How Spotify’s Case Against Apple Could Affect Amazon?
The Antitrust Complaint Filed at the European Commission Will Set a Precedent if Spotify Wins
Some of you Spotify fans might have come across the $12.99 upgrade option for Premium on the iOS app and then later seen the same option on Spotify’s website for $9.99. You would have felt elated, and rightly so, upon discovering this loophole.
This price discrepancy stems from Apple’s 30% commission on In-App Purchases (IAP). Apple charges developers this fee on all purchases made within the app for services or products delivered through the app (thus not affecting apps like Uber and Airbnb which deliver services outside the app). In order to pay this fee, Spotify briefly increased its prices for iOS app users, but this option has since been discontinued. Developers are also not allowed to use any explicit methods (emails, website links) to redirect customers to an external website to make these purchases.
Apple is not alone in charging this commission, Google charges the same for apps in the Android Play Store. The fee goes towards paying employees to scrutinise and approve apps, processing customer payments in different currencies and transferring the money to the developer, and distributing the apps through content-delivery networks to customers across the world. But Google allows developers to redirect the customers to external payment methods to avoid this fee and Android users also have the option to download apps from external sources, unlike iOS users who are restricted to the App Store.
Spotify has been subject to the 30 percent commission since 2011 when Apple first introduced this fee. Then, why is it that Spotify is filing a complaint only now?
Previously, Spotify did not have a strong case against Apple because it was subject to the same fee that all other developers were subjected to. It was merely the cost of being in present in the App Store. But with the introduction of Apple Music, the rules of the game have changed. Since Apple Music (owned by Apple) does not have to pay this fee, it allows customers to upgrade within the app at a competitive $9.99 price. This leaves Spotify with three options when competing in the iOS market:
- Charge the same $9.99 and bear the 30 percent commission
- Charge $12.99 and pass on the cost of commission to the users
- Expect its users to be savvy enough to upgrade on the Spotify website without Spotify leading them to it
Spotify’s argument now is that Apple is misusing its position to prevent fair competition in the App Store. Apple’s response, which does not mention Apple Music at all, is that Spotify is trying to enjoy the benefits of the App Store without contributing to it.
The bigger concern is that Apple has the ability to see which apps earn the most and then develop its own version of the app, which does not have to pay the commission and offer it to customers at a cheaper rate than existing apps. If this sounds a lot like what Amazon has been doing with its own line of products (AmazonBasics), here is where the connection lies. Amazon charges a commission on all products sold on its platform, and of course, its own range of products are exempt from this fee. The European Commission has already indicated that it is looking into Amazon because such practices go against the idea of fair competition and put competing companies at a disadvantage.
The Commission is known for its landmark decisions in favour of competition. If we were to go by previous cases (ex. Microsoft and Google), we can expect a ruling in favour of Spotify. This will not only significantly hurt Apple’s revenue from services, but it will also set a precedent for any similar case against Amazon if the ruling in the latter’s case does not come first.