Spotify is claiming a victory in Europe over Apple by allowing in-app purchases and promotion of its services, which were previously prohibited.
The new iPhone app for the Swedish streaming service will, starting in March, display pricing and offers to its customers. It will also allow them to purchase new subscriptions via the app. Customers in other countries will see the older version.
This is the first time a major technology company has changed its business model in response to the Digital Markets Act of the European Union. Spotify is hoping that a similar bill, which is currently being debated in the House of Lords, will result in these changes for British consumers.
Apple had previously not allowed Spotify’s in-app advertising to promote discounts or promotions. This was a source of friction for many years between the two companies. Spotify claimed that this was unfair because Apple was such a strong competitor in music streaming.
Daniel Ek (founder of Spotify) said that Apple is drowning out the competition by charging a 30% fee for in-app purchases. “They don’t charge 30% [the AppStore fee] to their music service so they should let us not pay 30% so we can compete with equal playing fields,” said the 40-year old Swedish entrepreneur.
Customers in Europe will now be able upgrade their subscriptions or buy audiobooks by simply clicking a few buttons within the Spotify application, instead of logging in through a web-browser.
Spotify released a statement saying that “for the first time you’ll be able see the price when browsing an audiobook, buy it easily and start listening quickly,” Spotify. Apple’s rules meant that we could not tell users about special offers, the price of an item, or where to purchase it. We know, it’s pretty crazy. “The Digital Markets Act will allow us to finally share information about offers, promotions and more affordable payment options within the EU.”
Avery Gardiner said that Apple has not yet reacted to the changes. She said: “It’s clear to me that the Digital Markets Act allows us to do this.”
Spotify and Apple have had many clashes over the years regarding the terms of Apple’s iPhone app store. Spotify filed a complaint in Europe against Apple, alleging the American company had abused their App Store dominance by giving preferential treatment for Apple Music. Apple responded by claiming that Spotify’s success was due to Apple’s ecosystem. The incident sparked an investigation by the European Commission and a decision is expected soon. In its preliminary opinion, which was published by the commission last year, it stated that Apple abused its dominant market position. The company faces a possible fine of up 10 percent of its annual revenue if it is found guilty.
Spotify isn’t the only app developer to be unhappy with the terms of Apple’s App Store. Epic Games sued the company over in-app transactions fees when it attempted to introduce direct payment into its Fortnite video game. The dispute was lost in the Supreme Court last month.
Gardiner did not reveal what revenue impact the changes would have on Spotify. He only said that “there are opportunities for developers and customers like Spotify to profit”.
Alex Haffner is a partner in the City law firm Fladgate and he said, “This move by Spotify is, to put it mildly, bold.” They are pushing the boundaries by claiming that Apple’s 30% developer fee structure won’t prevail after the implementation of the Digital Markets Act. This is because Apple is currently battling a legal battle to prevent its App Store from being designated as a “gatekeeper”, subject to the provisions in the new legislation. Apple confirmed it will have to change its App Store policies including the charging structure but hasn’t made this public yet.
The statement is a sign that Spotify, along with other developers, are going to be contacting regulators if Apple does not make significant changes to their App Store pricing structure.
Spotify has 574 millions active monthly users. Apple Music has no official numbers, but analysts at JP Morgan estimate it will reach 110 million subscribers by the year 2025.
Apple has not responded to a comment request.
Apple closed the session at $194.50, down 68 cents or 0.4%, and Spotify shares closed at $211.18 in New York.