Apple Vs Spotify, Time to Play Fair

In the end, Spotify filed anti-trust complaint to European Commission two months ago. Spotify founder and CEO, Daniel Ek, wrote on Spotify's newsroom about his frustrations towards Apple and his claim that by levelling the playing field, "Competition pushes us to evolve and improve both the customer and creator experience. It's not something we ever have---or will---shy away from."6.

In response to Spotify's so-called rant, Apple fired back. On Apple's newsroom, they claimed that Spotify wants to keep all the benefits of using App Store without contributing much to the marketplace itself. Apple also rebutted Spotify's statement on Apple Watch by saying that they have offered them help to start up its app on Apple Watch whatever they could.

They also stated that they processed Spotify's request to be in the watch the same way as other apps and in fact, Spotify is currently the number one  app in Watch Music Category7. In the end, Apple lambasted that Spotify wouldn't be the business that they are today without the App Store's mechanisms, implying that Spotify owes Apple for being so popular among smartphone users today.

Competition Indeed Drives Innovation

Although one cannot be sure whether Spotify is totally correct or vice versa, one thing for certain is that Apple Tax indeed hurts other music app developers as it creates unfair playing field by directly pushing down demand for other music streaming apps. This idea is supported by many other developers. 

However, regarding the CEO's claim that essentially means competition, or levelling the playing field, pushes innovation, must be proven with appropriate research and empirical results.

Spotify and Apple Music are neck-and-neck firms whereby both apps have the same technology needed to develop them respectively and the service offered. In this case, it is believed that competition indeed drives high innovation and based on experiment it is proven to be true, assuming the experiment is done under infinite horizon (Aghion, Bechtold, Cassar & Herz, 2018)8. 

This means that under no time constraint, companies, especially the neck-and-neck types will constantly improve to be one step ahead, resulting in, for the case of Spotify and Apple Music, much more innovative apps for the sole purpose of attracting potential users and therefore increase profit. 

For example, Microsoft's Windows allows users to download third-party web browsers such as Google Chrome and this allows them to innovate by improving its web browser; it rebranded its web browser from Internet Explorer to Microsoft Edge with various improvements and friendlier user interface to attract users back to using its own browser. Therefore, by allowing competition in the App Store, Apple Music will be able to innovate to create better app to attract more potential users.

However, one shall see the perspective of the other side. Apple implements its infamous tax not just on music streaming apps like Spotify, it also does on all third-party apps that utilise the functionality of App Store. 

Assuming that all the revenue goes to Apple, not only they use it to improve Apple Music, it is also used to maintain App Store itself. Without money, Apple will not be able to run many of its apps and App Store which will eventually disallow Spotify to promote its app to Apple users and it will ironically hurt Spotify's revenue.