Spotify wants to get into audiobooks but says Apple is in the way

Daniel Ek, the CEO of Spotify, wants his company to be the premier outlet in the world of audio. But when he pushed the streaming-subscription service beyond music and podcasts into audiobooks, he ran into a familiar obstacle: Apple.

Over the past month, Apple, the App Store’s gatekeeper, has rejected Spotify’s app three times, saying that its new audiobooks offering broke Apple’s rules governing how developers can communicate with customers about online purchases.

The rejections are the latest skirmish in a long-running battle between Spotify and Apple. For nearly seven years, the companies have feuded over the rules Apple imposes on apps and its practice of collecting a 30 per cent fee on the services and products that apps sell.

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Apple’s role as a make-or-break arbiter for apps has long frustrated app developers, particularly companies like Spotify that compete against services such as Apple Music.

Spotify views the conflict over audiobooks as another example of how Apple impedes competition and hampers rivals. Since making an antitrust complaint against Apple in Europe in 2019, Spotify has urged regulators and lawmakers to give app developers the freedom to tell customers about ways to purchase products and services outside of Apple’s payment system, which many apps are required to use.

The audiobook fracas offers a glimpse into the challenges developers face as they try to introduce new features. To abide by Apple’s rules, Spotify included its legal team in the product development process and tapped a former startup founder with a law degree, Nir Zicherman, to spearhead the effort.

Apple initially approved the new feature in Spotify’s existing app before later reversing course, sending Spotify into what it considered to be a Kafkaesque world where Apple simultaneously told the audio company that it could send customers emails about online purchases but couldn’t provide a button inside its app to request those emails. After a series of rejections, Spotify said that Apple on Tuesday approved a version of its app with the audiobook experience.

An Apple spokesperson said that the company had no objections to Spotify adding audiobooks, but he added that Spotify couldn’t do so by circumventing rules against providing web addresses and language that encourages customers to make purchases outside its app.

“We provided them with clear guidance on how to resolve the issue, and approved their app after they made changes that brought it into compliance,” the spokesperson said.

Zicherman and three colleagues said in an interview with The New York Times that they worked hard to add audiobooks to their app according to the App Store’s guidelines.

“Those are effectively hurdles that we have to work around,” Zicherman said.

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The challenges with Apple, which also sells audiobooks, contrast with Spotify’s experience on Google Play, a store for apps on the company’s Android operating system. Google approved Spotify’s Android app, allowing listeners to click a button and receive an email about how to purchase audiobooks online.

Apple has made the App Store a centerpiece of its strategy to evolve from a business driven by device sales into one propelled by the sale of software and services. The store, which is estimated to generate about Rs 2400 crore in annual sales from the 30 per cent fees it collects, has little overhead and generates profits of nearly 80 per cent, according to testimony and documents discussed as part of an antitrust lawsuit brought by Epic Games.

Apple contends that the distribution it provides across billions of iPhones and iPads has helped Spotify and other apps succeed. It says routing app purchases through its payment system protects users from fraud and keeps the App Store safe for users. A spokesperson noted that British antitrust authorities decided not to investigate competition issues in the music-streaming business earlier this year.

Spotify on Tuesday reported a loss for the third quarter of about 194 million euros, or Rs19.33 crore, as advertising sales increased less than expected. The company said total revenue rose by 21 per cent to about 3.04 billion euros, or Rs 300 crore, buoyed by the addition of 7 million paid subscribers. It now has 195 million paid subscribers.

The company’s share price fell nearly 5 per cent in after-hours trading to $92.35.

Over the past few years, Spotify and other developers have brought complaints about Apple’s rules and fees to antitrust authorities and lawmakers in hopes that governments would intervene. European regulators are more than three years into an antitrust investigation, and Congress is still considering laws that could ban Apple from requiring apps to use its payment system.

“Almost four years. That’s how long it’s been since Spotify filed a complaint against Apple with the European Commission, and we are still waiting on a decision,” Ek said in a statement.

Last year, developers earned their biggest wins against Apple in a US court and in Japan. To settle separate cases, Apple agreed to relax its rules and permit developers to communicate with customers about making purchases outside its payment system.

Spotify viewed the new allowances as an opportunity to fulfill Ek’s audiobook ambitions. Rather than give Apple a 30 per cent share of audiobook sales, which would make the business too costly, it developed a plan to direct its customers to buy the titles online and then listen to them in the app.

The company tapped Zicherman to lead the effort. Zicherman joined Spotify in 2019 through the acquisition of a podcasting company he co-founded called Anchor. He thought the audiobook format — which increased sales last year by 25 per cent to Rs 160 crore, according to Publishers Weekly — was poised for “massive growth.”

Zicherman said he and his team worked with Apple’s rules in mind. Two lawyers were in the room throughout the development process to help them stay within Apple’s boundaries.

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They developed a nine-step process for buying an audiobook. When customers clicked on audiobooks, they would land on a screen with a lock icon over the audio play button. Pressing the play button led customers to a page where they could request an email to learn more about buying a book. The subsequent email included the book price and a link to purchase it.

Zicherman said that the experience resulted in more steps than his development team wanted but that the design abided by Apple’s rules. It didn’t include any information about prices, and it didn’t link users out to a website to complete its purchase.

In mid-September, Apple approved the audiobook update, Spotify said. Spotify launched the feature days later, advertising the 300,000 titles it was making available.

Mark Mahaney, a Wall Street analyst who tracks Spotify for the investment bank Evercore ISI, tested the new audiobook service. He found it to be cumbersome, requiring him to enter his payment information even though Spotify already had it. He complained to Paul Vogel, Spotify’s chief financial officer, in an email.

“Why is it so bad?” Mahaney wrote. “And can you fix it?”

When Spotify later submitted an app update with features unrelated to audiobooks, Apple rejected it. App Store reviewers told Spotify that the audiobooks offering, which had previously been approved, violated rules requiring apps to use Apple’s payment system to unlock new features, according to Spotify.

Zicherman’s team changed the email customers would receive, stripping out the purchase button they had previously included. They replaced it with an email that gave customers a link to browse Spotify’s audiobook titles.

Apple rejected Spotify’s change days later, saying that offering customers a button to receive an email about other purchase options broke App Store rules. An Apple spokesperson said that Spotify also had a discrepancy in an external link in its app, which sent people to a different web address than one that Apple had approved. Spotify said the link was unrelated to audiobooks and that it has resolved that issue.

Zicherman said his team consulted with Spotify’s legal staff before deciding to strip out the email phase of the audiobook process. In its place, they told listeners to go to Spotify’s website to buy a book.

“What we have now is effectively a dead end,” Zicherman said.

On Monday, Spotify said that Apple had rejected Zicherman’s latest redesign. He and a team of product designers, engineers and attorneys worked until early Tuesday morning on four other options. They stripped away Spotify’s website and directions for more information about audiobooks, putting the onus on customers to go online and figure out how to complete a purchase. The changes won Apple’s approval, Spotify said.

“You can’t buy audiobooks in the app,” the landing page now says. “We know, it’s not ideal.”