Apple must open iPadOS to sideloading within 6 months, EU says

The iPad App Store is perhaps an even more dysfunctional place than the iPhone in how much it holds hardware and use cases hostage to the manufacturer's vision. Just imagine how much more versatile the iPad Pro would be if only you could run Linux VMs on it in the moments you want to do anything remotely tinkery on an iPad.

Apple's hardware since the 2021 iPad Pro (with M1) has had the ability to do this. The iPads have the RAM (16gb on higher storage models), appropriate keyboard and trackpads, the works. Great hardware being held back by Apple's vision people weren't allowed to deviate from.

A straightforward reading of the DMA suggests that Apple is not allowed to restrict apps from using hardware features. Let's hope that means Parallels/VMware style VMs are possible without too much of a fight.

Is it right to say that currently the cost of the hardware is being partly subsidized by the profits Apple makes from the software? If some of the profit from the software gets taken away will we see the price of the hardware rise?

Probably not. If the current price is optimal then it will remain optimal even if costs rise.

That's really not true. The optimal (in the sense of where the supply and demand curves intersect) price for maximum profit rises as costs rise. It's true that the revenue-optimal price remains the same, but I think Apple's shareholders care more about profit than revenue.

To build intuition on this, it helps to think about the extreme cases: If the marginal cost of production is zero, you can sell the product for close to zero to pick up pennies from almost every human on earth. So the revenue-maximizing and profit-maximizing prices depend on demand elasticity, but are both low.

If the marginal cost of production is a million dollars, selling for anything less than that will result in negative unit economics. You can still maximize revenue with low prices, but that incurs negative per-unit profit. In fact, the price must be more than one million dollars per unit to make any profit. That might imply that the profit-maximizing condition is one unit sold for $1m+1.

For certain demand curves, that might even imply the profit-maximizing condition is to tell zero units! A real-world example of this is Rivian. They have negative unit economics, and would be more profitable if they simply stopped production.

I think what confuses some people is that all these things can be (and are) true at once:

1. The price where Apple achieves maximum profit under the new rules is higher than before.

2. After raising prices, that profit will be less than what they earned before.

3. Units sold will be less than before.

4. Apple won't reduce prices in response to the lower profit because the new higher prices, lower quantity and lower profit are profit-maximal under the new market conditions.

What we will observe in practice is not higher MSRPs in Europe, but fewer discounts (it is an open secret that you should never buy an Apple product without at least a 10% discount).

I see a lot of people claiming (I believe disingenuously) that the changes forced by the EU will convince them to consider buying Apple's products in the future. If you believe those people, that's yet another reason to think Apple hardware prices will rise in Europe: Both the supply and demand curves are moving in directions that imply higher prices.