Apple vs. Everyone: Why Rivals Are Sharpening Knives

Apple vs. Everyone: Why Rivals Are Sharpening Knives

iPhone users: Have you purchased an audiobook on Spotify’s iOS app? If you’ve used the app recently, the answer is likely no, but not due to lack of effort on Spotify’s part. The audio giant admits to painstakingly developing workarounds for its fledgling audiobook business, led by Nir Zicherman, to circumvent Apple’s in-app purchasing system, which requires developers to give Apple a 30 percent cut of purchases of digital goods made within an iOS app.

The solution, which was initially approved by Apple, sent users an email to direct them toward an external link to purchase the book. Though inelegant, the workaround was, well, working when Spotify launched audiobooks in September — until Apple reversed course and proceeded to reject three versions of Spotify’s app updates, sending Spotify developers on a wild goose chase to find a solution that the company would approve. 

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The result is that now, iOS users who try to purchase an audiobook from within the app are effectively 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 ideal.” Click the “got it” button and the journey ends there, with no additional messaging or instructions as to how else — or where else — to purchase a book to listen to on Spotify.

Harry Clarke, an associate general counsel at Spotify, says Apple’s repeated rejections of the audio giant’s audiobook workarounds is the latest example of the tech giant being “arbitrary” and “completely inconsistent” with its enforcement of IAP.

“I don’t understand how they’re applying their rules. I don’t understand how a reasonable developer is expected to interpret these rules,” Clarke tells The Hollywood Reporter. “This is reflective of Apple broadening its interpretation of its rules over time, and more arbitrarily, and deliberately applying those rules against developers like Spotify.”

(In reply, an Apple spokesperson said: “The Spotify app was rejected for not following the guidelines regarding including explicit in-app communications to direct users outside the app to make digital purchases. We provided them with clear guidance on how to resolve the issue, and approved their app after they made changes that brought it into compliance.”)

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 triggered an investigation that is ongoing. But last year, the commission issued a “statement of objections” and noted its preliminary view was that Apple “distorted competition in the music streaming market as it abused its dominant position for the distribution of music streaming apps through its App Store.”

The back-and-forth over Spotify’s audiobooks business on iOS, in Spotify’s view, continues the trend. “I just think it’s absurd, frankly, that they’re allowed to keep doing this,” Spotify CEO Daniel Ek said on the company’s Oct. 25 earnings call about Apple’s App Store rules. “It holds developers back, it holds creators back, 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 U.S. company whose own economic downturn has been exacerbated by Apple’s policy changes: Meta. On Oct. 24, Apple, led by Tim Cook, updated its rules, announcing that for boosted posts sold on iOS apps, developers are required to use Apple’s payment system, thus necessitating Apple’s 30 percent cut. “Boosting, 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 purchase is required,” an Apple rep said. 

The move impacts social platforms like Facebook, Instagram, Twitter and TikTok, which sell sponsored or promoted posts to user bases. But of the group, Meta — the parent company of Facebook and Instagram — is most directly affected by the change, given that it hasn’t used Apple’s in-app-purchase (IAP) system for its boosted posts in the past. Losing out on additional ad revenue, at a time when Meta’s stock has tumbled more than 70 percent in the past year, wouldn’t exactly help the company claw itself out of its hole. 

Apple has countered that requiring in-app purchases for boosted posts, and thus requiring the 30 percent cut, is part and parcel for purchases made within an iOS app. “For many years now, the App Store guidelines have been clear that the sale of digital goods and services within an app must use In-App Purchase,” an Apple spokesperson said. “Boosting, 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 Purchase is required. This has always been the case and there are many examples of apps that do it successfully.”

The latest App Store changes come at the tail end of a long and painful year for most companies that are reliant on digital advertising. Apple’s “App Tracking Transparency” changes wreaked havoc with the digital advertising business, with most consumers opting not to share data with app developers. Meta has estimated it will lose $10 billion in sales revenue because of the privacy changes. Snap, the parent company of Snapchat, has continued to underperform this year and has lost roughly 85 percent of its market share, largely due to its slowing ad business. As a result, impacted companies have been forced to develop workarounds to continue providing data-driven advertising services, which have seen varying degrees of success. 

“Anyone with an app and an advertising business is feeling the changes, though the really big platforms are going to be more impacted than the publishers that sell their brands or shows directly,” a high-level source in the digital content space says. “You always want to know more about your audience than less.” 

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

The easiest solution, of course, would be to acquiesce to Apple’s in-app purchase system. Spotify would be able to make sales within the app and provide a streamlined experience for its users. But economically, Zicherman says, that solution is a “nonstarter.” 

“There are only two ways to economically justify paying a 30 percent cut of every transaction, which is either to eat into our own margins on Spotify in such a way that makes the business completely unsustainable, or to raise prices to consumers, which just hurts consumers. And it also hurts publishers and authors because it means that they’re not able to sell their content as well,” Zicherman tells THR.

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

Alex Weprin contributed reporting.

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