Apple CEO Tim Cook has been more than clear that services like the iOS App Store are an essential part of the company’s future as consumers hang onto devices for longer and longer periods between upgrades. When Spotify filed an antitrust lawsuit against Apple this week, it fired a direct shot at the tech giant’s strategy. Now, Apple has issued its rebuttal to Spotify’s accusations.
Spotify has had its gripes with the App Store on and off for many years. Apple charges apps a fee for “digital goods and services that are purchased inside the app.” In the case of a subscription service like Spotify’s ad-free premium package, that fee is 30 percent for the first year and 15 percent for each additional year. Most apps that charge for digital services just deal with it and cough up the fee. Because iOS is a walled garden, it’s not possible to offer an alternative place to download an app with purchases that avoid Apple’s fees.
If a company is big enough to take the risk, however, it’s possible to get users to enter their payments through a web browser and then link their accounts to the app without handing over fees to Apple. That’s the approach that Spotify and Netflix have decided to take.
But Spotify is tired of giving users an inconvenient method for signing up and paying for its premium service. The company announced this week that it has filed an antitrust lawsuit with the European Commission, accusing Apple of anti-competitive behavior. In response to Spotify CEO Daniel Ek’s blog post explaining his positions, Apple published its rebuttal on Thursday.
The Apple post spends a lot of time explaining its philosophy regarding the app store and goes on at length about empowering developers and creating a platform from scratch—window dressing arguments, in other words. When it came to specifics, Apple straight up denied a few of Spotify’s claims.
For one thing, Spotify claims that because it doesn’t use Apple’s payment system it is routinely penalized with technical and experiential limitations. Ek explained that “over time, this has included locking Spotify and other competitors out of Apple services such as Siri, HomePod, and Apple Watch.” Apple said that it has actively encouraged Spotify to expand its reach on Siri and AirPlay 2 and were told that the company was “working on it.” As for the Apple Watch, it said the claim was “especially surprising” because the Spotify Watch app is currently the number one app in the Watch Music category. Apple spelled out its position in clear terms, saying, “Spotify is free to build apps for—and compete on—our products and platforms, and we hope they do.”
Apple went on to quibble with some other claims that Spotify made, but it failed to address a couple of points. Ek complained that “numerous other apps on the App Store, like Uber or Deliveroo,” don’t have to pay “the Apple tax.” On that point, Apple’s policy is that it only charges for “digital goods and services that are purchased inside the app,” not services that are offered outside in the real world. Whether or not it should apply its fees to everyone regardless of their source of revenue is a topic that’s up for debate.
But as VentureBeat noted, the most glaring omission from Apple’s blog post is that it doesn’t mention Apple Music at all. The crux of Spotify’s argument is that it is directly competing with Apple’s music streaming service but the 30 percent fee requires it to inflate its prices. Since Apple doesn’t have to pay any fees to itself, Spotify believes it has an unfair competitive advantage.
Apple did not immediately respond to our request for comment on this story, but a spokesperson for Spotify sent us the following statement:
Every monopolist will suggest they have done nothing wrong and will argue that they have the best interests of competitors and consumers at heart. In that way, Apple’s response to our complaint before the European Commission is not new and is entirely in line with our expectations.
We filed our complaint because Apple’s actions hurt competition and consumers, and are in clear violation of the law. This is evident in Apple’s belief that Spotify’s users on iOS are Apple customers and not Spotify customers, which goes to the very heart of the issue with Apple. We respect the process the European Commission must now undertake to conduct its review. Please visit www.TimetoPlayFair.com for the facts of our case.
The thing is, Apple is fighting this war on a few fronts. In the coming months, the Supreme Court is expected to rule on a similar case that argues that in the absence of an alternative app store on iOS, the 30 percent fee amounts to a hidden tax on consumers because developers have to bake the fee into their pricing. It appears that Apple wants to keep its arguments focused on the store as a whole rather than directly engaging with points about its own apps.
Aside from the fact that this is probably Spotify’s best angle on the case, Apple may want to avoid the Apple Music argument because it’s also facing calls from Senator Elizabeth Warren to “break up” the App Store. Though Apple has been a minor focus of Warren’s tech policy proposals, she believes that the company shouldn’t be allowed to put its own products in its exclusive store because it can hobble competitors through the kinds of practices that Spotify is describing. “Either they run the platform or they play in the store,” Warren told The Verge. “They don’t get to do both at the same time.”
In the past, I’ve argued that the benefits of Apple’s approach to the App Store outweigh the downsides. I still think that’s true and if you don’t like the Apple way, then you can go use the many other devices available on the market. But I have to admit that Spotify’s specific case has understandable merit. And it is possible that the European Commission’s hard-nosed attitude towards antitrust could work in Spotify’s favor. Though the cases are slightly different, regulators in Europe did rule that Google’s inclusion of the Chrome browser pre-installed on Android devices gave it an unfair advantage.
With everyone pushing Apple’s back against the wall, the company is digging itself deeper into the service fee business. Later this month, it will be holding an event almost certain to include the launch of Apple magazine and video streaming platforms. Most of the focus on those services has revolved around the question of whether people want them or if Apple can offer enough quality content to compete. The real question might be whether Apple has to change its whole business model in order to even operate those platforms.