July 4, 2016 at 4:58 p.m. PST
Apple recently blocked a Spotify iOS app update, as the streaming music giant removed App Store in-app purchasing. Their legal representatives exchanged correspondence about the issue. Apple claims that Spotify needs to follow the rules and that there are high costs involved in running the App Store.
Major media outlets have been critical of Apple’s move, including ReCode and CBS News. There is an emerging consensus that Apple has gone too far and this is a purely competitive moved aimed at wiping out Spotify. The move could put Apple under antitrust scrutiny. Apple’s interest in acquiring Tidal seems to indicate that they are trying to build another monopoly.
The streaming music business is a winner-take-all competition. There are numerous players for now, but this will change. At best, it can be an oligopoly. This is due to the fact that artists make more money when a streaming service has more subscribers. The basic business model is that, after costs, the streaming music service pays proportional revenues back to rights holders. The more subscribers, the higher the revenues.
Rights holders are more inclined to sign exclusive deals with services that can provide the highest revenues. There are some exceptions, as Apple has managed to make deals with artists for temporary exclusivity. This practice can only continue and be profitable if Apple manages to dominate the music streaming industry. Unfortunately, they have been unable to do this by creating a better product. Spotify’s user base has grown almost as much as Apple’s since Apple Music was launched. Even with Apple’s three-month free trial, Spotify managed to attract almost as many paying subscribers in the same amount of time.
Apple Allows Other Apps to Ignore In-App Purchase Requirement
A lot of iOS apps don’t sell subscriptions as in-app purchases. In fact, one of Apple’s highly promoted tvOS apps, Sling TV, does not sell an in-app subscription. Amazon Video does not sell anything in-app in their iOS app. Apple’s rules are applied unevenly and with competitive motives. Sling TV doesn’t follow the rules. Amazon Video doesn’t follow the rules. There are a lot of apps that require users to subscribe and make purchases outside of the app. The App Store has some discretion in how they enforce these rules. For some developers, they look the other way. As Apple is trying to build their music streaming service, Spotify has become a target of this uneven enforcement of the rules.
Apple can’t take on Amazon in a legal battle without it being a Pyrrhic victory. For now, Sling TV, owned by the Dish Network, helps sell Apple TV devices. When Apple launches their own live TV service, which has been the subject of rumors for months, this will likely change.
Apple Has Copied and Benefitted from Spotify
Spotify isn’t a huge corporation. They can’t afford a long, drawn out legal battle with Apple. Apple Music has copied much of the Spotify UX/UI. Spotify did most of the negotiation with rights holders to create a library of 30 million songs. Music groups now have a standard package for any streaming service, thanks in large part to Spotify. Apple is taking a free ride on all of this hard work. These standard agreements, many of them negotiated by Spotify, are why there is a proliferation of music streaming services.
Apple continues to copy Spotify with their upcoming update to Apple Music, adding a Browse feature lifted from its competitor. Even the button shapes are exactly like Spotify. Related artists are displayed in circles, just like Spotify. Apple just made their app white and put the “tab” buttons on the bottom. Now, to add insult to injury, they are extorting Spotify because, like many other apps, they sell their subscription outside of the app. This actually makes sense because the subscription is for multiple devices, not just your iPhone. It could create confusion if someone bought a Spotify subscription on their PC, only to be met with an in-app pay wall on their iPhone. That’s not the main reason Spotify is doing this, but in-app purchases do muddle the UI for cross-platform services.
Apple Music Isn’t Saving the Music Industry
Unfortunately, there is some backlash against Spotify. Some Apple fans really took a big swig of the Kool Aid and believe that Apple pays artists much more than Spotify. This is simply not true.
Taylor Swift had to shame Apple into paying rights holders for the free trial subscribers. You can find “evidence” that Apple pays $0.0002 more per track than Spotify. This figure changes, as it is based on the number of subscribers and number of tracks played. Critics of Spotify love to tout this meaningless, outdated, constantly fluctuating statistic. The most important figure is total compensation, as rights holders don’t pay costs associated with the number of tracks played. They are only slightly affected by high subscriber engagement, as Spotify’s operation costs increase.
The fact that Spotify has almost 10 times as many users means that artists make more. Artists on Spotify get far more tracks played. Payments per track are completely meaningless. That’s not how the music subscription business works. Tracks are used to portion out the revenues amongst artists. The per-track revenues change every month. The service with the most subscribers pays out the most to artists.
Apple Music doesn’t even come close to Spotify when it comes to compensating artists. Spotify is transparent about their business model. As they get more subscribers, artists make more money. Spotify boasts about how much money they have paid to rights holders. The grumbling about Spotify “ripping off” artists has become muted, as they pay more than any other streaming music service. Tidal may pay more per track, but they have a very small user base. Don’t be fooled by tech writers and bloggers who use payment-per-track as an indication of artist’s compensation.
Where’s Apple’s explanation? Jimmy Iovine claims that they are saving the music industry. How? It’s more dishonesty from Apple, just like their privacy claims.
Spotify’s Free Service is a Public Good
If you’re looking for the moral high ground with Apple Music, they don’t offer a free service. Not everyone can afford $10 a month. I think it’s a good thing that people without the means can listen to Spotify (albeit at low resolution) and have it subsidized with advertising. With Apple Music, there’s no free option. Apple even removed their free, ad-subsidized iTunes Radio service.
If you want music from Apple, you have to pay. That’s fine, but Spotify’s free service is actually a public good. If people thought like Apple thousands of years ago, there would be no public libraries. What? You let people read books for free? You’re robbing the authors and publishers!
This Is an Anti-Competitive Move
The bottom line is, Apple lets Amazon, Sling TV and others get away with this. They are playing hard ball with Spotify as an anti-competitive move. They enforce their App Store policies inconsistently and based on anti-competitive motives. They can’t make a better app, despite the free intellectual property ride they got from Spotify.
The devil makes work for idle hands. Instead of working hard to develop a great app and business model, Apple had a free ride. This frees up resources for nefarious activities. Now their lawyers and MBAs have figured out how to put Spotify out of business, much like how robber barons gobbled up farmers’ land in California. They’re modern-day robber barons. This is why we have antitrust laws. Unfortunately, Apple can tie this up in the courts for years.
Spotify Must Use the App Store
I like Apple hardware and OS X. I think iOS is a decent mobile operating system. I am not a knee-jerk Apple hater. That said, this is a really bad move, not only for Spotify, but for consumers. Even if you love Apple Music, supporting this move takes away your freedom of choice.
The App Store is the only viable app market for iOS users. We cannot side-load apps from third-party app stores or the web. In fact, I think macOS will eventually disable this capability. As it stands now, they make it seem like you are installing malware whenever you download an app outside of the App Store. The irony is that the App Store does not protect users from malware. Apple’s malware warning would equally apply to any app downloaded from the App Store. They disingenuously lull customers into a false sense of security.
Most of the OS X apps I have purchased or installed (TextMate, AirParrot, GIMP, VNC, Eclipse) are not sold in the App Store. They know that Apple taking a 30% cut is too much. At best, if they get their app in the App Store, it is buried among so many other apps. Developers must market and promote their apps by creating websites, ads and social media engagement. The cost of hosting an app is negligible. The cost of developing and maintaining the App Store app is negligible. Apple does not spend billions of dollars to operate the App Store. It’s not a brick and mortar store like Target or Walmart.
The notion that Apple should get $36 per year from each Spotify customer for merely hosting an app download is extortion. Spotify has to run the data center that streams the actual music. Apple’s general council claims that they must bear the cost of the retail operation. It’s not a real store! It’s a virtual store! Furthermore, Apple Music bypasses in-app subscription purchases on the Google Play store.
Doesn’t Google need to pay to operate Google Play? Apple’s contradictory behavior demonstrates their lack of principle and greedy motives.
When given the choice, as with Mac OS X, a lot of developers opt out of the App Store completely. In the case of Spotify, Apple just hosts the app. They do not host the music. Running a high scale music streaming service that “just works” is something Spotify does well. Apple… uh, not so great. In fact, all of Apple’s server-side endeavors are less reliable than their competitors’. They do not have the industry standard “five nines” uptime (99.999% server availability). Apple’s services are constantly going offline. Why should Spotify pay $36 per app download, per year, in perpetuity for the App Store? It’s extortion. They can’t deliver their app to iOS users with a third-party app market. User’s can’t download the app from Spotify’s website.
Apple is Violating Antitrust Laws
In the 1990s, Microsoft was sued by the U.S. government because they included the Internet Explorer browser in Windows. Microsoft did not prevent installation of other browsers. Indeed, it’s difficult to download another browser when you don’t have one to begin with. Few people knew how to use FTP. You’d also need to know the FTP address for Netscape. Nonetheless, they settled this lawsuit and changed their practices.
Apple is doing something far worse. They completely control app installation on iOS. Users have no way to side-load apps onto iOS. Developers can only distribute their apps through the App Store. This is a classic robber baron tactic. They control the railroad and can charge farmers whatever they want to transport their crops to market. They’re now trying to take Spotify’s farm by gradually bleeding them dry. Perhaps this strategy was conceived by someone who attended a famous robber baron’s namesake university?
This anti-competitive behavior is actually against the law. Yes, it’s Apple’s App Store, but the customers have no choice on iOS. Users can only install apps from the App Store. That’s unlike any other OS out there. Even the Mac can side-load apps, for now. You can jailbreak, but Apple tries to thwart that. The antitrust laws that thwarted robber barons of the past apply to Apple. The problem is, Apple can tie this up in the courts and bankrupt Spotify in the process. They may pay a small fine and get a slap on the wrist. It’s a small consequence for dominating the music industry.
Apple Needs to Allow Side-Loading Apps on iOS
I think the best solution would be if Apple were forced to allow side-loading apps from third-party app markets or websites. They can put up the notifications to scare people into thinking it’s malware, which they do on the Mac. What they have now is monopolistic and anti-competitive, to the extent that it is illegal.
Apple has so many advantages, and they already picked Spotify’s brain to create Apple Music. They had a free ride on all the negotiations that put together music streaming deals. How much more harm can they do to Spotify, an app that is loved by so many users around the world?
iPhone sales are in decline. Apple needs to show that Apple Music is a success. They seem incapable of building a better product than Spotify, despite their vast resources. Instead, they have resorted to cheap tricks.
I prefer free markets where the better product wins. The App Store is a fixed market created within a somewhat free market system. I don’t object to them rejecting apps for content (although they are heavy-handed with this practice). Rejecting apps for anti-competitive motives will put them under federal scrutiny. Several prominent politicians are already pointing this out. It’s only a matter of time until this hits the courts. Taxpayers must pay to sort all of this out. Apple isn’t just robbing Spotify. They’re robbing the American people. When this goes to trial, it will go on for years, at the tax payers’ expense.
It’s fine if Apple claims “this is our App Store, play by our rules”. We have no alternative to the App Store, other than completely switching platforms. I can’t recall any consumer-oriented OS in history that forced users to buy apps from one App Store. This is a monopoly and they are abusing it.
Apple Should Focus on Creating New, Breakthrough Devices
Apple can afford to tie this up in court for years. Spotify can’t. An extended legal battle with Apple will be the end of Spotify. This isn’t good for consumers or taxpayers.
It’s quite a contrast. Spotify provides a music service that people love. Anyone can use their free service. It’s a public good. Apple, however, can’t create a better product, so they leverage their App Store hegemony to squeeze Spotify like a hungry python. Yes, the stock holders need more profits. How about creating a new device that people will actually buy? Not a lame smart watch. Not a weak “me too” TV appliance. They need to stop fiddling with the size of tablets and smartphones and make something that people will buy!
Right now, consumer confidence has improved greatly since the first iPhone launched on the brink of the “Great Recession”. Consumers have money, but they’ll only spend it on something worthwhile, not various sizes of iPhones and iPads. Apple needs a new, breakthrough device. That’s what they are (or were) good at. Instead, they flex their monopolistic muscle to push an inferior music subscription service.
Apple’s last, great original product was the iPhone. That was a decade ago. It would seem, without the vision of Steve Jobs, Apple is doomed. The generosity of their ecosystem is already drying up. It’s time for Apple to leverage synergies and stick it to their captive customers. Eliminating competing third-party apps, such as Spotify, is part of this strategy. They own the railroads, now it’s time to bleed the farmers and take their land. This is exactly why we have antitrust laws.
I tried Apple Music and found it to be horribly buggy on every one of my devices. Spotify is a better product. It has more users. Its user base has increased even more after Apple Music launched, as they added over 10 million new paying users. Instead of competing on merit, Apple is leveraging their hegemony in an attempt to put the best and most popular music streaming service out of business. I may very well move away from Apple products if they succeed. I can’t support a robber baron, monopolistic company.