Spotify, Epic Games, and Others Argue Apple's App Store Changes Do Not Comply With DMA

[AppliedMicro]

there should be no doubt that they have the right to charge something.

Disagree - there should be doubt about it. There should be limits about it.

A line should be drawn how for (“down” or “up”, depending on your perspective) providers of underlying infrastructure can freely charge their customers on revenue (or as they please) instead of usage.

• Should the electricity company be able to charge my ISP a 30% share of its revenue?
• Should the ISP in turn be able to charge Apple a 30% share of its revenue from the App Store on purchases from the App Store conducted through their internet connection
• Should Apple be able to charge a 30% share of all developers’ revenue for iOS apps or subscriptions?

Just as Apple has invested tons of money and work into developing iOS, the electricity company and ISP have poured it into their infrastructure.

And just as Apple can “pull the plug” on any third-party app, the electricity company and the ISP could do it to enforce their „pay or leave (be blocked)“ scheme. They “own the customer relationship” just as much as Apple does the one for Spotify customers.

👉 And that’s where government should step in and draw a line: It is good, it is beneficial for society if Apple can’t charge a percentage of revenue - and neither recurrently for downloaded apps staying installed (even without being used)l

There is nothing wrong with companies agreeing to a “revenue share“ type of contract model for services or underlying infrastructure. Particularly in nascent markets. But it should not be the only model in mature markets, with the infrastructure provider setting their rate at will. At this point it becomes the equivalent of a tax and free rent.

There’s nothing wrong with charging for usage either. As long as companies do it fairly and don't use it to self-preference their own services against competitors in other markets.

 

[MrTemple]

Disagree - there should be doubt about it. There should be limits about it.

A line should be drawn how for (“down” or “up”, depending on your perspective) providers of underlying infrastructure can freely charge their customers on revenue (or as they please) instead of usage.

• Should the electricity company be able to charge my ISP a 30% share of its revenue?
• Should the ISP in turn be able to charge Apple a 30% share of its revenue from the App Store on purchases from the App Store conducted through their internet connection
• Should Apple be able to charge a 30% share of all developers’ revenue for iOS apps or subscriptions?

Just as Apple has invested tons of money and work into developing iOS, the electricity company and ISP have poured it into their infrastructure.

And just as Apple can “pull the plug” on any third-party app, the electricity company and the ISP could do it to enforce their „pay or leave (be blocked)“ scheme. They “own the customer relationship” just as much as Apple does the one for Spotify customers.

👉 And that’s where government should step in and draw a line: It is good, it is beneficial for society if Apple can’t charge a percentage of revenue - and neither recurrently for downloaded apps staying installed (even without being used)l

There is nothing wrong with companies agreeing to a “revenue share“ type of contract model for services or underlying infrastructure. Particularly in nascent markets. But it should not be the only model in mature markets, with the infrastructure provider setting their rate at will. At this point it becomes the equivalent of a tax and free rent.

There’s nothing wrong with charging for usage either. As long as companies do it fairly and don't use it to self-preference their own services against competitors in other markets.

You keep misrepresenting the situation.

First. MANY business partnerships work on a percentage basis. Retail (brick and online), car dealerships, movie theatres, subcontract services, etc, etc, etc.

Almost none of those have the percentage-charging partner contributing NEAR as much to the actual product itself as Apple contributes code to the apps running on the device, but that only makes their business arrangement seem more reasonable than all those others.

Others, like the electric company charge per unit of service offered. That's a fully reasonable method of monetizing the service/product as well.

Second. Things have changed now.

Apple has been forced to no longer monetize via the 15/30% cut when devs use mountains of their effort directly in their apps.

So Apple has now created a per-unit fee for the use of all that code. The Core Technology Fee.

This is EXACTLY how it works with your electric company.

Where exactly is the problem here?

 

[JordanNZ]

Disagree - there should be doubt about it. There should be limits about it.

You honestly believe Apple shouldn’t be able to monetise its own platform?…

 

[Abazigal]

A line should be drawn how for (“down” or “up”, depending on your perspective) providers of underlying infrastructure can freely charge their customers on revenue (or as they please) instead of usage.

• Should the electricity company be able to charge my ISP a 30% share of its revenue?
• Should the ISP in turn be able to charge Apple a 30% share of its revenue from the App Store on purchases from the App Store conducted through their internet connection
• Should Apple be able to charge a 30% share of all developers’ revenue for iOS apps or subscriptions?

Just as Apple has invested tons of money and work into developing iOS, the electricity company and ISP have poured it into their infrastructure.

My understanding is that electrical companies are considered public utilities and are thus regulated as such.

Are you prepared for Apple to be declared a public utility and be regulated as such. I suspect that may come with its own caveats, and developers may not necessarily be better off. Closest parallel I can think of at the moment is Qualcomm's licensing fees for their 5G modem. Back then, people here didn't seem to think it was unfair that Apple was being made to pay more to license the tech from Qualcomm compared to other OEMs selling cheaper smartphones (because the fee was reportedly based on the final price of the phone). But they apparently seem to have issues with Apple charging developers a percentage of their earnings.

I think what needs to happen first and foremost is for the EU to be honest and come out to admit that yes, they are violating Apple's property rights in this case, that Apple does still deserve to be compensated (possibly as some sort of FRAND licensing arrangement), that this tradeoff is being measured as a society, and that Apple should still invest because they are making so much money and this is good for the platform as a whole.

However, the EU can't even do this, because the DMA is really just protectionism by another name. It's the EU attempting to prop up companies like Spotify by going after US tech companies, as evidenced by their totally arbitrary $2 billion fine to Apple for "crimes against Spotify".

You want to set rules whereby nobody knows whether they are in compliance or not until after they have implemented them? This is what you get.

And in this regard, I am happy to see Apple pushing back against what I feel is not good legislation to begin with, and testing the limits of said legislation, because now, we are starting to see more clarity on just what is being asked, and just what Apple can and cannot get away with.

 

[wbeasley]

You've clearly moved the goalpost.

You said...

I didnt move the goal posts... you all decided an iPhone and iPad were computers.
Most of us have argued they share genetics but arent the same at all.

And the EU didnt include iPadOS (which I only found out yesterday).

Hence my comment that you and your IDE on an iOS device are going to not be happy.

Use the tool that best suits the task. A laptop in the case of IDEs.

 

[AppliedMicro]

You honestly believe Apple shouldn’t be able to monetise its own platform?…

No.
They have monetised it and they do monetise it.
They’re free to sell iPhones or license their operating system.
They sell their developer tools as a subscription.
They also run an App Store for said operating system.

But as long as developers for the category of software (mobile applications for smartphones) have only two operating systems to choose from and their developers control the app distribution (App Store, Play Store), OS developers should be limited in monetisation.

And the EU didnt include iPadOS (which I only found out yesterday).

They’ve opened a market investigation for inclusion - which, to my knowledge, is still pending/onggoing.

 

[treacher]

Companies that produce an OS are the ones that hold the keys to the kingdom, and they know this. It is like owning a country. It's a complete and utter level of total control over digital lives and digital economies, vs. just running a store or making a browser. And practically there can be only 2. It should be obvious why they need regulatory scrutiny.

 

[JordanNZ]

But as long as developers for the category of software (mobile applications for smartphones) have only two operating systems to choose from and their developers control the app distribution (App Store, Play Store), OS developers should be limited in monetisation.

This isn't going to play out how you think it is.

I don't think the EU is going to start dictating how companies can monetise their businesses. The DMA covers none of this.

 

[wbeasley]

Companies that produce an OS are the ones that hold the keys to the kingdom, and they know this. It is like owning a country. It's a complete and utter level of total control over digital lives and digital economies, vs. just running a store or making a browser. And practically there can be only 2. It should be obvious why they need regulatory scrutiny.

No they need competition and the market has had three or more choices before and decided to buy two in any sufficient quantity.

Anyone can develop their own
oS if they want to compete. Would t even be that hard to put onto open Android devices if they don’t want to make hardware

 

[treacher]

Anyone can develop their own
oS if they want to compete.

This is by far the most naive line that gets parroted with any regularity around here. No, they cannot.

 

[wbeasley]

This is by far the most naive line that gets parroted with any regularity around here. No, they cannot.

Naive or just difficult?
You want more choice and you all bag Apple for doing what they did the way they did it.

Do better yourself then. That’s the challenge.
Finance it. Spend years getting it ready for release. And monetize it.

Oh and then wait for an ungrateful bunch to bag it and whinge about choices you made.

But hey you don’t want a choice of two different OSes.

 

[MrTemple]

You honestly believe Apple shouldn’t be able to monetise its own platform?…

It seems that person does believe that.

Which is either beyond naïve or willfully choosing to not be wrong about a dear opinion to the point of ignoring reality.

Because they refuse to accept the "no bucks, no Buck Rogers" part of the equation. That without a HUGE revenue stream to make profitable the HUGE amount of effort Apple puts into the code in all these apps, then Apple will spend less time improving those apps, overall quality will go down.

It's a fantastically beneficial and self-reinforcing shared-effort, shared-success monetization model that has profited both apple and app devs ABSURDLY more than any other software development space.

But the prevailing childlike thought is that Apple should just do it for free? Waste of time debating with somebody who believes that (ignorantly or willfully).

 

[MrTemple]

But as long as developers for the category of software (mobile applications for smartphones) have only two operating systems to choose from and their developers control the app distribution (App Store, Play Store), OS developers should be limited in monetisation.

So your point is that these developers should be FORCED to cap their monitization.

Is your plan to force them to keep spending the exact same amount on whiz-bang features app developers get each year, or will you allow them to tune their cost/revenue to maximize their profits?

Becuase you're suggesting a massive reduction in revenue. So what do you expect? You expect Apple/Google to keep spending the same amount on making the app experience better?

A number of times you've sugggested basically 'Apple makes tons of money selling phones, they can afford it'.

Samsung makes tons of money selling phones too. But they don't have 1/1000th the amount of costs going toward the software on their phone as Google/Apple do. Do you honestly believe Apple could slash its profit margins on phones to subsidize software development, rather than monetizing that software itself?

Cap the monetization, cap the innovation.

If you don't believe that, you may need to go beyond 6th grade thinking on economics.

––

Better question: WHY do you think the revenue should be capped lower than the 15/30 it is now (or the new no-cut per-item fee)?

This OS duopoly is nowhere near as predatory as MANY other businesses. They are incredibly generous with their efforts with small and medium developers. They have developed truly incredible experiences, constantly one-upping and cribbing off each other (ditto for others in adjacent non-competing software spaces). They have built thriving app economies and software marketplaces where none ever existed (people truly didn't pay for software before these stores).

The piece of futuretech in our pocket exists because of these two companies with this (basically identical) monitization model. And app development revenue for small/med/large devs is many orders of magnitude more than they ever have in the history of ever. Who's losing out here? Not the consumer. If you believe you'd have a better experience without these two titans in their technological arms race, you're just bonkers banananpants wrong.

So why these two, why does this model need to be capped? You're just banging a drum without thought here. What does your ideal system look like?

Tell us a story of how much less Apple/Google should get for their enormous app-improvement developer teams. And then tell us how things will be better because of that.

Becuase again it feels like 6th grade thinking with no real world experience or knowledge.

 

[AppliedMicro]

I don't think the EU is going to start dictating how companies can monetise their businesses. The DMA covers none of this.

It's not dictating - but it's restricting it.
When the DMA states "free of charge" (which it does several times), that clearly restricts monetisation.

If you don't believe that, you may need to go beyond 6th grade thinking on economics.

The obligatory ad hominem insult, if someone doesn't conform to your opinion or view of the world?

👉 When someone feels compelled to resort to ad hominem attacks in online discussions, one should always become suspicious of a lack of compelling arguments.

Becuase again it feels like 6th grade thinking with no real world experience or knowledge.

...and you felt compelled to repeat it.

👉 When someone feels compelled to resort to ad hominem attacks in online discussions, one should always become suspicious of a lack of compelling arguments.

 

[AppliedMicro]

So your point is that these developers should be FORCED to cap their monitization.

They EU has successfully done it in other sectors, too (e.g. the payment or cellular roaming markets).

Do you honestly believe Apple could slash its profit margins on phones to subsidize software development, rather than monetizing that software itself?

Of course I honestly believe that they could, given their profit margins.
I just as well believe that they don't want to.

Cap the monetization, cap the innovation.

Not when the monetisation on underlying infrastructure acts like a tax.

👉 Capping or restricting the monetisation of underlying infrastructure - or base products - increases potential for innovation elsewhere. It'll likely just shift (a bit) from OS developers to third-party app developers.

Apple prohibiting Spotify or Epic to link out of their app for subscriptions, make game streaming apps unviable and gaining an advantage on their own services vs. Spotify (having to choose between worse user experience for lack of in-app subscription management or paying commissions to Apple) certainly did not spur innovation. Quite the contrary. But returning to your claim:

Cap the monetization, cap the innovation.

As you said yourself: we "may need to go beyond 6th grade thinking on economics" there.

👉 It depends on the lifecycle of the product in question.

Innovation is - and IMO absolutely should be - rewarded in the introduction and growth stages of a product.
And Apple was rewarded supremely, experiencing growth and making to much money from the iPhone and iOS to become the world's most valuable company within a few years.

But mobile operating systems have matured (I'd argue) over the last 15 years. So has the growth in unit sales for smartphones.

Yet we're seeing hardly any change in the monetisation and business models/rates of application store operators - as would be expected in competitive markets. Why? Because of the strong network effects of the app ecosystems and barriers to switch. Consumers choose an operating system and/or hardware platform. They aren't switching (they can't) between iOS or Android (or different stores - on iOS for lack of existence) for their day-to-day app purchases.

When a product has matured but serves as a platform (operating systems clearly do), the ability of its developer to unilaterally set prices (in a monopoly or duopoly), just becomes a drag on innovation.

Better question: WHY do you think the revenue should be capped lower than the 15/30 it is now (or the new no-cut per-item fee)?

I'm not saying it should be a fixed cap, when competition can decide that.

Payment processing can be done for something between 1.5% and 10% (depending on how and what added services, e.g. handling of tax, you include). A fraction of what Apple charge.

When someone subscribes to Spotify in-app, Apple merely provides payment processing. Users aren't "discovering" Spotify for being featured in the App Store - that's BS regarding a brand like Spotify.

Also, Apple aren't charging fairly and non-discriminatory, when Uber or Booking.com pay no commission. And it's anticompetitive when Apple themselves enter all kinds of such markets with their own services. Are Apple free to decides sales of which products they charge commissions on? Yes, without laws restricting them.

They have developed truly incredible experiences, constantly one-upping and cribbing off each other (ditto for others in adjacent non-competing software spaces). They have built thriving app economies and software marketplaces where none ever existed (people truly didn't pay for software before these stores).

The piece of futuretech in our pocket exists because of these two companies with this (basically identical) monitization model.

So?

I was on holiday in Europe recently and could use my mobile data plan in travelling and roaming across several countries. Even order things and transport on the go, where I sometimes didn't speak the language. Imagine how incredibly useful that was to me. And imagine what thriving digital economies the cellular carriers enable through their networks.

Why could I do so so conveniently? Because the EU capped roaming charges and forced restrictions on mobile carriers' monetisation.

 

[MilaM]

Samsung makes tons of money selling phones too. But they don't have 1/1000th the amount of costs going toward the software on their phone as Google/Apple do.

I call this claim bonkers. Please proove it somehow. Apple's R&D is around 7 percent of net sales. That's far less than many other companies like Microsoft, Alphabet, Huawei or Amazon. Samsungs R&D is around the same value (in USD) as Apple's.

 

[Abazigal]

I call this claim bonkers. Please proove it somehow. Apple's R&D is around 7 percent of net sales. That's far less than many other companies like Microsoft, Alphabet, Huawei or Amazon. Samsungs R&D is around the same value (in USD) as Apple's.

I think his point is that if Apple is expected to fund the costs of operating the App Store out of hardware profits, what does that mean for android phones who don't have to deal with any said associated costs? Samsung for one doesn't have an ecosystem to maintain; they piggyback mainly off Google's existing one. Are we going to tell Samsung "Hey, since you don't have to invest in maintaining iMessage, maps, Siri, iCloud, satellite calling and since your own App Store is nowhere near the scale of Apple's, you shouldn't be charging your S24 for as much as the latest iPhone?

Do you see how ridiculous these suggestions get when taken to their logical conclusion?

 

[I7guy]

I call this claim bonkers. Please proove it somehow. Apple's R&D is around 7 percent of net sales. That's far less than many other companies like Microsoft, Alphabet, Huawei or Amazon. Samsungs R&D is around the same value (in USD) as Apple's.

That would make Apples R&D only around $26B. The cheapskates.

 

[AppliedMicro]

That would make Apples R&D only around $26B. The cheapskates.

Seems to be about that, yes. As percentage of 2022 revenue:

Meta: 30%
NVIDIA: 27%
Broadcom: 14%
Alphabet: 14%
Amazon: 14%
Microsoft: 13%
Apple: 7%

And those 7 percent even seem to be a historically high level for Apple. It used to be much lower.

👉 Got to give those “cheapskates” credit for their efficiency in turning (relatively little) R&D into high sales.

 

[Abazigal]

Seems to be about that, yes. As percentage of 2022 revenue:

Meta: 30%
NVIDIA: 27%
Broadcom: 14%
Alphabet: 14%
Amazon: 14%
Microsoft: 13%
Apple: 7%

And those 7 percent even seem to be a historically high level for Apple. It used to be much lower.

👉 Got to give those “cheapskates” credit for their efficiency in turning (relatively little) R&D into high sales.

So apparently, being extremely focused and disciplined with their spending is now a crime for Apple, it seems.

 

[AppliedMicro]

So apparently, being extremely focused and disciplined with their spending is now a crime for Apple, it seems.

Not a crime. But certainly no need for “How would poor little Apple otherwise pay for all that continued innovation?“ whining.

 

[MilaM]

"Hey, since you don't have to invest in maintaining iMessage, maps, Siri, iCloud, satellite calling and since your own App Store is nowhere near the scale of Apple's, you shouldn't be charging your S24 for as much as the latest iPhone?

MrTemple said, that Apple has exceptionally high R&D costs to recoup, and that therefore lower income from the services division would lead to cost cuts that would affect users and developers of Apple products. I don't buy this claim, because Apple's R&D costs are not very high if you put them into perspecitve.

iMessage, maps, Siri, iCloud, satellite calling

As a consumer, you already pay for these services when you buy a phone. They are effectively priced in. And I don't mean that in an abstract way. There is an accounting method called Accrual Accounting, that was invented for exactly that. Some of the service revenue that Apple reports, is actually revenue from the sale of the device, spread over the useful life of it. iMessage, Maps, Siri, iCloud were already paid for by the customer.

 

[wbeasley]

I call this claim bonkers. Please proove it somehow. Apple's R&D is around 7 percent of net sales. That's far less than many other companies like Microsoft, Alphabet, Huawei or Amazon. Samsungs R&D is around the same value (in USD) as Apple's.

Samsung's R& D is mostly hardware not software. Chips, screens, memory they sell to others.
Perhaps the EU should fine Samsung so EU companies have access to that R&D for free and compete
OH well this might mean nothing shortly with Sweden join NATO.
Putin going to action his threats you think?

 

[diamond.g]

I think his point is that if Apple is expected to fund the costs of operating the App Store out of hardware profits, what does that mean for android phones who don't have to deal with any said associated costs? Samsung for one doesn't have an ecosystem to maintain; they piggyback mainly off Google's existing one. Are we going to tell Samsung "Hey, since you don't have to invest in maintaining iMessage, maps, Siri, iCloud, satellite calling and since your own App Store is nowhere near the scale of Apple's, you shouldn't be charging your S24 for as much as the latest iPhone?

Do you see how ridiculous these suggestions get when taken to their logical conclusion?

Samsung does have its own OS (Tizen) and App Store and duplicate services they maintain. One UI was developed by Samsung for their phones and Google even uses it for WearOS.

 

[I7guy]

MrTemple said, that Apple has exceptionally high R&D costs to recoup, and that therefore lower income from the services division would lead to cost cuts that would affect users and developers of Apple products. I don't buy this claim, because Apple's R&D costs are not very high if you put them into perspecitve.


As a consumer, you already pay for these services when you buy a phone. They are effectively priced in. And I don't mean that in an abstract way. There is an accounting method called Accrual Accounting, that was invented for exactly that. Some of the service revenue that Apple reports, is actually revenue from the sale of the device, spread over the useful life of it. iMessage, Maps, Siri, iCloud were already paid for by the customer.

And add in software updates and warranty support etc. All of that is included in the price of the phone.

There is only a small fraction of people who aren’t shareholders and bean counters who care about apples r&d costs and those are the critics.

Consumers look at the product, its features, value proposition, warranty, return policy and the like. They don’t care how much a company spends on r&d. But in this thread the $26B est. that Apple spends is being used to criticize the company.

As a consumer I don’t care what the commission is, how much money funds the App Store, what is the accounting used to prove it and mostly whether or not apple deserves it. As a consumer I only look at is the product right for me.

Sheesh.