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Wednesday, 26 June 2024

Week in Tech: Europe goes after Apple and Microsoft

Wednesday, Jun 26

Hello, and welcome to this week's edition of the Yahoo Finance Tech newsletter.

I'm Hamza Shaban, filling in for Dan Howley. This week, we're talking about Apple's regulatory troubles in Europe and the two sides of the AI energy play.

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Apple became the first US tech giant to be charged under the EU's Digital Markets Act, a new legal tool that regulators hope will allow them to address anticompetitive behavior without the years-long red tape of traditional antitrust law. The App Store is the target.

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Apple's services business is drawing increased scrutiny just as bullish analysts view a budding ecosystem for AI-infused apps as Cupertino's next big thing.

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Before we get to that, here are some other major tech stories I'm following this week.

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📈 Big Tech doesn't need the rest of the market: A broadening out of the market never arrived. But that hasn't stopped investor portfolios from swelling or analysts from beefing up their already bullish forecasts. In fact, some view the megacap dominance that's driving the market as a show of strength. At the very least, it's an expected outcome from companies that can weather the high-interest-rate environment while beating expectations by delivering muscular earnings growth and riding AI momentum.

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📱 Google to showcase AI and new Pixel devices: Google is drumming up excitement around a major product showcase scheduled for Aug. 13. In media invites shared on social media and in a new banner on the Google Store with the date 8/13/2024 in Roman numerals, Google appears to be moving up its Made by Google event to show off its latest hardware and AI developments. Google plans to feature "the best of Google AI, Android software, and the Pixel portfolio of devices," according to event invites posted by YouTuber and tech reviewer Marques Brownlee and the tech publication the Verge.

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🧑‍💻 Microsoft Teams draws EU charges: Apple isn't the only American tech giant feeling the heat from regulators in Europe. Microsoft faces antitrust charges in Europe for illegally packaging its Teams video conferencing software with its flagship Office products, putting rivals like Slack and Zoom at a disadvantage. The EU's competition watchdog alleges Microsoft gave Teams an unfair leg up and that rivals were stifled because of limitations between Microsoft's products and those of Teams' competitors. The charges come two decades after the company was last fined by the EU. Microsoft made changes last year to how it distributes Teams, but regulators say they didn't go far enough. Microsoft president Brad Smith said the company "will work to find solutions to address the commission's remaining concerns."

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🎬 Netflix's spectacular comeback: Netflix is on a tear. The share price is up close to 40% for the year as investors approve of the streaming champ's ad-tier progress and its focus on live events and sports. The company's ad-supported plan now has 40 million global monthly active users, up from the 15 million Netflix revealed in November. And it recently won the streaming rights to two NFL games that will air on Christmas Day as part of a three-season deal. A crackdown on password sharing and price hikes has boosted revenue and subscriber numbers. And the coming bundling of Netflix with other services adds to the bullish momentum.

Europe is at the gates of Apple's walled garden

What does a diminished US tech giant look like? European regulators took a step closer to finding out, zeroing in on Apple and what they say are unfair restrictions in its App Store that stifle competition.

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The heightened enforcement highlights Apple's strategic predicament.

In a world saturated by high-end hardware — where customers are increasingly reluctant to surrender to endless smartphone upgrades — Apple's services business has become more important to the company. But by leaning more heavily into App Store commissions and subscriptions, Apple draws more scrutiny to its "walled garden" business approach.

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In preliminary findings, regulators in Brussels contended that Apple violated the Digital Markets Act, a law passed in 2022 designed to address anticompetitive behavior. The EU alleges Apple illegally blocked software developers from telling customers how to access content outside the App Store. The charges are the first to be brought under the European law, giving Apple the unlucky designation of being the first US tech giant to be caught in its crosshairs.

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Apple insists that it is in compliance with the law, pointing to changes it has made in recent months and the ability of developers to steer their users to the web to complete purchases. The company will have a chance to formally respond, and the EU will come to a final decision early next year. European regulators are also probing the business practices of Meta and Google to verify their compliance with the law.

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Apple's charges in Europe come as legal troubles ratchet up at home. Apple faces antitrust charges from the US Justice Department and 16 state attorneys general who have alleged that the iPhone maker wielded illegal monopoly tactics in the smartphone market.

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From Wall Street's point of view, the multiheaded threat seems far off. Apple has only just arrived to the AI party, and its bullish analysts see AI monetization as the next lucrative frontier.

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The ultimate cost of regulatory compliance might mean a splintered tech landscape with more restrictive rules for some markets. But the Apple ecosystem remains unrivaled.

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And if AI-focused apps fall into place like the prior generation's, even a more competition-friendly form of gatekeeping will be enough to keep Apple on top.