In April, Apple participated in a judiciary competition subcommittee hearing on App Store policy and monopoly power. Representatives from Spotify, Match (parent company of Tinder), and Tile made their case as to Apple’s anticompetitive actions.
In a formal letter today, Apple’s Chief Compliance Officer Kyle Andeer has directly responded to their complaints. Apple characterized the companies’ testimony as “focused more on grievances related to business disputes with Apple than on competition concerns with the App Store”. Apple then goes into detail with the issues raised by each company …
With ever-growing regulatory attention circling Apple’s App Store and its mandated use of In-App Purchase for third party apps, Apple continues to boast how the App Store supports 2.1 million jobs and $138 billion economic activity, in the US alone. Apple says the App Store gives developers a global platform to reach customers and allows them to leverage Apple’s innovations through APIs and new frameworks.
You can read the letter in full here. We have summarized Apple’s main points to each of the companies below:
Spotify
In its testimony, Spotify focused on the 30% cut. Per App Store rules, Spotify is currently required to split the revenue of any subscriptions made inside its application that use Apple’s In-App Purchase system, with Apple’s commission charged at 30% for the first year and 15% for any successive years that each user stays subscribed. Because of these fees, Spotify stopped using In-App Purchase altogether in 2018.
Spotify argues that Apple should allow for competition among competing digital payment systems and “allow supply and demand to determine what the right fee is”. In its letter, Apple says that App Store commission meets or beat the competitive commission determined by market forces.
This claim is based on its comparison of what other digital stores charge their developers, around the time that the App Store was launched in 2008. Apple also argues that it has never raised the 30% cut, only lowered it. When Apple reduced the commission rate to 15% for subscriptions that renew for more than a year, Apple points out that Spotify did not pass that reduction in costs along to its user base. It reiterates that currently less than one percent of Spotify’s paid subscribers are subject to In-App Purchase terms, as Spotify mostly signs up users on its website, through carrier deals, or similar.
One of Spotify’s other big complaints at the hearing was that Apple only charges commission on digital goods, not physical goods. It alleged that Apple specifically targeted businesses that Apple competes with its own service offerings. Apple rebuts this by saying that the digital/physical distinction has existed since the beginning of the App Store, and Apple only launched services like Apple Music or Apple TV+ many years later.
Whereas a physical good/service (like the ride you hail from Uber, the coffee you order from Starbucks, the concert you attend with tickets from Ticketmaster, or the couch you buy from Walmart) is experienced in the physical world, a digital good/service (like a sword you buy for your character in a video game or a show you stream on your iPhone) is experienced on your iPhone and relies most heavily upon the device’s technologies, features, and intellectual property that are essential to the user’s experience of the app.
Apple said the distinction between physical and digital sales is in alignment with other app stores and ‘makes sense’. It says Spotify has benefited greatly from In-App Purchase rules as most of Spotify’s customers were made through sales outside of the Spotify iOS app, and therefore Apple takes no commission of that user base.
Match
The representative from Match told the competition subcommittee that Apple wants to replace the open Internet with a closed App Store ecosystem. Apple says it supports the open web through Safari — noting that Tinder users can subscribe through the website if they choose to — and the App Store is an alternative choice for accessing digital content.
Match said that 15-30% was too high of a fee for Apple to for a mere credit card processing system. Apple disputes this as it believes it offers more value than a mere payment processor. Apple says its commission reflects the value of the technology platform, tools, software, a curated marketplace and intellectual property. The App Store supports rich functionality like parental controls subscription management, Family Sharing and more.
Tinder submitted an update to Apple in June 2019 that included both an update to the app’s subscription pricing and the “Traveler Alert” for members of the LGBTQ+ community. Apple explained that Tinder’s new subscription pricing would violate FTC rules because Tinder did not make clear to customers that they would be charged for the full six-month subscription rather than a monthly charge. For one month (not two), Apple engaged in communications with Tinder, asking it to comply with fair consumer pricing rules and explaining that once changes to the description of subscription pricing were made, the updates would be approved. Tinder complied, and in July 2019 the updates, including the “Traveler Alert,” were approved. This is an example of Apple engaging in extensive discussions with a developer to ensure that the developer’s app is made available to customers and that the App Store remains a safe and trusted place for consumers.
One specific issue Match raised in the hearing was that an update to its app adding a safety feature for LGBTQ+ community was held up in Apple’s App Review process for two months. It said that Apple had told them it was violating a new policy and could not assist Match in directing them how to resolve it. Apple says this is inaccurate. Apple says the app was not held up because of the ‘Traveler Alert’ feature, instead the issue was in a change Tinder had made to its subscription pricing. Apple said that Tinder’s proposed pricing structure (which made an up-front 6-month payment look like a monthly subscription) would violate FTC rules. Apple says the app was approved as soon as the description of the subscription pricing was resolved, and it was engaged in communications with the company the entire time.
Tile
Apple also responds to several issues raised by Tile, maker of the most popular Bluetooth tracker device. Apple says Tile appears unhappy that new competition has emerged to challenge its dominance in the Bluetooth tracker market, citing its own AirTags, the Chipolo item finders and Samsung’s SmartTags.
Tile complained that new location permission dialogs introduced in iOS 13 impaired the user experience of Tile, just as Apple was preparing to launch its own competing accessory. Apple says that changes to location policies gave users greater control over how their location information was being used in the background by third party apps, and applied to all developers on the App Store. Apple also points out that Find My’s item tracking does not store any information on Apple’s servers as it uses an end-to-end encrypted design, unlike Tile’s system.
Tile also complained that the Ultra-Wide Band functionality of the U1 chip was off limits to third-party apps. Apple says that an Ultra-Wide Band specification for chipset manufacturers will be released later in the year, and it will be based on open industry standards, which means Tile will be able to take advantage of it.
Tile’s witness claimed that Apple: “know[s] our retail take rates, they know our retail margins, they know how our devices do in stores, they know who our customers are, they know our subscription take rates[,] [and] [t]hey know what features people use.” Years ago, Apple had some information about how Tile products sold in Apple’s retail store. It did not sell well. Tile sells its products through dozens of retailers around the globe and its own website. Any information from Apple Store retail sales is both very limited and very outdated and likely no different from the information other brick-and- mortar stores have about products sold in those stores. Nonetheless, Apple has never used any of that information in any decisionmaking related to AirTags.
For a short period of time, Apple sold Tile’s products in its Apple retail stores. Tile told the subcommittee that Apple used the information it gathered from that partnership — such as retail sales, margins and such — to decide how best to compete with AirTags. Apple refutes that it used any of that information in the creation of the AirTag. It even goes so far to say that when Apple did stock Tile in its stores, “it did not sell well”.
Conclusion
Spotify, Match and Tile make up three of the founding members of the ‘Coalition for App Fairness’, which is bringing attention to Apple’s so-called anticompetitive practices. The other founding company, Epic Games, is currently embroiled in a lawsuit with Apple over App Store policy.
In the last couple of years, government regulators from around the world have opened investigations into the App Store.
At the end of April, the EU commission said that Apple had unfairly favored Apple Music over Spotify and other competitors in music streaming, because of its monopolistic dominance over in-app purchases on the App Store. The EU decision was ‘preliminary’ with a final judgement expected in the coming months.
So far, Apple has responded to all of these inquiries with a similar nature to that as seen in this letter. It does not agree that it is a monopoly with customers having the freedom of choice of Android, the web and such. It remains to be seen whether Apple will tweak (or be forced to change) any App Store rules as a result of this regulatory pressure. In its last quarterly earnings call with investors, Apple CEO Tim Cook seemed open to this saying that “the App Store and other parts of Apple are not cast in concrete”. In essence, Cook suggested that how Apple runs the App Store would have to change to some extent.
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