A French antitrust authority’s $USUS1.38 billion in fines for price fixing by Apple and its distribution partners Ingram Micro and Tech Data are not surprising given Apple’s “stringent” channel pricing requirements, said solution providers.
One CEO for a longtime Apple reseller, who did not want to be identified for fear of jeopardizing his Apple reseller contract, said he sees Ingram Micro and Tech as “pawns” in Apple’s strict pricing actions and channel policies that ultimately end up hurting Apple resellers.
“I am not surprised by this,” said the CEO. “Ingram and Tech Data are pawns in this. I’m sure Ingram and Tech Data had to follow these rules to continue selling Apple,” he said. “I guarantee Apple said ‘This is what you are going to do or you’re not going to have the product.’ I’m not saying it is right or wrong. If the distributors don’t play by the rules that Apple lays down, they are out – just like us. There are no special prices on Apple when you are buying from distribution. They are similar. You pay the price. We never worry about it too much because we only make five, six or seven percent at most on Apple products. Apple looks at the channel as a second-class citizen.”
The French Competition Authority Monday said Apple was guilty of anti-competitive practices, including creating cartels within its distribution network and abusing the economic dependence of its outside resellers. As a result, the authority fined Apple $US1.23 billion; Tech Data $US84.8 million and Ingram Micro $US70.2 million. The French Competion Authority said the combined $US1.38 billion charge was its highest ever for a case.
Apple did not respond to multiple requests for comment. Ingram Micro in a news release responding to the French agency's decision said it plans to "vigorously contest" the decision. Tech Data in a statement provided to CRN said it was still determining how to respond to the sanctions, which cover the distribution of Apple products from 2005 to 2013.
Specifically the French Competition Authority accused Apple, Ingram and Tech Data of agreeing to stick to the same pricing for Apple products other than the iPhone between 2005 and 2013. That caused prices for many Apple products to be the same whether sold by a reseller or Apple itself.
“Apple and its two wholesalers agreed not to compete and prevent distributors from competing with each other, thereby sterilizing the wholesale market for Apple products,” said the French Competition Authority, according to a translated version of the finding.
The French Competition Authority, in fact, charged the two distributors with implementing “product and customer allocation mechanisms developed and piloted by Apple instead of freely determining their commercial policy.”
Ultimately, the actions of Apple, Tech Data and Ingram Micro “sterilized” the wholesale market for Apple products, “freezing market share and preventing competition between the various distribution channels of the Apple brand,” said the French Competition Authority.
The Authority also sanctioned Apple for strongly encouraging Apple Premium Resellers (APRs) to charge the same prices as those charged in Apple Stores, according to the French Competition Authority.
“In addition to the communication of prices, the control of promotions and the monitoring of prices, the elements on the record show that Apple has drawn up a web of contractual clauses and implemented a set of behaviors that have left no room for maneuver,” said the French Competition Authority.
In addition, Apple implemented a “price monitoring system” that posed a “risk of retaliation” for promotions not authorized by Apple, said the French Competition Authority.
The Apple reseller CEO – who did not want to be identified – said the channel has historically had a pricing disadvantage versus the Apple stores and website, particularly in the education market.
“You absolutely get better pricing from Apple than resellers,” said the CEO. “We always get customers walking out the door disappointed and angry thinking we are trying to price gouge them and rip them off because we can’t participate in the deals that Apple offers. I would like to see Apple put the resellers on a level playing field. We are a step-child that is treated differently than their own child. That’s not fair. Either you are in the family or not. Apple doesn’t accept resellers as being part of the Apple family. They treat us as unwanted step-children.”
The CEO said he has been a frustrated Apple reseller for years, but maintains his status because his customers love Apple and its products.
“At the end of the day, Apple has a fabulous product and customers love them” he said. “The problem is they don’t have any competition so they can do whatever they want. They have more money in the bank than most countries. They treat the channel like second-class citizens, and yet we are the ones representing them in the field, especially in areas of white space where they have no coverage. It reminds me of being in a relationship that you have to stay in it but you hate going home every night. It’s just not a working partnership.”
Bob Venero, CEO of Holbrook, N.Y.-based solution provider Future Tech, No. 101 on the CRN 2019 SP500, said Apple has much more “stringent pricing” policies than other OEMs.
“I don’t have a problem with that because it keeps the fire sales from happening that are just margin erosion for everybody,” he said. “There is a reason Apple has so much profitability as a company: because they don’t always race to the bottom. There is nothing wrong with that.”’
Venero said there will likely be “more scrutiny” on Apple from U.S. regulators in the in the wake of the French Competition Authority decision.
Venero, as an Apple reseller that relies on distribution, said he sees Apple as an outstanding ethical provider of products. “We’ve never had a problem with Apple,” he said. “From our experience, Apple has always acted in an ethical manner. There is always a lot of hate for Apple because they make a lot of money. I defend them. They make a great product and a great operating system. They have created an amazing culture around their product.”
As for the sanctions against Tech Data and Ingram Micro, Venero said he is not familiar with the exact claims from the French antitrust authority, but that it is up to every business to maintain business integrity and ethics. “If Ingram Micro and Tech Data believed their business ethics were in question based on the acts of one of their suppliers, it is their responsibility to step up and do the right thing – not to kowtow to a supplier,” he said.
Michael Oh, founder and president of TSP LLC, a Cambridge, Mass.-based managed service provider focused on Apple-PC integration services, audio-visual conference rooms and smart homes, said he got out of the Apple retail business eight years ago because it was simply unprofitable.
“We are still big Apple fans, but we moved away from the Apple ecosystem in terms of reselling and repair,” he said. “We are an MSP now with IT services. We were an Apple value-added reseller for 20 years starting in 1993. Apple’s early success was built on the independent resellers. Then they made what was a brilliant move to start the Apple store, owning that channel. It is hard to qualify what is anti-competitive or not. What is very clear to me looking back 10 years is that it was a big mistake to think as an independent retailer that you could compete with Apple.”
Oh said he wished he never got into the Apple retail business with the Tech Superpowers store at Patriot Place at Gillette Stadium in Foxboro, Mass., which closed in 2012. “We gave it a shot for several years, but we never made a dent,” he said. “The margins were never there as an Apple reseller. It is clear that Apple as the manufacturer of the product had extremely deep margins compared to an independent reseller getting the products from Tech Data and Ingram. There is just no way to compete when you are making five times less profit on a product because you are not the manufacturer. I never really thought it was Apple that killed our retail business. I always thought that was just a bad decision. We are still here fighting a different fight and one that we enjoy and doesn’t have anything to do with selling Macs. We are now providing services around Apple, cross-platform, and how to manage Mac systems at scale.”
TSP LLC is now doing work for high profile, blue chip clients like the Boston Celtics and renowned Boston venture capitalist Accel, which funded Facebook, Slack and a number of other notable technology companies.
The MSP focus is paying off in big growth for TSP, with the MSP business slated to be up 30 percent this year and the audio-visual conference rooms/smart home business up a projected 100 percent, said Oh.
“We could never increase our business as an Apple independent retailer by 100 percent; the business and the marketplace were never there,” he said. “I am happy I am out of that market, and that loss forced me to reevaluate and focus on the core business, which makes money.”