WBD234 Audio Transcription

Is Apple Abusing its Monopoly Power? With David Heinemeier Hansson

Interview date: Wednesday 17th June 2020

Note: the following is a transcription of my interview with David Hansson from Basecamp. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

In this bonus episode, I talk to Basecamp Founder & CTO, David Hansson. We discuss Apple’s threats to remove their email app HEY from the App Store and Apple’s monopolistic business model.

“If Apple chooses in their soul and absolute power to squash us now, there is literally nothing we can do but take it.”

— David Heinemeier Hansson

Interview Transcription

Peter McCormack: David, hi! How are you doing? It must've been a crazy 24 hours for you.

David Heinemeirer Hansson: Yeah, it's funny. We just released a book a year and a half ago called "It Doesn't Have to Be Crazy at Work", but it's been totally crazy at work.

Peter McCormack: Oh man, I remember when I used to have a advertising agency, we used to use your products and I remember in the background, a lot of it was about work life balance, right?

David Heinemeirer Hansson: Yeah, we've been a proud comm company for about 20 years and we've been trying to share that perspective, both in writing and elsewhere, so it is a little ironic here. We're launching our new product and launching a new product is always a little bit stressful, but Apple just took that stress up about a hundred fold.

Peter McCormack: Well I know a little bit about this. About five, six years ago, when I had my agency, it was in London, I was dealing with a company who tried to enter into the book market. It was an app via their phone, but they couldn't allow people to buy the books within the app because if they bought within the app, the 30% tax meant they would either sell them at a loss or they would not be price competitive with iBooks.

So I know a little bit about this era, but I'm going to take from you because I know this is from you. Tell me what happened over the last 24 hours. You've been working on Hey for a couple of years. I actually got a thing come through from Product Hunt, very exciting! Tell me what happened.

David Heinemeirer Hansson: Yes, we've been working on Hey, our new email service, for about two years and on Friday, we were just getting ready for our big launch, which was on Monday. So last Friday, we submitted the app that we'd been working on for almost a year, I think maybe even a little more, through TestFlight, which is Apple's sort of internal distribution kit. Then when you're ready to release it to the public, you put it through the review process. We put it through, we'd done everything, we'd studied the rules, we've been in the App Store for years as well and we sort of know what you're supposed to do and what you can't do.

So we submitted the app and it was approved right away almost and we were like, "Oh?" It's always a little nail biting. But we legitimately did not think that there was any risk here, that we were just like, "This is going to sail through. We're doing exactly what we've done with Basecamp, our other main product. We're doing exactly the same thing as Gmail or Fastmail or Outlook or other email clients, this is going to be fine." It was fine and V.1.0 is available in the app store right now. Then it got to be Monday and we started rolling out the app and we had found some bugs over the weekend. There had been some reports and like, "Oh, we're going to fix a few things. We're going to push out a new version of the app to the App Store." We push it out and it's denied.

We're like, "What? What do you mean? It was just approved on Friday. I'm sure this is just a mistake, let's just try to submit it again with the clarification of why the denial doesn't make any sense." So we submitted again and denied. I'm like, "What? What's going on?!" Then we get a call from Apple or someone in the App Store telling us essentially, "No, the denial is correct. Actually our mistake wasn't to deny you, our mistake was to approve you." I was like, "What are you talking about?" "Yeah, unless you start paying us 30% of all the revenue that you make through these apps, we're going to kick you out of the App Store."

They didn't say kick you out of the App Store, but there weren't a lot of euphemisms here. Usually when you get a shakedown, there's like, "Well, our partnership would be better for mutual parties if we both agreed to..." No, no, no, it was, "Hey, please commit to a timeline by which you will start paying us 30% of all this revenue, or ultimately we're going to have to remove you from the App Store." That was where we went like, "Wait, what? What are you talking about? We've been under the App Store rules for a very long time." The main clause that they hinge all this on is called 311, which talks about what you can and what you can't do in terms of selling and in app and so on. That's been the same for a long time.

We are pushing out new updates to our Basecamp app on a regular basis, it's subject to the same rules, there are no problems and we're doing exactly the same thing, which is we have an app in the App Store that you can't sign up for the service through the app. It's a login screen when you're downloaded and when you do log into it, you can't see if you're on a trial or not. You can't upgrade the app, you can't see any billing information, there are no links to the fact that this is essentially a paid service because that's the sort of rules that Apple have had for years, that this was the tacit agreement. This is why you can't download books in the Kindle's app or on Audible.

It's this weird, confusing dance. It's why when you download the Netflix app, you can't sign up for Netflix in the app. They tell you, "Sorry, real bummer. Can't sign up, come back when you have." Even Netflix of all people, they can't even link to their signup site. They have to go with these weird words telling people essentially, "Wink, wink, nudge, nudge, you got to go to the web to sign up." So we had done all of those things, we were prepared and so to get this denial that flew right in the face of the precedence that we had at our own company and we've been doing it for years, which was just astounding.

When we said like, "Apple, listen, this is not consistent at all. Look at all these other email apps that are just like us. Look at what we're doing at Basecamp. We're already doing this." "We're not interested in talking about other apps, this is about this case and this is the only thing that matters. Commit to a timeline, or you're going to get kicked off the store."

Peter McCormack: But even that's bullshit, right? Because if you think about it, they are forcing you to change an interface, to almost hide the fact that there is a paid for product. So it sounds to me like they're playing the UX game, right? They know the UX sucks to have to go off to another... Look, it sucks for me. Every time I want to get a book in Audible, it is a bit of a pain. I know I will always go to... Historically, I might have to change up my practice now to support people like you, but I will always go to iBooks first, just because of the pain of Kindle.

David Heinemeirer Hansson: Yes, this is what is so frustrating. Apple has already such an advantage through their monopoly, right? We're competing with Apple now that we're offering an email service. Email is something that Apple has bundled as part of their iCloud subscription, so we're going head on against Apple right now. When you buy a new iPhone, the mail app is pre-installed, Apple's own app is pre-installed. I don't even believe you can remove it and if you can remove it, you certainly can't designate another application to be sort of the default mail app. Apple has all this advantage.

They have all this territory that's very well defended. We've said, "Okay, okay, mercy. We accept all those things. We're going to make our iOS app kind of shitty because it's going to be a closed door when you download the app. It's not a good user experience. We're going to do everything you ask us. Just let us do our thing. We'll get our own customers. We're not..." That's the other thing here. If Apple was somehow sending tens of thousands of customers our way, okay, maybe like a referral fee or something, right? Already though, 30% outrageous, but something could be reasonable, but we're not even asking for that.

We're not asking for any placement. We're not asking for anyone to find us through the app stores and then get signups that way. No, we're doing the hard work ourselves, we're using the web, we are using our platforms to promote this stuff, we're not getting any help from Apple, Apple is already an extremely hostile territory for other mail apps and now they say like, "Oh yeah, and also 30% of your business or you're out." Come on! This is...

Peter McCormack: Bullshit!

David Heinemeirer Hansson: ... Such a shakedown. It's such a gangster approach to it and it feels like it's just connected to a bigger narrative here, which is Apple's iPhone hardware business has peaked. They're not selling exponentially more phones every year, right? So there's this big narrative, which is the pivot to services. New growth for Apple comes through services and a big part of those services is the App Store.

They're fond of bragging. "Hundreds of millions of dollars have gone through the App Store." This is where they see growth. So I'm not actually that surprised in this sort of bureaucratic trickle-down sense that there are now some managers who go like, "Do you know what? Let's tighten the screws. It'll be a little easier to meet the quarterly goals if we can shake down a few more apps for 30% of their revenue."

Peter McCormack: Let me ask you something. I wonder if, and tell me if you've thought about this, I wonder if this whole pandemic and lockdown has had anything to do with it, with stores closed and people not out maybe buying as much. You know what these companies are like, it's all growth, growth, growth, despite the fact that Apple just leaves hundreds of billions in banks around the world not doing anything, but this all growth, growth, growth, I wonder if they've thought this is an area that we can drive growth while people are locked in their homes because we're all stuck on our phones using them, day in, day out. I wonder if it's got anything to do with that.

David Heinemeirer Hansson: I'm sure that whatever the underlying motivations, the facts are clear that Apple has a monopoly on the mobile phones or they're a part of a duopoly together with Google. But in terms of the iPhone, they control all of it. This is what monopolies do. If you look back at Microsoft at the peak of their power and arrogance in the late nineties, they were the worst, right? They were totally abusive. Every other minor software developer were petrified of them, that what were they going to do with Windows...

What they did to Netscape, cutting off the air supply and ultimately getting a Department of Justice investigation on their tails was part of that, right? Once you realized, "You know what, we can do whatever we want and no one can do anything," like what are we going to do? Some of the stuff I've heard on Twitter is like, "Well, you could just look not go on the Apple platform." Do you know of any successful mail clients that are not on the most popular mobile platform in the US? I don't.

Peter McCormack: No, of course not.

David Heinemeirer Hansson:    t's not realistic. This is something you can say when someone doesn't have a monopoly or is not part of a duopoly, you can say, "Hey, if there were like five different app stores and they all had the option of supplying software to the iPhone, totally, say that!" You're saying like, "Oh, just go to the other guy," which is exactly where we are with payment processing otherwise. It's a fiercely competitive market if you want to process a credit card.

We only pay between 1.8% and I think it's 2.4% to process a credit card because it's such a competitive market. I'm constantly getting sales leads from people like, "Hey, are you interested in changing your credit card processor? We can give you another 10 basis points."

David Heinemeirer Hansson: Apple has been charging 30% for a decade and it hasn't moved. There is no competitive pressure whatsoever on Apple. They sit on a nice fat monopoly and now they've just realized, "You know what, we can just turn the screws a little more, turn them up a little more. What are they going to do? Where are they going to go? They're not going to go anywhere. They're just going to shut up and pay." Well we didn't shut up and we're not going to pay.

Peter McCormack: Good! We're going to get into that, but it also sucks because there's certain businesses out there, they almost know off the bat, "Right, we've got to lose 30% of our revenue."

David Heinemeirer Hansson: And it doesn't work.

Peter McCormack: No, and it doesn't. It's destroying innovation, [I built into the business models. Look, you can have an offline, like an off phone product. I've watched the video actually. I watched the intro to Hey, but the first thing I was like, "Has this got an iPhone app?" Because the demo was all based by the browser. I was like, "Because if this doesn't have an iPhone app, I'm not going to use it." I'm on Spark right now..

David Heinemeirer Hansson: Bingo!

Peter McCormack: ... But I was like, "I want Hey, it looks cool, so I'll join it" and if you're not in the iPhone, it's not feasible.

David Heinemeirer Hansson: You don't exist.

Peter McCormack: But there's other companies like Tinder. Tinder is iPhone only pretty much, right? It's app only, so they don't have a choice. I'm assuming 30% of their entire... Well, I don't know what goes on with Google on the Google app store, but via Apple, 30% is just straight to Apple and that sucks. That is a shakedown!

David Heinemeirer Hansson: It is outrageous! It's funny you mentioned Tinder because the match group, which makes Tinder and runs Tinder, just joined Spotify as part of their complaint to the EU that this is completely anti-competitive, that Apple is abusing their monopoly, the App Store is charging usury rates and that something should be done, which that was the irony of all this. Could Apple really have picked and more brazen timing? Literally when they announced our denial from the App Store and they gave us the shakedown letter was when the EU announced two separate investigations into monopoly abuses around the App Store. They focused on two specific things.

One, that Apple controls all access for software loaded onto iPhones and that that's a problem in and of itself and two, because they have that gatekeeper access, they can charge these outrageous fees for payment processing and that the ladder is proof that they have a monopoly. If there was actually competition here, if you could get software onto the iPhone in a different way, we wouldn't be in this problem. You know what's funny? Apple has another platform exactly like this and it's called the Mac. 

When we were looking at developing the Hey native app for the Mac, we were faced with that same dilemma, either go through the Mac Store and pay the piper, or just distribute software on the side. We went like, "Well, we're just going to distribute software on the side. Your deal is no good and we can say no, because we can distribute software for the Mac externally." If that was possible with the iPhone, it'd be much less of an issue. It'd still be an issue, but it'd be much less of an issue.

At least you would have choice. That is ultimately what we're just asking for here. Give us the choice to say no to your deal. It's not a deal if we can't say no, it's a demand and if it's a demand, you're not a business partner, you're a gangster.

Peter McCormack: Well I think there's a third thing as well I've noticed they do, which I think is also shitty. They obviously have the data on all the innovation of new apps coming out. When anyone does anything, like innovative and cool, they end up just building their own version and then deploying it as part of the iOS. I've actually got a folder on my iPhone, which says Apple, where I just put all their apps I can't delete in there. You can't delete some of them as well which is bullshit as well!

David Heinemeirer Hansson: And that's the thing, they have these huge advantages just from the fact that they control the platform. They control the default lab, they control the system features and they've been Sherlocking, as the term is, these apps left and right where they essentially destroy these apps' ability to live. I gave testimony in front of the US House of Congress early this year. To my left was a representative from Tile. Tile makes the little hardware device that allows you to find your bag and other things through Bluetooth.\

Tile had to share all sorts of business data and upcoming product data with Apple to be in their store and to have access to all these things. Now, the rumour is Apple has taken essentially all that proprietary information going like, "Hey, that's a nice business. We should just take it" and if they do, they haven't announced this product yet, but that's the rumour, but if they do, then what is Tile going to do? If Apple starts selling Apple Tiles or whatever it is, Tile is out of business. It's profoundly unfair.

This is one of those things that Elizabeth Warren had been focused on in the past where you can't both run the store and then also have your own products in the store that you're advantaging when that store is a monopoly. Now there are house brands and other things. If you run sort of one of many, many stores, then it's a completely different situation, which is the counterintuitive thing that most people don't understand about monopolies and different rules apply.

Once you're a monopoly, once you have this gatekeeper access, there are new obligations to how you run your business. Microsoft 1999 couldn't just cut off the air supply to Netscape because they had a monopoly in operating systems, that's why they got the Department of Justice on their case. This is what antitrust is about. That there's a new set of rules that apply once you have a dominant position so that we don't end up with just a handful of companies controlling everything.

Peter McCormack: Yeah, well look, this is the point though. We've been through all this before with Microsoft, it's exactly the same scenario and I think I know...

David Heinemeirer Hansson: Apple has been on the receiving end. Apple has been in the receiving end of Microsoft. If you go back to 1998, Apple was on their last legs and one of the things that helped save that company was that Microsoft did two things, in part because antitrust was breathing down their neck. They invested $400 million into Apple and they promised that they were going to release the Internet Explorer and Microsoft Office, two dominant packages at the time for the Mac.

We might never have had the iPhone if Microsoft had not been forced by antitrust regulators to do things like that, or felt that they needed to do things like that. Antitrust is absolutely imperative for us to have a tech ecosystem that continues to involve with innovation. I'll make one last point in that. The mail app, which comes pre-installed, how much innovation do you think that's seen in the past 10 years?

Peter McCormack: It's shit!

David Heinemeirer Hansson: Is it bristling with new ideas?

Peter McCormack: It's so terrible!

David Heinemeirer Hansson: Is it full of new innovation? Are people super excited about all the new things you can do in the mail app? No, they're not because this is what happens when you have a monopoly. Innovation completely halts. When Microsoft captured with the Internet Explorer, at one point reaching 95% of market share in internet browsers, they disbanded the team. Literally they went, "We won. Why should we bother make it any better? No one's going to go anywhere." This is where Apple is right now. They can go like, "Eh, mail app. It's pre-installed. Where are people going to go? Let's put our efforts into something else."

Peter McCormack: Yeah, but that's why we have Superhuman, we have Hey, we have Spark and we have all these people trying new things because their mail app does suck. I haven't used it for years now. I'm on Spark and like I said, once I get to the top of the... Actually, I'm going to twist your arm to get me to the top of Hey, because I want to have a play with it. But that's why we have that. I think there's another thing going on here as well. So I was reading about the EU investigation this morning and the thing that I've bolded in my list of notes, David, is this will take years to resolve. That's why they don't give a fuck!

David Heinemeirer Hansson: That is why they don't give a fuck, because by the time the fireman shows up, the house burned down and there are weeds growing all over the grounds. We will be long gone before there's any legislative action that's going to provide us relief. I really like that this is going on and I'm glad that regulators are finally doing something about it. I spoke in front of Congress six months ago, I've spoken with the Department of Justice in the US as well, but do you know what? Whatever that good is going to do, it's going to be the next generation.

If Apple chooses in their soul and absolute power to squash us now, there's literally nothing we can do but take it and that's what also just feels so heartbreaking about this. I'm an Apple fan, I've been using Apple products for 20 years and I've been an Apple evangelist for 20 years. We want to like Apple, they don't have to do this, they don't have to squash the people who are helping them build this compelling ecosystem that makes the iPhone such a great product!

If the iPhone was just Apple's own apps, as you say, if the only mail app you could get on the iPhone was like mail.app, it wouldn't have been anywhere near as great of a product. The Apple iPhone is great because there's a million wonderful apps, millions of wonderful apps created by independent, often small, software makers. Apple should be thanking us for the work that we're doing for the platform, not trying to abuse us, not trying to shake us down. It's just obscene.

Peter McCormack: Well one of the things I like about Apple and I've never been able to get on with an Android phone is because it feels like that one unified experience, like the whole thing's thought through. Whereby if they open up the platform, you have risks of it not having that feeling anymore. I get that and I actually support some of the closed nature of their App Store. Look, I've built an app before in a old business I had and we used TestFlight. We went through the approval process and I didn't mind that in that a lot of the junk, you get rid of a lot of the junk and the scams.

David Heinemeirer Hansson: I agree.

Peter McCormack: But the 30%, it's a racket and it's a shakedown, like you've said. But look, I'm sure if they did like 5%, which is way above credit card fees, they'd have got away with that. You'd have paid 5%, maybe 10%, but 30%?!

David Heinemeirer Hansson: That's the thing. Credit cards, if you had gone like, "Well, we're going to charge twice what credit cards do," three times, four times, you're going like 10%, I'd be like, "All right, that's a little stiff. But on the other hand, they do these things, they do this thing, they're in this," and we're refusing to pay because it's just so obscene. I don't even think if you could go to the mafia. What's the shakedown fee on mainstream if you own a butcher somewhere in Southern Italy?

I don't think it's 30% because the mafia would go like, "Do you know what? That's just too predatory. We're going to run the butcher out of business if we charge 30%. So I don't know, maybe our rate is 15% or 10% or something like that." Apple just goes like, "No, Fuck those guys, 30%."

Peter McCormack: Yeah, but there was a consistency there. I was looking at their terms, so you talked about the 3.1.1, there's a 3.1.3a which protects reader apps, so things like Kindle are protected. I've also noticed that you did your own chart where different apps are different ways, but they don't charge deliver on Uber a percentage either. So there's no consistency here. It's like, "Where can we get away with it?"

David Heinemeirer Hansson: So this is what's so fascinating. Not only is there no consistency in their written rules, but literally the exception that they quote for a Kindle and Netflix is that they're reader apps. I don't know, we're stretching the word reading a little bit when it applies to watching Netflix shows, but it does not apply to reading email? How is an email app less of a reader than Netflix is? That's the first thing. They've tortured the language because they're just putting these exceptions in.

One of the other exceptions is if you make education classroom software. What? How is this just filled of whatever lobbying efforts that they felt like, "Eh, all right, educational classroom room software, we're going to put that in there." But let's just even take that aside that the rules as written are just full of these nonsensical definitions and priorities, where you just go like, "This doesn't make any sense," they don't even follow those. They don't even follow what they wrote down. Why bother writing it down when your rule of law really is just case by case basis as we see fit?

They could have written that and then that would have been far more accurate when we can look at cases where we don't even have to compare ourselves to Netflix. We can just compare ourselves to the other email apps in the App Store and go like, half of them, including huge ones like Gmail and Outlook and whatever are not subject to these things. We have our own other app, our main business, Basecamp, is on the same thing. This doesn't make any sense. This is the key point, everyone keeps trying to make sense, "There's got to be a logical explanation for this. Maybe we didn't read the fine print somewhere.

If you read this there's..." No, no, no, no, there is no sense here because Apple doesn't need for it to make sense. They don't need for it to be consistent. They have power and this is what it comes down to, they can do whatever they want whenever they want, so they do. One of the most famous axioms here is like power corrupts. Absolute power corrupts absolutely. This is that! They have absolute power and they've gotten absolutely corrupted by it.

Peter McCormack: So what's going to happen now? What are you going to do about this? What can other people do? What can I do? What can everyone do to help support this because this is obviously bullshit! We love tech, I love tech, uou love tech, we all want innovation. You know what? We want these small little companies of like two guys in their bedroom or their garage or with their $200,000 of seed money, we want them to be successful! We really want them. Apple's going to be fine, so what can we do and what are you going to do?

David Heinemeirer Hansson: It's hard. What we're going to do is we're not going to shut up and we're not going to pay. So that's the first rule here is that even if Apple solves this...

Peter McCormack: Fuck you Apple!

David Heinemeirer Hansson: ... Even if Apple solves this for us today, which I don't know, I don't think they're going to, but let's just say they think they don't need the heat right now with the different investigations going on. They find some other ways of being inconsistent, and we're fine. Okay, well that's great for the customers of Hey, but that doesn't solve the issue. This isn't just about us. My Twitter DMs and my email is blowing up with stories of other small, independent software makers getting bullied and abused in the same way, but not wanting to speak out.

They don't want to get on Apple's bad side because Apple is then going to squash them. Apple literally holds these people's livelihoods in their hands. They cannot afford, again literally as in money, they cannot afford to piss Apple up, so they stay quiet and they just take it. Well we're not going to do that, in part, because we have the privilege not to do that. We run a otherwise successful business that is not completely dependent on Apple through Basecamp. So we can fund sort of this outreach a bit, and we're going to. We're going to push it all the way.

I'm speaking with the House subcommittee team later today, I'm speaking with the Department of Justice tomorrow, we're trying to make as big of a ruckus about this as we possibly can to shine a light on it, such that at least everyone knows what Apple is doing. Then ironically, practically, we're telling everyone, "Hey, if you might want our new email service, Hey, you should download the app now." I don't know how much longer it's going to be available, but presumably Apple is not going to reach into everyone's devices and then delete the app off their phones, that would be wild! Actually I wouldn't put it past them, but I don't think that's going to happen.

So if you download the app now, you at least have the app. It's a great app and whether you decide to get the service now or tomorrow, maybe Apple would think twice if there was like 100,000 people who had downloaded the app. They'd probably go like, "Do you know what? This isn't just a fly we can smash with no consequences. They're at least going to squeal as we smash them and perhaps we don't want to listen to that." The other irony here is that Apple is just about to do the WWDC conference for developers.

Isn't the whole point of that conference like, "Hey, we're celebrating small, independent developers. Look at all the new APIs we have out. These are all the great apps that you can make." Do you know what? It's wonderful. New APIs, they're great, but Apple, please take a goddamn second to look at your abusive policies and fix them. I guarantee you that the developer community would cheer for that like nothing else.

No new API will come close to what reforms of these abusive policies would mean, that we don't have to live and develop software in fear that after we've spent millions of dollars or years of effort, Apple is just going to capriciously deny us on a case by case basis with no consistency, with no respect for precedents, with no opportunity for us to guess which way it's going to go. You approve us one day, you deny us the next day. How can anyone live or work like that?

Peter McCormack: Hmm, well I don't think they'll ever get rid of the 30% and reduce that down. I could see them kind of relaxing the rules around...

David Heinemeirer Hansson: Give us the choice, just give us the choice!

Peter McCormack: Yeah, give you the choice! You've had that before and it's worked and we all know the game. Well perhaps that's what it is. That's because we all know the game now. I know the game and...

David Heinemeirer Hansson: Well we thought we did, because the game was full of rules that weren't written down and we thought we knew all the unwritten rules. But of course they're unwritten rules, so Apple can change them whenever they want, and they just did.

Peter McCormack: Yeah, but we knew the rules and perhaps that was what it was. I knew I would subscribe to Hey just via the browser and I'd have it and perhaps, everyone's got used to that. I don't know what's going on in there, but it is a shame. I like their products, I don't like their sweat shops, but I like their products. I don't like their shakedown, I do think it's bullshit, but listen, I support you, I'm behind you and I'll do everything I can. Look, fingers crossed you get this sorted because it is absolute fucking bullshit! Tim Cook needs to get his shit together.

David Heinemeirer Hansson: Amen, thank you so much!

Peter McCormack: All right man, all the best with this!