Wednesday, October 26, 2022

Outrage over Apple's App Store reaches unprecedented heights: Meta, Spotify as well as Marco Arment and other indie app developers are publicly complaining

The slightly postponed Epic Games v. Apple appellate hearing (United States Court of Appeals for the Ninth Circuit) is less than three weeks away, and outrage from app makers of all sizes--from "indies" to Spotify to Meta--over Apple's App Store monopoly abuse has reached a new level.

It was just about 24 hours ago that I quoted at the start of a post a variety of unflattering tweets, one of which says Apple is now a "bad-faith operator." In that post I discussed three aspects of Apple's new app review rules: a totally subjective current events guideline, the expansion of Apple's app tax to boosted social media posts, and the reduction of NFT sales to an in-app purchasing (IAP) loophole (a web3 entrepreneur agrees with my take).

But since then the debate has become even more intense. Let's start with what Meta (Facebook) is saying.

The Verge obtained the following statement from Meta:

"Apple continues to evolve its policies to grow their own business while undercutting others in the digital economy. Apple previously said it didn’t take a share of developer advertising revenue, and now apparently changed its mind. We remain committed to offering small businesses simple ways to run ads and grow their businesses on our apps."

As The Verge notes, Apple didn't merely say that it didn't take a share of ad revenue, but even testified so under oath during last year's Epic v. Apple trial.

Meta is the largest company to be affected by Apple's about-face, followed by TikTok, but arguably the company for which this comes at the worst of times is Twitter. Elon Musk wants to turn its acquisition into a commercial success, and before he even takes control, Apple is already complicating matters. While his primary company, Tesla, is not affected by the new rules, it is the last man standing among major automakers against Apple CarPlay and Android Auto, and should actually fight for interoperability on fair, reasonable, and non-discriminatory terms. There are key decisions to be made in the EU now following the entry into force of the Digital Markets Act, and car makers are oblivious to their best chance to fend off the "digital carjacking" threat.

Apple's immoral earnings (from gambling) besmirch app developers' reputation

In yesterday's post on the new app rules, I compared Apple's app tax approach to that of a Roman emperor who defended a tax on public urinals by saying that money doesn't stink. Let's face it: Apple (like Google) shamelessly distributes anti-scientific material that promotes bogus medications and treatments, some of which have adverse effects and which, at minimum, dissuade the credulous from relying on evidence-based medicine, as I showed last year.

But now Apple is really going off the deep end by placing ads for gambling apps on the App Store pages of totally legit apps, as MacRumors has reported. I really have nothing to add to that great MacRumors article, which shows several developers' tweets, notably including Marco Arment, a legendary iOS indie who says "[t]he App sotre has corrupted such a great company so deeply."

I encourage you to open that MacRumors article and read all the tweets and the analysis.

Spotify sees updates rejected and says Apple's behavior hurts audiobook listeners, publishers, and authors

On the last business day before the Epic v. Apple trial kicked off in Oakland last year, the European Commission handed down a Statement of Objections (SO)--a preliminary antitrust ruling--against Apple in the Spotify case. Arguably, Spotify was in the pole position among formally complaining app makers at that point. After an SO, the EC's Directorate-General for Competition (DG COMP) gives the respondent the opportunity to defend itself again in writing, then typically holds a hearing (unless the issues are satisfactorily addressed), and after that one issues a decision, which can then be appealed to the EU General Court.

But it's been silent around that antitrust investigation ever since.

Yesterday, Spotify issued a press release in which its founder and CEO, Daniel Ek, vents frustration over the lack of progress:

"Almost four years. That’s how long it’s been since Spotify filed a complaint against Apple with the European Commission, and we are still waiting on a decision. And while we wait, Apple continues to dictate what online innovation looks like, doing serious harm to the internet economy, choking competition and the imagination of app developers."

On its Time to Play Fair campaign website, Spotify now has a section dedicated to audiobooks, which is the topic of the latest controversy. Spotify submitted a new version of its app that was designed to point customers to where they can buy audiobooks without Spotify being subjected to Apple's app tax. But Apple rejected that one as well as a slightly modified one, and only approved the update after Spotify complied with Apple's interpretation of its unilaterally-imposed rules.

According to Matthew Ball,Spotify would lose 70% of its revenue if kicked off iOS. As we all know, it competes with Apple Music, and as Epic Games' CEO Tim Sweeney explained:

"Apple's working to undermine Spotify's good reputation with their anti-Spotify PR campaign, touting that Apple Music (whose popularity is tilted towards high-income developed economies with higher subscription fees) pays artists more per song than Spotify."

Not only is Apple able to pay out more to artists on a per-song basis because of its affluent clientele, but Spotify would also be in a position to share more revenue with artists if it wasn't subjected to the infamous app tax. Furthermore, Spotify has only one business--music--and can't use a luxury goods business and certain monopoly rents to cross-subsidize.

While I really hope the Spotify case will lead to something that will help not only Spotify, I can't help but note that Spotify came out with this criticism of Apple's conduct right before publishing its Q3 shareholder report (PDF). After hours, its stock (SPOT) lost almost 7%. It looks like they want investors to know that their business could do a lot better if not for Apple's App Store monopoly abuse. But that takes us to the second question, which is whether Spotify is on the right track with its efforts to solve that problem.

It's been almost a year since the mastermind of Spotify's antitrust complaint left to become the top lawyer at Disney: the one and only Horacio Gutierrez.

I can see why Spotify's CEO would like the process in Brussels to yield results faster. Four years is a long time. But it's not easy for the Commission to take on Apple, a company that has the resources to pay for armies of lawyers outnumbering DC COMP officials--and which, directly as well as through law firms close to it, hires DG COMP officials away from time to time.

As Concurrences explained, interim measures are generally difficult to obtain from antitrust watchdogs, and over the last 20 years have become pretty irrelevant in the EU ("the Commission had let its interim measures power ‘fade into oblivion’ since 2001," with a recent merger case being a rare exception).

Spotify, like Epic and Match Group (Tinder), is a founding member of the Coalition for App Fairness. Given that the CAF is only about two years old, it has made a huge impact through lobbying. But it could do more, and it appears too focused on the 30% cut while everyone can see these days that other aspects of Apple's terms and policies draw even more attention. For instance, the CAF should analyze the new version of Apple's SKAdNetwork (version 4) and whether it has the potential to make Apple the only ad network operator on iOS that can deliver tangible and measurable value to advertisers.

Spotify relied on the European Commission while Epic took its chances in court. Epic was unfazed by last year's district court judgment. I remember a Tim Sweeney tweet according to which he read the decision that day, but also spent time coding and even found time for a hike. By now it's clear that the district judge got some key parts (including some important legal precedent) wrong. Epic can--and I believe will-- turn that case around.

The News & Observer quotes Vanderbilt antitrust professor Rebecca Allensworth, who thinks Epic has almost a 50% chance of reversal, and she would "almost never give such high odds for a reversal."

Technically, subscriptions are not at issue in Epic v. Apple (just item-by-item IAP). But if Apple can't defend its app tax on IAP, it won't be too hard for subscription businesses like Spotify to bypass the app tax, too.

The decision Spotify will have to make now is whether to continue to wait for the EU Commission or start some private litigation in one or more jurisdictions. I've said it on other occasions: those CAF companies might already have won spectacular decisions in Munich if they sued there. That forum could become one of the most important App Store venues in the world. Spotify would give the Commission an "excuse" for not staying on top of the Apple cases, however, if it sued (especially if it sued in the EU). Without non-public information on where the EU Spotify-Apple case stands, I don't know how much Spotify really has to lose at this point. And, frankly, I think Epic Games' EU complaint over Apple is the more important one as it would help the entire app economy and could solve a number of problems.