Last month, Spotify, Match, and Tile appeared at a US Senate hearing to talk about Apple’s alleged anti-competitive policies when it comes to the App Store. The Cupertino tech giant was accused of acting “as an unfair gatekeeper” and holding third-party apps “hostage” by the likes of Spotify and Tile, who compete against Apple Music and AirTag respectively.
Apple has now come out all guns blazing with its response in a letter written to US Senator Amy Klobuchar who has taken over the role of antitrust enforcer in the Senate under the Biden administration. The letter by Apple’s Vice President and Chief Compliance Officer, Kyle Andeer, details how Spotify, Match, and Tile are popular companies in the App Store and justified its 30% commission and the benefits that these developers get from its distribution platform, tools, and services.
Spotify had primarily complained about Apple’s 30% commission which is charged over in-app purchases. This is usually reduced to 15% from the second year onwards, but companies have been focusing on the 30% number for some time to target Apple. Spotify had stopped in-app purchases for App Store a few years ago but the company complained during its US Senate testimony about the commission rate claiming that it is higher than other digital payment systems. Spotify believes that Apple should allow third-party payments to enable competition.
Apple’s response in its letter clarifies that Apple’s 30% commission is not expensive and helps reduce the barrier to entry for developers as it is on par or lower than other app distribution systems that existed when App Store launched.
Since then we have never raised the commission; we have only lowered it, including for subscriptions and small businesses, or we have eliminated it altogether in certain situations, as with the Reader Rule and the Multi-Platform Rule. Today, about 85% of apps pay no commission, and the vast majority of developers that do pay a commission can pay just 15% by entering our Small Business Program. The remainder—those making over $1 million per year selling digital goods or services in the App Store— pay a 30% commission (which is reduced to 15% for subscription services after the first year).
Spotify’s subscription base usually paid 15% commission or nothing because they can always register on the web or on other platforms and completely bypass App Store’s IAP.
Apple also wrote in the letter that the reason why it does not allow developers to use messaging that tells them to make payments somewhere else is that they cannot redirect customers to make purchases in competing places. The company gave an example that it cannot put a sign in a Verizon store to tell customers to buy iPhones directly from Apple.
Apple does not prohibit developers from communicating with their customers; Apple simply says that developers cannot redirect customers who are in the App Store to leave the App Store and go elsewhere—just as Apple cannot put a sign in the Verizon store, telling customers to buy iPhones directly from Apple instead.
The rule is one that has long-been embraced by retailers in both the physical and digital worlds. As for Apple, this common-sense rule has been in place since 2009, pre-dating Spotify’s launch on the App Store. Spotify launched, grew, and thrived under these rules, but now Spotify apparently either wants Apple to change them or to hold Spotify to a different set of standards from everyone else.
Instead of competing aggressively, Tile has been running to the authorities ever since rumors started circulating that Apple was working on its own location tracker, AirTag. The company has been crying foul regarding iOS 13’s strengthened privacy policies regarding location tracking, which gives users control over how they want their location to be tracked by an app. The company also says that the U1 chip on iPhones is not available to third-party apps.
Tile used to be sold at Apple’s stores and the company accuses the Cupertino tech giant of using its sales data to make decisions regarding AirTags. Apple simply refutes this claim in its letter.
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 decision-making related to AirTags.
Tile refuses to support Apple’s Find My Network, which enables encrypted and secure location tracking for third-party accessories. Apple is also going to open up the ultra-wideband U1 chip on iPhones to developers later this year, but whether Tile will actually support it is yet to be seen.
Match, the parent company of dating app Tinder, has no direct competition against Apple, but it is one of the founding members of the “Coalition for App Fairness” along with Epic Games, Spotify, and Tile. The coalition incorrectly compares Apple’s 30% commission to credit card payment processing fees which is not what the App Store commission is. The App Store commission goes way beyond mere payment processing and contributes towards app distribution, marketplace, intellectual property, developer support, R&D, API development, developer portal, tools, and more.
Match’s claims conveniently forget all this, including the time where Apple has actually provided consultation to ensure that Tinder does not violate FTC rules. Match had shared a very cherry-picked version of this story, and Apple has shared its side of the story and how Tinder’s attempt to make a 6-month upfront payment look like a monthly payment violated FTC rules, and also would have deceived customers.
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.
Apple has said that these companies are “focusing more on the dissatisfaction related to Apple’s commercial disputes, rather than the App Store competition concerns.” and that it shares “the Subcommittee’s commitment to promoting competition and innovation, allowing developers to thrive, and supporting the success of great American ideas.”