A fight against Apple’s credibility could threaten its search for the next big thing

The Department of Justice’s antitrust lawsuit against Apple (AAPL) could have major consequences for the iPhone maker’s business segments. If the DOJ wins, the company could be forced to give third-party companies greater access to iPhone features including Apple Wallet, improve compatibility with competing devices, and even allow third-party app stores on iOS .

But the DOJ will have a hard time proving that Apple has broken antitrust laws, and even if it prevails to some extent, the company will likely appeal the case to the Supreme Court.

In the end, Apple may make some concessions, but the DOJ suit is unlikely to significantly discourage the company’s overall business. But that doesn’t mean Apple is out of the woods. The antitrust action may pose more dangers to the company than giving users access to different app stores or ending the green-versus-blue text bubble debate.

It could ultimately hurt the company’s ability to capture the next wave of technological innovation, just as Microsoft’s (MSFT) antitrust suit in the late 1990s drained executive resources and cost that company a chance at dominance. get on the smartphone market.

A distraction at the worst time

The tech industry is in a huge rut thanks to the AI ​​generation explosion. Microsoft, which has invested heavily in ChatGPT developer OpenAI, is the world’s richest public company by market cap, pushing Apple into second place.

Nvidia is riding an incredible wave of success and growing revenue from sales of its AI chips, and it seems like every company in Silicon Valley and beyond is talking about how it’s implementing next-generation AI to one degree or another.

Microsoft co-founder Bill Gates attends a session at the World Economic Forum (WEF) meeting in Davos on January 17, 2024. (Photo by Fabrice COFFRINI / AFP) (Photo by FABRICE COFFRINI/AFP via Getty Images)

Microsoft co-founder Bill Gates attends a session at the World Economic Forum meeting in Davos on January 17, 2024. (FABRICE COFFRINI/AFP via Getty Images) (FABRICE COOFFRINI via Getty Images)

Apple is widely expected to dive into the field and debut its own AI generation capabilities at its WWDC developer conference in June. That’s not all, though. Apple is also at work by continuing to develop and support its Vision Pro AR/VR headset, which it hopes will be the new form of computing.

But antitrust suits are long, time-consuming affairs that can eat up executives’ time, distracting them from important business decisions.

“If the company believes that virtual reality is the next generation of computing after the smartphone … they have to really target the C-suite on that,” explained Harvard Business School Professor Andy Wu. “But this situation is enough to bide their time instead of focusing on the future. So that’s one risk.”

There is some precedent for this line of thinking. Microsoft co-founder and former CEO Bill Gates has blamed the distraction caused by his company’s antitrust battle with the DOJ over its failure to break into and capture the smartphone market. Microsoft settled with the Department of Justice in 2001, opening Windows to competing web browsers and services.

Microsoft eventually launched its own Windows Phone, even going so far as to acquire Nokia for $7.2 billion, but it failed to gain traction and the company decided to focus on its cloud business instead.

Deepwater Asset Management managing partner Gene Munster says that while he doesn’t believe the antitrust case will significantly affect Apple’s ability to innovate, it’s certainly a threat.

“Two [Apple doesn’t] innovative then they are going to lose and it is not because of the DOJ; the DOJ would be a distraction,” he told Yahoo Finance.

Apple brand damage

A lengthy legal battle could also damage Apple’s carefully guarded public image.

“The question is, how far and how hard is Apple [going to] to fight some of this stuff, and in the process, risk them … hurting their enormous goodwill?” said TECHnalysis Research founder and chief analyst Bob O’Donnell. “I think that’s something they need to think about.”

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Apple has built a powerful following around the world thanks to its excellent hardware quality, easy-to-use software, and customer service. But a long legal fight and negative headlines could jeopardize that.

Yes, Apple is one of the largest electronics companies in the world with a growing services business. And sure, the iPhone is one of the most iconic devices ever built, but consumer sentiment can change overnight, and that can certainly be a problem for Apple.

The DOJ’s antitrust suit is still in its earliest stages, and Apple is sure to fight it as aggressively as possible. And while it has weathered major storms before, including regulatory fights in the European Union, there’s no guarantee the company will emerge from this battle unscathed.

Email Daniel Howley at dowley@yahoofinance.com. Follow him on Twitter at @Daniel Howley.

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