Apple versus everyone: why competitors are sharpening their knives

iPhone Users: Did you buy an audiobook on Spotify for iOS app? If you’ve used the app lately, the answer is probably no, but not because of a lack of effort on Spotify’s part. The audio giant is admitting to developing alternative solutions for the emerging audiobook business, led by Nir Zeicherman, to circumvent Apple’s in-app purchase system, which requires developers to give Apple 30 percent of digital goods purchases made within the iOS app.

The solution, which Apple initially agreed to, sent users an email to direct them toward an external link to purchase the book. While the solution isn’t elegant, the solution worked so well when Spotify launched audiobooks in September — until Apple reversed course and proceeded to reject three versions of Spotify app updates, sending Spotify developers on a wild hunt for a company-accepted solution.

The result is that iOS users trying to purchase an audiobook from within the app are actually met with a brick wall. The first message they receive: “Want to listen? You can’t buy audiobooks in the app. We know it’s not perfect.” Click the “get it” button and the journey ends there, with no additional messages or instructions on how to buy a book to listen to on Spotify – or anywhere else.

Harry Clark, Assistant General Counsel at Spotify, says Apple’s repeated rejection of giant audiobook solutions is the latest example of the tech giant being “arbitrary” and “completely inconsistent” with its implementation of the IAP.

“I don’t understand how they apply their rules. I don’t understand how a sane developer would be expected to interpret these rules,” Clark says The Hollywood Reporter. “This reflects Apple expanding its interpretation of its rules over time, and more arbitrarily, and deliberately applying those rules against developers like Spotify.”

(In response, an Apple spokesperson said: “The Spotify app was rejected for not following the guidelines for including explicit in-app communications to direct users outside the app to make digital purchases. We gave them clear instructions on how to fix the issue, and they approved their app after making changes that make it compatible.”)

Spotify has been one of the most vocal critics of Apple’s App Store policies. In 2019, the Stockholm-based company filed an antitrust complaint against Apple with the European Commission, which led to an ongoing investigation. But last year, the commission issued a “Statement of Objections” and noted that its initial view was that Apple “distorted competition in the music streaming market because it abused its dominant position to distribute music streaming apps through the App Store.”

The trend continues back and forth across the Spotify audiobook business on iOS, from Spotify’s point of view. “I think it’s absurd, frankly, that they keep doing that,” Spotify CEO Daniel Eck said on the company’s October 25 earnings call about Apple’s App Store rules. “It hampers developers, it hampers creators, and it’s bad for consumers.”

Now, thanks to an update to Apple’s App Store rules, Spotify may soon find a powerful ally in another US company whose economic slowdown has been exacerbated by Apple’s policy changes: Meta. On October 24, Apple led by Tim Cook updated his rules, declaring that for boosted posts sold on iOS apps, developers will have to use Apple’s payment system, which entails a 30 percent cut from Apple. “Boost, which allows an individual or organization to pay to increase the reach of a post or profile, is a digital service — so of course an in-app purchase is required,” said an Apple rep.

The move affects social platforms such as Facebook, Instagram, Twitter and TikTok, which sell sponsored or promoted posts to user bases. But for the group, Meta – the parent company of Facebook and Instagram – is directly affected by the change, since it has not used Apple’s in-app purchase (IAP) system in its booster posts in the past. Losing additional advertising revenue, while Meta stock has fallen more than 70 percent in the past year, won’t quite help the company out of its predicament.

Apple responded that requiring in-app purchases for boosted engagements, and thus requiring a 30 percent reduction, is an integral part of iOS in-app purchases. “For many years now, the App Store’s guidance has been clear that selling digital goods and services within the app should use in-app purchase,” an Apple spokesperson said. “Promotion, which allows an individual or organization to pay to increase the reach of a post or profile, is a digital service – so of course in-app purchases are required. This has always been the case and there are many examples of apps doing this successfully.”

The latest changes to the App Store come at the end of a long and stressful year for most companies that rely on digital advertising. Apple’s “App Tracking Transparency” changes have wreaked havoc in the digital advertising space, with most consumers choosing not to share data with app developers. Meta has estimated that it will lose $10 billion in sales revenue due to the privacy changes. Snap, the parent company of Snapchat, has continued to underperform this year and lost nearly 85% of its market share, largely due to a slowdown in its advertising business. As a result, the affected companies have had to develop alternative solutions to continue offering data-driven advertising services, which have seen varying degrees of success.

“Anyone with an app and ad company is feeling the changes, although really big platforms will be affected more than publishers selling their brands or offerings directly,” says a senior digital content source. “You always want to know more about your audience than a little.”

It remains to be seen what kind of long-term financial impact the IAP rules will have on Spotify’s audiobook business and the Meta revenue stream for boosted posts. But the immediate effect, at least in the case of Spotify, is clear: Without a clear path for iOS users to purchase audiobooks, the company saw “strong divergence” in conversion rates (read: store sales) on iOS compared to Android, where Google allowed Spotify to send a link to Users emailed to purchase the book, according to Zicherman, head of Spotify’s audiobooks and locked content division.

The easiest solution, of course, would be to comply with Apple’s in-app purchase system. Spotify will be able to generate in-app sales and provide a simplified experience for its users. But in economic terms, Zeicherman says, this solution is “unsuccessful.”

“There are only two ways to economically justify paying a 30 per cent cut-off on every transaction, and they are either to eat our own margins on Spotify in a way that makes the business completely unsustainable, or to raise prices for consumers, which only hurts consumers. It also hurts publishers and authors because it means that they Unable to sell their content either.” THR.

“There is a lot of untapped potential for growth, both in terms of supply and demand for audiobooks. We’ve seen that in the world of podcasting, and we know it’s coming in the audiobook world,” adds the Spotify CEO. “It’s hard to achieve that growth if you can’t take your users on a great experience.”

Alex Webrin contributed reporting.

A version of this story first appeared in the November 2 issue of The Hollywood Reporter. Click here to subscribe.

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