The European Commission (EC) has formally opened an antitrust investigation into Apple over rules that force developers to use Apple’s in-app purchasing technology and prohibit them from notifying customers of alternative ways to purchase or subscribe to content.
The EC has also opened a separate antitrust investigation into Apple Pay over concerns Apple has restricted how Apple Pay is integrated into merchant apps and websites, as well as limiting rival payment services’ ability to access near field communication (NFC) technology for in-store payments.
The EC has been building its App Store case for more than a year, following a complaint made by music streaming giant Spotify in March 2019. Spotify alleged Apple’s business model gives it an “unfair advantage” in the music streaming market. The EC notes that an “ebook and audiobook distributor” filed a similar complaint in March of this year. The party’s name was not revealed, but the Financial Times reported that it was Kobo, a subsidiary of Japanese tech titan Rakuten, which rivals Amazon’s Kindle in the ereader space.
The EC says its investigation centers on how Apple applies its rules to third-party apps that compete with its own services in the European Economic Area (EEA).
Spotify’s beef with Apple goes back many years and is largely targeted at the way Apple controls the iOS platform. Spotify relies on the App Store to distribute its mobile app to iPhone and iPad users. For those using Spotify’s ad-supported free service, things are relatively straightforward. But when someone tries to subscribe to Spotify for $10 per month, Apple would historically take a cut of up to 30%. Spotify initially raised its subscription fee on the App Store to offset those costs but removed the premium subscription option altogether back in 2016. Netflix has ditched App Store billing for similar reasons.
The upshot of all this is that iPhone and iPad users wishing to sign up for a premium subscription on Spotify need to do so through a web browser (or Android), bypassing Apple’s payment system. To rub salt in the wounds, Apple prohibits app makers from telling customers how to sign up for a premium plan outside of its ecosystem — they can’t mention anything about it in the App Store notes, for example.
The EC said that following its preliminary investigation it has concerns Apple’s restrictions “may distort competition for music streaming services on Apple’s devices,” adding:
Apple’s competitors have either decided to disable the in-app subscription possibility altogether or have raised their subscription prices in the app and passed on Apple’s fee to consumers. In both cases, they were not allowed to inform users about alternative subscription possibilities outside of the app. The IAP [in-app purchase] obligation also appears to give Apple full control over the relationship with customers of its competitors subscribing in the app, thus dis-intermediating its competitors from important customer data while Apple may obtain valuable data about the activities and offers of its competitors.
While Apple has countered Spotify’s complaints in the past, arguing its rival wants to reap all the benefits conferred on free apps without being free, Apple has largely failed to address the gargantuan elephant in the room, which is Apple Music. Apple’s move to charge rivals such as Spotify a 30% commission for in-app payments has forced them down two potential paths: adding a 30% premium to their subscriptions to offset the fee, or removing the subscription option altogether. Apple Music, meanwhile, faces no such dilemmas.
Kobo’s complaint is almost identical to Spotify’s, according to the EC — Apple also operates an ebook reading service, while Kobo sells books through Apple’s mobile app with a fee of up to 30% attached.
European regulators have been threatening action over Apple Pay and NFC since at least 2018, so a formal investigation is no surprise. The crux of the issue is that Apple’s devices only allow contactless NFC payments to be made with Apple Pay, thus cutting off competing payment services from Apple’s devices.
The EC also expressed concerns over terms and conditions relating to Apple Pay’s integration into apps and websites, which “may distort competition and reduce choice and innovation.” Moreover, the investigation will focus on Apple’s “alleged restrictions” on rival products’ access to Apple Pay on iOS and iPadOS devices.
Apple issued the following statement in response to the EC’s announcement.
Throughout our history, Apple has created groundbreaking new products and services in some of the most fiercely competitive markets in the world. We follow the law in everything we do and we embrace competition at every stage because we believe it pushes us to deliver even better results.
We developed the App Store with two goals in mind: that it be a safe and trusted place for customers to discover and download apps, and a great business opportunity for entrepreneurs and developers. We’re deeply proud of the countless developers who’ve innovated and found success through our platform. And as we’ve grown together, we’ve continued to deliver innovative new services — like Apple Pay — that provide the very best customer experience while meeting industry-leading standards for privacy and security.
It’s disappointing the European Commission is advancing baseless complaints from a handful of companies who simply want a free ride, and don’t want to play by the same rules as everyone else. We don’t think that’s right — we want to maintain a level playing field where anyone with determination and a great idea can succeed.
At the end of the day, our goal is simple: for our customers to have access to the best app or service of their choice, in a safe and secure environment. We welcome the opportunity to show the European Commission all we’ve done to make that goal a reality.
The EC did not offer a timeline for the investigations but said it would carry them out “as a matter of priority.”