Apple & Spotify Battle Over In-App Subscriptions

The spat between Apple and Spotify has spilled into the public and so far both sides appear to have dug in their heels. In the end, Spotify stands the most to lose if Apple ultimately pulls their app from the store, which I genuinely believe Apple doesn’t want to do — they would have done it already.

Spotify believes Apple is using its platform to bully them out of the streaming music space. Apple, meanwhile, believes Spotify is circumventing their payment system by routing consumers to their website to purchase.

For specific reasons, I’m not going to give an opinion on this. It’s not right for me to say who is right and who is wrong. I also don’t have all of the facts. What I will say though is that I do understand both sides of the argument.

Apple has created a competing product to Spotify in Music. They just so happen to also own the hardware and distribution service that both depend on, which Spotify believes is a conflict of interest.

Whether Spotify will admit it or not, they need Apple. Ninety percent of mobile time spent is in apps. It would be near impossible to create a mobile web version of the service to suffice — and operate in Apple’s Safari browser to boot.

Apple, on the other hand, doesn’t need Spotify to be successful, outside of the massive awareness they brought to the billion-dollar on-demand streaming music industry.

Some have asked, “isn’t Apple doing the same thing with News?” Yes and no. Yes, they’ve created a competitive product to publishers’ news apps, but they also need those same publishers to supply the content that makes News successful. Apple doesn’t need Spotify to do that with Music — they need Sony, Universal, Atlantic and the artists themselves. It’s why they may acquire Tidal.

The Numbers

The competitive landscape for streaming music is just that, competitive. It’s a game that Spotify is winning with their 30 million subscribers compared to Apple’s 15 million. We don’t know how many of those 30 million came through iTunes billing.

The major advantage in subscriber growth for Apple has been their operating system. They preinstalled Music on iOS 9 and then gave all users a three-month free trial. Their OS is their main acquisition source.

Considering that Spotify has a churn rate of 2.2 percent compared to Apple’s 6.4 percent, there’s a good chance Apple never catches Spotify. The product is just better, which is why Apple is overhauling Music in iOS 10.

While Apple is trailing Spotify in subscribers, they aren’t necessarily losing. That’s because the more successful Spotify is in their App Store, the more revenue Apple generates thanks to their Apple Tax.

Let me explain: Apple takes 30% of all in-app purchases for billing, processing and App Store management. Every subscription Spotify sells, Apple makes 30%. In other words, for every 10 subscribers to Spotify through iTunes, Apple is essentially making the full monthly revenue on three.

If we go deeper on that, there are 15 million subscribers separating Spotify and Apple Music. If those 15 million are paying through iTunes, Apple is essentially getting the full revenue on 4.5 million of them.

The History

Originally, Spotify had increased their pricing by 30% for consumers purchasing through their iOS app. I never agreed with passing this on to the user (okay, so one opinion). In fact, Spotify went on an all-out campaign last year to tell people to avoid paying more on iTunes by subscribing on the web at three months for $0.99.

Then, earlier this year, Spotify pulled the ability to purchase from the app completely, leaving only the options to log in or register. Apple viewed this as Spotfiy capturing user contact info to send an email and get the user to purchase outside the app.

Apple says they warned Spotify it was breaking the developer agreement. Spotify didn’t comply with changes so Apple has refused to approve the latest version of their app. Apple could have pulled the app, which they’ve done in the past, but that would cause too much negative publicity.

Instead, Apple’s legal team sent Spotify a letter, which was “leaked.” Let me break down the response:

There can be no doubt that Spotify has benefited enormously from its association with Apple’s App Store. Apple’s platform has provided you with more than 160 million downloads of your app…

Companies typically don’t release download numbers so this was revealing. Spotify has been in the Top 20 most downloaded free apps for years. Spotify does some great aggressive marketing, as well, so you can bet that Pandora and others are comparing themselves to that number.

The fact that we compete has never influenced how Apple treats Spotify or other successful competitors like Google Play Music, Tidal, Amazon Music, Pandora…

Apple had stopped promoting Spotify heavily in the App Store since their anti-Apple letter one year ago. Apple also began taking over specific keywords, including music and streaming music, with their own native download placement. Considering Apple says 65 percent of downloads come from the App Store, that certainly influences how they’re treating competitors. This is something they’re also doing for other keywords/apps, including News.

We just recently introduced a new revenue split for subscriptions designed to help all developers keep even more of their service revenue stream.

Apple did recently announce that they’ll reduce their “tax” by 15% for all subscribers over a year old. It’s a step in the right direction with developers. I do wonder though how consumers paying 30 percent more though iTunes would feel knowing that after a year Spotify is generating even more ARPU off them.

…including that the in-app purchase feature had been removed and replaced with an account sign-up feature clearly intended to circumvent Apple’s in-app purchase rules…That feature exists only for the purpose of avoiding having to pay Apple for your use of the App Store by emailing customers within hours, directing them to subscribe to Spotify on its website.

The email Spotify sent out last year is starting to come back bite them. That communication was brash enough to raise alarms internally at Apple that they are willing to be aggressive in avoiding Apple’s in-app billing solution. So when they remove purchasing from their app, even though having log in and sign up isn’t a violation, it set the alarms off. I don’t know if this current feud happens had that email not been sent.

Spotify’s issues with Apple are clearly personal. Google also has competing hardware in Android and products in Music and YouTube Red, but there are no battles (at least publically) there. Google also taxes 30 percent.

We are all playing in Apple’s sandbox, which means we have to play by Apple’s rules. Some we agree with, some we don’t. While Spotify feels like Apple is telling them they need to sell subscriptions in the app, it is their choice to distribute the app there in the first place. It just happens to be less of a choice and more of a necessity.

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