Apple Doth Protest Too Much Regarding EU Antitrust Fine; But It’s A Weird Thing To Do Just As The DMA Is Taking Effect
It's no secret that I'm often skeptical of antitrust actions, many of which feel like bureaucrats doing a general punishment" for disliking a successful company, rather than an actual response to abusive, anti-competitive behavior by a large company. However, that does not mean that there is no place for antitrust enforcement. It's just that it should be in response to actual evidence of companies abusing their market position to make anti-competitive moves in an unfair manner.
And, I'd argue that Apple's efforts to prevent companies like Spotify from even telling users that they can subscribe directly for less by going to Spotify's website, seems like... exactly that. This week, the EU fined Apple around $2 billion in response to exactly that complaint from Spotify. And this seems like the proper use of antitrust law.
The European Commission has fined Apple over 1.8 billion for abusing its dominant position on the market for the distribution of music streaming apps to iPhone and iPad users (iOS users') through its App Store. In particular, the Commission found that Apple applied restrictions on app developers preventing them from informing iOS users about alternative and cheaper music subscription services available outside of the app (anti-steering provisions'). This is illegal under EU antitrust rules.
The details of all this are pretty straightforward. Apple has something of a stranglehold on getting any apps onto iOS devices through its App Store. This is somewhat amusing, given that the iPhone launched without an app store, and Steve Jobs told everyone to just write web apps for it - how things changed! If someone wants to offer paid apps through the app store, then they have to use Apple's payment systems, from which Apple takes a hefty, hefty cut (basically 30%).
In the US, Epic sued Apple (and Google) over this cut, which Epic felt was unfair. Oddly, Epic won against Google and mostly lost against Apple, even though Google's platform is much more open and it's much easier to avoid the 30% tax on in-app payments. But, the one area where Epic did prevail over Apple was on the anti-steering" provisions, in which Apple blocked Epic from telling users to complete their transactions off of the iOS platform in order to avoid the 30% Apple fee.
The Spotify case in the EU is similar to that. It's a decision over Apple's anti-steering efforts that limits the ability of Spotify to tell people how much it costs to sign up for Spotify's paid plans (Spotify also offers free plans).
And, it does seem like extremely problematic behavior for Apple to block app developers from telling users to pay on the web, or to explain why they'd prefer users do so. If Apple's payment system is so much more convenient and better, then just rely on competing on being better, rather than trying to silence app developers.
In an out-of-character move, Apple posted a ranty, angry response to the fine, which really comes off poorly. It goes on and on about how it provides all sorts of wonderful free services to Spotify, which it never pays for, as if this is all somehow unfair.
But free isn't enough for Spotify. They also want to rewrite the rules of the App Store - in a way that advantages them even more.
Like many companies, Spotify uses emails, social media, text messages, web ads, and many other ways to reach potential customers. Under the App Store's reader rule, Spotify can also include a link in their app to a webpage where users can create or manage an account.
We introduced the reader rule years ago in response to feedback from developers like Spotify. And a lot of reader apps use that option to link users to a webpage - from e-readers to video streaming services. Spotify could too - but they've chosen not to.
Instead, Spotify wants to bend the rules in their favor by embedding subscription prices in their app without using the App Store's In-App Purchase system. They want to use Apple's tools and technologies, distribute on the App Store, and benefit from the trust we've built with users - and to pay Apple nothing for it.
In short, Spotify wants more.
Of course, this leaves out a few kinda important details. First, services like Spotify are part of what make the iPhone much more valuable. So, contrary to Apple's claims, it does make money from Spotify (and all the other apps in the app store) because without them, there is much less reason to pay a ton of money for an iPhone and an iPad. And the vast majority of Apple's revenue comes from hardware sales of those two devices. In 2023, it looks like about $230 billion dollars from iPhone and iPad sales alone (and if you add in Apple Watches and other accessories like AirPods, it's up closer to $300 billion).
The fact that a service like Spotify is available helps make all of those things more valuable, leading more people to be willing to buy. Apple is being disingenuous in suggesting that companies are somehow taking advantage of Apple by not agreeing to pay them extra money for in-app transactions.
Second, and this one is specific to Spotify: the margins in the music streaming business are generally pretty terrible. This is because copyright holders always want to squeeze way more money out of anyone who wants to do anything useful with music, often killing the golden goose that is generating revenue by squeezing until they die. Adding another 30% cut on top of that would effectively kill any opportunity at profitability.
But, at the same time, Apple offers its own competing music service that is a 1-to-1 replacement for Spotify. But, in Apple's case, it doesn't have to pay that same 30% fee, since it's the same company.
And it's that factor that makes this anti-competitive. It's using its own market leverage over the app market to force a competing service to pay a much higher fee than it has to pay itself. That seems like a classic situation for antitrust.
And, if you read Apple's petulant response, it never even mentions Apple Music. And that kinda gives away the game. It's the presence of Apple Music that makes it anticompetitive. In the post, Apple insists:
Today, developers compete on a level playing field on the App Store. Apps are reviewed according to a comprehensive set of rules, which are designed to protect our users. And meeting those rules means developers of all sizes can reach more than a billion devices around the world.
But... that's not really true when it comes to Spotify vs. Apple Music. Apple Music has an inherent, built-in advantage of not having to worry about the 30% cut that might take a music service from barely profitable to deeply unprofitable.
And, I have no problem with Apple offering its own music service to compete with Spotify. I also have no problem with Apple charging whatever it wants for its own payment system. But I do have a problem with Apple then saying that Spotify can't talk about the basics of its subscription plans. That seems unnecessarily stifling.
All that said... this fine is still... weird?
The Digital Markets Act is partially in effect already. Part of the promise of it was that it was supposed to help solve anticompetitive activity by the large gatekeepers." Those gatekeepers are supposed to comply with the DMA's requirements for gatekeepers as of (checks calendar)... oh shit... today?
Yet, this move is separate from the DMA. It seems odd to issue this action just two days before Apple will be required to comply with the DMA's rules for gatekeepers, if the DMA is designed to solve these problems and prevent anticompetitive activity by gatekeepers, which, we've repeatedly been told, will solve competition problems regarding the large digital gatekeepers in the EU. If that isn't the case, what are we even doing with the DMA?
In the end, this fine is... fine? It's a bad practice by Apple, and it would be better if they stopped it. Apple's protests are surprisingly whiny and ignore the reality of the situation. But, it's also bizarre for the EU to do this now just as the DMA (which is supposed to solve all this) comes into effect.