Spotify Takes Advantage of New EU Law, Plans In-App Sales on iPhone in Europe, Challenging Apple’s App Store Rules

Spotify announces intentions to update its iPhone app in Europe, enabling in-app subscriptions and audiobook purchases, following the implementation of the Digital Markets Act (DMA), which requires Apple to allow third-party developers to bill customers directly and distribute iPhone apps outside the App Store.

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In-App Sales in Europe:

Spotify’s Announcement: Spotify reveals plans to update its iPhone app in Europe, allowing users to make in-app purchases, including subscriptions and audiobooks.
Contravention of App Store Rules: In regions outside Europe, Apple prohibits companies like Spotify from directly billing users within the app, insisting on the use of Apple’s App Store billing service, which takes a commission of up to 30%.

Digital Markets Act (DMA):

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New EU Law: The DMA, effective in March, designates major tech platforms, including Apple, as “gatekeepers” and mandates them to open up their online services for fair competition, allowing smaller competitors access.
Impact on Apple: Apple is required to enable third-party developers to distribute iPhone apps outside the App Store and permit direct billing to comply with the DMA.

Spotify’s Interpretation and Utilization:

Staking a Claim: Spotify’s move to enable in-app purchases in Europe can be seen as an interpretation and initial implementation of the DMA, offering a glimpse of how companies might leverage the new regulation.
Lobbying Efforts: Spotify actively lobbied European Union antitrust regulators in favor of these regulatory changes.

Immediate Impact and Apple’s Response:

Potential Threat to Margins: While Spotify’s move may not immediately threaten Apple’s services business, it signifies ongoing challenges to Apple’s margins on software distribution from global regulators.
Apple’s App Store Sales: Apple’s App Store generated $85 billion in sales in the 2023 fiscal year, with Europe accounting for around 7% of App Store spending.
Apple’s Competitive Position: Apple believes its App Store can compete through security, convenience, and customer preferences, despite regulatory pressures.

Spotify’s Prior Actions and Marginal Impact:
Billing Strategy: Spotify had already shifted away from using Apple’s billing for subscriptions years ago, with less than 1% of users paying Apple directly.
Expected Benefits: Changes from the DMA could help Spotify expand margins and simplify the subscriber onboarding process.

Spotify’s strategic move to embrace the new opportunities presented by the Digital Markets Act in Europe marks a notable challenge to Apple’s App Store rules. As the first major app to signal its intent to leverage the DMA, Spotify’s actions underscore the evolving dynamics between tech giants and regulators, with potential implications for Apple’s services business and the broader app distribution landscape.