Apple's Trump Card

Apple finds itself in a weird spot at the moment. They long ago relinquished their beloved underdog status but now they're nearing the full transition to "big baddie" in the eyes of many. "You either die a hero or live long enough to see yourself become the villain," and all that. Certainly this is true from the perspective of the EU, where Apple is target number one when it comes to all of the regulatory changes coming into effect.

And while it's not yet clear if they're losing legal battles, Apple is absolutely losing PR battles on a daily basis at this point. Clearly, Spotify and Epic aren't going to relent on this front, and others are likely to join the barrage as they sense weakness from Apple. It's hard to see anyway out of this downward spiral for the company other than two ways:

1. They start to proactively make changes to App Store policies that benefit developers while hurting their own bottom line (at least in the short term). And not just in the EU under threat of fines, but everywhere. The carrot.
2. They slam their foot on the gas to go back on offense. They threaten to pull out of the EU. The stick.

What's crazy is that #1 is probably less likely to happen than #2. Perhaps Apple could stomach swallowing their pride – perhaps – but what they undoubtedly can't live with is the resulting drop in services revenue that would undoubtedly result from meaningful changes. Wall Street is already hitting Apple, any hit to their revenue (or even just growth) would hurt a lot. Mark Zuckerberg was able to lead Meta through such lumps, but he's also the founder of his company with complete voting control. Tim Cook, for as great of a CEO as he's been the past decade-plus, may not carry such clout. Especially when Apple is arguably the most important stock in the world, tied into mutual funds and retirement accounts.

Anyway, that leaves #2. It sounds crazy, but what if Apple did threaten to pull out of the EU? Meta and Google have threatened to do this with certain products in the past, but none of those products are the iPhone. Or MacBooks. Tangible tools needed to operate day-to-day for millions of people in the region. TikTok can summon an army of angry phone calls to Senators, but it's not the same.¹ No one needs TikTok. People need these devices.

Sure, they could use PCs or Chromebooks. Android phones. But my guess would be that millions upon millions of people are not going to be happy to have no choice here after years of free choice. And some subset of those users would be quite vocal in letting the EU know what they think about such a hypothetical shift.

When they choose to be, Apple is great at marketing and PR. They would know how to frame this maneuver. Something like:

"We love our EU customers. We delight in bringing them all of the best that Apple has to offer. Unfortunately, the EU is not allowing us to do that any longer. With their proposed changes, they're dictating onerous rules and threatening impossible fines all in the name of degrading what we can offer to our customers: the safety, security, and user experience that defines Apple. As such, we've made the difficult decision to stop selling our devices and services in the European Union."

The uproar would be swift. The EU would be pissed. Because they would go from looking like the defenders of the little guys, to the overbearing parent that took the candy away. They'd undoubtedly try to threaten Apple in other ways, but what could they do? Probably try to deem Apple an "essential" technology or some such and force the company to sell to their citizens. The hypocrisy would be palpable.

Behind the scenes, the EU would likely reach out to Apple to cut a deal. They'll offer to dial-back the regulatory demands or give a longer time horizon to implement them. But Apple is Apple, once they've made up their minds on something, they'd be unlikely to budge outside of full victory. I mean, they just pulled a feature from already released Apple Watches to avoid striking a patent deal. Apple plays hardball like no other.

This would all mean a ding in revenue. The EU isn't as important to Apple as the US or China, but it certainly matters.² Does it matter more than say, 10% of worldwide revenue? Perhaps not! And the broader calculus would have to be something along the lines of: if we give into these EU demands, the whole world will start demanding the same, and that would significantly degrade the largest growth driver of our revenue: Services.

Again, I don't think any of this will actually happen, but Apple has to at least be considering it. That's how bad the current situation is with the EU. The more likely play here is simply to drag any changes out as long as possible through disingenuous tweaks and the courts. Apple can likely push anything they truly care about out for years, and maybe the EU would change its attitude – or its target – by then.

Or maybe, just maybe, a newly re-elected President Trump would come to the rescue in some way. The EU is trying to harm an American company? Fear not, Tim Apple...

¹ It also seems mildly ridiculous and almost comical that a Chinese-owned entity which is under attack for the fear that it could be used to manipulate its American userbase is pushing a campaign to mobilize its American userbase in an attempt to sway American politicans. Okay!

² Data suggests there are something well north of 100M iOS users (including iPadOS) in the region. And undoubtedly many millions more Mac users.