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Daniel Ek is not happy. On March 13, the Spotify CEO published a searing blog post announcing that his firm had filed a complaint against Apple with the European Commission, the body responsible for enforcing fair competition in the EU.
The crux of Ek’s argument goes like this: as the owner of iOS and the App Store, Apple exercises a huge degree of control over how people interact with services like Spotify. For the more than one billion iOS users worldwide, Apple is the gateway to the internet.
“In theory this is fine,” Ek wrote. “But in Apple’s case, they continue to give themselves an unfair advantage at every turn.” He claimed restrictive App Store policies give Apple – and its own services, such as Apple Music – an unfair advantage over third party apps like Spotify.
But Apple has been hearing this argument – in its various forms – for almost as long as the App Store has been around. Spotify’s move is only the latest in a series of challenges that have drawn into dispute Apple’s competitive practises.
At its core, the anti-competitive argument poses a crucial question. Should Apple be allowed to use its dominance in hardware to give itself an edge when it comes to software and services, too? As the giant slowly shifts from hardware into services – an Apple video streaming service looks likely to be announced at the end of March – it’s starting to look like a question that could threaten its very existence.
At the heart of Ek’s argument is a complaint about how Apple’s App Store rules make it much harder for Spotify to compete with Apple Music. Apple takes an initial 30 per cent cut of the subscription fees paid by anyone that signs up using an iOS app, and then takes a 15 per cent cut of all subscription fees paid after the first year.
Of course, Spotify can just direct users to sign up to Spotify outside of its iOS app, which is exactly what it does. But this, Ek argues, puts Spotify in a difficult position. Either it funnels 30 per cent of its in-app subscription revenue to Apple or it is forced to make it much harder for Spotify users with iPhones to subscribe to the app. Apple’s App Store restrictions also stop Spotify from sharing deals and other information with its customers.
On March 14, Apple responded to Spotify's claims with a blog post of its own. "Spotify wants all the benefits of a free app without being free," Apple wrote, pointing out that 84 per cent of apps in the App Store do not pay anything to Apple when the app is downloaded or used, and that the majority of Spotify customers already use the free version of the app, which pays no money to the App Store.
"Spotify wouldn’t be the business they are today without the App Store ecosystem, but now they’re leveraging their scale to avoid contributing to maintaining that ecosystem for the next generation of app entrepreneurs. We think that’s wrong," Apple wrote, arguing that only a "small fraction" of Spotify subscriptions are subject to Apple's 30 per cent fee.
Apple's argument is that the App Store already provides plenty of benefits to competitors, by connecting apps with iOS users, providing app development tools and providing secure payment infrastructure. "Spotify is asking to keep all those benefits while also retaining 100 per cent of the revenue," Apple wrote.
Of course, this situation is not unique to Spotify. Apple takes 30 per cent of any subscriptions delivered through App Store apps – which may well be why in December 2018 Netflix stopped offering subscriptions through the iOS app. According to one analysis, in 2018 alone this subscription charge may have cost Netflix $256 million. Among developers, the 30 per cent fee is snarkily referred to as the “Apple Tax,” although the Google Play store also has a 30 per cent fee – that’s part of the reason why Epic released Fortnite through its website rather than the Google Play Store.
And there’s another complicating factor: Apple Music. Apple’s own streaming service doesn’t pay that 30 per cent fee for in-app signups, which gives rise to Spotify’s claim that Apple is deliberately advantaging its own services at the cost of competitors. On a website accompanying its complaint, Spotify argues that the 30 per cent fee meant that it had to increase its prices, allowing Apple Music undercut Spotify.
But services like Apple Music are set to become much, much more important to the firm. As hardware sales have stagnated, Apple has placed more emphasis on its services sector, which includes revenue from the App Store as well as Apple Music. In the last three months of 2018, its services revenue reached an all-time high of $10 billion (£7.53bn) – a little over 16 per cent of its entire revenue for that time period.
For Apple, then, the 30 per cent App Store fee isn’t just a cash cow, it’s a tactical move. Its famously stringent app requirements mean that it can shape the way that competing services interact with customers – even to the extent that, according to Spotify, Apple threatened to take the app off the App Store altogether.
It’s not just Spotify, which has been joined by the streaming apps Anghami and Deezer, who have problems with Apple’s control over the App Store. In 2011, a group of iPhone users in the US came together to bring a class action lawsuit against the firm claiming that Apple’s control over the App Store amounted to monopolisation and artificially inflated the price of apps for users.
In December 2018, the US Supreme Court heard the opening arguments in a case to decide whether this class action lawsuit can be brought against Apple or not. It will have to decide whether Apple is the seller of the apps, or whether it is just an intermediary. The outcome of the seven-year-old case may set a precedent for whether Apple’s control over the App Store can be described as a monopoly or not.
While the US class action has languished for the best part of the decade, Spotify will be hoping it’ll have more luck in the European Union. In July 2018 the Commission fined Google a record-breaking €4.34 billion (£3.7 billion) for anti-competitive practises relating to the dominance of Google search on Android.
Whether Spotify’s case will result in a similar headline-grabbing figure is difficult to predict. But one thing’s for certain: as Apple shifts away from hardware and into services, it is heading on a collision course with the likes of Spotify, who so far has co-existed uneasily with its prime competitor. The question is, when this house of cards comes tumbling down, who will be left on top?
Updated 15.03.19, 10:00 GMT: This article has been updated with comments from Apple, which were published after the article was originally written
This article was originally published by WIRED UK
