EU Charges Apple with App Store Antitrust Violations

Posted on April 30, 2021 by Paul Thurrott in Apple, Dev, iOS, iPadOS, Mobile with 54 Comments

The European Commission has formally charged Apple with antitrust violations related to its mobile app store on the iPhone and iPad. The charges are preliminary, allowing Apple to respond before the EC issues a punishment.

“The Commission takes issue with the mandatory use of Apple’s own in-app purchase mechanism imposed on music streaming app developers to distribute their apps via Apple’s App Store,” the announcement reads, cutting right to the heart of Apple’s anticompetitive business practices. “The Commission is also concerned that Apple applies certain restrictions on app developers preventing them from informing iPhone and iPad users of alternative, cheaper purchasing possibilities.”

The EU charges come in the wake of complaints by Spotify, which correctly points out that Apple not only hobbles the developers that are forced to use its monopoly app store and payment system, but also competes directly with them in that store. Spotify, for example, must compete against Apple Music, a service that is cheaper to operate because Apple doesn’t impose its fees and limitations on its own services.

“App stores play a central role in today’s digital economy,” EC executive vice president Margrethe Vestager said. “We can now do our shopping, access news, music or movies via apps instead of visiting websites. Our preliminary finding is that Apple is a gatekeeper to users of iPhones and iPads via the App Store. With Apple Music, Apple also competes with music streaming providers. By setting strict rules on the App store that disadvantage competing music streaming services, Apple deprives users of cheaper music streaming choices and distorts competition. This is done by charging high commission fees on each transaction in the App Store for rivals and by forbidding them from informing their customers of alternative subscription options.”

Exactly right.

According to the EU complaint, Apple has a “dominant position” in the market for distributing apps to users of its devices. This store is the “sole gateway” to consumers who wish to use apps, and Apple’s platform is a “closed ecosystem in which Apple controls every aspect of the user experience for iPhones and iPads.” Developers, meanwhile, are forced to distribute their apps via Apple’s App Store, and are subject to Apple’s mandatory, non-negotiable, and often arbitrary rules.

“The Commission’s preliminary view is that Apple’s rules distort competition in the market for music streaming services by raising the costs of competing music streaming app developers,” the announcement adds. “This in turn leads to higher prices for consumers for their in-app music subscriptions on iOS devices. In addition, Apple becomes the intermediary for all IAP transactions and takes over the billing relationship, as well as related communications for competitors.”

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Comments (54)

54 responses to “EU Charges Apple with App Store Antitrust Violations”

  1. Avatar

    RobertJasiek

    "Apple’s platform is a closed ecosystem" - hear, hear! The EU has noticed the Walled Garden.

  2. Avatar

    gardner

    There is nothing developers lust for more than multiple app stores with different rules, and testing multiple app stores. What nirvana, developer relationships crafted by people who have no investment in the developer infrastructure, but who do want headlines.



    • Avatar

      wright_is

      It isn't necessarily having multiple app stores, although that would be one remedy. It is more about, if you control the app store, then all apps have to face the same rules - no preferential treatment for your own apps - and whether the prices charged are extorionate.

      30% for "just" a transaction fee is extortionate (usual fees are in the 0.5% to 5% range. If Apple can show that that 30% is justified, that is one thing. if they can't they could be forced to reduce transaction fees or allow third party payments.

      Apple takes $100 per year per developer account and then 15% to 30% per transaction (at the time these suits were announced, they payment was a flat 30%, Apple and Google have already dropped in a 15% tier for the first million in transactions.

      For a lot of things, like in-app currency, in-app articles etc. there is literally nothing for Apple to do, other than process the transaction. There is no additional download to cause costs.

      The traditional argument is, that Apple has to charge so much for payments, because of the number of free downloads. If that is the case and they can show that 30% is really needed (i.e. they are barely making a profit on the store as a result), they might get away with keeping their monopoly on the store. If the accounting shows that, despite "subsidising" free apps, they are making a huge profit, it doesn't look so rosey for them.

      Likewise, if they are "forcing" Spotify to charge 30% more than Apple charges for its own music app (to take a commonly sighted example), it might be that they would either have to charge themselves the 30% or charge Spotify 30% (or rather 25% or so) less/allow them to use a different payment service. Because they don't have to pay the 30% payment fee, or rather that fee is booked internally, so doesn't affect the price of the offering, they have an unfair advantage. Either they have to provide Spotify with the same payment conditions or they can't compete with other products in their store... That would be a huge problem for Apple and its customers.


      If Apple "sees sense", it could blow over with a slap on the wrist. If they dig in, it could be a prolonged and expensive fight.

  3. Avatar

    sandeepm

    What I see as something that could be most beneficial to consumers and developers would be for governments to force apple and others to adopt a unified application platform that makes applications independent of OS's and stores (think PWA). It is high time that some governance was imposed on IT. Afterall, Shell and Exxon are made to produce the same type of gasoline, then why is IT still the wild west?

  4. Avatar

    MoopMeep

    What happens with the rogue third party app store?

    That the 50-80 year old doesn't know is a rogue store?

    Is apple going to need to certify the stores to make sure they are all honest?


    What support do you get if a third party app store does something bad?

  5. Avatar

    behindmyscreen

    OK....Here's how Apple can fix this while maintaining the integrity of the app store for users:


    Make the app store backend support 3rd party connections to CDNs from 3rd parties. If someone wants to use their own CDN and payment processor then they can get app approval, have the proper security evaluation for the CDN and payment processors by Apple, and then apple can set up the interlink. In this situation, Apple doesn't need to charge anything.


    They can then offer two services that are independent of each other:


    1) Payment processing - this can charge the industry standard amounts other payment processors charge and offer enhanced user experiences which will encourage developers to use it, even the separate CDN apps.


    2) CDN hosting - This can be useful for smaller developers because it makes publishing dead simple and avoids the overhead of setting up a CDN separate from Apple. You get the ease of publishing from apple's development tools, and other features.

    This could be a service they offer for whatever profit level they like. If it covers the cost of running their infrastructure they can charge as competitive an amount as they like for the additional ease and that publishing comes with it.


    If they do this, I think they will resolve all the issue larger developers have while also supporting smaller developers and maintaining the security and integrity of their platform for the users.

    • Avatar

      MoopMeep

      But that makes apple somewhat responsible for what another store does. If people are complaining that apple is a monopoly then they should be involved with third party stores
      • Avatar

        behindmyscreen

        I am not talking about a store. I am talking about the app devs using their own CDN service to provide the app downloads and updates that a user gets when they install their app via the storefront of the Apple App store.
  6. Avatar

    puggsly

    Way to stay unbiased: "complaints by Spotify, which correctly points out that Apple note only hobbles the developers that are forced to use its monopoly app store and payment system, but also completes directly with them in that store. .....that is cheaper to operate because Apple doesn't impose its fees and limitations on its own service"

    Fact: Apple controls less than 20% of the global smart phone market (monopoly is a stretch).

    Fact: It costs apple to vet and distribute the Spotify app and the AppleMusic app on the iOS AppStore an expense Spotify doesn't not have.

    Fact: Spotify doesn't use Apples payment system and Apple imposes no fees for the distribution of it's app.

    People keep framing this argument as if Apple offers nothing to developers for the 15-30% cut they ask for and this is just not true. Apple, like any massively successful store offers developers huge value by exposing their products to millions of customers. For subscription services, they ask for NOTHING to make an app available to existing customers, but if someone finds Spotify because of their App being in the AppStore Apple wants a cut of that customer who may never have become a customer otherwise. If you believe this is a valuable thing you can understand why Apple doesn't want to allow developers to have a big link that says (pretend like you were already a subscriber so we can pay Apple nothing).


    I get that 15% for app distribution and subscription processing is steep in the thin margin music streaming business but there is probably about 6-8% overhead in that so not as bad as you might think.

    • Avatar

      Paul Thurrott

      We all have bias. My bias is towards objectivity. I have no problem pointing out when a company is doing the right thing. Or the wrong thing. Your facts are not facts and/or have literally nothing to do with the case.
    • Avatar

      wright_is

      And if Apple can prove that they have the same razor thin margins as everybody else, despite the 15% to 30% they charge, they have nothing to worry about...

      Likewise, if they reduce Spotify's payments to match how much they are charging Apple Music (or raise Apple Music's price to match Spotify's), that will make a level playing field.

      Also, Spotify does also have to pay Apple for a developer license every year. Maybe it would be fairer to raise the developer license to cover the costs of all those free apps, instead of penalising paid apps?

      There are a lot of valid questions and a lot of ways that Apple could make a fairer system for all. The question is, can they prove that what they are currently doing is fair and they are not extorting the competition out of the market?

      Also, Apple runs the only allowed App Store for i*OS, so they have a monopoly on all Apple iOS/iPadOS/Watch devices. Saying that is only 20% of worldwide sales of smartphones doesn't change the fact that it is still 100% of Apple smartphones. If they also had an App Store on Android, or the Google Play Store was allowed on i*OS, the situation would be very different.

      It is like saying Tesla doesn't have a monopoly on electric vehicles, because electric vehicles make up less than 5% of total vehicle sales.

      • Avatar

        wright_is

        I forgot, there is also the anti-steering provision.

        Whilst 3rd party subscriptions can be used, the app can't tell the user that they would get a better deal by ordering elsewhere - it also used to be written in that you couldn't undercut the App Store price - i.e. you couldn't charge "30%" (or probably around 25% in real terms) on the App Store to cover the extra transaction fees; you either had to accept a loss on each iOS subscription or fleece the non-Apple users an extra 30% to match the price on the App Store.

        Allowing that information in the app would allow the users the opportunity to either pay the "Apple tax", as it were, for the simplicity of the transaction, or to use the external payment system and get a discount.

        Additionally, because the payment in the App Store goes through Apple, the developer never finds out who their customers are, so direct customers (on the dev's site) can benefit from using the service on the web or through iOS, Android, Windows or macOS apps, users who bought through the App Store only have access to the service through the iOS app, because the dev has no way of identifying the user, when they try and access their service directly or through another application.

  7. Avatar

    Jorge Garcia

    I hope this eventually leads to tearing down some of Apple's unfair walls. Not allowing users to use THEIR OWN purchased computers as they see fit by blocking the sideloading of software is criminal in my opinion. The counter argument is always, well if you care so much about going around the store you can always switch to Android. Except that Apple has gone out of its way to make switching platforms very painful, at least to Americans...and the younger you are, the more socially painful and unrealistic that option is. You stand a very high likelihood of being socially ostracized or at least "left out" of things if you are a teenager or kid that does not have FaceTime and Imessage. As a small businessman, I am currently being forced to buy an iPad so that I can communicate with customers who I do not want to upset by asking them to install Duo or Telegram just for me.

    • Avatar

      ivarh

      Is it you who want them as customers or they that want you as a contractor? If you want to appease them why should you not have to adapt to their needs rather than them having to change to communicate with you?
      • Avatar

        Jorge Garcia

        The state of affairs, whether I or anyone else like it or not, is that the default platform in my city (Los Angeles) is iOS. At least the platform of "winners". My clients are well heeled and very few of them would be caught dead using Android devices. Me asking them to install Duo or Telegram because I don't use iOS (voluntarily) would make me look "low class" and bottom tier to some of them (the ignorant ones). Since I don't know which ones would opine that way and since I do want their business even more than I detest Apple, I will be buying a lousy iPad very shortly. I just think it's a sad state of affairs that Apple has created (was allowed to create) this situation, very intentionally. I've had to do this before, mind you, back when the iPod touch was the only reasonable way to do a quality video chat, I purchased one for that specific need, and gladly donated it the minute Android reached parity.
    • Avatar

      siverwav

      I made the move over to ipad & iPhone a few years ago and its working out pretty well. The privacy and Safety provided are top draw and Apple are not going to get bored or lose focus.

      There are limitations and its expensive but the ipad is a fantastic device. The iPhone has caught up and has a good camera. A foldable iPhone would be interesting, but a bigger iPad Pro would be an insta buy.

  8. Avatar

    Oreo

    This seems like a squandered opportunity. The narrow focus on music services means that we cannot really derive much from it in the grand scheme of things. Apple’s platform (and others, most notably Facebook) should be regulated and the narrow focus prevents the development of principles that should apply tech companies more broadly. Here are some ideas: (1) App stores must respect the privacy of its users. Users have the right to know exactly how their information is being used. Cross-premises tracking is strictly forbidden. (2) Enforcement of rules against fraud (for both, users and developers). Perhaps the owner of the platform should be (partially) liable if it is found that it did not remove the app despite ample time to? (3) Apps (of all kinds) should be able to use their own payment services. (4) Fees for developers must be reasonable.
  9. Avatar

    siverwav

    As a iPhone iPad user this is great news, the limitations on Amazon kindle payments are the most annoying thing Apple do. Being marked as a dominant monopoly imposes new duties on apple.

    The payment system monopoly will go, thats the big one. The gag rule will go. Adding extra stores won’t change much as no one will use them, and devs most won’t care one they can use there own payment system. 90% of the money is from games so they may be the only ones interested in their own store. This will take a couple of years to sort out unless Apple come to an agreement with the EU.


    This is good for Apple, good for Apple consumers & devs.

  10. Avatar

    dftf

    A little disappointing that the focus seems to solely be on music-streaming apps. I'd expect it would have been broader?


    If I had to guess, I'd expect two changes to be offered by Apple: (1) we'll lower our 30% cut (for year-one of subscriptions, and for all "one-off" purchases) to 15%. And (2) we'll allow apps to publicly-mention other ways of paying, but still require an external method for doing so. After tapping "Other ways to pay..." the app will warn that only by using Apple IAP can you get refunds and other billing-issues resolved by Apple: for all other methods, it's between the app's own team, and the payment-provider.


    Those two things, of-course, wouldn't address some of the other complaints: (1) that Apple don't charge themselves a fee for their own, competing services; (2) that Apple's own apps come pre-installed on their devices, or are advertised in various parts of the OS, such as in the Settings menus; and (3) that Apple will know about some APIs before they are made-public, giving them a head-start when creating new peripherals that will pair to their devices.

    • Avatar

      nbplopes

      In reply to dftf:


      “A little disappointing that the focus seems to solely be on music-streaming apps. I'd expect it would have been broader?”


      Me too. It does not make much sense to argue for app or digital service category as the same rules are applied to all categories, multiple industries. What about video streaming, ebooks, pre recorded remote classes, email services, VOIP systems, yoga lessons so on and so forth. Just yesterday I wanted to subscribe to LinkedIn Premium in app and had and was sending to me IAP. Tried to do it through the iOS Safari browser, same thing. Had to go to my Mac, use Safari to go to the LinkedIn Website, and from there use Pay Pal to pay for the subscription. All just to avoid IAP, no family share either way.


      I expect that the EU is using music streaming just as an example.


      PS: The issue is not lowering the 30% markup but making IAP an option as well as allowing developers closing the sale in their App as they see fit. The markup will eventually lower in consequence, or at least Apple will be thinking in a plan based digital service, where each offer different features. As it is is a Siphone.

      • Avatar

        dftf

        In reply to nbplopes:

        "I expect that the EU is using music streaming just as an example"


        I'd guess it's probably because Spotify was likely the original bringer of the complaint. Though if people want this issue broadened-out to other devices, like video-game-consoles, it will need to less-specific, as I can't imagine VGCs are a main platform where music-sub apps are used.


        (Though, there is the obvious difference that most video-game consoles are sold at-a-loss, especially in the first 2-3 years on the market, and make-up for that loss in the software-sales and subscriptions. Whereas I doubt any Apple device is sold at-a-loss...)

        • Avatar

          nbplopes

          In reply to dftf:



          Don’t think that games is the same. The App Store does distribute and guarantees the delivery of apps, and a game is a kind of app, so it not the same thing as Spotify.


          Now all other kinds of digital assets … yes.

      • Avatar

        lvthunder

        In reply to nbplopes:

        So Apple should update LinkedIn for free since you are taking away their way of paying for the AppStore?

    • Avatar

      lvthunder

      In reply to dftf:

      How do you know Apple doesn't charge itself the same fees? So with Spotify you give Apple a certain percentage and with Apple Music that percentage is 100%. Spotify has a hard time competing against Apple not because of the fee. Apple could give Apple Music out to every iOS user for free if they wanted to. Also since Apple is so much bigger it's cheaper for Apple to provide the service.

      • Avatar

        ivarh

        No, apple cannot give away music for free and have it cheaper due to their size. Both apple and spotify is reselling someone else's product and they have to pay the suppliers for each copy sold/streamed. This why spotify have a much better case in accusing apple for unfair practices. Apple does not allow vendors to use their own payment systems for physical goods. This is why amazon and ebay use their own payment systems on ios apps. Since spotify also is reselling products that just happen to be delivered in a digital format. The same should apply to companies that resell digital property in the same way it applied for companies selling services and physical goods.
      • Avatar

        pecosbob04

        In reply to lvthunder:
        "How do you know Apple doesn't charge itself the same fees? "

        From an accounting standpoint I would expect they do.

        • Avatar

          Paul Thurrott

          Of course you do. Apple subsidizes its services, including the App Store, with its crazy high hardware margins. Kind of how Microsoft subsidized IE with Windows back in the day. Remember what happened then?
          • Avatar

            Oreo

            Yes, customers in the EU got a dialog during installation asking them whether they wanted to download competing browsers. Also that was very much a lost opportunity by seeing just trees instead of the forest.
          • Avatar

            bkkcanuck

            Subsidize? Your Apple is different than mine, Apple does not subsidize anything (other than maybe Apple TV+ right now with the major productions budget - but that is a short term thing driven by need to get content rather than being anti-competitive [i.e. Netflix similarly losing money - may still be now for all I know]. If Apple was subsidizing their services, it would not be such a profit center that you are complaining about having too high of margins.

      • Avatar

        Paul Thurrott

        I'm sorry. I cannot allow you to come here and spreads lies and misinformation. And what you wrote is one or the other. Either way, it's all wrong. We're not doing this anymore.
  11. Avatar

    mikegalos

    The reason the EU is using Spotify as their target case is that Spotify Technology, S.A. is incorporated in Luxembourg which is an EU nation. It's similar to their complaint against Microsoft which used Opera, which is based in Norway, as the example of a damaged EU corporation.


    This does not mean that Spotify will be the only or even major basis for the antitrust case, just the one clearly inside their own jurisdiction.

  12. Avatar

    toukale

    As I've said before, I am reading the same comments and arguments about the same group of people who made similar accusations from a few years ago about Apple tax avoidance. Let me remind everyone the court system threw it all out and find in Apple's favour. I see us going through that same exercise and end up with the same result.

    • Avatar

      jgraebner

      In reply to toukale:

      Hmm, I'm puzzling to understand the parallels between the current case and the tax avoidance case. They appear to be completely different types of charges.


      While I don't think you can look at past charges/investigations to reach conclusions about new ones, I guess a good counterargument would be that they lost the ebooks case, which was the largest anti-trust action taken against the company in recent years.

      • Avatar

        toukale

        In reply to jgraebner:

        Huh, the ebook case is another puzzling one to me. There were some questionable decisions by the government IMO. The government effectively handed the entire category/industry to Amazon with that decision. From my point of view as a customer, everyone goofed up. There is effectively zero competition/alternative in the eBooks which is why Amazon can push everyone in that market/industry around.

        • Avatar

          Paul Thurrott

          Good Lord. The government didn't hand anything to any company. Apple colluded with the world's biggest book publishers to artificially raise the prices of eBooks on all platforms for all consumers. That is illegal. It has nothing to do with Amazon's share in the ebooks market. And by the way, ebooks prices never returned to their previous lower levels. So, yeah. F you, Apple.
          • Avatar

            bkkcanuck

            It was actually more nuanced than that, and caught Apple on a technical detail (and surprised many lawyers). Apple had multiple parts to the contract and many of those were not in themselves illegal... what the court found was that in combination they could have the effect of being problematic.

            • the most favoured nation clause was legal (i.e. that if the publisher offered a lower to a competitor they had to offer the same to Apple).
            • the model for Apple selling books as an Agency model was not illegal (agency is the book seller sets the price of the book and Apple sells it and deducts the commission).
            • the market as a whole was generally a wholesale market.

            Any one of those was not ruled to be a problem, but the net effect of all three of those together was deemed to be problematic.

          • Avatar

            locust_infested_orchard_inc.

            Paul's quote, "So, yeah. F you, Apple." Nice call Paul. 👍👌 That's precisely the sort of language befitting of this Orchard worth $2+ trillion. 🤗
        • Avatar

          jgraebner

          In reply to toukale:

          The ebook case was pretty cut and dried and an excellent illustration about how anti-trust and monopoly are two separate things. Apple coordinated with the major publishers to fix the price of ebooks. That's illegal and the fact that another company has a near monopoly is irrelevant.

          • Avatar

            toukale

            In reply to jgraebner:

            I guess its better that Amazon subsidized eBooks to nothing while forcing everyone out of the market is better than Apple telling publishers to price their books however they like provided they get their cut is considered price-fixing. BTW the government never was able to produced such a thing. From what I remember they government basically said Apple is responsible because they facilitated all of it.

  13. Avatar

    siverwav

    Yeah TC sees what is coming: “The App Store and other parts of Apple are not cast in concrete. And so we can move and are flexible with the times.”

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