Daniel Ek, CEO of Swedish music streaming service Spotify, gestures as he makes a speech at a press conference in Tokyo on September 29, 2016.
Toru Yamanaka | AFP | Getty Images
Spotify said Wednesday it will update its iPhone app in Europe to allow users to buy in-app subscriptions and audiobooks.
In most regions, Apple’s App Store rules prohibit companies such as Spotify from billing users directly within the app. Apple says app makers should instead use Apple’s App Store billing service, which takes a cut of up to 30%.
But a new law in Europe, called the Digital Markets Act, goes into effect in March, and will require companies it calls “gatekeepers,” such as Apple, to open up their online services to allow smaller competitors access. In Apple’s case, it requires the company to allow third-party developers to distribute iPhone apps outside the App Store, as well as bill their customers directly.
Apple hasn’t yet revealed how it will change its software and policies to comply with the DMA, although it said it would do so in SEC filings. In 2021, Apple CEO Tim Cook criticized the law while it was being debated, saying that it would “not be in the best interest of users.”
The changes Spotify announced Wednesday can be seen as a stake in the ground showing how it interprets the DMA before Apple reveals its implementation. Spotify was heavily involved in lobbying European Union antitrust regulators in favor of this outcome. It is the first major example of how a popular app plans to take advantage of the DMA.
“For years, even in our own app, Apple had these rules where we couldn’t tell you about offers, how
much something costs, or even where or how to buy it. We know, pretty nuts,” Spotify wrote in a blog post. “The DMA means that we’ll finally be able to share details about deals, promotions, and better-value payment options in the EU.”
Spotify said it will use the new regulation to allow users to subscribe to Spotify Premium, allow users to buy audiobooks, and run promotional campaigns, all within the app. The company will also allow iPhone users to directly download other Spotify apps from its website, such as Spotify for Artists, it said.
The move is unlikely to immediately threaten Apple’s services business, which includes the fees from the App Store and totaled $85 billion in sales in the 2023 fiscal year. Europe is a relatively small market, and Apple believes that its App Store can compete through security and convenience. But it is a sign that Apple’s margins on software distribution continue to be under fire from regulators around the world.
“However, EU is just ~7% of App Store spend, and our survey work shows Apple remains well-positioned to compete, with consumers overwhelmingly preferring App Store’s unmatched privacy, ease of use, and seamless OS integration,” Morgan Stanley analyst Erik Woodring wrote in a note in December.
Spotify had already shifted away from using Apple’s billing for subscriptions years ago, with less than 1% of users paying Apple instead of subscribing directly. But changes from the DMA in Europe could help it expand margins and sign up new subscribers more easily.