Digesting Apple's response to Spotify

Apple remained silent for two entire days after Spotify accused it of unfair practices, apparently stunned by the sudden turn of events. Now, it's responded to Spotify's claims, without really saying anything of substance: it addressed Spotify's gripes, but not any of its actual problems. 

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.

Below, I've included the letter, and a few thoughts on each relevant part immediately afterward, because it was so hard to boil down in any other way.

We believe that technology achieves its true potential when we infuse it with human creativity and ingenuity. From our earliest days, we’ve built our devices, software and services to help artists, musicians, creators and visionaries do what they do best.

Sixteen years ago, we launched the iTunes Store with the idea that there should be a trusted place where users discover and purchase great music and every creator is treated fairly. The result revolutionized the music industry, and our love of music and the people who make it are deeply engrained in Apple.

Well, this may not be a good example. 

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.

Eleven years ago, the App Store brought that same passion for creativity to mobile apps. In the decade since, the App Store has helped create many millions of jobs, generated more than $120 billion for developers and created new industries through businesses started and grown entirely in the App Store ecosystem.
At its core, the App Store is a safe, secure platform where users can have faith in the apps they discover and the transactions they make. And developers, from first-time engineers to larger companies, can rest assured that everyone is playing by the same set of rules.

Unless, of course, you have multiple billions of dollars. There's plenty of examples out there about how this "same set of rules" is applied inconsistently, either to Apple's own benefit or the benefit of others with billions of dollars.

In 2015, Apple was accused of gaming its own 'top apps' to prefer its results. In 2017, Facebook gave up on negotiating with Apple over a paywall feature it was adding for news organizations, because Apple demanded a full cut from the news organizations' revenue. 

We can really see this in how prominent app developers, such as Marco Arment, have expressed fear of even talking publicly about Apple practices for fear of damaging this relationship—which might see them passed over or ignored when the company wants to launch new phones and provide early access to the lucky few, or intentionally delay future app updates.

That’s how it should be. 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.

What Spotify is demanding is something very different.

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. At the same time, they distribute the music you love while making ever-smaller contributions to the artists, musicians and songwriters who create it — even going so far as to take these creators to court.

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.

App businesses thriving is core to services revenue, and Apple fundamentally needs that to survive going forward. It finds itself in a position where if it can't win this debate, it may well struggle to grow its services business as easily as it has to date... and I believe that it's trying to position itself as the savior here, rather than the bad actor.

Spotify has every right to determine their own business model, but we feel an obligation to respond when Spotify wraps its financial motivations in misleading rhetoric about who we are, what we’ve built and what we do to support independent developers, musicians, songwriters and creators of all stripes.
So we want to address a few key points:

Apple only supported musicians, who were very, very upset about Apple Music after Taylor Swift demanded something better. Ignoring that is a misrepresentation of how aggressive Apple was about attempting to exploit them to increase their own margins from trial users.

Spotify claims we’re blocking their access to products and updates to their app. Let’s clear this one up right away. We’ve approved and distributed nearly 200 app updates on Spotify’s behalf, resulting in over 300 million downloaded copies of the Spotify app. The only time we have requested adjustments is when Spotify has tried to sidestep the same rules that every other app follows.

This intentionally misses the point about Spotify's claims entirely to deflect: Spotify doesn't want the rules to be changed exclusively to benefit itself, it's the only company that's been willing to speak up about a relationship that isn't fair on every app. A lawsuit just last year demanded the same, because the claimants believed that Apple's 30% cut is almost always passed onto the consumer, who suffers as a result.

It's unprecedented to block services from monetizing via any other payment method except their own, and ban them from even mentioning that it's possible to pay online. But hey, we can ignore that fact by just saying that everyone has to follow the rules. 

What's really interesting about this particular rule is that Apple, just a few years ago, forced developers to sell their subscriptions at the "same price or less" than when that service was made available elsewhere, even though they somehow need to swallow the 30% cut in addition, or face rejection: 

Apple previously required developers who sold content within its apps to do so “at the same price or less than it is offered outside the app” — that is, the Apple price couldn’t be higher than anywhere else. Now that language has disappeared from Apple’s rules.

The existence of rules, and their blanket application, does not undo any claims of a monopoly. It just reinforces how little choice developers have in the ecosystem: either go along with it, or miss out.

We’ve worked with Spotify frequently to help them bring their service to more devices and platforms:

When we reached out to Spotify about Siri and AirPlay 2 support on several occasions, they’ve told us they’re working on it, and we stand ready to help them where we can.

Spotify is deeply integrated into platforms like CarPlay, and they have access to the same app development tools and resources that any other developer has.

We found Spotify’s claims about Apple Watch especially surprising. When Spotify submitted their Apple Watch app in September 2018, we reviewed and approved it with the same process and speed with which we would any other app. In fact, the Spotify Watch app is currently the No. 1 app in the Watch Music category.

Spotify is free to build apps for — and compete on — our products and platforms, and we hope they do.

Translation: we help Spotify when it's convenient for us. This is also a reminder that Apple prioritizes app developers who have use cases that don't compete when a new product launches—and offers early access to new products, which helps them launch on day one as an incentive. Spotify never received this treatment.

This paragraph is a master stroke in avoiding the actual complaint: that Apple intentionally delays or stunts features competitors could use to actually play in the same ball game. HomePod is a great example: Airplay is a clearly worse experience, and Apple Music doesn't use it for a reason-- because native music streaming is better.

I do find the Watch debate a bit odd, given that Spotify didn't attempt (publicly) to build a watch app in the past, but I also noted that they claim Apple would not engage with them about building features that would support the use case until Apple Music suddenly appeared. 🤷‍♀️

Spotify wants all the benefits of a free app without being free. A full 84 percent of the apps in the App Store pay nothing to Apple when you download or use the app. That’s not discrimination, as Spotify claims; it’s by design:

1) Apps that are free to you aren’t charged by Apple.
2) Apps that earn revenue exclusively through advertising — like some of your favorite free games — aren’t charged by Apple.
3) App business transactions where users sign up or purchase digital goods outside the app aren’t charged by Apple.
4) Apps that sell physical goods — including ride-hailing and food delivery services, to name a few — aren’t charged by Apple.

Interesting piece of data that strengthens any argument that Apple should instead charge for using the store's services instead, if so many free apps are benefiting from its tools. The justification around physical goods is an example of a convenient exception that benefits Apple because it doesn't compete in that space at all, and probably won't ever do so.

This part also ignores Spotify's actual problem: Apple says it doesn't take a cut of digital goods acquired outside of its store, but doesn't mention that apps aren't even allowed to mention that it's possible or link out to their own website. 

Amazon's Kindle app is a great example here: it's a barren wasteland when you first download it, and you must deduce that it's because you have to first visit Amazon.com in the browser, because Amazon is not allowed to mention that you must buy books via other means.  

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. As Spotify points out, that revenue share is 30 percent for the first year of an annual subscription — but they left out that it drops to 15 percent in the years after.

That’s not the only information Spotify left out about how their business works:

The majority of customers use their free, ad-supported product, which makes no contribution to the App Store.
A significant portion of Spotify’s customers come through partnerships with mobile carriers. This generates no App Store contribution, but requires Spotify to pay a similar distribution fee to retailers and carriers.
Even now, only a tiny fraction of their subscriptions fall under Apple’s revenue-sharing model. Spotify is asking for that number to be zero.

Spotify isn't asking for anything to be zero. It's asking for the same treatment on a platform where Apple competes with similar services, but doesn't have to pay an enormous cut to some sort of middle-man. How Spotify actually generates revenue outside of the Apple Store is irrelevant in the scope of this piece: this ignores that on other platforms, including Google Play, Spotify can use the payment gateway of its choosing—which significantly ramps up the investment in building out custom payment systems on Spotify's side.

An argument about 15 percent after the first year from Apple excludes the reality that these rules are applied inconsistently. From Spotify's own examples, Apple uses system notifications to push users into subscribing to Apple Music and offer deals, but the exact same practice is banned in Apple's own third-party developer rules.

As a sidenote: Spotify actually uses a pop-over web view on Android to sell subscriptions and avoid Google's 30% cut. That's because the rules allow it, and while it makes for a more complicated solution it enables Spotify to lower its own costs and avoid using Google's infrastructure. In other words, it actually has a choice, and the competition on the open web charges nowhere near 30%, let alone 15%. 

It appears Spotify uses Adyen for this, which charges anywhere between 0.5% to 3.0%, a vast difference in cost when we're talking about a cut from just $10 per user.


Payment gateways are expensive to develop, yes, but that doesn't justify the huge rift in fees between Stripe, Adyen, every other payment gateway... and Apple. Apple says that's because it bundles in the cost of running the store, but that means the cost of running the entire store is lumped on the few who do monetize. 🤔

Let’s be clear about what that means. Apple connects Spotify to our users. We provide the platform by which users download and update their app. We share critical software development tools to support Spotify’s app building. And we built a secure payment system — no small undertaking — which allows users to have faith in in-app transactions. Spotify is asking to keep all those benefits while also retaining 100 percent of the revenue.

Spotify wouldn’t be the business they are today without the App Store ecosystem, but now they’re leveraging their scale to avoid contributing to maintaining that ecosystem for the next generation of app entrepreneurs. We think that’s wrong.

I had to restrain myself from typing in all caps here. Apple essentially explained why it has a monopoly on getting users to an app, and enabling their existence entirely, while apparently not understanding the irony of this statement: there's no other choice about it, which was Spotify's point in the first place.

Spotify wouldn't be in existence today, true, if the App Store didn't exist... except perhaps it would if the platform was open in the first place? Saying that they aren't contributing seems pretty unfair in the first place: there's no alternative ways to pay Apple for distribution, other than being forced to monetize via its own payment networks. If that's so unfair, fix that instead.

What does that have to do with music? A lot. We share Spotify’s love of music and their vision of sharing it with the world. Where we differ is how you achieve that goal. Underneath the rhetoric, Spotify’s aim is to make more money off others’ work. And it’s not just the App Store that they’re trying to squeeze — it’s also artists, musicians and songwriters.

Just this week, Spotify sued music creators after a decision by the US Copyright Royalty Board required Spotify to increase its royalty payments. This isn’t just wrong, it represents a real, meaningful and damaging step backwards for the music industry.

This is petty, largely because it's just finger-pointing. Spotify suing to avoid raising its royalties might be morally wrong, but it's also provably false. It's literally making up stuff to make Spotify look worse, because it's on the back foot here, and wants you to go away with a bitter taste at the end of this letter. 

Even if it were true, that would further back up Spotify's case that it's also a symptom of not having as much margin to work with due to the fees that it's literally trying to argue against. 

Even more laughably, Apple saying that it's "trying to make money of others' work" while ignoring that the App Store is doing exactly that on an unprecedented scale by restricting choice is truly ironic.

Apple’s approach has always been to grow the pie. By creating new marketplaces, we can create more opportunities not just for our business, but for artists, creators, entrepreneurs and every “crazy one” with a big idea. That’s in our DNA, it’s the right model to grow the next big app ideas and, ultimately, it’s better for customers.

We’re proud of the work we’ve done to help Spotify build a successful business reaching hundreds of millions of music lovers, and we wish them continued success — after all, that was the whole point of creating the App Store in the first place.

Apple grows the pie when it can take a serious piece of revenue from it. A great example can be found in its upcoming news service: the company is demanding a cut as large as 50% of revenue from each news organization, which certainly feels like "squeezing" the industry for all it's got.

This is exactly true of how Apple treats segments it's not really in, as well: it just lets them sit there, ticking away, without much focus. Podcasting, for example, was largely ignored by Apple because it struggled internally to understand how to monetize it on the scale of something like the App Store. It languished, and Spotify saw the opportunity in that ignorance. 

Tab Dump

Facebook's head of product, Chris Cox, and Whatsapp head, Chris Daniels, leave the company
It's rare for a Facebook executive to leave the company, but in the last few months we've seen key executives shuffle out in succession. These two departures are huge because they appear to be an attempt to prove Facebook is serious about its pivot away from Newsfeed, and into a privacy-focus model. More on this next week.

Microsoft announced a cross-platform game-development SDK called the "Microsoft Game Stack"
This merges the best of its technology, like DirectX, with the best of its new cloud platform from Azure. It's a wild shift, and signifies a further unified gaming industry in the future, where all games are shipped to be cross-platform, because there's simply no excuse not to.

Uber is planning to issue S1 in April, and go public (notably just after Lyft's debut)