Although Apple is a tech goliath, it has the mind-set of a David in D.C. power circles
Growing from a scrappy underdog to one of the biggest technology companies on the planet with a huge base of loyal fans, Apple Inc. is looking for even more friends — this time in Washington.
The company, with a market value greater than that of Microsoft Corp., Google Inc. or Hewlett-Packard Co., is increasingly evolving from a computer maker into a multi-product international powerhouse and a major force in the entertainment and publishing industries.
But Apple’s aggressive exploitation of its immensely popular iPhone, iPad and sprawling online marketplace for music and digital applications has raised the eyebrows of regulators and lawmakers, who worry the company’s dominance might stifle competition.
“There’s a point at which you get so big, you’re not cute anymore,” said Rebecca Arbogast, a technology industry analyst at brokerage Stifel, Nicolaus & Co. “They need to understand they’re moving into an area where they’re going to be under more scrutiny.”
The company’s new rules for online publishers, for instance, have caught the attention of antitrust enforcers. Publishers that want to sell subscriptions through Apple’s iTunes store to iPod and iPad users are facing restrictive and potentially money-losing terms that Apple announced last month.
Some, such as Irvine bookseller BeamItDown Software, fear the new iTunes conditions will put them out of business.
“It’s an eviction notice disguised as a reasonable business request,” BeamItDown founder Dennis Morin said about the new policy.
Such complaints are leading Apple to become more engaged in Washington.
Since its dramatic growth began in 2003 — the value of its shares has skyrocketed to more than $300 billion from $2.5 billion — the Cupertino, Calif., company has more than tripled its federal lobbying expenses to $1.6 million last year.
In February, the company boosted its forces by hiring the high-powered Washington lobbying firm of Fierce, Isakowitz & Blalock. And Apple Chief Executive Steve Jobs has met with President Obama twice in the last five months, unusual forays into the political arena for the company’s co-founder.
Those moves help Apple make its case to policymakers and regulators on issues that affect it, as well as help the company learn about potential problems and pending legislation before they become public.
Still, Apple remains a surprisingly small-time player inside the Beltway.
Its lobbying expenses last year were dwarfed by the nearly $7 million that tech rivals Microsoft and HP each spent. Apple’s lobbying budget ranked 21st in the industry, behind much smaller companies, such as Expedia Inc. and EBay Inc., according to the nonpartisan Center for Responsive Politics.
In some ways, Apple’s Washington image mirrors that of co-founder Jobs: enigmatic and secretive.
Two decades ago, Apple was an early tech player in Washington under former Chief Executive John Sculley as it tried to sell computers to the federal government.
But in 1996, Apple closed its Washington office and decided to handle its government affairs from California. Under Jobs, who returned to Apple as chief executive in 1997, the company also pulled back from industry issues.
Although it belongs to major technology trade associations, Apple doesn’t take leading roles in advocating for industry causes. It is one of the few major corporations that doesn’t have a political action committee to funnel campaign contributions to politicians.
Apple’s top lobbyist, former Assistant U.S. Trade Representative Catherine Novelli, keeps a low profile, and its executives rarely testify on Capitol Hill. In fact, Apple infuriated some senators last year when it declined to testify at a hearing about children’s privacy on the Internet.
Apple did not respond to requests for comment for this story.
Eric Goldman, director of the High Tech Law Institute at Santa Clara University, said Apple should adopt the lobbying strategy of a technology industry giant.
“They may be used to being the little guy fighting against the monopolist, but everyone around them is looking at them as the new monopolist, and they might not have adjusted their thinking,” he said.
Apple has continued to push the antitrust envelope with restrictive products and technology platforms as if it were still a small company, said David Balto, a former Federal Trade Commission official and now a senior fellow at the Center for American Progress, a think tank.
Apple’s new rules for publishers are a prime example. U.S. and European authorities are looking into whether the rules are bad for competition.
Last month, Apple said that it would take a 30% cut of magazine, newspaper and other subscriptions sold by publishers on the company’s App Store or iTunes service. Those publishers also would be prohibited from offering a better deal to customers through their own sites or through other venues.
“They’re now trying to control activity that takes place outside of their retail store. And that’s a little bit unusual for a retailer to do,” Goldman said.
Some small retailers that sell applications for the iPhone and iPad have complained that the foundation of their businesses may buckle under Apple’s new policies.
BeamItDown Software has sold $500,000 worth of classic e-books to 3 million iPhone users since it began in 2009. The company originally sold older, public domain books that don’t require payments to publishers. But BeamItDown’s users began asking for current titles too.
So the six-person company spent four months and more than $100,000 signing contracts with publishers and intermediaries to add bestsellers to its roster.
“That all just vaporizes instantly” under Apple’s new policy, said BeamItDown founder Morin.
For each current title it sells, BeamItDown takes about 20% of the purchase price, with the rest going to publishers and other middlemen. If Apple takes a 30% cut of each book’s retail price, that would eat up all of BeamItDown’s profits and then some. Apple is requiring existing apps to comply with its new policy by June.
Morin said he would have to shut down the company.
Over the last few years, Morin said, he had communicated with Apple and had not been dissuaded from adopting its bookselling model.
Antitrust regulators have examined other Apple policies in recent years. Apple has yet to face a major antitrust enforcement action, having revised controversial practices to appease regulators.
But just as Microsoft dramatically boosted its Washington presence in the late 1990s to defend itself in antitrust investigations, Apple might need to do the same, Arbogast said.
“They have a history of maintaining a lot of control over who has access to their platform,” she said. “That becomes a problem as they get bigger.”
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