Music streaming giant Spotify announced on Wednesday its intention to update its iPhone app in Europe, allowing users to make in-app purchases for subscriptions and audiobooks. This move comes in direct response to a new European law known as the Digital Markets Act (DMA), set to take effect in March.
Under Apple’s typical App Store rules, companies like Spotify are restricted from directly billing users within the app, with Apple’s preferred method being the use of its App Store billing service, which incurs a commission of up to 30%. However, the DMA mandates that “gatekeepers,” including Apple, open up their online services to enable smaller competitors’ access. For Apple, this means permitting third-party developers to distribute iPhone apps outside the App Store and facilitating direct billing for their customers.
While Apple has not disclosed its exact strategy to comply with the DMA, it pledged to make necessary changes in SEC filings. Apple CEO Tim Cook previously criticized the law during its debate in 2021, expressing concerns about its impact on users’ best interests.
Spotify’s recent announcement signifies a proactive stance, providing a glimpse into how the company interprets and intends to leverage the DMA before Apple discloses its implementation plans. Spotify actively lobbied European Union antitrust regulators to support the DMA, making it a prominent example of an app embracing the new regulations.
In a blog post, Spotify emphasized the DMA’s significance, stating, “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. The DMA means that we’ll finally be able to share details about deals, promotions, and better-value payment options in the EU.”
Spotify plans to utilize the DMA to enable users to subscribe to Spotify Premium, purchase audiobooks, and conduct promotional campaigns directly within the app. Additionally, the company will allow iPhone users to download other Spotify apps, such as Spotify for Artists, directly from its website.
While the move is not an immediate threat to Apple’s services business, which generated $85 billion in sales in the 2023 fiscal year, it signifies ongoing challenges to Apple’s software distribution margins from global regulators. Despite Europe representing a relatively small market for Apple, the company remains confident in its App Store’s competitive edge in terms of security, convenience, and user preference.
Morgan Stanley analyst Erik Woodring highlighted in a note in December that the EU constitutes only about 7% of App Store spending, and Apple remains well-positioned to compete based on consumer preferences for the App Store’s privacy, ease of use, and seamless OS integration. Spotify had previously shifted away from using Apple’s billing for subscriptions, with less than 1% of users opting to pay Apple instead of subscribing directly. However, changes prompted by the DMA in Europe could further boost Spotify’s margins and facilitate new subscriber sign-ups.