Spotify Prepares for In-App Sales Revolution Post EU Digital Rule Shift

For years, Apple's App Store restrictions prevented apps from selling digital services and things on their own terms. A new EU rule might change all of that, and Spotify is ready.

Spotify Intends To Implement In-App Purchases If Apple Allows

At first glance, Spotify's mockups of its ideal app don't look like much: a card with the cost of a membership, the list price of an audiobook, and a button for entering payment information.

Much to Spotify's dismay, none of that is available today. Because Apple charges a 30% fee for in-app sales of digital products and services, companies such as Spotify have decided it is simply not worthwhile to allow such transactions within their apps.

It has resulted in a negative user experience; how can we ever purchase these items? — and fewer sales for Spotify, which must rely on its customers to be motivated enough to join up for a membership or buy an audiobook elsewhere.

However, this could change soon, at least in Europe. In the coming months, we'll see the consequences of the Digital Markets Act, a 2022 EU law that cracks down on anticompetitive actions by internet behemoths it considers gatekeepers, including Apple.

The law prohibits gatekeeper services such as Apple's App Store from charging a fee for apps to promote their own products and subscriptions, as well as requiring apps to use a specific payment processor, which is at the heart of Spotify's rage with Apple and targets the heart of Apple's app business.

With the law about to be enforced, Spotify has revealed how it plans to alter its app in response. However, how Apple complies with the rules may have far-reaching repercussions for both companies, including how many of these software mockups become reality.

Spotify Anticipates Enhanced In-App Purchases Amid New App Store Regulations

Spotify, which has actively battled Apple's App Store practices in public and in court, is gearing up for the ideal scenario. The business hopes to offer full in-app payment capability, allowing customers to upgrade their subscriptions or purchase audiobooks with a single tap.

Parts of the new user experience will go live in Europe on March 7. However, how much of it becomes a reality is determined on Apple's compliance. It is unclear whether the law requires Apple to freely allow developers to provide their own in-app purchases. Apple has not yet announced how its policy will alter. However, in other places where regulators have mandated open exceptions on the App Store, Apple has found means to limit them as much as feasible.

If in-app transactions are freely permitted, the most obvious benefit would be to Spotify's primary business: premium subscriptions, which will be considerably easier for free users to upgrade. According to Gustav Gyllenhammar, Spotify's vice president of markets and subscriber growth, the new App Store restrictions might have a significant impact on the company's audiobook and podcasting verticals, which are now difficult for customers to purchase.

“We’ve seen that the à la carte audiobooks business has not taken off materially yet. And we think that this is a key reason for that, because it’s just impossible when you want to purchase the item where you consume it and where you discover it,” Gyllenhammar told The Verge. According to Gyllenhammar, when audiobooks are included with an app subscription, customers listen to them on Spotify. The issue is that the "friction of purchase" prevents users from purchasing individual books.

Podcasts, which Spotify has struggled to monetize beyond advertising, may also behave differently under more loosened standards. “The way that podcasting as we know it really started growing on iOS has always had these restrictions … You haven’t been able inside of the app to upsell to gated content, exclusive content, and enhanced content,” Gyllenhammar said.

He believes that having in-app payment choices will encourage developers to "evolve" beyond the usual ad-supported model.

The impact on podcasts and audiobooks for Spotify is not negligible. The capacity of these two verticals to prosper is critical to Spotify's long-term success. Spotify CEO Daniel Ek has justified the company's billion-dollar investment in the spoken word sector as a way to reduce its reliance on the music industry, which accounts for a significant portion of Spotify's earnings through license fees.

Europe is Spotify's largest market, accounting for 39 percent of its premium members, followed by 27 percent in North America, 21 percent in Latin America, and 12 percent worldwide. And the Digital Markets Act adds to what appears to be a global reckoning with big tech. For the first time, large-scale regulation has advantages.

Photo: Imtiyaz Ali/Unsplash