The mobile regulatory landscape is changing at an inconvenient time for Apple

TechCrunch primarily covers the startup world, but we keep at least one eye on Big Tech at all times. And there’s perhaps no story more interesting in the world of technology giants than a changing of the guard: Microsoft has stolen the “most valuable” crown from Apple and things are getting interesting.

The changeover is not an idle one. Microsoft’s tie-up with OpenAI and its rapid deployment of AI tools into its various software products has earned it favor with investors, who anticipate that it’s going to manage to extract revenue, growth, and profits from all the AI-related work. The release of Copilot Pro is a good example of what Redmond is up to.

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At the same time, Apple is seeing its most critical market, smartphones, shrink as it runs into legal challenges around the world. The smartphone market shrank 3.2% last year after declining by a massive 11.3% in 2022, according to International Data Corporation (IDC). The good news for Apple, however, is that the iPhone once again became the top-selling smartphone last year.

Still, you can’t build toward long-term growth by leading a shrinking market.

In contrast, Microsoft recently helped resolve a governance and leadership explosion at OpenAI, allowing Redmond to retain near-majority ownership of the for-profit arm of the AI company. That means Microsoft is intent on bringing more AI goodies to its users.

Meanwhile, the U.S. Supreme Court has declined to hear Apple’s appeal of the antitrust case brought by Epic Games, and in the EU, the company is reportedly preparing an App Store to suit local regulations. Both of these developments could affect the company’s ability to generate revenue from mobile commerce and its hardware and software.

Apple is very big

First, a little context. In its fourth quarter ending September 2023, Apple’s revenue fell 1% to $89.50 billion from a year earlier, and the company’s revenue also shrank in the first nine months of 2023 compared to 2022.

But all the same, Apple’s net income in its Q4 2023 alone amounted to a whopping $23 billion. That’s a simply bonkers amount of money. Nothing that we are discussing today risks the company’s scale or ability to make lots of money. But small cuts can add up. Apple’s shares are down more than 1% today; they’ve fallen 6% in the past month, and over the past 12 months, they have climbed 35%.

Is Apple losing ground?

Apple’s appeal of the ruling in the Epic case wasn’t only a question of principle; there are billions at stake here. The crux of the issue is its App Store, and whether Apple device owners can bypass it. Or: Whether app developers can tell redirect users to complete their payments outside the App Store, thus avoiding Apple’s cut, which can be as high as 30%.

Seeing its appeal dismissed means that Apple will have to live with the previous judge’s decision: That while Apple had not engaged in anticompetitive practices, it will have to let developers point customers to their own websites and take payments outside of the App Store.

Losing that cut is obviously a concern for Apple, and its persistence to keep it is proof of it. But it is probably even more worrying given that consumer spending may have slowed down on the App Store in 2023. Again, owning a huge slice of a shrinking cake isn’t typically what tech giants aim for. Even if the said dessert is worth $171 billion.

App economy recovered in 2023, with $171B in consumer spending, but downloads were flat

Today’s news only adds to Apple’s mounting list of worries regarding its App Store. Indeed, the EU’s Digital Markets Act (DMA) and its measures to curb Big Tech could force Apple to allow sideloading — that is, third-party app stores, albeit on the continent only. And to make matters worse, we learned last year that Microsoft is planning to build its own mobile games store.

Yeah, but

Apple is hardly going to let Microsoft remain the biggest tech company in the world without a battle. The company’s upcoming Vision Pro headset and platform could become a lucrative venture, and there’s supposed to be an Apple car out there somewhere. Also, it’s no question Apple will have its own AI-powered tech in time.

In fewer words, Apple likely has lots on the way that should keep it in the game. But with nearly all of tech fighting to become the first to win the AI race while smartphone sales slow and court cases chip away at its legacy revenue streams, the iPhone maker has its work cut out for it.