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Is Apple a Victim of Sour Grapes?

As Apple fans line up at stores on Thursday morning for the release of the fourth iteration of the iPhone, the company is riding high.

And it’s not just the iPhone. Sales of the iPad tablet are strong too, and Apple has surged past Microsoft to become the most valuable company in the technology industry.

But as one success follows another, the company finds itself in a bewildering position. As the tech industry’s perennial underdog, Apple was frequently scorned and dismissed by larger and more successful competitors like Microsoft or Dell . Now, with growing frequency, the company is seen by competitors and other industry players as a bully.

Companies like Google and Adobe have accused Apple of unfairly using its clout to exclude their technologies from the iPhone and iPad. And some application developers are fretting under Apple’s tight control of those devices, even though many of them built their fortunes on the popular gadgets.

But perhaps in the clearest sign that Apple has emerged as an industry superpower, government regulators are beginning to scrutinize its every move.

Russian President Dmitry Medvedev receives an iPhone 4 from Apple CEO Steve Jobs on his tour of Silicon Valley this Wednesday.
Dmitry Astakhov | AFP | Getty Images
Russian President Dmitry Medvedev receives an iPhone 4 from Apple CEO Steve Jobs on his tour of Silicon Valley this Wednesday.

“This is unfamiliar territory for Apple,” said Tim Bajarin, president of Creative Strategies, who has followed Apple for nearly three decades.

The changes are a testament to the remarkable turnaround orchestrated by Steven P. Jobs, who returned to Apple more than a decade ago when the company was on the verge of extinction. But those changes have also thrust the company into an unexpected and potentially perilous role as competitors start to cooperate with each other against Apple.

For all the complaining, Apple’s self-interested and quirky pursuit of innovation is not new.

Time and again, it has been willing to break with technology industry standards by doing things its way, even if it ruffled feathers. “Apple has always marched to its own drumbeat,” Mr. Bajarin said.

The company often irked suppliers and confounded pundits, for instance, when it chose to use 3.5-inch floppy disks instead of the more common 5.25-inch disks, or later, when it did away with floppy disks altogether.

But now that Apple has grown from a niche player into one that leads the fastest-growing segment of the industry — mobile computing — its actions are far more consequential and the complaints have turned to grievances.

“People used to say, ‘Apple is crazy, they are making a big mistake,’ ” said Paul Saffo, a veteran Silicon Valley technology forecaster. “Now they are saying Apple is trying to kill competition.”

The complaints are in some ways surprising because Apple, for now, is far from reaching the kind of dominant position enjoyed by Microsoft in PCs or Google in search and online advertising.

While the iPod and iTunes lead the market for music players and online distribution of music, Apple remains a small player in PC sales. It is only now entering the digital advertising business and the sale of electronic books.

Even in smartphones, it lags behind Research In Motion, maker of the BlackBerry, though its devices dominate the market for mobile applications.

Perhaps the loudest complaints this year came after Apple barred some third-party programming tools from the iPad, including Adobe’s Flash software, which is widely used to create online videos and Web applications.

The decision led to a very public war of words between Adobe and Mr. Jobs. It also prompted the Federal Trade Commission to begin asking questions about the effect of Apple’s decision on competition.

“To ignore a major component of the Internet like Flash seems a little silly,” said John Warnock, a founder of Adobe. Mr. Warnock said Mr. Jobs would have proceeded more cautiously when the company had less clout. “Apple does what it does,” he said. “But I don’t think that they would have made a decision like this 10 years ago.”

Mr. Jobs, who declined to comment for this article, has forcefully defended Apple’s decision to exclude Flash, saying it was strictly for technical reasons. He disparaged Flash for consuming too much battery power and for what critics call its security flaws (see CNBC's Jim Goldman's commentary on this fight, above).

And he said Apple was simply making a bet that the technology, while popular today, was quickly falling out of favor and would soon be overtaken by others.

Customers “are paying us to make these choices,” Mr. Jobs said during a recent public appearance.

Perhaps Apple’s swiftest and most startling transformation from underdog to looming monopolist came in the world of mobile ads, a market the company is just entering.

Only weeks ago, the F.T.C. was on the verge of blocking a merger between Google and AdMob, which specializes in placing ads inside iPhone apps.

Regulators said that the merger would give Google, the largest seller of online ads, a virtual lock on the small but fast-growing market for mobile phone ads.

The commission approved the deal, but only after Apple acquired Quattro Wireless, an AdMob rival, and announced its own iAds advertising system for mobile phones, to be included with the iPhone 4.

Then this month, Apple appeared to make the switch from excluded to excluder in the mobile ad market. New policies for the iPhone 4 bar Google and AdMob from selling ads on the device, resulting in a complaint from Google, which was in the unusual position of playing victim.

“Artificial barriers to competition hurt users and developers and, in the long run, stall technological progress,” wrote Omar Hamoui, the chief executive of AdMob.

After Mr. Hamoui’s complaint, the trade commission expanded its investigation of Apple’s practices to include iAds, according to people briefed on the matter who did not want to be identified because of the delicacy of the investigation.

The commission’s inquiry is not the only one concerning potentially anticompetitive behavior by Apple. The Justice Department recently began a preliminary investigation into whether Apple pressured music labels to exclude Amazon.com, its rival in digital music distribution, from certain licensing agreements. And Apple is one of many Silicon Valley companies whose hiring practices are being examined by the department.

The latest inquiry from the commission has raised eyebrows among some antitrust experts, in part because Apple currently controls less than a third of the smartphone market in the United States.

R.I.M., with its BlackBerry, remains No. 1, and phones based on Google’s Android software are quickly gaining acceptance with consumers and application developers. But some said the government was right to be concerned.

“Apple has gotten really aggressive in trying to flex its muscles and trying to take advantage of its position in the market,” said Andrew I. Gavil, an antitrust expert and professor of law at Howard University.

“The question is whether they have gotten significant enough in any of these markets to affect competition,” he said. “The answer appears to be yes.”

While Apple has created a large ecosystem that has made some application developers rich, many are now fretting that the company has too much control over the world it created.

When an iPhone developer at Facebook announced recently that he was moving on because of Apple’s restrictions, the influential technology blog TechCrunch ran a headline saying the person left “over Apple tyranny.”

And when the maker of a popular app pulled out of Apple’s store in frustration over delays in approving a new version, he asked in a widely read blog post, “Was your intent to shut us down by playing the waiting game?”

For Mitchell Kapor, who invests in technology start-ups including developers of mobile phone applications, it brings back memories of confronting Microsoft while running the Lotus Development Corporation in the 1980s.

“The amount of resentment is very, very large,” he said, “and reminiscent of the kind of resentment there was toward Microsoft when it was the platform an app developer had to be on.”

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