Is Apple Stifling Spotify?

Earlier this week, Spotify announced that it was filing an antitrust complaint with the European Commission, alleging that Apple has been stifling innovation by using its own App Store to “deliberately disadvantage” apps and platforms that compete with its own services, obviously referring to the position of Apple’s own Music service against Spotify.

In a news post on its site, Spotify Founder and CEO Daniel Ek shared a list of complaints, including of course Apple’s 30 percent “tax” on purchases made through the App Store, including in-app subscriptions, as well as claiming that Apple has been blocking “experience-enhancing upgrades” to the Spotify app and locking it out of Apple products such as Siri, HomePod, and Apple Watch, thereby giving its own Apple Music service preferential treatment. Ek claims that the company has tried unsuccessfully to resolve the issues directly with Apple, and is now “requesting that the EC take action to ensure fair competition.”

Claims such as this are nothing new for Apple, and the company usually either remains quiet, or responds as necessary to the regulatory bodies involved. However, in an unusual move, the company has released its own statement, responding to and refuting at least some of Spotify’s claims, adding that it “feel[s] an obligation to respond when Spotify wraps its financial motivations in misleading rhetoric.”

What Spotify is demanding is something very different. After using the App Store for years to dramatically grow their business, Spotify seeks to keep all the benefits of the App Store ecosystem — including the substantial revenue that they draw from the App Store’s customers — without making any contributions to that marketplace.

Apple, Addressing Spotify’s claims

In its response, Apple touts the investment it’s made in building the App Store and its iOS ecosystem into a “safe, secure platform” that provides a high degree of confidence in both apps and transactions, as well as what it considers to be a level playing field for all developers to know that “everyone is playing by the same set of rules.”

However, Apple turns Spotify’s claims around by accusing the company of benefiting from all of the advantages of the App Store over the years, including using it to “dramatically grow their business” but wanting to be exempt from “making any contributions to that marketplace.” Apple also doesn’t pull any punches here, directly accusing Spotify of doing much the same thing to artists, musicians and songwriters, “making ever-smaller contributions” and “even going so far as to take these creators to court.”

Apple goes on to address the specific accusations that Spotify is levying against it — that Apple has been blocking Spotify’s app updates, and that the 30 percent revenue share that Apple is taking is unfair.

Is Apple Blocking Spotify App Updates?

Apple says no, Spotify says yes. So who are we going to believe? Apple cites the statistic that it has approved “nearly 200 app updates on Spotify’s behalf” while Spotify says that Apple “routinely” blocks it’s updates. Of course, both companies can technically be telling the truth; just because Apple has approved 200 updates doesn’t mean that it hasn’t blocked some. On the other hand, however, Spotify’s accusations suggest that Apple is blocking updates capriciously, while Apple claims that it’s only done so when “Spotify has tried to sidestep the same rules that every other app follows.”

Is Apple Locking Spotify Out of Siri, HomePod, and Apple Watch?

This may be one of the most specious claims that Spotify is making, particularly where it comes to the Apple Watch, since the Spotify app is of course available on Apple’s wearable device, and in fact Apple adds that when Spotify submitted it last fall, Apple “reviewed and approved it with the same process and speed” as any other app, and notes that it’s currently the number one app in the Apple Watch Music category on the App Store.

On the other hand, Spotify may be talking about limitations in its Apple Watch app, which still lacks offline playback and direct streaming for cellular-capable Apple Watch models — both features that Apple’s own Music app have access to, and have had for some time. In this case, Spotify is right that Apple is able to give its own music app features that it doesn’t make available to third-party developers, but this is nothing new — Apple’s native iOS apps have always had special access. Whether they should or not is another question, of course. That said, Apple has made offline listening available to developers in watchOS 5 — popular podcast app Overcast announced this feature almost as soon as watchOS 5 was release — so it’s fair to say that Spotify isn’t in a very good position to accuse Apple of holding capabilities back from it when it hasn’t even taken advantage of what Apple is already offering.

Similarly, Spotify and Apple are likely talking about two different things when it comes to Apple’s HomePod. Apple says that it has reached out to Spotify about adding Siri and AirPlay 2 support, and the company has simply told them that it is working on it. On the other hand, Spotify’s claims about Apple locking them (and other competitors) out of the HomePod likely refers to the ability to natively play Spotify as an alternative to Apple Music using Siri voice commands, rather than having to stream from the Spotify app over AirPlay 2. However, with the HomePod’s minuscule market share, this particular issue can hardly be called anti-competitive on Apple’s part — nobody is buying a HomePod expecting Spotify support, when there are literally hundreds of other smart speakers on the market that offer everything from Spotify Connect to full voice control via Amazon Alexa or Google Home. If anything, Apple is losing more than Spotify is on this one.

So what about the 30 percent “Apple Tax?”

This is one of the oldest complaints in the third-party developer’s playbook, and has probably been a source of frustration for Spotify for years. The thing is, however, this isn’t new. Apple has taken a 30 percent cut of all in-app purchases and in-app subscriptions since the business model was first announced, and in fact actually took the developer-friendly step a couple of years ago of dropping this to 15 percent in the second year — something that, as Apple points out, Spotify omits to mention in its complaint.

Apple of course maintains that the 30/15 percent revenue sharing model is simply the cost of doing business on the App Store, since of course Apple provides the infrastructure, product placement, payment processing, and customer exposure. Developers have found different ways over the years to avoid paying a cut to Apple; Amazon simply refused to sell books in its Kindle app, instead requiring users to purchase them through a web browser, and Netflix has also recently taken a similar approach, blocking all in-app subscription signups entirely. Others have simply increased the price of in-app subscriptions by 30 percent to cover the additional cost. Apple allows for both of these approaches, although its policies prohibit apps from providing any links to web pages where users can sign up outside of the app.

Still, like Netflix, Spotify is arguably large enough that it shouldn’t need to rely on in-app purchases to attract customers to its service, especially since setting up a subscription is something that most users only have to do once. Spotify does make the valid claim that it’s currently difficult for it to offer promotions within the in-app purchasing system as well — especially since Apple prevents it from sending out e-mail campaigns to potential customers. However, it looks like Apple will be adding promotional subscription features in iOS 12.2 that may address some of Spotify’s concerns about offering special deals to its customers — although of course this doesn’t remove Spotify’s main concern about having to give a cut to Apple.

Even now, only a tiny fraction of their subscriptions fall under Apple’s revenue-sharing model. Spotify is asking for that number to be zero.

However, as Apple points out, Spotify is being disingenuous by failing to mention that the majority of its customers are using the free, ad-supported version of the product, for which Apple sees zero revenue, and that a significant portion of Spotify’s customers also come through mobile carrier partnerships, which also do not contribute to the App Store in any way, but do require Spotify to pay fees to retailers and carriers.

Apple implies that the same should be true in the case of the App Store; Apple is no less important for connecting Spotify to its device users than internet and mobile carriers are, and in fact Apple notes that it goes even further by providing the software development tools that Spotify uses to build its app in the first place.

So Who Is Right Here?

As with most disputes, the truth is often somewhere in the middle, and of course both Apple and Spotify are going to put their own spin on things.

Apple’s revenue sharing model for the App Store is nothing new, and it’s something that all developers have to deal with — and many like Netflix have done so without complaint. While Apple could loosen a few of the restrictions, such as prohibiting apps from providing alternative sign-up instructions, at the end of the day, it’s Apple’s App Store, and Spotify can certainly follow Netflix and Amazon into simply getting rid of in-app subscriptions entirely.

However, Spotify also has a completely valid point about the competitive advantage that Apple’s own Music service enjoys. When it comes to the “Apple tax” it’s difficult to measure how much of an issue this is without understanding all of the financial accounting that goes on within both Apple and Spotify. However, there’s no doubt that Apple Music has a privileged position on Apple’s devices. It comes preinstalled on every iPhone, iPad, and Apple Watch, is the only music service that natively works with Siri and HomePod, and can take advantage of other Apple APIs that aren’t readily available to third-party developers. Overall, for users who are heavily invested in the Apple ecosystem, Apple Music just works far better than Spotify does, and that’s mostly by taking advantage of features that simply aren’t available to apps like Spotify.

Whether Apple Music should be allowed to enjoy this kind of advantage is open to debate. While some cite this as an antitrust issue, the fact is that Apple doesn’t have a dominant enough market share to make this a real problem from that perspective, but even if some of Spotify’s claims are exaggerated, the streaming provider still makes some valid points about how Apple could do at least a bit more to level the playing field. Whether it needs to do this, or even should do this, is another question entirely.