News: Spotify Thinks Apple Should Play Fair

by on March 13, 2019

Spotify filed a complaint with the European Commission that Apple’s stacking the deck against them when it comes to how the service is sold on iOS devices. In addition, the company set up Time to Play Fair, calling out Apple’s anti-competitive behavior.

A statement from Spotify’s CEO Daniel Ek offers a few points of discussion:

…It’s why, after careful consideration, Spotify has filed a complaint against Apple with the European Commission (EC), the regulatory body responsible for keeping competition fair and nondiscriminatory. In recent years, Apple has introduced rules to the App Store that purposely limit choice and stifle innovation at the expense of the user experience—essentially acting as both a player and referee to deliberately disadvantage other app developers. After trying unsuccessfully to resolve the issues directly with Apple, we’re now requesting that the EC take action to ensure fair competition.

Apple operates a platform that, for over a billion people around the world, is the gateway to the internet. Apple is both the owner of the iOS platform and the App Store—and a competitor to services like Spotify. In theory, this is fine. But in Apple’s case, they continue to give themselves an unfair advantage at every turn.

While I can appreciate where Spotify is coming from, Apple does dictate how their platform operates and it’s always been a closed, end-to-end solution. As a consumer, if you don’t like how that works, Android provides a great alternative. Apple sets the rules for its products and if users don’t like the arrangement, they can vote with their wallets and go to another platform.

Look at it this way—Target may choose to stock a number of products, some their own brand, some from other companies that compete with their own brand. The store brands may have a competitive advantage due to in-store advertising, additional discounts, etc., but you won’t see Procter & Gamble complaining that Target is unfairly pushing their Up & Up laundry detergent instead of Tide. General Mills isn’t going to be complaining that Market Pantry Toasted Oats is doing harm to Cheerios. Likewise, if there is a company that doesn’t like Target’s terms or doesn’t get sold in their stores, they can’t force Target to carry them anyway. Instead, maybe they get a distribution deal with Walmart or Kroger and advertise that they’re available at those locations instead.

To illustrate what I mean, let me share a few examples. Apple requires that Spotify and other digital services pay a 30% tax on purchases made through Apple’s payment system, including upgrading from our Free to our Premium service. If we pay this tax, it would force us to artificially inflate the price of our Premium membership well above the price of Apple Music. And to keep our price competitive for our customers, that isn’t something we can do.

I’ve heard from numerous indie developers that this price does feel a bit high, and Apple could work to make this feel fairer. Likewise, for subscription services like Spotify and Netflix, if you break out of App Store process, it feels clunky and you can’t flat out say, “Go subscribe on our web site and then come and sign in.” I get Apple wouldn’t like that, but Netflix has managed to steer people to that for years. If you’re using Apple’s mechanisms for subscriptions, they still should be able to take a cut for doing most of the transactional legwork.

As an alternative, if we choose not to use Apple’s payment system, forgoing the charge, Apple then applies a series of technical and experience-limiting restrictions on Spotify. For example, they limit our communication with our customers—including our outreach beyond the app. In some cases, we aren’t even allowed to send emails to our customers who use Apple. Apple also routinely blocks our experience-enhancing upgrades. Over time, this has included locking Spotify and other competitors out of Apple services such as Siri, HomePod, and Apple Watch.

I had a bit of a hard time following this, but it sounds like Spotify wants to be able to market to users and are hitting some of the roadblocks imposed by Apple’s privacy-oriented rules. Again, if users subscribe outside of the app, their relationship would be with Spotify and any emails that get generated would have nothing to do with Apple (again, see: Netflix).

In terms of “locking Spotify and other competitors out of Apple services,” some of that is that there new technologies are being built with Apple’s priorities in mind first—because it’s their platform. Yes, third-party audio playback on the Apple Watch took time, and Siri was closed to everyone, but there is nothing that says Apple has to allow third-parties access to every aspect of their devices. Meanwhile, there’s no Spotify app for the Apple TV, despite that being an option on the table. If they’re so excited about taking advantage of all that Apple has to offer, why hasn’t that been developed (which would arguably be a compelling addition)?

There were plenty of HomePod reviews that pointed out the lack of built-in Spotify support, and I think for most consumers, there’s a decision to be made—do you value Spotify more or want a HomePod more? If you value Spotify, there’s an array of other speakers with support built-in. If you want a HomePod, you have to put up with AirPlaying Spotify to the device.

The original iPhone offering no third-party apps was even mentioned on Spotify’s public-facing site about these concerns, and that is a laughable inclusion. Besides being at a time when smartphone apps were for geeky tinkering, most mass-market phones of 2007 didn’t offer third-party apps or if they did, they were little Java-based games. This argument seemed to be there to purely pile on.

We aren’t seeking special treatment. We simply want the same treatment as numerous other apps on the App Store, like Uber or Deliveroo, who aren’t subject to the Apple tax and therefore don’t have the same restrictions…

To me, it sounds like Spotify does want special treatment—they want to use the App Store’s in-app subscription system, but not have to pay any cut to have that work. Uber and Deliveroo don’t pay the 30% because those transactions are not ongoing in-app subscriptions. They’re also not being paid for with App Store funds—by that logic, any financial transaction that happens on an Apple device should lead to a 30% cut to Apple.

While there are certainly things Apple could do to make the App Store a better place for third-parties, this feels like Spotify is upset that Apple is gaining some music market share and decided to lash out. An article last fall had Spotify owning 36% of the global market, Apple with 19%, and Amazon with 12%. Spotify also has partnerships with Hulu and Starbucks and is built-in to numerous audio devices. There are ways to bring up concerns publicly, but Spotify’s valid points seem to be muddied with the complaining.

One could draw some parallels to Microsoft’s position in the 1990s with Internet Explorer, but there is a big fundamental difference—Apple is a large company and a dominant player, but they have real competition and aren’t even the biggest player (in terms of market share) in the streaming music and smartphone spaces. As much as it pains me to say it, Microsoft was realistically the only game in town for computers in the late-1990s (the Mac held a basically margin-of-error 4-5%).

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