Spotify and other companies aren’t letting up in their fight against what they deem “anticompetitive and unfair practices” from Apple. If they succeed in their call on the European Commission to take decisive action against Apple, consumers could face less security, convenience and choice of content. The Commission should decline to require Apple to make changes. Companies like Spotify shouldn’t weaponize competition policy to circumvent paying to use Apple’s services.
Spotify has claimed that Apple has been imposing restrictions on it for years. The company has two main gripes. First, it’s unhappy with Apple’s App Store policy, in which Apple charges top app developers like Spotify 30 percent to distribute their paid apps. Spotify representatives argue that paying the fee would force it to artificially inflate its prices relative to Apple Music and therefore would put it at a disadvantage competitively.
Second, Spotify claims that Apple creates artificial obstacles that prevent it from freely communicating with its customers. These obstacles are part of what’s commonly referred to as anti-steering policies. For example, Apple bars its App Store developers from giving links within its app or by email to payment methods outside the App Store’s system.
Apple’s App Store commission fee is widely misunderstood. Spotify’s claim that the fee would force it to artificially inflate prices is misleading. On the contrary, Spotify chose to charge its users higher prices on the App Store to incentivize its target audience to subscribe directly through its website. Consumers can still purchase the Google Play version of Spotify at a reduced price and without going through Google Play’s billing system.
Apple’s commission fee has valid business justifications. Although Apple’s notoriety comes from its selling of phones and laptops, it also provides services such as Apple Music, Apple TV Plus and Apple News Plus. Apple’s revenue derived from its app store makes up a large share of the revenue in the company’s “services” category. In 2019, nearly 40 percent of Apple’s total service revenue was from its fee taken on digital content sold through the App Store.
Not only that, but in fiscal quarter Q3 of 2020, 22 percent of the company’s overall revenue was generated by its app store revenue.
As a writer for The Verge puts it, “The 30 percent ‘Apple tax’ is the beating heart for Apple’s services business, which it has emphasized as growth as the iPhone business starts to slow.” Without this revenue, Apple’s upkeep of the App Store would be severely impacted.
Perhaps most importantly, the regulation of Apple’s fee, even for top developers like Spotify, could incentivize Apple to remove small businesses from its app store to avoid compliance. With much less revenue, Apple could find itself in a situation where the removal of less profitable apps would be necessary to maintain its store and other services. iOS users could lose the majority of the App Store’s nearly two million apps as a result of this policy, leaving developers severely disadvantaged or utterly unable to meet the consumer demand for their apps. Being removed from a market that has 500 million visitors per week and 1.5 billion devices as potential customers would be a disaster.
Since its inception in 2008, developers have been paid $320 billion through the App Store. The rate at which developers have been paid has grown over the years, showing that consumers are increasingly satisfied by developers’ content.
Apple’s payment processing system, which comes a result of its commission fee and its “anti-steering” policies, offers tangible benefits. As the American Consumer Institute (ACI) points out, Apple uses a highly sophisticated payment processing system that secures customers’ sensitive financial information and keeps it out of the hands of cybercriminals. Vendors can’t access that information, nor does Apple retain any of it. Customers also must authenticate every transaction.
As a result of this sophisticated technology, it’s much safer (and more convenient) to give billing information to Apple than to every individual app developer. As Jessica Melugin at the Competitive Enterprise Institute succinctly sums it up, “If app stores were forced to let developers use the payment systems of their choice, Spotify might keep more money, but consumers will pay with less convenience, privacy and security.”
At any rate, Spotify’s complaints against Apple fail to recognize the benefits of its policies. Spotify’s circumvention of these policies amounts to a self-serving attempt to utilize Apple’s services without paying the costs. The company doesn’t want to pay to play the game on Apple’s court.
Since Spotify isn’t alone in its hot pursuit against Apple’s commission fee, this case represents a bigger battle — one that ultimately will influence Apple’s rights as a company, a key source of its revenue and, consequently, what its consumers will receive.
If Spotify’s efforts against Apple prevail, consumer privacy, security, convenience, productivity and entertainment could be choked. Rather than taking harmful decisive action against Apple, the European Commission should encourage innovation and fairness.