The Network Effect and Antitrust Concerns

The Impact of Apple's Ruling and the Broader Tech Landscape

Recently, a U.S. federal judge invalidated Apple’s regulations that prevented app developers from directly marketing to customers outside of the App Store ecosystem.

A Win for Developers, a Larger Issue Emerges

This decision resulted in a 3% decrease in Apple’s stock value and is largely seen as a positive outcome for smaller and medium-sized app developers. They will now be empowered to establish direct billing relationships with their customer base.

However, Apple represents only one instance of a larger trend: the dominance of Big Tech companies across various sectors.

The Power Dynamics in Online Marketplaces

The implications of this ruling extend to companies like Amazon, Facebook, and Grubhub, all of which operate online marketplaces utilizing stringent terms of service to maintain control over their resellers.

The dispute between Apple and app developers is indicative of a more extensive conflict unfolding within the digital realm.

Understanding the Costs and Control

App developers currently face commissions of up to 30% on each sale made through the Apple App Store.

Fees and Commissions Across Platforms

Resellers on Amazon are subject to monthly subscription fees, sales commissions ranging from 8% to 15%, fulfillment charges, and additional miscellaneous expenses.

Grubhub imposes a 15% commission on restaurant orders, alongside credit card processing fees, order processing fees, and a 10% delivery commission.

The Illusion of Sustainable Business

Similar to app developers, online resellers and social media influencers are often led to believe they can cultivate viable businesses with healthy profit margins on platforms owned by others.

The reality is that these platforms—the App Store, online marketplaces, and social networks—possess the unilateral authority to selectively deplatform users and impose financial pressures.

The Digital Dictators and the Need for Ownership

While competition exists within these platforms, the true focus should be on the marketplace and social network providers themselves.

Control and Governance

They have, in many ways, become akin to digital dictators, wielding complete control over their respective domains.

This is a critical consideration for any small or medium-sized business exploring new online services, as it directly affects their ability to build a stable and sustainable enterprise.

The judge’s decision highlights the importance of establishing a direct billing relationship with the end user as a primary goal in digital commerce.

The Value of Owned Media

Those who can attract customers and facilitate transactions—independent of the “walled gardens” of platforms like Uber, Airbnb, and Udemy—are best positioned for success.

In the realms of content and e-commerce, many small and medium-sized companies fail to recognize that their own website or owned media, hosted on a top-level domain they control, is the only truly unrestricted avenue for direct sales.

The Sharecropper Economy of the Internet

Mobile app creators, Amazon resellers, and aspiring content creators are all subject to the absolute authority of these digital giants, who can govern by their own rules without constraint.

A Raw Deal for Participants

Access to online marketplaces and social networks comes at a significant cost. We are essentially functioning as digital sharecroppers, cultivating fields for others.

Amazon resellers are compelled to share their revenue with a landlord who takes a substantial percentage without limitations.

Building a following on TikTok means constructing an audience that is confined within their platform.

Unequal Enforcement of Rules

These tech giants, all originating as startups, are free to impose and selectively enforce restrictive rules.

They may prohibit smaller entities from requesting customer email addresses and deplatform them for minor infractions, while overlooking similar actions by larger companies like Spotify and The New York Times.

The Anti-Competitive Nature of Network Effects

This raises questions about fair competition. Even after the recent ruling, Big Tech retains the power to determine who can violate their terms of service and who will be deplatformed.

A Parallel to Past Antitrust Cases

It’s not merely about their audience; it’s about their entire ecosystem, their governance, their rules, and their enforcement.

The 1948 Supreme Court case, United States v. Paramount Pictures, established that film studios could not own their theaters because it allowed them to monopolize film distribution.

The Court recognized that this stifled competition and ultimately broke up the studios.

The Challenge to Capitalism

Today, social networks control the visibility of content on their platforms and can, with a single action, remove anyone at any time.

The internet presents a unique challenge to capitalism: the network effect is inherently anti-competitive, leading to winner-take-all markets dominated by tech giants that resemble government-controlled economies rather than free markets.

The Illusion of Choice and the Danger of Deplatforming

The web provides access to a global marketplace, but a few major providers control the services most people use, often due to a lack of knowledge or resources to create a competitive alternative.

The Importance of Domain Ownership

Without your own domain and strong search visibility, you remain vulnerable to deplatforming and losing access to your customers or audience without recourse.

The network effect ensures that once a marketplace becomes dominant, it neutralizes competition, as everyone gravitates towards the leading service for the best deals.

There is an inherent conflict between the goals of a winner-takes-all tech company and the principles of a free market.

The Limits of Governance and the Need for Open Source

Dominant online marketplaces are competitive for users, but providers operate with impunity.

The Inability to Scale Justice

They can deploy flawed AI or rely on offshore contractors to enforce their terms of service, generating false positives with no effective means of contest.

How can Facebook effectively govern nearly 3 billion users with only 60,000 employees? The answer is, it cannot.

For app makers, resellers, and creators, the most prudent path forward is open source on the open web.

Protecting Profit Margins

Instead of depending on someone else’s audience or software, you should own your online destination, powered by platforms like WordPress or Discord, and avoid the risk of being squeezed when the founders go public or the platform is acquired.

Only then can you safeguard your profit margins and establish terms of service that are truly enforceable.

The Fragility of Platform Dependence

The deplatforming of former President Donald Trump demonstrated the precariousness of relying on these platforms. If you are removed from Facebook and Twitter, there is often no viable alternative.

Political Influence and Platform Control

It’s no coincidence that Trump lost his accounts on the same day the Republicans lost control of the Senate.

Social networks often appease the legislative majority to ward off regulation.

The Pitfalls of New Programs

Therefore, avoid excessive enthusiasm for programs like the Amazon Influencer Program.

To build a sustainable digital business, you need an owned media presence powered by software that doesn’t impose commissions, provides access to customer contact information, and features an audience that cannot be manipulated by algorithmic changes.