The Monopolist Worm in Apple

There is a lot to admire about Apple, but my company, Spotify, has seen another, brutish side. Apple designs, develops and sells some of t...


There is a lot to admire about Apple, but my company, Spotify, has seen another, brutish side. Apple designs, develops and sells some of the world’s most desirable hardware products. And for many,

Steve Jobs

remains a figure of reverence, giving the business he created an enduring glow. My business is one of the few insisting that underneath that exterior is a ruthless bully that uses its dominance to hobble competitors. But over the past couple of years regulators around the world have finally begun examining Apple’s conduct. Many don’t like what they’re seeing.

Last month the European Commission announced its Statement of Objections, an important formal step in antitrust investigations, in response to a complaint Spotify filed two years ago about Apple’s behavior. The commission is concerned about two aspects of the company’s app-store policies. First, Apple forces app developers to use its payment system and to hand over 30% of all new subscription fees for the privilege.

Second, Apple’s antisteering provisions, contained in the rules it imposes on app developers, bar companies from providing customers a direct path to a paid subscription and from communicating with customers about ways to access deals or promotions. Apple puts none of these limits on Apple Music, its service that competes with Spotify. So if a customer is on the free Spotify iPhone app, he can’t subscribe to Spotify Premium without paying Apple a royalty, and Spotify can’t tell him to go to his desktop for a better deal on the subscription. After a year, Apple takes only a 15% chunk of a subscription, but this benefit is meaningless for my company because Spotify will have been 30% more expensive than Apple Music at the crucial moment when a user chooses between them.

“This significant market power cannot go unchecked,” the European Commission’s executive vice president,

Margrethe Vestager,

said last month. I agree. The European Union will now give Apple an opportunity to examine the documents in the commission’s investigation file, reply in writing, and request an oral hearing to present the company’s comments. At the end of that process will come the commission’s final decision.

Apple will tell you that this is overwrought, that Spotify is seeking special treatment. To do so, it has to rewrite history. When the app store launched in 2008, there was no Apple tax for digital subscriptions, and developers were free to use all payment methods and communicate directly with their customers. Apple itself has said that 85% of apps on its store don’t pay the 30% tax. Spotify isn’t looking for special treatment, but my company does want fair treatment.

Only later in 2011 did Apple change its rules to force the use of its payment system, to the detriment of developers and consumers. The company has also argued that Spotify pays 15% of its revenue on only 0.5% of its subscriptions. But that’s because Apple’s exorbitant 30% tax on new subscriptions forced us to turn off in-app purchases in 2016. It made more business sense to cut iPhone and iPad users off from a path to subscriptions than to absorb the 30% cut for new ones.

Questions about Apple’s conduct are also being asked in the U.S. In April the Senate Judiciary Antitrust Subcommittee held a hearing focused on app-store competition. I testified before the committee alongside my peers from Tile and

Match Group.

Each of us said that if Apple’s anticompetitive use of its app store wasn’t addressed, the tech giant and a few other platforms would rule the internet, limiting innovation, squashing small businesses, and all but eliminating customer choice.

I was struck by how many people remarked after my testimony that I was criticizing Apple while wearing an Apple Watch. But you can love a company and its products and still call out its bad behavior. That’s what members of Congress, along with regulators in Europe, Russia, Australia, South Korea and other countries, are recognizing.

I am heartened by the growing global consensus, but time is on Apple’s side. While Spotify has been successful despite Apple’s behavior, for many app developers the threat of irreparable harm is immediate. The process for putting together regulatory changes is long and laborious.

This gives Apple the ability to wait it out and continue stifling innovators, many of whom will fail before they even have a chance to compete. That is why Spotify is asking Congress to pursue urgent, narrowly tailored updates to American antitrust law to end such egregious abuses. It is also why my company has supported the proposed Digital Markets Act in Europe, a legislative proposal that seeks to address unfair and anticompetitive practices of powerful digital platforms.

Apple’s ability to strangle its competitors is unprecedented. Even

Microsoft

in the heyday of the Windows operating system didn’t demand a 30% cut of new subscription revenues from competing browsers or media players. And it didn’t dictate how or when Microsoft’s competitors could communicate with customers. What’s more, unless legislative and enforcement action is taken, other platforms will follow Apple’s example. The result? Further concentration of power in the hands of a small number of unaccountable digital sovereigns who create and enforce rules that favor their services.

The good news is that Spotify is no longer alone in saying this. At long last, those in a position to do something have seen past Apple’s facade and are beginning to act in the interests of innovators and consumers around the world.

Mr. Gutierrez is head of global affairs and chief legal officer at Spotify.

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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