Commentary from Vox about Apple’s vertical integration

The one about vertical integration, emailed by Vox on September 28, 2021

A couple weeks ago, Apple introduced a new iPhone, a new Apple Watch, a new iPad, and new operating systems for all of those devices. And as this newsletter noted then, the timing was awkward: Apple was dealing with a spyware scare and mounting antitrust concerns related to its App Store. Well, things have only gotten more complicated for the Cupertino company: The European Union proposed rules to make USB-C ports mandatory on all devices, including iPhones, which for nearly a decade have exclusively used Apple’s proprietary Lightning port. Apple does not want to do this.

This is classic Apple. Nearly 40 years ago, Steve Jobs realized that his company could make a lot of money selling computers to people who didn’t know much about computers — which, at the time, was almost everyone — and controlling as much of the experience as possible. After Apple shifted its initial strategy from selling hobbyists glorified circuit boards in the late 1970s to shooting for the mainstream with the launch of the Macintosh in 1984, this notion of controlling the entire user experience came into focus. With the first Mac, Apple built the entire machine and sealed the guts in an injected plastic mold so users couldn’t open it up and tinker with it. And for the most part, Apple made all of the software that ran on the computer. (Fun fact: Microsoft actually became the first Apple developer when it created some spreadsheet and word-processing software for the Lisa and Macintosh computers in the early ’80s.)

Unfortunately for Jobs, the Macintosh didn’t sell as well as Apple had hoped, and in 1985, he was forced out of the company he co-founded. But this ethos of controlling the full stack — hardware, software, branding, marketing — has since become Apple’s MO. In fact, Jobs doubled down on the strategy when he returned to the company in 1997. When the iPod launched a few years later, not only did Apple design and build the music player itself, but the iPod software would also only work with iTunes, which was only available on Mac computers at the time. And to connect the device to a computer, you also needed a special cable that only plugged into iPods. That was the predecessor to the Lightning cable, and while the design of the connector changed, the philosophy of vertical integration, or owning multiple stages of production, has stuck around at the tech giant. 

And Apple is still clinging to its near-total control over how people interact with its devices. But it’s unclear how long the company can keep this up. Apple’s antitrust woes, for example, are related to how it has maintained an ironclad grip over its App Store, not only controlling which apps can be in it but also taking a cut of purchases made within the apps. Apple does a similar thing with third-party hardware that connects to its devices through something called the MFi Program. (MFi is shorthand for “made for iPod/iPhone/iPad.”) If a company makes an adaptor, a charger, or any gadget that plugs into an iPhone, that company has to adhere to certain standards, and Apple charges companies who participate in the program. But Apple wouldn’t be able to do this if all of its devices used USB-C ports, which are universal by design. As the Verge’s Chaim Gartenberg recently pointed out, “a switch to USB-C would mean relinquishing another piece of control over what iPhone owners can do with their devices outside of Apple’s carefully curated walled garden.”

This USB-C thing is not yet a crisis for Apple. If the EU does push the proposed rules through, there’s a good chance they won’t take effect until 2024, at which point Apple may have ditched the Lightning port on its own and, as has been long rumored, gone completely wireless — no ports at all. The MFi Program includes wireless accessories, which would allow Apple to continue controlling and making money from approved accessories. The company’s tradition of total control, however, still faces an existential crisis when it comes to the App Store. Although it walked away from the lawsuit with Epic Games largely a winner, Apple now faces lawmakers who want to change how the company works and a Federal Trade Commission (FTC) that’s increasingly critical of how big tech companies operate. Meanwhile, Apple is facing internal turmoil as its workers speak out against the company’s plan to return to the office.

To better understand what the future holds for Apple, though, it helps to know how the company became big enough to upset governments around the world. Recode’s Peter Kafka is interrogating this question in Land of the Giants: The Apple Revolution. New episodes of the limited podcast series come out every Wednesday, and this week will be all about how Apple has gone from being an underdog to being the establishment, largely by controlling every aspect of the user experience. And in case you missed it, check out the first episode in the series, which is all about the creation of the iPhone. 

Subscribe to Land of the Giants: The Apple Revolution on Apple Podcasts or Spotify.

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