Please ensure Javascript is enabled for purposes of website accessibility

Apple's Latest Defense Against Spotify Criticisms Again Misses the Point

By Evan Niu, CFA - Jun 25, 2019 at 1:45PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Just 0.7% of Spotify subscribers bill through the App Store.

This week, Apple (AAPL -0.23%) filed a formal response to the antitrust complaint that Spotify (SPOT 0.81%) lodged with European regulators earlier this year. The Swedish music-streaming leader argues that Apple undermines competition by taking a 15% to 30% cut of sales while also inhibiting the user experience in various technical ways. Scrutiny of Apple's App Store practices has intensified recently, and the tech titan went on the defense earlier this month.

Apple identifies ample competition across numerous categories where it competes with third-party developers. However, that argument misses the point, as the issue is how Apple competes, not whether Apple competes. Its latest defense does likewise.

Spotify interface displayed on various devices

Image source: Spotify.

Only 680,000 Spotify subscribers bill through the App Store

Der Spiegel reports that in its response, Apple is essentially saying that Spotify is making a big fuss out of a relatively small amount of money and using misleading figures to do so. Spotify CEO Daniel Ek noted in his blog post that Apple takes a 30% cut of subscriptions, without acknowledging that Apple's cut on subscriptions drops to 15% after the first year, a change implemented back in 2016.

Apple says that just 680,000 Spotify premium subscribers are being billed through the App Store, and that all of those subscriptions have aged to the 15% tier at this point. Spotify used to offer in-app subscriptions but discontinued them in 2016. Users now need to sign up for Spotify Premium outside of the app, and then can use the app to access the service. That means Apple's 15% tax only applies to 0.7% of Spotify's 100 million premium subscribers. So what's the big deal?

Spotify wants fewer App Store subscribers 

The statistic that Apple provides is hardly relevant to the actual issue at hand. The fact that so few subscribers are billed through the App Store is a direct consequence of Apple's tax being too high in the first place, which is what led to Spotify discontinuing in-app subscriptions.

Spotify app on iOS

Image source: Spotify.

In fact, Spotify directly appealed to subscribers to switch their billing method in 2015, even providing step-by-step instructions. For a while, Spotify passed along the costs to consumers, charging $13 per month for in-app subscriptions compared to the standard cost of $10 per month. Subscribers could save $3 per month by ditching the App Store and signing up directly, Spotify pitched.

Between discontinuing in-app subscriptions and calling on subscribers to switch billing methods, of course there are limited subscribers billing through the App Store, but Spotify's concerns still stand. If Spotify were to reactivate in-app subscriptions, it would indeed have to pay the full 30% on new subscriptions for the first year.

Furthermore, even beyond the money, Apple has a long history of giving its first-party apps various types of preferential treatment. Many of the App Store's guidelines don't apply to Apple, it seems, and that makes competing with the richest company on Earth even harder.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$137.04 (-0.23%) $0.31
Spotify Stock Quote
Spotify
SPOT
$106.63 (0.81%) $0.86

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
331%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.