Spotify’s recent media barrage against Apple for the phone maker’s app store policies reveals a glaring breach in American antitrust enforcement. Spotify, a subscription-based media streaming service, has taken to hurling complaints against Apple for its allegedly anti-competitive practices, arguing that how it handles application review and fees disadvantages competitors.
Developers offering applications and services that compete with Apple’s own, such as Spotify, often find that Apple’s policies and practices in the App Store place them at a disadvantage. However, Apple’s stranglehold on the smartphone market leaves little room to negotiate. As of November 2022, Apple’s handheld holds a fifty-five percent share of the US market for smartphones. Its closest competitor in the domestic market, Samsung, commands a little over half of that position at twenty-nine percent, while other names like Motorola, LG, and Google fight over what little is left.
Apple for its part hasn’t been shy about leveraging its dominance in the market for hardware against software developers. This effort is partially enabled by the iPhone’s integrated ecosystem. Unlike some other hardware manufacturers, which give a user the freedom to design or install alternative operating systems (OS) and features, Apple designs its phones, tablets, and computers to work with a proprietary OS and raise significant barriers to modification of that software or installation of alternative operating systems. As a result, developers who want to reach consumers are shoved into a binary: design a web-based application reachable through an installed browser (think accessing Facebook through Safari or Google Chrome) or design a native application for the Apple OS (think tapping on the Facebook app).
The latter presents significant advantages. Native applications reduce friction by eliminating the need to type a URL into a browser’s search bar every time a user wants to access the service. Additionally, by permanently storing the user’s login credentials, content can often be accessed without seeing a login screen. Native applications also allow the user to personalize her experience. She can customize the service’s appearance, set content filters, and save search and other history. However, these advantages don’t exist in a vacuum. They are present native applications to the extent they are absent from web-based applications. Thus, a native application reduces login friction to the extent its web-based counterpart does not. This relationship creates a consumer bias against web-based that pushes developers to offer native applications so strongly that what at first looked like a choice is really no choice at all.
Apple ships its handheld devices with its own applications preinstalled, one of which, the Apple App Store, funnels third-party applications through a digital marketplace where the consumer can browse, purchase, and install third-party native applications on her smartphone. While this system has proven to be convenient for the consumer, it has also created the opportunity to “gatekeep.” Because Apple controls the digital marketplace where developers transact with consumers, it can decide which applications go up, which get taken down, and even whether to approve or reject software updates to applications the consumer has already installed.
This gatekeeping function serves many valid purposes. In its role, Apple reviews applications and software updates for compliance with its terms of use for the app store. It moderates content, rates apps for different age groups, assesses ratings and reviews for authenticity, ensures applications don’t promote or condone illegal activity, evaluates compatibility with the ecosystem and other third-party applications, and regulates the user experience.
As compensation, Apple charges native application developers a thirty-percent fee on all in app sales and subscriptions. This makes sense: Apple paid to develop the infrastructure, not to mention the cost to perform application reviews, negotiate, and conduct appeals. Apple, of course, built the system; it created the new, convenient avenue to consumers, and it would be hard to argue that Apple wasn’t entitled to compensation for its use.
In many if not most cases, Apple’s position relative to the applications it reviews is entirely neutral, and there is little cause for objection regarding how Apple does its work. However, the picture becomes more complicated when Apple offers services that compete with the applications submitted for its review. Apple doesn’t charge a fee when offering its own services to consumers through the App Store. Thus, with respect to developers offering competing services, the thirty-percent fee on in-app sales and subscriptions can begin to look more like a tax for competing with Apple than compensation for use of its infrastructure.
Similarly, Apple has included provisions in its terms of use to limit the ability of developers to bypass the thirty-percent fee on sales and subscriptions. For example, developers looking to avoid the thirty-percent fee on in-app sales by redirecting consumers to a web-based application for purchases will find their plan thwarted by a store policy restricting in-app sales messaging. Again, when applied neutrally, such a policy supports little objection; however, when leveraged against a developer offering a service in competition with Apple’s own, the picture becomes less clear.
That is what is at issue in this latest controversy. In September 2022, Spotify attempted to avoid the thirty-percent fee on in-app purchases by updating its native application to include messaging that would redirect consumers to a web-based counterpart for certain purchases. Apple barred the update from the App Store, ultimately rejecting three iterations of the process, asserting that it violated store policies. Spotify, without a clear remedy in domestic courts, has filed a complaint with EU regulators and undertaken a media blitz against Apple.
The conflict is another iteration of the problem that has plagued American antitrust law in recent decades, namely, what to do when the company that maintains a digital marketplace wants to compete there as well. There is no easy answer. On one hand, Apple built and maintains a new path to the consumer, and it makes sense to charge developers who want to use that infrastructure. On the other hand, when Apple itself wants to race down that road, it can outpace its competitors to the tune of thirty-percent.
Jacob Kalphat-Losego is an Associate Editor on the Michigan Technology Law Review.