European Commission accuses Apple of distorting competition in App Store

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The European Commission has officially accused Apple of anti-competitive behavior in the App Store. It specifically concerns music streaming services that are forced to use Apple’s in-app payment system.

The European Commission’s accusation revolves around two rules that Apple has implemented within the App Store. The first controversial rule is that streaming services are required to use Apple’s in-app payment system if developers want to sell something within an app. When the music streaming developers sell something via Apple’s payment system, they have to pay 30 percent of that turnover to Apple. Research by the Commission would show that the app makers are increasing their prices to consumers because of this extra commission.

The second controversial point revolves around provisions by which Apple prevents developers from informing customers that those customers can also purchase subscriptions and other things outside the app. In the example of a music streaming service, Apple app makers are not allowed to say that they can, for example, also take out a subscription via a website and thus circumvent Apple’s payment system.

Because of these provisions, customers would not know that they can take out cheaper subscriptions outside the app, where app makers don’t have to pay that 30 percent to Apple and therefore do not have to charge higher prices. The Commission says it is concerned that consumers will have to pay ‘significantly’ higher prices for a music streaming service, or that they will not be able to take out certain subscriptions directly in an app.

Commission Vice President Margrethe Vestager says app stores play a “central role” within the digital economy today. “According to our preliminary findings, Apple is a gatekeeper for iPhone and iPad users in the App Store. With Apple Music, Apple is also a competitor for music streaming services. By applying strict App Store rules that penalize competing music streaming services, Apple is depriving consumers of cheaper music streaming choices and distorts the company’s competition.”

In addition, Apple’s devices and software form a ‘closed ecosystem’, the Commission writes. Apple has a major influence on the user experience of users and its Apple customers are “very loyal” to the company. These users are not going to switch to other platforms quickly, the EC says. At the same time, iPhone and iPad users can download apps only from the App Store. In order to provide these customers with apps, app makers must therefore adhere to Apple’s “mandatory and non-negotiable” rules, the Commission says.

The Commission started the investigation after a complaint from Spotify in 2019. Spotify founder Daniel Ek then said, among other things, that he wanted the same treatment as, for example, Uber and Deliveroo, which do not have to pay thirty percent to Apple. Ek argues that current App Store rules “limit choice and kill innovation.” Apple again said Spotify “wanted the benefits of a free app, without being a free app.”

The European Commission’s accusation has no direct consequences yet, but it is the next step in an investigation into possible violations of European competition law. Apple now has a chance to respond to the allegation and can request an oral hearing with the Commission and national competition watchdogs.

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