The EU Fines Apple Which Apple Is Not Fine With

The EU Commission Fines Apple €1.8B for Stifling Music Competition
iPhone maker hit by first-ever Brussels fine as competition watchdogs step up scrutiny of Big Tech

Another day, another EU v. Apple situation. This fine, while more than triple what was expected, is not what matters here. Apple has plenty of money. What matters are the constant rulings against the company which threaten to bog them down in legal fights but also tarnish their image in the eyes of the public.

Because, let's be clear, nothing else is changing.

As Apple's response to this latest ruling makes clear, they view it as ridiculous. (Though this one drips with decidedly less disdain than the DMA response,which is, of course, a much bigger deal – this one is more whiny in tone.) They're framing it completely as the result of one company, Spotify, pushing a years-long lobbying campaign to get a better deal. But Apple notes that Spotify already has the best deal: as in, free. Because Spotify doesn't sell subscriptions through the App Store, they don't pay Apple a thing.1 Yet they still distribute and put their app on hundreds of millions of iOS devices.

When it comes to doing business, not everyone’s going to agree on the best deal. But it sure is hard to beat free.

It's both slightly compelling and slightly misleading, but it ultimately doesn't matter. Because these are going to keep coming. The big one, later this week, will be how the EU responds to Apple's proposed DMA changes. I think it's safe to assume that the EU is not going to respond well to them! And that might mean more fines are on the way to Cupertino.

I think it's worth asking what does everyone actually want here?

  • Apple would like things to stay the way they are, clearly.
  • Spotify's Daniel Ek spent a whole lot of time today not actually saying what they want. Presumably, it's for Apple to open up iOS to third-party app stores which, crucially, they would have no economic control over.
  • The EU would like Apple to ask "how high" when they say "jump".

Newsflash: none of these three things are going to happen.

Apple is going to fight like hell in courtrooms around the world to not be forced to change the way they operate. But they're already losing such cases and trying to get ahead of losing others by constantly tweaking rules on the fly. But doing so in the smallest way possible. This is going to go on for years.

One thing Apple is never going to do: allow for third-party app stores that can distribute apps on iOS without some sort of payment to Apple. If and when there are third-party app stores, the commission is clearly going to be very similar to the current 30% cut. It will slowly get whittled down. But it will never be nothing. And I think it's fair to say that it shouldn't be nothing.

But again, no one is actually saying what they think it should be. 30% was ridiculous and pulled out of thin air. So Apple has been dropping it slowly. But what does anyone think is an actually fair number? It would help to know that! But saying 0% isn't helpful. That's never going to happen.

To throw out one obvious idea: what if companies are allowed to use any payments mechanism they wish, but also have to offer Apple's as an option? Apple can take whatever cut they like for their's but others can also undercut them. Apple would have to compete on either product or price or ideally, both! But let the market drive that. If Apple makes an experience that is so good and seamless (something which they have inherent advantages in doing as the operators of iOS), they can charge whatever commission they like. 30%? Sure! Otherwise, they get a small platform fee from the "winning" payment mechanism.

Of course, Apple would never go for that, willingly. Why compete to likely make less money when you cannot compete and make more?

Instead, we're probably going to be bogged down in trying to nail down a "fair" commission number in various courts. But I'm not sure anyone knows what this should actually be – the market should decide, not courts. But such is regulatory life in 2024. There's the cost for Apple to break-even – the original stated monetary goal of the App Store, by the way! – but even that is murky because of how Apple allocates costs associated with the store and distribution. And Apple needs to keep growing, and the App Store is a huge part of that. They're not going to just give it up.

Something, apparently, the EU would like:

Margrethe Vestager, the bloc’s competition chief, said the tech giant had broken EU antitrust rules for a decade by “restricting developers from informing consumers about alternative, cheaper music services available outside of the Apple ecosystem”.

She said this amounted to abuse of the group’s dominant position for music streaming on its App Store.

Short of Apple putting up banners within the App Store stating the you can get Spotify for sale on the web, it's not entirely clear what the EU is going for here. Also, the notion that Apple has "the dominant position for music streaming" is odd. Presumably they mean because of Apple Music which is included on every iOS device, but again, the fact is that Spotify is the larger service (yes, thanks in part to a free tier, which Apple doesn't offer).

The case should be that Spotify would be in a better position to drive down prices if they weren't going to be handcuffed by Apple's 30% tax, but I'm not sure that's actually reality just given the nature of Spotify's business. Can they afford to go lower than they are right now? And so instead there's this almost straw man argument against the higher price Spotify would have to charge to sell through the App Store – but isn't. So the EU is trying to make the case that the largest streaming service should be larger were it not for Apple?2 It's a weird stance.3

They should probably make the case that Apple needs to distribute Apple Music through the App Store, just like everyone else. And that if Apple has a service which directly competes with a third-party service, Apple can't take their standard 30% cut, but can only take a cut that covers their costs. I'm not sure how legally sound any of these solutions are, but they sure sound practical, no?

But the EU says and offers up none of this. Instead, they dish out seemingly random fines that they deem to be fair based on who knows.

Related, the only sides actually winning any of the above are the lawyers. None of this is going to change any time soon and that's in part because it's entirely unclear what everyone thinks should change. I happen to agree that it's past time for Apple to change many of the App Store policies, which were written 15 years ago for a very different world. But the EU (and companies like Spotify) should come out and very explicitly state what they think should actually be changed. Ideally, they'd be realistic in such statements, but the reality is also that they probably can't be because if they don't shoot for the moon, they're going to get nothing because Apple is going to push back against everything.

Round and round we go...

1 Presumably they do pay the $99/year for at least one developer account. Probably a few.

2 Some shades of when Apple lost the Apple Books price-fixing case benefiting the dominant player, Amazon.

3 Not helped, optically, by the fact that Spotify is a company headquartered in Europe while Apple is in the US.