Apple will lose from its app platform.
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