What’s going on here?
Apple is under investigation by the European Commission (an EU body) after Spotify made complaints of anti-competitive behaviour.
What does this mean?
Spotify has alleged that Apple is restricting its business and disadvantaging other app developers with anti-competitive practices. On its website “Time to Play Fair”, Spotify states that it is subject to an “Apple Tax”. By this, it’s referring to the whopping 30% cut paid to Apple on all in-app purchases on Apple’s App Store (which hits hard when Spotify try to sell in-app upgrades to its premium service).
Spotify also pointed towards Apple’s extensive rules for developers, restricting the features that they can incorporate into their Apps. For example, Spotify is not allowed to redirect iOS users from the Spotify app to its website to pay for premium upgrades. As a result, in-app purchases must be made through the App Store, forcing Spotify to pay the tax. Spotify further claims that it is blocked from streaming via Siri or HomePod and has limited capabilities on Apple Watch.
What’s the big picture effect?
Spotify has been forced to artificially inflate its prices to cover the cost of the tax. As Apple’s own music streaming service “Apple Music” isn’t subject to the charge, it appears artificially cheaper than Spotify. This has driven Spotify to completely remove the premium upgrade option within the app to keep prices competitive. Its consumer’s experience is therefore detrimentally impacted, as iOS users cannot take advantage of the ease of upgrading the service within the app.
Additionally, by limiting other functions (such as limited Siri integration), Apple makes Spotify look less functional in comparison to its own service. As Apple Music is supported across the whole Apple ecosystem, Apple Music looks flexible compared to Spotify because of its unrestricted reach.
However, it’s important to remember that Spotify isn’t wholly disadvantaged by its current arrangement with Apple. The company boasts 200 million active ‘freemium’ users, but only 87 million premium subscribers. Spotify profits from its free users because of the ad-supported revenue gained from freemium users, as these are not subject to the Apple Tax. Apple also stated that the tax is held at 30% for Spotify’s first year of in-app sales. But after the first year, it drops to 15% for the years after.
The EC is investigating this situation. The Commission recently fined Google £1.3 billion for denying companies the ability to compete on merit and innovate. Should similarities be found, Apple may be slapped with a heavy fine.
Report written by Evania D.
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