When done right, operating a platform can be an incredible business. However, it gets murky when the platform operator jumps in and competes with other companies that are building their own businesses on top of that platform. That sums up the current competition between Apple (NASDAQ:AAPL) and Spotify, as iOS has become an incredibly lucrative platform for developers and the Mac maker alike.
The controversy arises from the fact that Apple gets a cut of all subscriptions that Spotify sells through its App Store, which can conceivably be viewed as uncompetitive, as it undermines Spotify's own low-margin business. Spotify and smaller music streaming service Deezer are now seeking assistance from antitrust regulators in Europe, according to Financial Times. This isn't the first time.
Spotify CEO Daniel Ek and Deezer CEO Hans-Holger Albrecht want the European Commission to take action against the largest U.S.-based tech giants that they argue are "regularly abusing their advantaged position." The task of creating "a level playing field" falls on regulators, and the platform operators (including Apple) wield tremendous power over direct competitors by acting as "gatekeepers to the digital economy" due to their massive user bases.
Other stakeholders like smaller European game developers also believe the platforms impose onerous terms. The European Commission is currently evaluating rules on how to treat platforms and those that sell goods and services on those platforms (like developers or other merchants), according to the report.
Third time's the charm?
If this all sounds familiar, that's because this is but the latest salvo in a yearslong war. Back in 2015, U.S. regulators started evaluating whether or not Apple Music represented an antitrust concern, shortly after that music streaming service launched.
At the time, Spotify began appealing directly to its iOS-based subscribers, asking them to sign up on Spotify's website as opposed to through an in-app purchase, specifically in order to avoid Apple's 30% cut. Spotify's pricing reflected this -- it only cost $10 per month on the site, compared to $13 per month through the app to help cover the fee. The Federal Trade Commission had solicited feedback from interested stakeholders, and Spotify was surely one of them. That investigation was still ongoing as of last year.
Just this past May, Spotify and Deezer wrote another letter to the European Union voicing mostly the same grievances, which included this harsh assessment (via Business Insider):
Our collective experience is that where online platforms have a strong incentive to turn into gatekeepers because of their dual role, instead of maximizing consumer welfare, they can and do abuse their privileged position and adopt [business-to-business] practices with adverse consequences for innovation and competition. These practices range from restricting access to data or interaction with consumers, biased ranking and search results to lack of clarity, imbalanced terms and conditions and preference of their own vertically integrated services.
It's possible that regulatory pressure played a role in Apple's decision last year to reduce its cut of subscriptions sold through the App Store. In-app subscriptions still carry the 30% "Apple tax" for the first year, but this cut drops to 15% after that. That may slightly mitigate some of the regulatory concerns, while encouraging developers to foster long-term relationships with customers. It seems to be working, at least in terms of growing subscriptions: Paid subscriptions have soared in recent quarters to 210 million.
Whether or not regulators will respond remains to be seen.
Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.