July 17, 2020 at 5:00 am ET
At the end of this month, Apple Inc.’s Tim Cook and other technology CEOs will testify before the House Judiciary’s Subcommittee on Antitrust to address lawmakers’ fear that tech companies are suppressing competition. Undeniably, the very system and marketplace that many of us and our iPhones rely on will be questioned — the Apple App Store.
Yet the loudest critics of the App Store are multibillion-dollar competitors of Apple, like Spotify SA and Netflix Inc. Those companies, not us consumers, stand to benefit from antitrust attacks on Apple.
Imagine a mall where stores pay no construction, advertising and rental costs, and instead pay a small, fixed service fee on sales made in that mall. You make money, if you can, while paying a portion of your revenue to the mall that pays for everything else, meaning if your sales drop, so do almost all your costs. Sounds reasonable, right?
That is exactly how the App Store operates. Every app developer, large and small, pays $99 a year for access to the marketplace, allowing them to upload as many of their apps as they want. Apple pays for the servers, the internet, the infrastructure, the advertising and the content moderation while the developer pays only this small fee for access. Even better, apps that make money through the App Store share only a small portion of their revenue with Apple for the work it puts into maintaining and improving its widely used marketplace.
Perhaps predictably, multibillion-dollar businesses like Spotify and Netflix would rather access the App Store for free. These companies currently bypass Apple’s share of the pie by getting users to subscribe to them on an external website rather than through their apps. This is not particularly user-friendly, and it allows major developers to free-ride on Apple’s App Store, but Apple permits developers to choose this option nonetheless.
Yet despite paying next to nothing to benefit from Apple’s products, Spotify has continually complained that it is a victim, not a beneficiary, of Apple’s business model. Spotify argues that Apple is abusing its market power by daring to charge a small fee for a service that the streaming giant benefits from immensely.
By using Apple’s services, Spotify has become incredibly successful. It is the market leader in music streaming and is double the size of Spotify’s nearest competitor, Apple Music. In its complaints about Apple, Spotify refuses to acknowledge how beneficial Apple’s huge distribution network is. Spotify has yet to mention that it dodges paying any commission on sales Apple facilitates on Spotify’s — a competitor’s — behalf.
Spotify is not the only multibillion-dollar business asking the government to force Apple to forfeit its fee. Rakuten Inc., whose valuation exceeds $12 billion, also doesn’t want to pay. Rather than find a market-based solution, Rakuten filed an antitrust complaint about Apple’s service fee for Rakuten’s book subscription service.
This is an abuse of antitrust law, which is designed to protect consumers, not multibillion-dollar companies, and to ensure the marketplace’s benefits flow to consumers, not a corporate competitor’s coffers.
Fighting Apple by manipulating antitrust law could very well threaten an environment that promotes competition in the digital application space. Apple’s App Store lets apps compete head to head with minimal barriers to entry, meaning smaller businesses and startups, like SoundCloud and Pluto TV, can compete directly against large, established businesses. This ecosystem set up by Apple has benefited consumers and app developers alike.
The very ingenuity that brought about Spotify, Netflix and Rakuten could be punished thanks to complaints about service fees that these billion-dollar businesses already don’t pay. Who knows what digital innovation could be lost if Apple is forced to cave to the pressure of a more insulated app marketplace. Consumers will inevitably lose out.
By paying a small fee for Apple’s services and by competing in the marketplace on fair terms, these giant companies could help support a robust app ecosystem, rather than just mooching off it. And if these companies are going to focus on maximizing their own profits instead, these businesses can at least stop complaining about the App Store that helps them continue to make billions.
Carl Szabo is vice president and general counsel for NetChoice, a trade organization.
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