Apple is going to change its in-app purchase policy for streaming music services, either voluntarily or by force. That's my prediction, and when it happens, it will be a good change for the company. Here's why.
Let's start with the premise. Apple believes it's entitled to a cut of everything purchased through apps sold on the App Store. In the parlance of A Game of Thrones: Apple's house, Apple's rules.
This rule works well for in-app purchases for things like virtual in-app goods, game levels, and upgrades. It falls flat, however, when it comes to retailers selling physical goods or any kind of third party content where margins are well below the 30 percent Apple wants to take off the top.
Where the wicket starts getting sticky are apps that let you access outside content. Like music streaming services. Where it becomes a full-blown problem is when Apple itself competes with those companies, turning that 30 percent into a significant and unfair advantage.
Spotify, Pandora and others must either eat 30 percent that doesn't exist or raise their prices to cover it. Apple doesn't. That means that iOS customers looking at Spotify will see a $12.99 price for a $9.99 service, whereas Apple Music is priced at $9.99.
Spotify charges $9.99 on its website, but Apple's policies also keep developers from steering customers to places to buy outside the app. This is done, in part, to protect Apple's customers. This restriction is part and parcel to purchases in iOS apps being safe.
All these things combined, however, are inherently unfair. Apple doesn't have a monopoly on smartphones or apps, so unfair doesn't necessarily equate to illegal, but The Verge reported Thursday the FTC is stepping up its investigation of Apple's policies in this area. My professional guesstimate is that this investigation will eventually result in Apple changing its policies.
The Rule of Reason
Here's the thing: Apple should change this policy not because it's unfair but rather because it's bad business. I've argued in the past that Apple stands to gain more from having iPhone and iPad be the ultimate destination for all things. Apple's devices should be the best place to shop for books on Amazon, search on Google, and stream music on Spotify.
Using Amazon as an example, Apple chased the retail giant off the App Store by demanding 30 percent of book sales. Even if Amazon wasn't committed to making no profits, there was never an additional 30 percent for Apple to take from physical book and Kindle ebook sales.
Amazon compensated with a Web app for Kindle and iOS users can always shop on Amazon through Safari, but it shouldn't have had to. Shopping on Amazon should be be a destination experience, especially on iPad, not something users have to go out of their way to do. Apple's efforts to control pricing and gets its fair share has resulted in iOS devices being a little less than they should be.
When it comes to the next major battlefield, streaming music services have largely just sucked it up and charged more for in-app purchases. They were all on the same playing field, after all, so it wasn't a competitive issue. Now, however, Apple Music is here, and its $9.99 in-app price gives the service a huge advantage.
That's why the FTC is investigating, and Apple has only itself to blame.
It doesn't have to be that way, and the solution is easy. Apple can carve out exceptions to its in-app purchase requirements just like Google does for its Google Play store. Streaming music services and some other content are exempt from paying Google its 30 percent cut. Ironically, Apple will be benefitting from that when it releases Apple Music for Android.
I doubt the FTC will need to sue over this issue whether or not it has legal standing to do so. The need for Apple to change this particular policy is obvious to any objective observer, and that surely includes the brilliant people in charge in Cupertino.
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