Spotify Accuses Apple of Using App Store Approval Process as a 'Weapon to Harm Competitors'

[Rickiee]

I wrote this in another thread yesterday, but I think it illustrates why what Apple is doing with Spotify is patently unfair and anti-competitive:

Imagine this:

• A landlord owns a strip mall and leases one store to a store owner that wants to sell widgets, where the store owner has to give the landlord 30% of all sales. The widget factory charges $1.
• Scenario 1: The store owner marks the widgets up to $2.50, where $0.75 (30%) goes to the landlord and $0.75 is net profit to the store owner.
  • This is fine.
• Scenario 2: The landlord opens up his own store right next door to the store owner and sells the same widgets for $1.75. The landlord still makes $0.75 from each widget sold.
  • This is now not fine. It is mathematically impossible for the store owner to compete with the landlord. If the landlord charges less than $1.43 for the widgets, the store owner cannot possibly make money under the circumstances.
  • It doesn't matter to the landlord if the store owner goes out of business. If either the store owner or the landlord make a widget sale, it's all the same to the landlord.
  • By acting as both a store and landlord, he has an unfair advantage. Typically, tenants of malls write language into their leases that prohibit the landlord from doing this. They can do this because there are thousands of commercial areas in the U.S. There are only 2 "digital" commercial areas of any value, and they don't negotiate. Instead, they offer unreasonable contracts of adhesion.

Except, the landlord could also have accepted a shoe store in that space and he would make money from it. If the landlord opens his own store instead, he is missing the revenue from the shoe store. That lost revenue is a cost, which makes up for the "unfair advantage".

I wonder what alternative you'd propose. Apple should not be allowed to build any app that competes with other apps on their App Store? That would be idiotic.

Maybe Apple should move the App Store service into a separate, stand alone business. Then Apple Music would also pay 30% and it suddenly becomes clear that there's no difference.

 

[EricTheHalfBee]

Of course not - but it's also not remotely the same as retail space which was my point. Also - you can increase space far easier and cheaper "virtually" than you can physically.

And this is the big problem. So many people who think that because something is digital and can be easily duplicated that it has no value. It's why so many crooks pirate music and movies. They don't think digital content has value, so why would they think a digital storefront should have value?

Why can't Apple allow subscription apps to redirect users to the browser to sign up for the service? Obviously they're not doing it because they want cut. But why should they deserve a cut? Apple doesn't host any Spotify content. Don't app developers have to pay an annual fee to be able to develop for the platform? Why does Apple deserve fees beyond that (other than what would be required to cover credit card processing)?

Apparently they did remove it and now Apple is holding up approval of their app update.

Because then ALL App developers would offer their Apps for free and then direct you to pay outside of the App Store to upgrade/activate your App.

 

[Yaaaaaaay!]

Just another reason to avoid Apple all together. I've never understood their stance on their products, seem like a bunch of stuck-up hipsters...

 

[mariusignorello]

What @oneMadRssn said. As much as we all like Apple take a step back here.

You can't open a mall, says its open for business, allow stores to come in, charge them rent, notice they are doing well, open an identical store next to them, and then by default not charge yourself rent.

Lol if it's your land you can do whatever the hell you want with it!!

 

[Boosf]

iOS is nothing without developers. Just look at Windows Phone.

Windows has a phone?

 

[macfacts]

Sorry, Spotify, but if you don't like it, feel free to design your own phone and develop your own operating system.

We don't live in a Mad Max world buddy, there are rules and laws. I can't wait till Apple gets fined.

 

[drewyboy]

Did Spotify really think Apple should spend millions of dollars designing a platform so that its competitors can use to make money without sharing profits to Apple? Have they all lost their minds?

No, but it's not unreasonable. What should take place is a monthly rental fee to be on the app store. Taking a cut of the profit first of all is actually pretty ridiculous. Developers on the mac app store are leaving because it's a crappy system and there are alternatives to delivering the good. Really, mac app store sucks.

Unfortunately, they don't have that option for mobile devices.

Would you say it's fair for a mall to not charge rent but a 30% cut of every item sold within it? Do you think apple would be OK giving 30% to the mall owners? Clothing stores, restaurants, movie theaters, etc... No is the answer you're looking for. So please, explain to me why you believe apple should be allowed to take one third of the cost of an item for a digital store? It should be a fixed monthly price.

Edit: Regardless, the point of this article is WHY did apple remove the app? They took down the ads as requested by apple. They don't have a link to their website to sign up. The only thing I can see from this article is they no longer are providing in app subscription, which I was wondering why Spotify didn't do this earlier.

 

[gnasher729]

Something to consider: I _never_ pay full price for anything on the App Store. There are always offers for gift cards at 15% or 20% off the printed price, so I pay say £80 for a £100 gift card. In other words, if Spotify's price is £12.99, Apple gets at most £10.39 of my cash. Probably less, because stores wouldn't sell the gift cards if they didn't make any money. In the future when Apple's share will go down to 15%, Apple will actually lose money on every Spotify subscription paid for with gift cards, and that's before paying out the money to run the app store.

Would you say it's fair for a mall to not charge rent but a 30% cut of every item sold within it? Do you think apple would be OK giving 30% to the mall owners? Clothing stores, restaurants, movie theaters, etc... No is the answer you're looking for. So please, explain to me why you believe apple should be allowed to take one third of the cost of an item for a digital store? It should be a fixed monthly price.

Read what I wrote above. Then consider that for your 30%, you also get access to a hundred different countries. The cost of selling to 100 different countries would be enormous. You don't have to deal with tax offices in all these countries, you just wait for Apple to send you the money.

 

[BvizioN]

what Apple does is just talking 30% for a service they don't even host, just because it's on the iPhone.

Just because? Like being on hundreds of millions of devices, which is really one of the main reasons that makes spotify successful, is not a big thing? Ok then.

 

[CWallace]

No, not true. Apple needs to employ staff to screen apps updates (for bugs, security, etc), a server for updates and data centres of information of apps stored with the iCloud, maintaining the app store and prevent hackers etc etc.The idea of future business in the an store is very different from purchasing physical products but that does not diminish the costs involved.

I amended my post after your quote as the App Store is a bit of a different case in that Apple does process the in-app subscriptions so there is a monthly cost to Apple that they deserve to be compensated for, but I expect that monthly cost is not $3-4 (@30% for Spotify).

For instance, IF there are no new paid applications in the app store (for Apple to draw its 30% cut), does it mean that Apple is not required to maintain the app store any more?

In theory, yes. However, Apple's annual income from iOS device sales is more than sufficient to cover App Store operational costs on an annual basis so if such a scenario came to pass where the App Store is a net cost to Apple, I would fully expect them to continue to maintain it to support and promote iOS sales.

 

[samcraig]

And this is the big problem. So many people who think that because something is digital and can be easily duplicated that it has no value. It's why so many crooks pirate music and movies. They don't think digital content has value, so why would they think a digital storefront should have value?

There is nothing in my post that indicates a disregard for digital content. Nor does it address piracy. "Free" space on a drive is very different from the buying and selling of content. Way to introduce a straw man.

I also never said a storefront had no value. I think you should be replying to some others here...

 

[oneMadRssn]

Except, the landlord could also have accepted a shoe store in that space and he would make money from it. If the landlord opens his own store instead, he is missing the revenue from the shoe store. That lost revenue is a cost, which makes up for the "unfair advantage".

I wonder what alternative you'd propose. Apple should not be allowed to build any app that competes with other apps on their App Store? That would be idiotic.

Maybe Apple should move the App Store service into a separate, stand alone business. Then Apple Music would also pay 30% and it suddenly becomes clear that there's no difference.

Yes, I think ideally it would be to force the App Store into a separate business. Less ideal would be to force Apple to give other services the same terms it gives itself.

 

[EricTheHalfBee]

Also, I see your point in the last sentence, but in court that argument will not fly. It didn't for Microsoft and it won't for Apple. The only way I can see apple avoiding an anti-competitive lawsuit (if they continue with these policies) is to show that they don't have the majority marketshare.

And you know this won't fly in court...because?

iOS and iPhone/iPads are a closed system. There's no other vendors that can use iOS and make their own hardware to run it. As such, they can do whatever the hell they want with THEIR system.

Microsoft got into trouble over the years because A) they had a clear majority market share and B) they also placed strict rules on what vendors of Windows could do with their machines. This is why Google is facing an antitrust investigation from the EU - they have majority market share AND they are forcing rules on OEMs (specifically, bundling).

 

[Defthand]

Don’t be so quick to label Spotify a sore-loser and defend Apple’s policy. After all, Spotify is trying to do right by the consumer, and Apple is impeding Spotify’s ability to be competitive. True, Apple isn’t obligated to offer third-party apps and services on their ecosystem if Apple doesn’t offer a similar profit-making app. Apple allows a lot of free apps in its app store because the apps are one more reason to use Apple hardware. However, Apple sells music subscriptions now—well after Spotify existed. Apple didn’t change its terms but Apple did change the playing field when it decided to sell an identical service. When a product or service depends on the same resources or delivery system, monopolistic players have to remove hurdles that prevent competition. Otherwise, consumers risk being at the mercy of a business. Remember how Microsoft “negotiated” to shut out competing web browsers on PCs? Want Google to be your only search engine option? Want only one cable operator option in your neighborhood?

 

[brock2621]

When you put a decade of hard work and your own money into creating something, you get to make the rules. They don't own the wireless cell phone carrier industry, just a phone, carrying one of many different app stores. Spotify doesn't have to put their music on it. They are acting like a a whiney teenager with a chronic case of self-entitlement.

Toyota doesn't sell Chevys on their lot, are they "locking out" competition as well?

 

[samcraig]

I amended my post after your quote as the App Store is a bit of a different case in that Apple does process the in-app subscriptions so there is a monthly cost to Apple that they deserve to be compensated for, but I expect that monthly cost is not $3-4 (@30% for Spotify).




In theory, yes. However, Apple's annual income from iOS device sales is more than sufficient to cover App Store operational costs on an annual basis so if such a scenario came to pass where the App Store is a net cost to Apple, I would fully expect them to continue to maintain it to support and promote iOS sales.

Apple would keep an appstore open even if they didn't make a profit on the app store. Why? For one - the App Store - while a good revenue stream, isn't a major one for them. However - without it - they wouldn't sell a single iPhone. Ok - hyperbole. But they would die a pretty quick death.

 

[Armandodj]

I don't know why Apple is doing this why they have to re-direct Spotify people out side of the app. Listen Apple you are getting greedy and greedy and sooner or later you are going to fall. For me still hard to believe that you have 15 million people in Apple Music. Thad the reason Amazon stop selling you products and avoid to develop
an app for Apple TV even Plex. I don't know what it's going but even your last product Mac Air was cheap, and you want people to spend more money in accesories. If you continue doing this the Apple it's going to fall from the tree soon.

 

[CristianM]

Couldn't Spotify just ask their users to pay on the web? They could just display a window saying in order to update your payment method or buy a pro subscription, you have to use a web browser.

Nobody is forcing them to offer subscriptions through the phone and at the end of the day, it's apple's ecosystem, they can do as they please. If you don't like it, you can't get an app on the app store.

 

[oneMadRssn]

Your example fails though in that we live in a free market where people can't be told not to run a business just to make sure someone else makes a profit. That's just not how it works. So for your examples to work it's fine for the landlord to open their own business but they have to give the other store owner the rent of their unit for free, promote them, pay the utility bills, and let them take some of their customers. That's not how it works either.

Spotify entered the music business 3 years after Apple, and they haven't invented anything. Apple owes them nothing. If Apple was forcing them out of business I'd agree with you, but they are not, if they had never invented the App Store and iPhone do you think Spotify would be as big as it is? I don't know of many businesses where you can force your competitors to promote your own business for free. TV stations don't promote their competitors, cable providers don't, mobile companies don't, where does it stop? Should they all have to promote each other just to be fair?

I realise your example is specific to this case as Apple is the service Spotify want to sell their products on, and Apple charges them a fee for any sales they make, but they don't charge for the app, and Apple don't charge them anything for apps being downloaded. Spotify need to work harder at finding other ways to make money and stop crying about it. If your business isn't profitable - hint: Spotify isn't profitable - then you are in the wrong industry and its time to move on. Why should Apple give them anything for free 'just to help them out'?

This has nothing to do with Spotify being profitable, and free market does not mean free-for-all anarchy. There are rules.

The trouble is that Apple has both created one of only two digital marketplaces, and at the same time gives itself preferential treatment at this marketplace. That is the anti-competitive part.

 

[LovingTeddy]

It's because it's true. Apple pays for server space for the App Store, Apple pays developers to continue updating the operating system, Apple pays people to approve apps, and all of those services make the App Store possible. We're supposed to believe Apple should offer all of that for free so Spotify can make money, especially for a service which Apple itself directly competes? It's not a pro-Apple response, it's a pro-"how to run a business" response.

Apple is forcing developer distribute App through its Apple Store, no other alternative.

If Apple does not let app developer choice how to distribute its all, then Apple should handle all the cost by themselves. Simple is that.

 

[mysticbluebmw]

Boy, I hope Apple cleaned their rear end really well for all those sticking lips where they don't belong. Apple creates a smartphone with an App store to supplement mostly the reason for purchasing the phone. Without the countless NON-APPLE designed apps, the iPhone would probably not exist today. Of course, Apple wants to make sure they reap the monetary benefit from the store they created, but by stifling competition as they have been for years, I cant see myself continuing to be a part of their ecosystem. I am clearly not alone, and its mostly the EU and china regulations that have not surprisingly kept them somewhat fair, but U.S. regs, despite some FCC activity, seem to to have allowed Apple to monopolize the market pretty solidly. I would hope people en mass would eventually see that only hurts them (financially, and a lack of new innovative products)...but alas, they only want to rationalize the property they currently hold in their hand, sigh.

 

[KALLT]

Why don't you condemn physical retailers and ask them to stop doing it?

Because that is not what this topic is about. There are numerous different considerations and I do not care about that right now.

And Spotify has a choice, they can choose to leave the App Store.

It would hurt Spotify very badly, if not bankrupt them. Mobile usage of Spotify is larger than desktop usage and my guess is that iOS usage numbers are pretty significant in their own right.

The problem is that Apple wields tremendous power in this particular market and this is of huge significance for the development and distribution of digital content overall. It would be much less of a problem to me if Apple were not so keen on competing in the exact same market with their own products. They are using their market power in this market to force Spotify out and they would benefit immensely if Spotify were to disappear. This is unfair competition and bad for consumers. In this case it even hurts them directly, because Apple suppresses any of Spotify’s advertising that informs them of more reasonable prices.

If you don't wish your product to be sold at Walmart, find Target, Costco or other retailers. Spotify has a choice and they should stop whining. Start their own app store, cut their price to 6.99 or offer their app for free. Spotify has a choice.

Spotify has no choice at all, they are strongly dependent upon access to this market. Apple controls a significant share in distribution of digital content in the mobile space and this warrants a closer look at their sales practices. This practice can stifle competition and it is bad for everyone but Apple. From a consumer’s point of view, I do not like this at all.

What do you think a reasonable profit margin for Apple to make on the App Store would be?

The estimates that I've seen put the profit margin of the iTunes Store in the single digits.

My problem is the flat rate. I understand completely that Apple needs to recover the transaction costs, but these costs do not scale with the pricing of digital content itself. I also think that Apple should offer a lower cut for those kinds of apps that they directly compete with. Apple has a big reason to discourage users from using Spotify and that makes their policy dubious. In my opinion, Apple should take a step back and encourage content diversity for the benefit of their own customers.

 

[Rogifan]

Because then ALL App developers would offer their Apps for free and then direct you to pay outside of the App Store to upgrade/activate your App.

And? So what? With subscription apps outside of credit card processing what is Apple doing that requires them to get a 30% cut? Because they're hosting an app (even if they're not hosting the content inside of the app) that generates revenue Apple deserves a cut? I'm not sure they do, certainly not 30%.

 

[oneMadRssn]

You never said why the store owner is required to sell his widgets in this particular strip mall. I heard that there is an eclectic one down the street that has all the same utilities, and parking services and even the same "store" lease opportunities, where the landlord isn't selling a competing inventory (well... They are, just not as attractively/publicly). The only negative impact this other strip mall has is that most of the people who walk through treat the mall like a swap meet, and aren't willing to pay the prices as they are labeled.

As a Developer, I have always seen a higher payout from Apple Device owners than other platforms, so I see both sides of the "Apple Tax" argument... I am willing to keep paying Apple 30% on App Purchases (including IAP) even on my Apps which haven't seen an update in almost 3 years... Because people on Apple's platform still want to buy them.

The biggest difference is that Apple and Spotify, don't have a non-compete clause in the App Store saying that since Spotify has an App in Apple's App Store, that Apple can't have a competing Music App (which they don't it's baked into the OS).

There are really only stores. Apple App Store, and Google Play Store. There is no negotiating with them, it's done only by contract of adhesion. And, the two stores don't really try to compete with each other, instead they are pretty much lock-step with each other on all terms all the time. It is, in fact, a duopoly.

 

[EricTheHalfBee]

This has nothing to do with Spotify being profitable, and free market does not mean free-for-all anarchy. There are rules.

The trouble is that Apple has both created one of only two digital marketplaces, and at the same time gives itself preferential treatment at this marketplace. That is the anti-competitive part.

Ridiculous. That's like saying Walmart isn't allowed to sell their own brand of shampoo in their stores because it competes with other companies also selling shampoo.