Weekly Reads - December 19, 2022
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For the first time in history Apple is opening its devices to third party applications to comply with new EU law changes that will come into effect in 2024. The Digital Markets Act by the EU will force app marketplace operators like Apple to allow third party app stores to compete on the iPhone and iPad. To comply with this new regulation, the company is dedicating a lot resources in opening the IOS platform. This change could have drastic consequences for Apple’s app store since downloading third party applications would allow users and developers to get around the 30% commission fee that Apple charges to developers. We estimate that the Apple app store generates $25 billion in revenue for the company accounting for 7% of 2021 revenue. While the revenue impact isn’t super significant, the biggest worry is the new law’s impact on the Apple ecosystem. The new law is enacting other changes such as requiring Apple to enable third-party payment platforms, allowing users to use other digital assistants outside of Siri, and allowing outside app integration with iMessage. Each of these changes individually does not have a major impact, but together could create issues. The most pressing problem is security with the addition of third-party applications potentially bringing in malware and security concerns to Apple devices. Apple has two years to figure out how to counter these potential issues before the new law is enforced.
Amazon is entering the social media space via its own TikTok clone, Inspire, a content hub for users to discover and explore Amazon products. Inspire offers brands and influencers the ability to make videos and posts about their products sold on Amazon. Like TikTok the content on Inspire is mostly short-form video demonstrating Amazon products. For many brands and influencers, Amazon is an important retail channel to sell their products due to the massive customer base that uses the platform on a daily basis. Inspire was built to have brands and influencers show off their product through engaging content that gives potential buyers a better look into how their products look and how they work. This would give brands a leg up over competing products who are choosing not to post content about their products. This could create a network effect in which brands start posting on Inspire because they don’t want to fall behind other brands who choose to post on Inspire. Inspire will roll out in December to select U.S users and become available to all users in the next upcoming few months.
The sixth largest defense contractor L3Harris plans to acquire Aerojet Rocketdyne for $4.7 billion. This deal comes after Lockheed’s failed acquisition of Aerojet in February. L3Harris’ decision to acquire Aerojet is a bit of a head scratcher after Lockheed saw massive pushback during their acquisition effort. The FTC announced a lawsuit seeking to block the deal on antitrust grounds and weeks later Lockheed announced it no longer was seeking to acquire Aerojet. The current political administration has been against big mergers and it is likely that this deal will see pushback.L3Harris has reshaped itself over the last few years with L3 Technologies merging with Harris in 2019 growing into the 10th largest defense firm in the globe. It will be interesting to see how Lockheed and peers respond to this proposed acquisition and if the political stance toward acquisitions will soften.