What will grow through the cracks in Apple's pavement?

AnalysisMar 27, 2024
Apple regulatory opportunity hero

By Darrell Etherington

Apple is facing down the barrel of the DOJ’s antitrust lawsuit, as well as the displeasure of the EU over its ‘gatekeeper’ practices in parts of its business with respect to the European Digital Markets Act (DMA). It’s the culmination of years of Apple’s growth, and specifically the increase of its influence when it comes to distributing software for the iPhone, which has become the largest computing platform in the U.S. – and one of the largest in the world.

The DOJ wants to draw parallels between this suit against Apple, and the one it brought in 1998 against Microsoft, which at the time owned 90% of the desktop computing market, and was looking to curb the rise of the open web in favor of keeping its customers within its own more closed and controlled ecosystem.

Many have debated the relative merits of the comparison – and of the case more broadly – much better than I could here. What I’m much more interested in, is what these repeated and increasing assaults by regulators and legal challenges will mean for startups and venture.

Changes to exit paths

One not-so-great near-term consequence of more meddling by regulators and the courts is that startups enjoy one fewer path to exit. This isn’t all that dramatic a consequence, though, since it really only applies to a small sliver of the market – companies that are quite large, somewhat shy of IPO, but appealing really only to a d of even larger acquirers; Figma fits this description, and we all know what happened there with Adobe. It’s possible that Inflection also fit into this category, given the unconventional way that it sort of exited to Microsoft, but that’s partly speculation.

Suffice it to say, the usual deep-pocketed acquirers might end up with a case of ongoing stage fright until sentiment around breaking up big tech shifts back in their favor.

Unlocking foundational opportunities

While that could mean short-term problems for realization opportunities, it also has the potential to unlock a number of paths for founders at the early end of company building. One part of the DOJ’s filing in particular helps illustrate how, since it points out its settlement with Microsoft helped pave the way for iTunes to land as a first-class citizen on the Windows desktop, allowing the interoperability that laid the foundation for the iPod to become omnipresent – which itself led in part to the iPhone’s dominance.

Google’s browser business, and Chrome’s current market-leading position, is arguably also an outgrowth of that fateful decision.

Times of regulatory upheaval, as in the case of the EU’s DMA, and moments of court intervention in market dynamics, as in the case of the DOJ’s suit against Microsoft, are periods of frustration and stress for incumbents – and necessarily periods of opportunity and innovation for new entrants. It’s actually even immaterial whether or the DOJ succeeds in its case against Apple, or whether Apple ever meaningfully complies with the spirit of the EU’s DMA and not just the letter of the law – the distraction and upheaval that occurs with these kinds of clashes is a tectonic shift, reforming the landscape on which tech companies big and small build their businesses.

A new consumer boom?

Let’s face it – consumer tech has been boring for almost a decade now. The most interesting that’s happened within that time span is the rise and proliferation of TikTok – itself now under regulatory scrutiny and pressure. And while there have been occasional bursts of excitement on the software side, consumer hardware has been more or less stagnant (albeit with some impressive moments of linear feature improvement).

Pressure from lawmakers, and from the courts, could mean we finally get some interesting action here, in anticipation of a market mandated to pop its head up and look around for choice. Meanwhile, some novel solutions to the absence of a large acquirer offramp are also springing up to address that mature end of the pipeline problem: We’ve seen large, more conservative investment fund move into late stage private equity and secondaries to solve some of the realization challenges resulting from a long-closed IPO window, and as it re-opens, that could instead help provide an alternative to deep-pocketed company buyers.

A return to big bet consumer businesses would float all boats, and perhaps herald a meaningful resurgence of bottoms-up, ‘BYOD’-style enterprise IT software adoption. People (especially startup people) tend to associate regulatory interference with a chilling effect on tech, but the truth is it can just as easily produce the cracks that allow the next Apple trees to grow.