Friday, March 15, 2019 [Tweets] [Favorites]

Apple Responds to Spotify

Apple (Phil Schiller, MacRumors, Hacker News, Reddit):

And developers, from first-time engineers to larger companies, can rest assured that everyone is playing by the same set of rules.

I don’t think anyone actually believes this. If a small developer did what Uber or Facebook did, they would have gotten more than a slap on the wrist. Meanwhile, certain apps that compete with Apple seem to get extra scrutiny. It’s also important to remember that the App Store guidelines are not laws passed by a democratic process with any pretext of fairness. Rather, Apple unilaterally makes the rules to advance its interests, and it changes them as necessary to thwart competitors.

We want more app businesses to thrive — including the ones that compete with some aspect of our business, because they drive us to be better.

Yet Apple specifically disallows sideloading apps and competing stores, which would drive the App Store to be better. And the digital content businesses like books and music—where Apple competes—are the ones where Apple sets the fees to disadvantage competitors. The built-in advantages of bundling and integration are not enough for Apple to compete; it forces companies like Amazon to make apps like Kindle harder to use. The businesses not competing with Apple—like Uber—are the ones that don’t have to “contribute” to the App Store.

After using the App Store for years to dramatically grow their business, Spotify seeks to keep all the benefits of the App Store ecosystem — including the substantial revenue that they draw from the App Store’s customers — without making any contributions to that marketplace.

Today’s Apple believes that customers have no inherent right to install software on their devices, and further that any revenue related to using such devices owes a rent to the platform vendor. This is like Dixon Ticonderoga making rules for what you can write with your pencil and then demanding a cut if you sell any of your work.

The only time we have requested adjustments is when Spotify has tried to sidestep the same rules that every other app follows.

I’m not sure whether this is true, but, again, the rules were specifically written to disadvantage competitors like Spotify.

The only contribution that Apple requires is for digital goods and services that are purchased inside the app using our secure in-app purchase system.

And they’ve written the rules to make it really difficult to use other purchase systems because they know that IAP couldn’t compete on a level playing field. Customers have to suffer through a worse user experience because Apple refuses to charge a reasonable fee.

Damien Petrilli:

It takes some “courage” to use the 84% of free App as an argument, knowing most of those are the garbage and scam Apps which plague the App Store today.

Most companies NOT paying Apple are basically unethical businesses who farm data and violate privacy to earn money.

Meanwhile those trying to make a decent living with good Apps are hit by the 30% Apple tax.

Charles Perry:

From Apple’s response to Spotify: “We keep all our developers on a leash. It wouldn’t be fair to other developers to unleash just you. And really, shouldn’t you just appreciate what you’ve been given like all the other good dogs?” (I may have paraphrased.)

Dan Masters:

Disappointing to see Apple take the low road with irrelevant rhetoric. They’re using artists as their political football, with the sole purpose of swaying popular opinion & setting a narrative.

This is the same company that wasn’t going to pay artists for streams during trials.

Apple justifies their ‘fair’ tax on devs, yet has happily paid much less than their fair share of taxes where they operate, while benefiting from each nation’s respective resources & markets.

I guess Apple is more equally ‘entitled to their business model’ than others.

David Barsky:

“Contributions to that marketplace” is a funny way of saying “we’re mad that you’re not rolling over and letting us double-dip into revenue we have no business touching.”

Manton Reece:

Apple likes to brag about how much money they’ve paid to developers, but they leave out how much they’ve kept for themselves: about $50 billion. To Apple, they are doing us a big favor by letting us ship iOS apps.

[…]

And yet in the previous quote, Apple says that 84% of apps pay nothing and they are fine with that. Uber pays nothing to Apple. Games with ads pay nothing to Apple. Why is it wrong for Spotify to also want to limit how much they pay to Apple? The line Apple has drawn around in-app purchase is arbitrary. They could just have easily restricted Uber accepting payments, or banned third-party ads.

Nilay Patel:

Apple put out a response to Spotify’s antitrust campaign today, and it is just extremely weird. Especially this part, where they repeat this inaccurate “suing songwriters” talking point that honestly makes no sense.

Owen Williams:

Apple repeatedly says that what Spotify is doing is “wrong” but then just goes ahead and makes provably untrue statements up - in order to make its approach look better, even though Apple has historically done the EXACT SAME THING TO CREATORS.

Dan Masters:

From just a few weeks ago!:

“Apple changes its iPhone photo contest page to say it will pay winners, after originally stating ‘prize has no cash value’”

Owen Williams:

I find myself reading the long letter, which tries to rebuke each of Spotify’s points, thinking that the PR doublespeak is incredibly eloquent. Apple avoids touching on any of the issues in the ecosystem, while sometimes unintentionally reinforcing Spotify’s point: it controls a broad swathe of the ecosystem’s destiny, with little oversight.

[…]

iTunes decimated the competition in the music purchasing business and ended up with a monopoly that was hard to compete with because artists had little other choice in where to sell their music. Then, it started exerting power over artists: threatening to remove them for not signing new contracts, and eventually wound up in court over price fixing after artists and competitors complained. Artists didn’t really like the service either, because it paid so little and restricted most of its music in the earliest days to Apple devices like the iPod.

[…]

Spotify isn’t demanding anything different: they’re demanding the same business model as Apple Music, and the same rules applied to them as everyone else on the platform… including Apple. Attacking Spotify for making “ever-smaller” contributions here is contrite, because their margins are squeezed by Apple’s price pressure.

Previously:

Update (2019-03-15): Jeff Johnson:

Apple has painted itself into a corner with its newer “services” strategy, because the Spotify case now becomes an existential threat to Apple’s business model. Whereas it wouldn’t have been a big deal under Apple traditional strategy of selling insanely great products.

Ben Thompson:

I believe Apple’s App Store policies are per se illegal tying — specifically, iOS to App Store in-app purchase. Spotify, though, has a stronger case than anyone, because it is not only subject to Apple’s App Store policies but also competing directly with Apple Music. It will be very difficult for Apple to argue that it is not attempting to extend its position in smartphones into a dominant position in digital goods when that extension is rather concretely framed as a direct benefit to Apple’s own offering.

Via Rene Ritchie:

The “if you don’t like App Store terms, you can just sell through the web or Google Play Store”, which a lot of people are going to respond with, is the Walmart to Target argument, which is poorly fitting at best.

[…]

Spotify has a real chance on the facts, at least on the core counts. The EU views anti-trust as a way to ensure competition, up to and including ridiculous things like forcing Microsoft to include browser ballots.

But instead of being candid about that, and the general policies Spotify sees as unfair, and about the harm it believes those policies do to its business, they kinda play the victim card in a way that seeks to conflate or distort their harm onto us, which just comes off as, I don’t know, smarmy.

[…]

And here’s where it gets a tad ironic: The same is true for Apple. Forget Apple Music. The App Store is really just a nicely packaged re-sale of other people’s apps.

Jesse Squires:

Apple’s response to Spotify claims “everyone is playing by the same set of rules.”

This is a lie. Completely untrue.

I worked on iOS at Instagram for 2 years. We (and FB) absolutely got special treatment in a number of ways. Especially for app reviews.

Oscar Apeland:

There is a clear difference in how I’m treated by app review with my new startup compared to when I developed a 150k+ MAU app

David Pierini:

Cash-rich Apple is reportedly not paying the artists who share their talents for the in-store ‘Today at Apple” sessions.

Rather than money, the session leaders could select from three of the cheaper Apple products.

Steve Troughton-Smith:

Real talk: Apple (+ all the other App Stores) should have independent, 3rd-party oversight; I’m sure Spotify would have no trouble finding devs who have battled unjust/capricious rejections & suffered a chilling effect on innovation. Phil Schiller should not be final arbitrator

As much as the media coverage will be they said/they said schoolyard nonsense, there is a real issue here, and it’s bigger than Apple’s “30%”

The real “30% tax” is the apps and categories of apps we don’t and will never have, because they were nope’d from on high as they didn’t fit into the App Store box or raised uncomfortable questions re Apple’s business models. There is still no Steam Link app on the App Store

James Owen:

Apple claims that Spotify would not be the business they are, without the app store.

What would Apple be without the iPhone? How could there be an iPhone without Qualcomm IP?

Apple charges 30%

QTL charges $7.50 on a iphone, and Apple says $QCOM is an extortionate thief.

Federico Viticci:

This part from Apple’s response to Spotify is somewhat misleading. There is no Siri domain for music playback that Spotify (or others) can use.

There are Siri shortcuts, which Spotify could add, but the experience is FAR from the native integration Apple Music has.

John Gruber (tweet):

What Apple should do is allow apps that opt out of IAP to explain that users need to subscribe or make purchases using a web browser, and allow them to link to their website from within the app (even if they’d be required to open that link in Safari, as opposed to an in-app web view).

Why in Safari? Why even in a Web view rather than in the app?

Update (2019-03-21): R. Scott Love:

There are also “Technology” taxes too - for example, you cannot embed certain plug-in platforms within your app despite open architecture standards and public APIs - so the alternative is that you vend from your own site but lose the DRM battle

Nick Heer:

By the way, Apple’s response to Spotify’s accusations has the conviction of damp newspaper. Their press release drags in some nonsense about Spotify’s disagreement with new royalty rates determined by the Copyright Royalty Board, and claims that there’s a level playing field for developers when everyone knows that the biggest developers often get special treatment. They didn’t even bother to sign the damn thing.

One of the reasons this dispute has been rattling around in my head and why I’ve been having a hard time figuring it out is because both companies are acting like jackasses. Apple should have no problem allowing developers to direct users to purchase subscriptions outside of their app. Perhaps there should be restrictions on the subscription page — for example, mandating a minimum level of security, or maybe requiring that the checkout form supports Apple Pay. The rest of Spotify’s complaints are distracting, with some bordering on asinine.

Michael Rockwell:

Here’s the thing about allowing developers to opt out: it’s a slippery slope. If Apple allowed developers to push users to a website for purchasing digital goods, they would. There are plenty of payment systems out there and building a website that integrates with them is easier than ever. But I don’t want to give my credit card credentials to every single developer that builds an app I’m interested in. Doing so will only increase the chances of my debit or credit card becoming compromised and then I have to go through the hassle of getting it replaced, which is a major pain.

To be fair, if developers used Apple Pay on their websites, these security concerns would be mitigated. But it’s not just the security aspect that has me on board with in-app purchases, simplicity is another major factor. The ability to quickly purchase a subscription through the app using my fingerprint, restore a subscriptions on another device, and manage all of my subscriptions in one a single location are niceties that would go out the window if Apple allowed developers to opt out.

That’s the problem with the 30%. It’s so high that, if there’s any way at all to opt out, it encourages developers to make things worse for their customers. IAP provides real value to both customers and developers, just not that much. At a sufficiently better price, apps would choose to use it—problem solved.

Secondly, if outside payments were specifically allowed, I think it’s likely that we’d see a rise of intermediate payment processors to facilitate transactions. You’d be able to pick a trusted company to remember your credit card information (and hide it from the developer) and to consolidate your subscriptions. There would be an SDK to make it easy to pay with Face ID. The company would charge a fee for this service, but it would be a fraction of what Apple charges. Big companies like Amazon, Netflix, and Spotify would use their own systems, but there’s not very many companies at that level, and you already trust them.

See also: Accidental Tech Podcast, Hacker News, Reddit (2), The Talk Show.

Update (2019-07-01): Chance Miller:

Apple has now responded to Spotify’s claims in a new filing with the European Commission.

[…]

In actuality, Apple now says that Spotify isn’t paying the 30 percent fee on any of its subscribers.

Essentially, Spotify only offered the ability to sign up for a subscription through its iOS app from 2014 until 2016. For subscriptions, Apple charges a 30 fee for the first year, then a 15 percent fee each year after that. All of the subscribers that Spotify acquired though its iOS app are long since out of that 1-year window.

Apple also underscores in its response that Spotify only pays Apple a fee on just over 0.5 percent of its total subscribers.

Nick Heer:

In isolation, this almost feels like an acknowledgement of Spotify’s complaint. Spotify has lots of subscribers, but they have been forced to acquire the vast majority of them from outside of their iOS app because of Apple’s commission.

22 Comments

[…] See also: Core Intuition and Apple Responds to Spotify. […]

[…] around the very real concerns with the App Store, devolves into irrelevant rhetoric, and has drawn numerous criticisms from Apple developers and commentators. It’s an impressive piece of PR, but one that might end up doing more harm than […]

Pierre Lebeaupin

If Apple finds it so unfair to shoulder for free the cost of screening, listing, hosting, etc. these “free” clients that in fact enable a lot of business, then one solution could be mandating that the first 10$ (or so) of purchases made in the app be paid only using tokens bought through in-app purchase (thus avoiding the issue of exposing all SKUs to Apple), then only could they directly take users’ money (source: http://wanderingcoder.net/2011/11/07/apple-edicts/ ).

Bonus: this rule could be applied to Uber and the like so they pay their fair share, too. Right now, Apple's policy pretty much states that every digital content or digital service purchase that can be made in-app is potentiated in the app download itself, and falls under Apple purview, on the argument that it is not physically fulfilled. I.e.: if a delivery person did not bring it to the customer's door, then Apple styles itself as the one who delivered it.

[…] Spotify’s disagreement with new royalty rates determined by the Copyright Royalty Board, and claims that there’s a level playing field for developers when everyone knows that the biggest developers often get special treatment. They […]

The problem is that the App Store is like China:
- You can make money there.
- This is far from a democracy.
- Of course, the ruler does not see any issue with it.

@Michael Tsai: "Why in Safari? Why even in a Web view rather than in the app?"

The minute you put money into the equation, some of your customers (in this case, Apple's developers) are going to start trying to figure out how to game the system in order to avoid paying their fees or in order to pay as little as possible. As long as it is cheaper to charge users a fee via a credit card than it is to charge them via the App store, some developers will try to design their apps so as to make money from direct charges to customers instead of via app store purchases.

This is a problem for Apple because they want to make money off app sales. But, it's also a problem for developers as a whole because app store fees cover Apple's costs for app review, app curation, app hosting, etc. The minute Apple stops putting a markup on its payment processing costs, app review, etc, will all become far worse than they are now because Apple will see them as cost sinks and will always be trying to find ways to cut costs, to the detriment of customer service to developers.

The unevenly applied byzantine rules of the App store are a natural consequence of Apple using regulation and ad hoc rulings to keep developers from jumping the fence and turning to alternative methods of taking payments from their users.

A fair and equitable solution is unthinkable to today's Apple because it would mean giving up 90% of their vaunted services revenue. They'd have to cut their share of app purchases down to around 5% - enough to fund app review and store curation plus cover hosting costs and payment processing, but no more. In that environment, the incentives to cheat the system would largely go away, and companies like Spotify or Uber would be more inclined to just suck up the extra percent or so above credit card fees as the cost of giving their customers a frictionless way to pay for stuff on their phones.

@Glaurung Yes, but they’re going to do that, anyway. Jumping you to a browser just makes the interface worse without really helping Apple. I do think the problem would essentially go away if Apple reduced their fee to 5%. Then everyone would want to use IAP, and Apple would still get to skim a little from every transaction (plus the Kindle and similar transactions that they are currently losing entirely).

I think it is fine that apple charges 30% to host on the App Store. The problem is the App Store is the only way to install apps. All the arguments about hosting and app review go away if you can get apps installed some other way.

@Mike Yep, I would like to see sideloading and alternate app stores. Customers could still be protected like with Gatekeeper and notarization on the Mac.

What would apple’s response be to some of these suggestions?

Charge per upgrade download?
Charge per copy of Apple api library use?
Charge for being featured in the App Store?

The list could get very long. The point is, be careful what you ask for.

@Mike
Yes! The problems all stem from people embracing the asinine walled garden. These devices are not computers, no matter how expensive they get, nor how powerful. They are nothing but consoles, as in video game consoles. I cut my teeth on those types of consumer electronics and have fond memories of them, but they are just appliances. Which is good when it comes to ease of use of course, but bad in the sense of content selection and control of your device!

Case in point. Any Wii owners still out there? All online features are gone. Sorry. Which means that many saved game files are locked to your console for no darn good reason. Nintendo, like most jerky console game platform makers, lock your saved games to the individual hardware. On the Wii, games with some element of online play had that limitation. To reiterate, whether the original reason to lock the saved games had merit or not, there is no longer any need for the limitation as online play is impossible at this point. Oh, forgot, and all your digital purchases are locked to that specific Wii system as well!

Yes, yes, I'm pretty sure you can do a Wii to Wii U transfer but if you don't already have the app installed, there's no way to get it at this point. You know, the whole we shut down the online services for Wii thing. Stay on that upgrade treadmill or lose your data. Just to clarify, the upgrade only went from Wii to Wii U, not Wii U to Wii, neither did it work from Wii to Wii.

To fix the limitation you can now transfer content between Wii U devices. I'm pretty sure it's still a transfer to new and wipe from old situation, but it's at least an option. Well, never mind what you would do if your system had stopped working, hence the reason for wanting a new console to begin with…as far as I know, still no way to truly back up your save game data on Wii U. Console locking user data is pretty terrible. Yes, I know there are third party hacks to enable this, but they are not supported and Nintendo routinely updates systems to block this kind of work around.

Sony handles the problems of locked saved game files by allowing a system to system transfer (again, assuming old system is working) or by the consumer paying $60ish dollars a year to sync saves in the cloud. I think Xbox is similar to Sony, but I don't do much in that world. In any case, all these "solutions" could be solved by not locking saved game data to a specific console, but what do I know? I am just a lowly consumer after all.

Sorry to tangent, but I am very pessimistic on iOS as a mainstream mobile computing platform as my experiences in other locked down platforms has been so disappointing.

@Jonas
Apple could charge for "featured" if they simply changed it to "Sponsored". Charging for API? I guess I don't get that one at all. Charging a nominal fee for hosting and bandwidth of the apps seems fair, I guess. I mean, I download "free as in beer", aka gratis, software all day long and those developers find solutions that are economical for them.

Apple created the problem via the App store limitation on installing apps, so I'm not particularly sympathetic to their viewpoint. As full disclosure.

Am I the only one who sees a HUGE problem with Apple taking a percentage cut?

In what way is a percentage justified? Their costs are FIXED.

Taking a percentage really shits on the good developers who make quality apps. Why should a developer who creates an A+ app for $30 surrender $10 of it to Apple, while a developer who makes a shitty $1 app only has to give up 30 cents? Let's say the apps are more or less the same file size, same complexity, number of downloads by customers, etc --- the cost to Apple is the same! Yet they steal $10 per sale from the developer who takes the time and risk to make an incredible app, but 30 cents from the developer who makes garbage?

And that's not even considering the free apps which Apple gets ZERO but is happy to review and host, even though those apps may be making money by ads or other nefarious means.

Serious, WTF?

I don't know what the solution is, but taking a percentage of sales, even if it's a small percent, makes the App Store a race to the bottom.

Personally, I'd rather have more quality than quantity, but that's not what the App Store is giving us. More than 90% of iPhone apps are total garbage, and that's a direct result of good developers not wanting to take the risk when they know they will have to fork over a percentage of their sales to Apple. Yes, there are app developer success stories, but there could be a lot more of them, and they could be a lot more successful.

Apple's costs are fixed, so the cost they pass on to developers should be fixed too. And free apps shouldn't get a free ride anymore either.

@Ben I don’t see it as a huge problem if it’s small, but you’re right that a percentage is not really justified even though it’s pretty standard elsewhere. The larger point I think is huge but under-appreciated, and I have been writing about it for years: so many aspects of the App Store’s design encourage the things we (and supposedly Apple) don’t want, while discouraging the ones that we do.

@Ben G @Michael Tsai
Yes, we can't have self sustaining, quality, professional (or even really good consumer focused) software with the current app rules. I mean, there's always edge cases, but it certainly seems like it's harder now, even though the iOS platform is so much larger than the Mac platform of the 1990s to mid early 2000s. Seems crazy people could continue to make money on the "dying" Mac platform all those years, but iOS development is disincentivizing the very thing Apple claims to want! Less ads, less user tracking, less scammy in app purchases of dubious value. Of course talk and action are often very different. I think we should judged companies on actions, not empty marketing rhetoric.

As one example, I'd be curious to know if Panic would have been able to continue making Transmit for iOS had they given only 5% of their sales to Apple instead of 30%?

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