Understanding Apple’s implausible explanation

Apple logo






Apple has just announced that it will reduce the commission it charges smaller developers (those who earned less than $1 million last year through the App Store) from 30% to 15%.

As someone with an advisory role and financial interest in just such a business for the past ten years, the explanation provided by Apple’s CEO, Tim Cook, has a hollow ring:

“Small businesses are the backbone of our global economy and the beating heart of innovation and opportunity in communities around the world. We’re launching this program to help small business owners write the next chapter of creativity and prosperity on the App Store, and to build the kind of quality apps our customers love.  The App Store has been an engine of economic growth like none other, creating millions of new jobs and a pathway to entrepreneurship accessible to anyone with a great idea. Our new program carries that progress forward — helping developers fund their small businesses, take risks on new ideas, expand their teams, and continue to make apps that enrich people’s lives.”

The suggestion that this is a natural evolution and being done out of the goodness of Apple’s corporate heart is implausible at best.  The small businesses that rely on the App Store to reach iPhone customer have been “the backbone of the global economy and beating heart of innovation and opportunity” throughout the iPhone’s existence and have put up with being fleeced.  The entrepreneurs have funded their businesses, taken risks on new ideas, expanded their teams and made apps that enrich people’s lives without any help from the black shirts* formerly of Infinity Loop, now Apple Park.

The likely explanation is provided by the threat of action from the European Commission, which opened an investigation into Apple’s anti-competitive behaviour in June, and potentially from the US, with Congressional hearings into the monopolistic conduct of the tech giants later in the summer.  This is an illustration of the strategic solution space available to a company being reduced by the prospect of regulatory intervention.

In parallel with this reduction in the price charged to its small customers for using the App Store, Apple revealed at the Congressional hearings something about the shape of the market interface between the App Store and the “customers” who sell through it when it disclosed that it had agreed a 15% commission with Amazon for in-app charges within the Prime Video app.

The interesting question is what happens next.  Apple has had to cave in to the threat of another web behemoth flexing its market power and potential to lobby against it.  It has accepted, so far in part only with the new deal for smaller developers, the political reality of the forces gathering against its abuse of its power over a large slice of the market for apps on mobile phones.  What of the middle-sized App Store developer customers?  How long will it take Apple to develop an implausible but face-saving formulation to explain why it has reduced their commissions too?  Or will it try to tough it out until competition authorities around the world run out of patience and take Apple, and potentially some of the other tech giants, apart in the way they did to the US rail and oil industry over a century ago?

* for the avoidance of doubt, this is a reference to the sartorial style of the late Steve Jobs and his successors and not a comment on either their conduct or politics.

Investors and consumers both need good sustainability reporting

Sustainable fashion? (Financial Times)
Sustainable fashion? (Financial Times)

The FT has been carrying stories for the past two weeks about improving the quality of information provided by companies to their investors on the environmental impact of their activities and the sustainability of their businesses in the face of climate change.  It may just be a coincidence, or it may be a conscious decision of the editorial board, but the Fashion Editor writes in “Life and the Arts” section of the Weekend FT on the same subject under the headline “Sustainable fashion? There’s no such thing”

On 5th November, Erkki Liikanen, Chair of the IFRS Foundation Trustees, delivered the keynote speech at the UNCTAD Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting, introducing the Trustees’ Consultation Paper on Sustainability Reporting.

On 9th November, Rishi Sunak, Chancellor of the Exchequer, delivered a speech to the House of Commons on financial services.  In the course of setting out his plans for supporting the City at the end of the transition period as the UK leaves the EU and plans to launch a Sovereign Green Bond, he declared:

“We’re announcing the UK’s intention to mandate climate disclosures by large companies and financial institutions across our economy, by 2025.

“Going further than recommended by the Taskforce on Climate-related Financial Disclosures.

“And the first G20 country to do so.

“We’re implementing a new ‘green taxonomy’, robustly classifying what we mean by ‘green’ to help firms and investors better understand the impact of their investments on the environment.”

On 10th November, the Financial Reporting Council launched its Statement on Non-Financial Reporting Frameworks, opening with the preamble:

“Climate change is one of the defining issues of our time and, by its nature, material to companies’ long-term success. Boards have a responsibility to consider their impact on the environment and the likely consequences of any business decisions in the long-term. Our 2020 review of climate-related considerations in corporate reporting and auditing found that boards and companies, auditors, professional associations, regulators and standard-setters need to do more.”

before recommending that companies should try to report “against the Task Force on Climate-related Financial Disclosures’ (TCFD) 11 recommended disclosures and, with reference to their sector, using the Sustainability Accounting Standards Board (SASB) metrics” and setting out its own plans over the medium term to help “companies to achieve reporting under TCFD and SASB that meets the needs of investors”.

Today, 14th November, the FT’s fashion editor writes about the dilemmas facing those of her readers who are concerned about the impact of their purchasing decisions.  She recognises that the best way to live a sustainable life is to buy less, but also that her readers want to find ways, while supplementing and refreshing their wardrobes, to plot their way through the “greenwash” claims of the fashion brands.  Both these consumers and some of the brands themselves want clearer and more reliable accreditation of products that come from supply chains that are, if not truly environmentally friendly, at least less environmental unfriendly.

Following up the themes in this article, I found a great piece written by Whitney Bauck in Fashionista, in April last year:

“If you’re aware that there are ethical issues baked into making clothes but don’t have time to do in-depth supply chain research every time you need a new pair of socks, there’s a good chance you’ve thought at some point: ‘If only someone could just tell me for sure if this brand is ethical or not.’

“You wouldn’t be alone in that desire. In years of writing about both sustainability and ethics, it’s a sentiment I’ve heard from fashion consumers a lot. While many people want to be more conscious with their consumption, they also wish it were easier to tell which brands are truly being kind to people and planet.

“If you fall into that category, there’s good news and bad news. The bad news is that a one-size-fits-all ethical fashion certification will probably never exist, partly because not everyone agrees on what qualifies as “ethical.” Should that word refer to job creation in impoverished communities or animal welfare? Should it mean making clothes from organic materials or recycled synthetic ones? Not every ethical fashion fan has the same standards or priorities, and that will always make a one-size-fits-all approach to ethical fashion certification difficult.”

I wrote in a blog post four years ago about the benefits that the team I led at WH Smith believed would arise from developing and selling green stationery ranges.  The issues described by Lauren Indvik in the FT are nothing new.  We faced similar challenges both in terms of selecting products and in terms demonstrating to our customers that buying these products would better than buying alternatives.

The challenges facing investors and consumers in taking environmental and other ethical considerations into account in what are otherwise commercial decisions are identical.  Both investors and consumers want the best information, to put into the mix with the other things that influence their decisions – the complex trade-offs of exposure to multiple risks, timing, and return for the investor, or look, feel, comfort, durability, after sales support and cost* for the consumer.

The similarity between these challenges is evidence for the symmetry in all businesses – investors are customers for investment opportunities presented by the company, in the same way that consumers are customers for products and, indeed, that employees are customers for the jobs that companies provide.  In an age when people – in their multiple roles as investors, consumers, and employees – want to invest in, buy from, and work for organisations that behave responsibly in relation to wider society and to the environment, they need reliable information to inform their decisions.

* and a host of other possible features depending on the product or service category

America decides……

Primed by Trump, militias gear up for 'stolen' election (Sunday Times
Primed by Trump, militias gear up for ‘stolen’ election (Sunday Times)

The US electorate (at least those who have not already cast their votes) goes to the polls today to choose a new president, senator, congressman, governor, mayor, and ratcatcher.  The presidential campaign has been the most vituperative I can recall and has given rise to anxiety that the losing candidate’s supporters – whether militias driving pickups and toting semi-automatic weapons  (including the Proud Boys who have been following the instruction to “stand back and stand by”), or masked rioters with bricks and molotov cocktails – will take to the streets.

The election itself and the accompanying scenario represent a living illustration of the “Three Sanctions” and their relationship.

One of the major underlying differences between the two parties is the view of the proper boundary between the cash and market-based sanction and the political sanction.  The party of small government (and by extension, the dispute of states’ rights over federal responsibility, which goes back to the Founding Fathers*), is less inclined to recognise the market failures that others see requiring the intervention of government.  On the other side, the interventionist Democrats recognise the merit of anti-trust measures need to curb monopolistic excess and deliver the benefits attributed to the market system; recognise that unfettered markets result in huge social inequality and that post tax income disparities in the US are way beyond anything required to provide incentives to maximise the nation’s overall material wellbeing; and fear for the future of the environment under a government that does nothing to address the externalities of unregulated commerce.

The threat of a violent response to the outcome of the election represents a potential failure in the political market-place, which depends on a degree of consent and recognition of the legitimacy of a constitutional settlement, anchored in a document drafted in Philadelphia in the summer of 1787 to meet the needs of thirteen small former colonies on the east coast in age bounded by limited horizons, communication, scientific understanding and technology.  We will see in the next few days whether the political marketplace in the United States is operating under sufficiently favourable conditions – particularly consent for the constitutional settlement – for those who are disappointed by the outcome not to resort to resort to third sanction to address their sense of powerlessness and injustice.  Even if they do not, the very fact of the threat that they might should prompt a deep search for an enhancement of the constitutional settlement  to reduce the risk of political market failure.

*The diligent student of US history will recognise that during the mid 20th century, the alignment of the parties on this issue switched over