Apple, Google, and Facebook are consistently coming under scrutiny over anti-competitive business practices, particularly against smaller companies. One such case by music streaming vendor Spotify against one of the BigTech companies Apple, is expected to get a verdict this week. Here’s what you should know.
More than two years after Spotify accused Apple of anti-competitive practices over the latter’s App Store policies, things could finally shake up. According to a report from the Financial TimesOpens a new window , the European Union may pass their ruling this week, pertaining to the charges echoed by the music-streaming platform back in March, 2018.
Spotify shares its views with Epic Games, Match Group, Tile, Basecamp and other members of the Coalition of App Fairness, who view Apple’s stance and policies as detrimental to a fair and open digital marketplace. Apple even went so far as to freeze developer accounts of Fortnite, a popular online multiplayer game by Epic, as well as banned it over the way it accepted in-app payments, citing policy violations.
Things further turned awry when Apple filed a countersuit against Epic statingOpens a new window , “Although Epic portrays itself as a modern corporate Robin Hood, in reality it is a multi-billion dollar enterprise that simply wants to pay nothing for the tremendous value it derives from the App Store.†In May 2020, nearly three years after its launch in July 2017, Epic was estimated to mint $1.5 million a day from iOS users.
Facebook, a BigTech company having differing views with Apple over privacy also jumped on the bandwagon and criticized its policy on commissions from the App Store.
Why Did Spotify File Anti-Competitive Charges in the EU Against Apple?
“In recent years, Apple has introduced rules to the App Store that purposely limit choice and stifle innovation at the expense of the user experience — essentially acting as both a player and referee to deliberately disadvantage other app developers,†wroteOpens a new window Spotify Founder and CEO Daniel EkOpens a new window in 2019. “After trying unsuccessfully to resolve the issues directly with Apple, we’re now requesting that the EC take action to ensure fair competition.â€
Spotify’s music and podcast streaming service competes directly with iTunes and Apple Music. Apple also retains a complete ownership of the Apple App Store, thus is the sole authority on formulating policies for developers and vendors. The Sweden-based company alleges that Apple:
- Imposes an unusually high 30% commission on app revenue and transactions, which is why Spotify refrained from using Apple’s billing system (IAP).
- Prohibits buttons or external links to pages containing product info, discounts, promotions, etc.
- Insists on using its payment platform with no option to pay through any other method.
- Unfairly treats direct competitors such as Spotify. How? By not holding Apple Music (launched in 2015) to the same standards of in-app payments applicable to others. This allowed Apple Music to maintain lower charges than Spotify for subscriptions.
- Threatens to remove Spotify from the App Store after consistently rejecting app updates.
- Disallowed the development of a Spotify app for the Apple Watch for over three years since its launch in 2018.
- Disallows access to and integration with Apple’s software components and hardware products. This includes integration with Siri, and HomePod.
The App Store was a half trillion USD ecosystemOpens a new window in 2019, over $64 billionOpens a new window of which went to Apple. And despite a lower user count, iOS apps continue to outperform Android’s Play Store in terms of revenue generation.
Ek highlighted the arbitrary nature of the applicability of some of the App Store policies, and accused Apple of attempting to single out Spotify since it is a direct competitor. He backs up his allegations by pointing out that some apps such as Uber, Deliveroo, or even Grubhub are exempt from paying commissions or the ‘Apple tax.’
Apple tax is precisely why Netflix only allows subscriptions for its content streaming services over the web, and has disallowed accepting subscriptions from the Netflix iOS appOpens a new window since December 2018.
See Also: Is Data Portability the Answer To Anti-Competitive Practices?
The Campaign Against Apple (And BigTech)
It is noteworthy that Apple has, since November 2020, reduced commissions to 15%Opens a new window for those who made less than $1 million from in-app purchases in a year. Coalition for App Fairness (CAF) in an article on Business Insider recently wrote, “Apple’s response to our calls for major changes in the app marketplace has largely been a strategy of cynical half-measures clearly aimed to placate some while dividing the interests of those pushing for reform.â€
They add, “These minor concessions will not be successful because they do nothing to change the dynamic between Apple’s complete control of the App Store and those seeking a fair opportunity to advance their businesses.†Basically all 56 members of the CAF are engaged in pushing back against Apple over the cause.
CAF’s ‘issuesOpens a new window ‘ as noted on their website are:
- Carefully Crafted Anti-Competitive Practices
- 30% App Tax on Creators and Consumers
- No Consumer Freedom
Basecamp co-founders David Heinemeier HanssonOpens a new window (also credited as the creator of Ruby on Rails), and Jason FriedOpens a new window also faced similar challenges when they attempted to get off the ground HEY, a privacy-focused email service which they started in June 2020. Immediately after the launch, HEY ran into troubled waters. The Apple App Store review board rejected HEY for iOS citing guideline 3.1.1Opens a new window (In-App Purchases) of Apple App Store.
Wow. I’m literally stunned. Apple just doubled down on their rejection of HEY’s ability to provide bug fixes and new features, unless we submit to their outrageous demand of 15-30% of our revenue. Even worse: We’re told that unless we comply, they’ll REMOVE THE APP.
— DHH (@dhh) June 16, 2020Opens a new window
Besides the CAF, HEY, other small companies, and several independent developers, the sentiment is echoed by the average American. Consumer Reports foundOpens a new window through a study that 3 out of 4 Americans worry about the power wielded by today’s biggest tech platforms.
Speaking with Stephen RoblesOpens a new window , the host of podcasts at Apple Insider, Hansson pointed out that 77% of users on HEY are iPhone users, indicating the “amount of market power that Apple has is extreme in the U.S.â€
Possible Verdict by the EU
The EU is expected to structure the entire case with respect to the Cupertino-based Apple’s dominance in the market, as well as how and if it is affecting effective competition.
For example, Apple is not dominant in India where Google’s Android is clearly the winner but in the U.S., and Europe, it has a market share of ~60%Opens a new window and ~31%Opens a new window respectively. All that remains to be probed is whether or not Apple is in fact stifling competition.
The EU’s assessment, headed by Commissioner for Competition and EVP of European Commission Margrethe VestagerOpens a new window , probably will take into consideration that Apple Music is a direct competitor to Spotify, and not Apple Inc itself. Nevertheless, the point is whether or not Apple wielded the extensive monopolistic power it holds to put down Spotify to push ahead its own music streaming service and that’s how it should be.
“Monopolies in and of themselves don’t have to be a problem. Right? You have a dominant market share, and you’re not abusing it. You’re just like ‘hey, we’re the thing most people pick to use.’ And you can go ‘okay, that’s something to have a watchful eye on,’ but it isn’t necessarily an offence,†Hansson adds. “The offence comes in when you take that monopoly and use it in abusive ways. And that’s where the App Store comes in.â€
The EU presently fines violators of its competition law upto 10% of the annual turnoverOpens a new window . It is difficult to ascertain whether Apple, if found guilty, would be fined as much, though the outcome may very well require Apple to make changes to its App Store policies.
The governing body of the 27-nation bloc also proposed the Digital Services Act (DSA) and the Digital Markets Act (DMA) in December 2020Opens a new window to ensure fair and open digital markets.
See Also: EU Wants Organizations to Use AI Responsibly, Here’s Possibly How
Who Else is in the Same Boat as Apple
BigTech as a whole has come under a lot of scrutiny over the influence it has over not just the digital economy, but businesses, and even on political spheres.
The credibility of Facebook, for example, took a massive hit in the aftermath of the Cambridge Analytica scandal. Facebook was also sued by the FTCOpens a new window and 46 states, Guam and Washington D.C.Opens a new window in separate federal and state lawsuits in December, for ‘illegal’ and ‘predatory’ practices, citing the acquisitions of WhatsApp and Instagram as examples.
Microsoft often plays a negative role when it comes to open source development, while Google is often criticized over its search policies and deals. Google is dealing with three antitrust cases by:
- The Department of Justice (DoJ) for maintaining monopoly over search by signing exclusive contractsOpens a new window to set Google as the default search engine for browsers
- Group of 38 statesOpens a new window led by Colorado and Nebraska Attorney Generals, complaints of which are similar to DoJ’s allegations, and goes beyond search to other products such as voice assistants
- Group of 10 states led by TexasOpens a new window which claimed Google and Facebook are in cahoots over rigging ad auctions in their areas
Additionally, Apple is also facing an antitrust lawsuit from German Advertising FederationOpens a new window (ZAW) over the newly released iOS 14.5‘s App Tracking Transparency. ZAW alleges that Apple is prohibiting competitors such as themselves from collecting user data while Apple itself is continuing to do so. ZAW’s suit is similar in essence but revolves around a whole another issue.
Sumit SharmaOpens a new window , Senior Researcher – Tech Competition for Consumer Reports saidOpens a new window , “We’re at a tipping point. Different agencies and legislators are coming at it from different angles, but they’re converging on the idea that these platforms have too much market power and reducing that dominance would result in more innovation and a better online experience for consumers.â€
Closing Thoughts
Regardless of the EU ruling this week for the Apple-Spotify feud, it is clear that smaller companies are shaking up the biggest tech companies in the world, and the unchecked power they exert over the market. However, it is questionable whether BigTech (Apple, Amazon, Facebook, Google, Microsoft), whose combined market capitalization of nearly $7.45 trillion dwarfs all world economies barring the U.S., and China, could be restrained by disparate global authorities.
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