Pod Insights Big Technology Podcast Inside Spotify's War With Apple — With Spotify Chief Legal Officer Horacio Gutierrez About this episode Horacio Gutierrez is Spotify's head of global affairs and chief legal officer. He's a relentless critic of the way Apple treats smaller companies, testifying before the Senate in April that the company is abusing its power and harming competition. He joins Big Technology Podcast to discuss how Spotify has experienced Apple's behavior, why it's decided to speak up, and whether anything will come of this latest round of antitrust scrutiny for the tech giants.
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Transcript 10,032 words · 3 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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1:17 Alex Kantrowitz? Hello and welcome to the Big Technology Podcast, a show for cool, edited, nuanced conversations of the tech world and beyond. I'm sure if you've been following the big tech world, you've been hearing a lot about the antitrust movement towards the big tech companies, namely Apple, Amazon, Facebook, and Alphabet, Google, maybe there's a Meta in there. I don't know, it gets confusing. They keep on changing their names when they get in trouble. Anyway, it's really difficult oftentimes to get a handle on what's actually going on because there's so many bills moving, so many different complaints, so much legal language, and then nothing ever gets done.
1:53 Alex Kantrowitz? And I thought, you know what, it would be great to actually bring you inside the antitrust situation, especially looking at Apple's anti-competitive or alleged anti-competitive behavior, do it through the lens of a company that many of you know well, the lens of Spotify, and actually talk about what's happening on the ground, why it makes a difference to you, and where we might go from here. So my hope is at the end of this conversation, you'll have a real understanding of why this stuff is important and where it's going to go. Well, joining us to discuss it is Horacio Gutierrez. He's the Head of Global Affairs and Chief Legal Officer at Spotify. He and I have spoken about this in the past, and he's graciously decided to come on and speak with us here for about the next hour. Horacio, thank you so much for coming on the show.
2:39 Speaker 01 Thanks, Alex. My pleasure to be here.
2:41 Alex Kantrowitz? Great having you. I think the place that we need to start is with the Beats story. So, yeah, take it away. You had some interesting conversations with Apple either before as they were acquiring Beats, and then for Spotify, things kind of turned in a bad way after that. So why don't you fill us in on what happened?
3:02 Speaker 01 Yeah, and it actually, I found that it really helps to go back in history a little bit and explain to people how these things play out, because, I mean, we all look at Apple with a certain amount of admiration and, you know, the legacy of Steve Jobs and in the role that he played in the relaunching of the company. But it turns out that you can admire and like a company and love and use their products, and at the same time, very critical of certain behaviors that they've sort of exhibited over the years. And I think we were on the receiving end of some of that. You know, just to set the record straight
3:40 Speaker 01 in terms of history, when the App Store was created, and then it was open to third-party applications, this was the time when Google Android and and Apple were in a dogfight for who could have more more apps on the platform. This was the time of the there's an app for that campaign that you may remember on television. You know, at that time, Apple decided they needed to open up the app store to third-party apps because the competition for users was about who had the most apps on their platform.
4:18 Alex Kantrowitz? And when you say third-party apps, sorry to interrupt you. When you say third-party apps, that means apps that they didn't develop, apps from developers.
4:24 Speaker 01 Yeah, people don't realize that initially when the iPhone was launched and the iPhone was first launched, that Steve Jobs had made a decision that only Apple applications were going to be available through the App Store. And within a matter of months, it was really clear that from a competitive perspective that that position was untenable. And he needed to to bring third-party apps onto the iOS ecosystem because otherwise they wouldn't be able to compete with Android as well as other platforms, even though it became clear quite soon that it was a two-dog race with with iOS and Android. So eventually he did.
5:04 Speaker 01 And after much lobbying on the part of Apple, Spotify decided to put the Spotify app on the on the App Store. And at the time, there was no 30% fee that applied to subscriptions like in our case. So we put the app on the App Store and a few months later, Apple changed the rules and started insisting that we needed to pay 30% of all subscription revenue in perpetuity to Apple just for the privilege of being on the App Store. And obviously, we resisted that for many months.
5:44 Speaker 01 Eventually, we relented under pressure from Apple only to find out, literally a couple of months later, that unbeknownst to us, while we were negotiating with Apple, they were negotiating to acquire Beats Music.
6:00 Alex Kantrowitz? Rename it.
6:02 Speaker 01 Exactly, a competitor in the streaming space because they had realized that the download model embodied by iTunes was really not going to succeed in competition with music streaming. So they bought Beats Music, they changed the name to Apple Music, and then they launched it. And they were able to undercut us in price. They were able to launch at $9.99 per month, which was our premium subscription price before we implemented Apple's 30%. We had since then had to increase our price to $12.99. So we were in this situation, they were undercutting us in price as a result of this arbitrary 30% tax that they had imposed on us.
6:47 Alex Kantrowitz? So Apple came to Spotify and said, put the app on the iPhone. Spotify said, okay, that sounds like a good idea. Then, once it was on the iPhone, Apple said, you're gonna have to pay us 30% of the subscription fees. And as a result, Spotify raises the fees from $9.99 to $12.99 a month for subscribers. As that's happening, Apple acquires and releases its own service for streaming music and undercut Spotify on price. Do I have that right?
7:19 Speaker 01 Exactly. And that was the moment at which I joined Spotify. I was sort of faced with this situation as I was coming in. And it became pretty clear that from a competitive perspective, this was an existential issue for us. We couldn't allow them to arbitrarily impose this tax and then undercut us in price. At the same time, you know, they could get all the promotion they wanted on iOS, of course, it's their platform. They were not distributed through the App Store because they were pre-installed, so they didn't need to distribute through the App Store, but they got all the promotion in the App Store. We were told that even though we were the top grossing app at the time, we were going to get zero promotion on the App Store because we were competitors.
8:01 Speaker 01 So it was this environment in which it was clear the situation wasn't tenable. And so we looked at the rules that Apple had at the time is the App Developer Guidelines that they unilaterally dictate. And within what that rule allowed, we basically dropped the in-app payment feature that Apple had forced us to install so that we could stop paying the 30%. Therefore, people could not subscribe on the app, which meant people needed to go outside of the app and onto the internet and find Spotify and subscribe. That was not ideal, that created a lot of friction, but it was either that or have to
8:41 Speaker 01 pay the 30% tax and then be found to be in a competitive disadvantage. So, so we did that, and then soon after, we got contacted by the Apple team to tell us that, well, now that we didn't have their payment system and we were not paying the 30%, we couldn't tell our users how to go subscribe. We couldn't tell them about promotions and campaigns that we run multiple times a year that offers discount to users. Essentially, then, they then imposed a gag order on Spotify that made it virtually, you
9:21 Speaker 01 know, impossible for us to advertise to users, a way of moving from being just a free user to a subscriber. And, and Apple knew quite well that 90% of our revenue came from subscribers, that we lose money on the free service, so our ability to convert free users into subscribers was essential. And so they knew that in, in adding friction to the point at which users upgrade from free to premium was going to have significant business consequences for us. And over time, they kept tightening the rules and they were, they kept unilaterally changing the definition of the rules or the way that they interpreted them.
10:05 Speaker 01 And in fact, they've done, I think, four or five different revisions of the text since 2016, when the situation appeared. So at some point, we felt we really had no choice but to file a complaint against them, which we did in Brussels three years ago. And that sort of leads us to the situation we're in, except that earlier this year, the European Commission issued a statement of objections in which preliminarily agreed that Apple's conduct had been anti-competitive. Of course, this is one of many things that are happening around the world on this.
10:41 Alex Kantrowitz? I want to get to the legal ramifications and sort of the legislation as we move through the conversation, but I just want to zoom in on the problem here. Because it's my understanding that the music business, especially the one that the streaming business that Spotify is in, the margins are tiny, right? It's really tough to make money in this world. And so if you're in a world where you're licensing all this music and paying out to artists, and of course, artists have their own complaints. But if you're basically operating on a razor-thin margin, that $3 a month from a premium user, you know, matters a lot, you know, that they were trying to take. And, you know, if it's a comparable service,
11:25 Alex Kantrowitz? but it's, you know, $3 cheaper, how do you compete?
11:27 Speaker 01 Yeah, and let me just, you know, this can, this doesn't have to be very complicated from an economic perspective. Let me just give you some very simple numbers.
11:36 Alex Kantrowitz? Yeah.
11:37 Speaker 01 The cost of of music for us is about 70% of every subscription dollar we bring in, actually of all revenue that we bring in. So 70 cents, more than 70 cents of every dollar we bring in, right off the top of gross revenue that we bring in, we have to pay to rights holders, right?
11:57 Alex Kantrowitz? So 70% to them, 30% to Apple.
11:59 Speaker 01 Exactly. So there's there's 70 something percent that goes straight to to rights holders of music. And then Apple says, on top of that, give me 30%. That basically means we were by definition already in rent territory, even before paying our employee salaries and and leases and, you know, buying computers and marketing expenses and things like that. So if we had not increased prices, this was really designed to ensure that our company would never turn a profit and would never be a successful. A challenger to Apple's music business.
12:36 Alex Kantrowitz? There's a couple of arguments that go against the stuff that you're talking about, like whether you should actually, you know, really have a gripe here. The first is that, you know, for people to step in, how does it, how's this actually hurting consumers? They could just go and, or people, we should really use the word people, regular people, regular customers of Spotify, they could just go and, and make their payment for the premium service on the web. It's just the fact that you want to take advantage of Apple's payment system that could be an issue. And then, yeah, the other, the other part is like, some people might say, listen, this is just capitalism, you're operating on their device.
13:16 Alex Kantrowitz? You could go to, you know, you could operate on the web and not be an app and be just fine. So what do you say to those arguments?
13:25 Speaker 01 Well, listen, let me start with the second part, the notion that because it is their device, they get to do whatever they want it. That, that, that, that really is not the way it works. I mean, the fact that you have to fly United from New York to LA in order to conduct business in LA, doesn't really entitle United Airlines to 30% of whatever profits you can generate in, in, while you're doing business in LA. They're, they're a hardware vendor, they're a platform vendor, they derive benefits from the fact that all of these applications are on the App Store. That benefit is primarily the fact that they can continue to sell those devices in which they make a tremendous profit.
14:09 Speaker 01 They're one of the few companies that have managed to make healthy profits on the sale of, of hardware, in large part to their credit, because they have very attractive, very well elegantly designed devices. But they really don't need this, the profits of this tax that they impose on companies. The other part is they do it in a very discriminatory and unfair fashion. People don't know that only, only a small percentage of the applications on the App Store are subject to these rules. Facebook doesn't pay that, Uber doesn't pay that. Many of these apps that are part of the day-to-day life, lives of people don't pay that.
14:50 Speaker 01 Apple, in fact, have really targeted digital content subscription companies, which happen to be competitors of Apple. For the application of these economic and non-economic restrictions. And that is not coincidental. And the the fact that that they say that that is necessary for the ecosystem to continue to thrive is really contradicted by the fact that they have this very selective, very discriminatory way of of applying these rules. So the fact that they control the hardware platform and the ecosystem, Microsoft could have said the same thing. AT&T could have said the same thing. Standard Oil would have could have said the same thing.
15:33 Speaker 01 The fact that you own a monopoly in a particular area does not necessarily entitle you legally to impose arbitrary rules that end up tilting the playing field in a way that helps Apple's products to the detriment of competitors.
15:52 Alex Kantrowitz? And what about the web? What about the web?
15:55 Speaker 01 Well, it is it is, you know, that's what we did was actually take IAP and take our chances with our ability of users finding us on the web and being able to subscribe. And then Apple, since that point, has gone on this campaign to really limit our ability to even tell users about the existence of that of that option. And everybody understands that there's a tremendous amount of friction that exists if you can't offer the subscription mechanism on the app, but you force people to go off application and find the page and through and subscribe subscribe through that. So they they obviously understand the business really well and they understand the pain that they're causing.
16:38 Speaker 01 And, you know, we could have been much more successful in terms of subscriptions and and conversion of free users into paid subscribers, were it not for all these artificial barriers that they've created.
16:51 Alex Kantrowitz? Right, and that's your business. Like, this is a business question. But generally, antitrust law, at least in the United States, is all about protecting people. So so, yeah, so I would like you to get into this a little bit. So we can definitely.
17:04 Speaker 01 Let's talk about how what this means for users. I mean, we had a very clear example. We were forced to to increase.
17:13 Speaker 01 Consumer prices on our service because of Apple's arbitrary obligations. So for users that were in the situation where they had subscribed to Spotify during that period, they were paying three dollars more per month. That's almost forty dollars a year more than what they had been paying before that. And that is not the result of competitive forces, that is not the result of of business decisions or market decisions. That was just the result of a unilateral imposition of this Apple tax on the part of Apple.
17:54 Speaker 01 But there's an even more pernicious harm to users in the long term, which is this is about users having choice, the choice between different music services. What keeps our industry competitive is the fact that there is healthy, vibrant competition in the marketplace. And the more a dominant player like Apple can use their dominance on the iOS ecosystem to make it harder for companies like ours to be successful economically in the long run, unless it is corrected, it ends up basically resulting in in in less choice for users.
18:36 Speaker 01 That basically means we go back to the world where in the iTunes download scenario, there was only one game in town, and it was Apple. And that wasn't good for consumers economically, that wasn't good for artists in general, when all of that power is concentrated on a single company that controls not only the hardware platform, but also the software platform and the music experience.
19:01 Alex Kantrowitz? I'm getting the sense that Spotify isn't alone in being on the receiving end of this sort of behavior from Apple, type of stuff that. Can really undercut your business's ability to perform, can undercut your ability to deliver services to your customers. And then, at the end of the day, you know, gives us less choice and, you know, raises prices for us, the people that are, you know, using these these services. How often do you hear, I mean, you're you're now like pretty front and center in terms of a number of companies who have started to speak out against Apple. I just spoke to another one who's, you know, doesn't want to talk about it anymore. But so how often do you hear from other companies that have are dealing with similar problems? And what do those looks like?
19:44 Alex Kantrowitz? And does that paint a different picture about Apple than the one that we tend to see? That's, you know, extremely glossy and, you know, well polished and that people love.
19:54 Speaker 01 Yeah, well, when we when we filed our complaint three years ago, it was a very, very lonely spot that we were in. We were the first company that really had the courage to come out and be critical of Apple. And really be exposed to the potential repercussions of that. Because, you know, we were threatened by Apple, that they were going to kick us out of the App Store. They were going to take all these steps that really would have had very disruptive impact on our business. But what's happened since then is since the moment we went public on that. There's been a whole series of companies from a variety of businesses that have come to us. And have told us that they had the same concerns, but they really were afraid of raising their necks out for fear of the the payback on the part of Apple.
20:39 Speaker 01 But but now there's clearly a snowball effect. Now, you know, we created this coalition, the Coalition for App Fairness. You know, there are dozens of members in that coalition from many parts of the world and in many industry, particularly in the in the digital content space, but not only audio, not only music, but in a variety of businesses like that. And then you're seeing local companies everywhere speak up, talk to their regulators, talk to their legislators in their country. And that explains why, at this point. You see this being front and center in the public policy and regulatory discussions,
21:20 Speaker 01 not only in Congress in the US, but you see the DOJ and the FTC getting involved in this. You see state attorneys general filing litigation on this case. In Europe, you have active investigations in multiple capitals across Europe. You have legislative initiatives at the European Parliament level. You saw South Korea pass the first legislation dealing with app stores only a couple of months ago. But you also see regulators looking into this issue in Brazil, in Russia, in India, in Japan, and in many other countries. So there's a clear sense of momentum that these issues are now front and center and that a solution is urgent.
22:05 Speaker 01 And both in the regulatory enforcement side as well as the legislative side, while we're not there yet, we haven't crossed the finish line, we think there's clear momentum to do something to really bring the level playing field back to the space.
22:23 Alex Kantrowitz? Aracio Gutierrez is here with us on Big Technology Podcast. He's the head of global affairs and the chief legal officer for Spotify. He mentioned that Apple has taken some retaliation measures after Spotify spoke up. I want to talk about that after the break and then also talk about the feasibility and advisability of some of the legislation that has been advanced. So we will be right back here on Big Technology Podcast for more of our discussion with Aracio. Stand by. This episode is brought to you by AppPoint. Everyone's racing to roll out AI right now. Co-pilots, chatbots, agents doing real work. But here's the part nobody loves talking about.
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23:54 Alex Kantrowitz? And we're back here on the Big Technology Podcast with Horacio Gutierrez. He is the Chief Legal Officer and Head of Global Affairs for Spotify. You know, walking us through the big momentum right now. When it comes to taking on some of these big tech companies. There's definitely questions, you know, whether it's advisable, whether there are going to be second order effects. To putting in some of the laws that are being discussed now, let's get into that in this section. But first, I really want to talk about what happens when a company like yours speaks up against Apple. So you file this complaint and then I'm sure Apple just comes to you and says, all right, that's cool. No problem. Just keep operating as you were. No repercussions at all. Okay, what really happened?
24:41 Speaker 01 Well, it really didn't play out that way. I mean, over the last few years, we've been on the receiving end of a number of retaliatory practices on the part of Apple. Apple has basically threatened us to take us out of the App Store, which obviously would have significant business repercussions.
25:00 Alex Kantrowitz? Yeah, before we move on on that, I want to talk about this. So they, did they explicitly say they're going to take you out of the App Store for speaking up?
25:09 Speaker 01 They, they say in writing that the steps that we've taken in terms of dropping the IAP and the steps that we took.
25:20 Alex Kantrowitz? That's in-app payments.
25:20 Speaker 01 Completely in compliance with the, with the rules that they had enacted at the time. That those put us in violation of their rules and that unless we corrected it. That we were going to be kicked out of the App Store.
25:35 Alex Kantrowitz? And that came, that came after you filed your complaint?
25:38 Speaker 01 No, that, that came after we made the decision that we could no longer offer. Apple's proprietary payment system and continue to pay the 30%. When we made the decision to drop. Their payment system from our application, we were on the receiving end of multiple threats of that kind. We were also told-
26:00 Alex Kantrowitz? Yeah, but I want to hear about like what they did after you spoke up in particular, or whether the retaliation you're describing is just simply stuff that happened after you made your move to drop their payment system. Like, what, did anything happen once you decided to file your complaint and speak up from Apple that you can say with a certain degree of confidence came as a direct result of speaking up?
26:25 Speaker 01 Well, we've been the subject of delays, sometimes even month-long delays in app updates. You know, a process that normally would take just a matter of days for any company sometimes might take months for us to approve. Some of our app updates, including the ones that might include bug fixes or even security vulnerability patches to our software, were held up for months on end.
26:52 Alex Kantrowitz? Was there a notable shift after you spoke up with that, or is that sort of standard operating procedure with Apple?
26:59 Speaker 01 Well, I think for, in our case, unfortunately, we've seen that on and off throughout, but we certainly see more of that. It's become routine since we filed a complaint with Apple. Clearly, they have a team of people that are charged with looking at Spotify specifically and send those letters and those threats on a regular basis.
27:22 Alex Kantrowitz? Okay. Anything else?
27:24 Speaker 01 No, I mean, the combination of these things is obviously incredibly disruptive. And the threat that we can't communicate with our users, that we can't do the things that the rules clearly allowed us to do. And then, you know, first they expand their interpretation regardless of what the text says, and then later, they just change the rules unilaterally and draft language around the interpretation that they applied. So obviously, listen, it's not an ideal situation. We think we have a good product. Our users like it and they they find a way to subscribe
28:05 Speaker 01 to us. But were it not for the friction and all the obstacles that Apple has erected on the way of a user who wants to subscribe to Spotify, we would have done a lot better. And unfortunately, we had to spend all this time, including executive time, trying to navigate the situation instead of spending the time on the things that would actually result in, you know, more user satisfaction.
28:30 Alex Kantrowitz? Yeah, better product. Have you, has Spotify ever like quantified like what this might be costing the company? Can you share that?
28:37 Speaker 01 Look, it doesn't take a PhD in economics to understand that adding this friction and forcing people to click through several pages means there's a drop off in subscription. You know, I'm not going to talk about what those numbers are, but we have economic analysis that is part of the file in our complaint in the EU that regulators have access to.
28:58 Alex Kantrowitz? Okay. And I was actually like kind of surprised that that I think that you really got on my radar when you went to the Senate and this April. And I was surprised by the strength at which you had decided to criticize Apple. Because while it sounds like there hasn't been any direct retaliation based off of the way that Spotify has been speaking up against the company. I mean, this company is the lifeblood for yours, right? Without access and, you know, to Apple's App Store, it's pretty much curtains for Spotify. So so how does a company like yours make a decision to essentially go to war with Apple over something like this?
29:42 Speaker 01 Listen, this is this is not just your run of the mill commercial dispute between two companies. Number one, there's way more than two companies involved in this. And what's really at stake is much bigger than Spotify and much bigger than just the 30%. What's really at stake here is the future of the mobile app ecosystem. And whether the companies that put themselves in a gatekeeper position like Apple, that they get to control this global platform and dictate the terms in which anyone can access it, are really going to own that space and dictate those rules in a way that are going to benefit them and hurt everybody else.
30:27 Speaker 01 Are they going to become basically a toll booth for the entire mobile app ecosystem? Are they able to take a third of the gross revenue of every app around the world? And importantly, will they get to claim Spotify users as Apple's users? And control the data of those users and own that relationship and disintermediate every app on the world in a way that will essentially change the ecosystem forever? That is what we're talking about here, is that is a mobile app ecosystem governed by two or three companies around the world that not only get to dictate the economic terms,
31:10 Speaker 01 but the nature of the relationship and the way the entire ecosystem is shaped?
31:18 Alex Kantrowitz? Do they have access to Spotify user data as much as you have?
31:21 Speaker 01 Well, in fact, by imposing the use of their of their payment system, they get access to data that the app developer doesn't get access to. But for example, if if someone is a subscriber and their credit card fails, we don't know that, Apple knows that. Typically, when we have a direct relationship, we know when that has happened and then we We immediately reach out to the user and trying to resolve it to make sure that there isn't churn on the platform, that is, that we don't lose the customer. We don't. So a lot of the data that happens on the platform is data that under their model,
32:02 Speaker 01 they get to collect and they get to control as opposed to the Spotify users. So Spotify users are Apple's users and you know, match.com's users are Apple users. And the ownership of that relationship has really existential implications for app developers like ours. This was never like this. Before Apple created this fiction of the fact that, you know, everything needed to go through the App Store and the relationship was owned by them. It was very clear, even in the case of the Windows antitrust debate, there was never an attempt by Microsoft to claim that they own the customer relationship.
32:45 Speaker 01 There was no, imagine if Microsoft had attempted to impose a 30% tax on any app developer in order for it to be able to run on the Windows ecosystem. Imagine the implications of, even in the heyday of the Windows antitrust cases, for something like this to have been attempted. And yet that is the world that we live in today.
33:10 Alex Kantrowitz? Yeah, I think that the point that you're bringing up about competition in particular is really interesting. You know, I read your Twitter, Orazio, and I did see that you had retweeted this account, Internal Tech Emails. And it spotlights, and this is obviously something that's been going on for a long time with Apple, and it spotlights these emails between Phil Schiller, who ran marketing for Apple, and Steve Jobs. And there was an ad that, I'm looking at them now, there was an ad that Amazon ran for the Kindle. And it was like, well, if you switch platforms, your books are going to still be on Android, even if you go there.
33:49 Alex Kantrowitz? And so, let's see. So Phil Schiller is like, not, not fun to watch. And Steve Jobs says, "The first step must, might be to say, they must use our payment system for everything, including books." Thoughts? And then Schiller responds, "I do think that we should tell Amazon that based on their own TV ads, that it's a clear use, clear that their use of their app now violates our terms and guidelines. And that they need to use our in-app purchase system for digital book sales as well." So this idea that the company retaliates isn't made out of thin air. It's something that we're seeing Schiller and Jobs discuss among themselves. So how do you react to that?
34:26 Speaker 01 Well, that is a truly remarkable email. And to be able to see it in their own words is tremendous. That, that email exchange actually was cited by the Department of Justice in one of their filings in the eBooks case that involved both Amazon and, and Apple. And the DOJ's position at the time was that email clearly showed a, a competitive, anti-competitive intent on the part of Apple. But the creation of this rule that we're complaining around today was really born out of anti-competitive concerns on the part of, on the part of Apple. In that case was in the context of eBooks many years ago.
35:09 Speaker 01 But that continues to be the case and the way in which Apple uses this rule in the context, not only music streaming, but many other digital content apps.
35:19 Alex Kantrowitz? Right. Okay. Last, last question for you in this segment.
35:24 Alex Kantrowitz? Apple is going to make the argument that this payment system is secure and trustworthy and creates a better experience on, on the app, on the iPhone. And, and that's why they, they need to use it. And I don't know, I use Apple Pay. It's simple. You can trust it. And there are plenty of examples of other operating systems where stuff's gone wrong. So what do you have to say about that?
35:49 Speaker 01 Well, listen, I... People are entitled to an opinion as to what payments are secure, and it's sometimes it's an objective and sometimes it's a subjective finding. The reality is, if their payment system is so superior, why are they avoiding competition? They should let the market say that. They should... Right now, they've insulated themselves from competition from any other payment. But users should be able to determine whether they trust MasterCard, or Visa, or PayPal, or any of these other services that have been in the payment space and have had work on securing their systems for decades before Apple got into their business.
36:32 Speaker 01 So to me, this whole discussion about privacy and security and the App Store model is really a red herring. It is really just a way of Apple deflecting the real conversation. They're basically saying terrible things are going to happen unless we're allowed to charge 30% to our competitors and unless we can force the exclusive use of our payment system. My point is, if your payment system is so good and you think people should be happy paying a 30% fee for that, then you should let the market dictate. I'm not asking for them to reduce their rate. I'm asking them to allow for market competition so that users vote with their dollars and they pick the solution that makes the most sense from them from a security and privacy and an economic point of view.
37:16 Alex Kantrowitz? Yeah, I've always thought it makes a lot of sense to have Apple's system so you can do one of the Apple Pay or in-app payments available to people at a 30% premium, and then another system, you know, with all the warnings that Apple wants to put in, but you pay 30% less and you can use whatever payment system you want. That seems to make sense. To me, it might be a little less convenient and a little less, you know, trustworthy, but at the end of the day, if I'm an iPhone customer and I am, I want to be able to make that choice on my own.
37:44 Speaker 01 Listen, choice has tremendous value for users. It doesn't have to be less convenient. It can be done in a very streamlined and elegant way. That's the way many apps operate, including on the App Store, unless you're competing against Apple. They actually have the ability to do that. For many developers, it might make sense to just use Apple's payment system. For others, offering a choice or offering a different alternative may be the right thing to do. And the market should dictate those things, not Apple in a way that is really calculated to give them an unfair advantage over their competitors.
38:21 Alex Kantrowitz? Aracio Gutiérrez is here with us, Head of Global Affairs and Chief Legal Officer for Spotify. Let's take a quick break and then actually get into the laws. I promised it in this section, but we need to take a break. We'll be back, talk about the legal stuff and how this might actually be remedied in a way that doesn't break the economy. So stand by, we'll be back in just a minute.
38:40 Speaker 02 Now, more than ever, we need someone on our side. But Rob Whitman? Whitman's votes drove up costs, cut Medicaid, and risked 350,000 Virginians' health care to pay for tax breaks for himself and his donors. He's not on our side. Shannon Taylor will fight corruption, cut taxes, and bring down costs. This November, vote for Shannon Taylor. She's for us. Paid for by HMP, the HouseMajorityPac.com. Not authorized by any candidate or candidate's committee.
39:11 Alex Kantrowitz? And we're back here for one final section of the Big Technology Podcast. Aracio Gutiérrez from Spotify is here with us. In the first and the second segments, we were sort of hinting at what laws or how to stop Apple from putting this anti-competitive behavior into practice. Now let's actually get into this practical stuff, talk about what might happen. And then honestly, whether it's advisable to happen. Because there's a lot of laws and some bills that have been drafted that to me just make absolutely no sense. There's one going around the House right now that seems to have some support that would essentially cut off big tech's ability to make acquisitions. To me, that cuts off an exit route for startups and might end up leading to less investment,
39:56 Alex Kantrowitz? although it's kind of wild to imagine in our red hot investment moment that we're experiencing at the present time. But let's just go straight to the action and then we can talk about what the ramifications might be. So, Rocio, what would you like to see governments? I mean, you said you had brought a complaint to Brussels. There's some movement in the EU. You are here in the United States at the Senate, talking to Senator Amy Klobuchar and the rest of the folks there. So what would you like to see happen? Do you want to make it illegal for Apple to force people to go through this payment system? What do you hope?
40:33 Speaker 01 Yeah, I mean, there's some concrete, short-term things that I think are urgent. And then there's some longer-term things that I think just antitrust enforcement in general needs. I think concretely, the fact that these gatekeepers of online platforms get to force the tie of another one of their products, whether if you're running the App Store, then you can force people to use exclusively your proprietary operating system. And then other platforms may have, you know, other ways of self-preferencing. We just had a decision by the European Court of Justice, just in the last few days, on the Google Shopping self-preferencing decision that I think is going to set very important
41:18 Speaker 01 precedence on how these things are going to be looked at in the future. So I think the ability of these platforms to tie, either technologically or economically, these other proprietary services, I think, needs to be more tightly controlled. And in the case of Apple specifically, the requirement that developers use and only use Apple's own proprietary payment system is the one where, I go back to the point, you know, just allow for competition and let the market dictate that. And then they have an incentive to continue to improve their system, to do better so that they can stay ahead of the competition. But more broadly, I think the problem that we have today is that...
42:04 Speaker 01 Lawmakers and legislators, regulators around the world are grappling with this problem where the laws that govern business and antitrust in general were all created in the early to mid 20th century. And they were not created to really be effective in a world that moves at internet speed. And the problem that we have right now, just look at our own case, but even the decision that just came out of the Google Shopping case, it took over a decade for a decision to be made. We filed our complaint against Apple in Brussels three years ago. We don't even have a final decision from the European Commission today.
42:47 Speaker 01 So the concern that we have and that others have is that enforcement is not fast enough, is not effective enough to deal with the nature of the challenges of today. I joke that enforcement in the antitrust space today, when it comes to big tech, is a little bit of an archaeological dig. Is that an archaeologist just digs up the bones of a dinosaur and then ponders whether it was another dinosaur or a meteorite that killed the thing. But in reality, it's been dead for millions of years. And in our case, you know, three, five, 10 years that these cases may take is, at internet
43:28 Speaker 01 speed, the equivalent of a million years of evolution and planetary change. So we need new laws. We need laws that are adapted to deal with these issues. We need tools for enforcers that allow it to overcome the incredible deference that our courts, specifically in the US, have for business decisions like that. Because the harm that can come from this anti-competitive behavior on the part of this handful of Silicon Valley online gatekeepers is just...
44:11 Speaker 01 Too big and they you have just this handful of of tech companies in Silicon Valley who essentially have the power of life and death on the mobile app ecosystem anywhere around the world.
44:24 Alex Kantrowitz? Yeah, and I find it really interesting that you mentioned that the the laws that are being put into place right now aren't good enough because, you know, you had spent seventeen years as a lawyer for Microsoft and Microsoft famously got hit with some antitrust stuff and of course like eventually settled and some of the things that were ruled against it were rolled back. But everybody believes that being hit by the antitrust laws, even though they were ancient, did cause Microsoft to suffer and take a step back and open up the door for competition. So having worked there and seen that firsthand, how do you now believe that that the laws are insufficient?
45:01 Speaker 01 Well, you know, from beginning to end, the Microsoft case also took, you know, over a decade to be resolved, that it was ultimately resolved through a settlement or would have taken much longer than that. So, you know, regardless of which angle you look at it, it is not ideal in the technology sector that it takes so long for cases to be to be brought to to some finality when it comes to that. And that, you know, that was the case of the technology of the nineties, but now we are in 2021 and the the Internet has really changed everything. This is not client server issues, this is not personal computer operating systems.
45:45 Speaker 01 These are things that that operate in the cloud, that have a global impact as big as the Microsoft case was and as important as the Windows operating system platform was. I would submit that these companies have more power over more aspects of electronic commerce around the world than Microsoft ever had.
46:09 Alex Kantrowitz? I would agree with you. Is it interesting for you? Like, did you? Well, what's it like for you personally just to be on this side of the equation after spending so much time at Microsoft? Is it kind of like out of body experience? Or does it feel weird in any way?
46:25 Speaker 01 Well, let me just say that it's much nicer to be on this side than to be on the receiving end.
46:30 Alex Kantrowitz? But you make more money on the receiving end, so.
46:33 Speaker 01 But, yeah, that's true. That's true. I guess these are problems that you only get because you're a monopolist. And that's the, in the case of Apple, they're laughing all the way to the bank when it comes to these things. But like, eventually, eventually, I think good sense will prevail. I think they will fight until the last minute possible. I think there's too much money that is coming in every day through this business model. But I think there's good momentum today, and I think it will become clear at some point that there are writings on the wall. And hopefully, at that point, you will start seeing some real movement towards trying
47:16 Speaker 01 to find, you know, the right outcome when it comes to this. When that's going to happen? I don't know. I tell people who, every time Apple makes some tiny announcement about some, you know, the minimalist tweak they're doing to their policies, they say, oh, finally, you know, congratulations, it's over. And I keep telling people, it is not over by a long shot. There's still a lot that needs to happen. And until we have new legislation that not only prevent Apple from continuing to behave like this, but prevent the next people from actually wanting to copy this model and
47:56 Speaker 01 create similar harms, these are rules that are going to end up shaping the way competition in the online world is going to happen in the future. So I feel that this is important work. I feel motivated to continue this fight because I think this is going to have implications not only for Spotify and for Apple in the short term, but it is actually going to shape the rules of the road for online platforms in the future. And that may be the biggest contribution that this whole process will have.
48:31 Alex Kantrowitz? Any lessons learned from the Microsoft time?
48:34 Speaker 01 Yeah, I think, you know, I think it's important for companies to to be a little introspective, to be a little reflective. There was a point at Microsoft in which the company did that and recognized that it was time to make peace and it was time to try to solve these problems because it wasn't just a dispute with one company. They were at war with an entire industry. And, and I think if I were at Apple, this would be the time in which I would be reflecting.
49:10 Speaker 01 You know, do we think we can win a battle and lose the war? When it comes to the preference of developers and the reputational war that is going to have an impact on the perception that consumers have of the company. And, you know, I don't know if they're going to do that. They haven't shown any inclination to compromise in that way. In fact, they're fighting every inch of the way. But that might change when, you know, the writing's on the wall and they can see that it's inevitable that things are going to go in, in, in a way that's not the one they would prefer.
49:50 Alex Kantrowitz? Yeah, so we started the segment kind of touching on this, but is there, like, if you could write a law today that would solve some of these problems, what would it be?
49:59 Speaker 01 You know, you know, I think, you know, there's, there's a few principles that we put out as the Coalition for Fairness. And, and I think when you read through them, they're quite common, common sense based. I mean, the, the notion that that a platform should not interfere with communications between app developers and their users. That the platform shouldn't use the data of the app developer to then compete and undercut that developer. That they shouldn't be tying unrelated services or technologies and condition access to the platform to acceptance of those other, the use of those other products and things like that. Essentially to maintain the neutrality of the platform
50:44 Speaker 01 in a way where app developers that are not Apple will be treated on equal footing as Apple's old products. These are not draconian kinds of expectations. These are basically Coming out of a desire that platforms operate as platforms. And that Apple gets the benefit of owning the platform and continuing to thrive in the sale of their devices around the world. But without creating this pernicious effect on the competitive process that really favors their other products to the detriment of everybody else on the platform. These are, these are common sense provisions. And we don't think it's too much to ask.
51:28 Speaker 01 And we're going to continue to fight until we get to the point where we make those a reality.
51:33 Alex Kantrowitz? Yeah, so you think it would take new laws, not enforcement of the old ones? That, that are.
51:38 Speaker 01 We think it will take new laws because these are laws that should apply to all platforms.
51:42 Alex Kantrowitz? Right.
51:42 Speaker 01 And it shouldn't be specific to a particular business model, whether you're in music streaming or in dating apps or in media distribution. They should, it should apply to everyone and then it will create legal certainty so that everyone in this space will understand where the foul line is and be able to walk all the way up to it, but not beyond it.
52:05 Alex Kantrowitz? Yeah, I ask you a question. What is the deal with the US Congress? I mean, one of those things that you talked about, this, this law that would prohibit big platforms for self-preferencing their own products. That's, that's one of the bills that have been introduced. But these laws against the big tech companies, they just kind of pop out there. And, you know, it seems to make a lot of sense and they just kind of lose momentum. Like, I don't know. Everyone that I've sort of studied and reported on since, you know, focusing on this stuff, which has been years now, just starts to fizzle. So how does that happen? And, and is that going to be different this time?
52:45 Speaker 01 Listen, I, I think what's unique is that you have a remarkable and unusual alignment, bipartisan alignment, that legislation is needed. There are not many topics in the US nowadays where you can say.
52:58 Alex Kantrowitz? Yeah, it might be the only thing they agree on.
53:00 Speaker 01 Yeah, so, so it's remarkable. So I am actually optimistic that something will come out of it. But the legislative process, there, there's a certain amount of sausage making that goes into it for anybody who's shown it. So there are going to be a number of bills and amendments that get proposed. And some of them are going to be more radical than others. But in the end, the process is designed. So that so that you end up having to compromise, whether it is the different sides within one of the chambers or eventually in reconciliation between the Senate and the House of Representatives. So I I continue to be optimistic that number one, there is the political will to do something about it. Number two, that there's a recognition of the urgency
53:45 Speaker 01 that something needs to get done. And third, that the process will yield yield something that's reasonable and that will effectively deal with the issue without necessarily creating a lot of undesired collateral damage.
54:00 Alex Kantrowitz? Yeah, and so what do you let's talk about undesired collateral damage. What is the risk on that on that front? And when you see the bills come out, do you wonder? Because oftentimes there's regulation. It's meant to broaden competition, but it ends up hurting the smaller companies more than the big companies. And this idea of not allowing big tech companies to acquire startups, to me, is is one of the examples that I think is is could have some serious negative side effects. So when it comes to the stuff that you're doing, have you thought have you thought that through? If if you see a bill where there's going to be a negative side effect, are you going to like throw your hands up and be like, wait a second? You know, maybe we need to think think a little bit more before we pass this.
54:42 Speaker 01 Look, there might come a time when when it's appropriate to do that. At this point, we're early enough in the process where I think nothing has been decided yet.
54:53 Speaker 01 You know, but when I, you know, you you see people that advocate for like an automatic breakup or of companies, so there's a structural kind of remedy that that is the kind of thing that I would say that should only be an option in the most egregious kinds of situations as opposed to a one size fits all remedy that would apply to technology companies in general. But but as I said, I don't believe that the most radical things are the ones that are going to garner. The support of the of the people around the center of this issue. At the end of the day, these things are going to have to result from compromise and leadership on both sides.
55:35 Speaker 01 And the process, I think, has proven over the years to be pretty good at weeding out the things that are that are reasonable and effective without really going over the board. You know, if anything, my concern is is the opposite, that sometimes the legislative process is so cautious and moves so slowly that nothing happens.
55:57 Alex Kantrowitz? Yeah.
55:58 Speaker 01 I'm not concerned that it will move too far and too fast. I'm concerned that it might not move fast enough and working on making sure that the momentum continues.
56:09 Alex Kantrowitz? How does Spotify change if if you get what you what you guys want? So a year later, you know, Congress has passed all these bills. Apple allows you to do the payments. You can tell people to pay offline. Is it cheaper? Is the product different? Or does it look exactly the same? It's just Spotify is a little bit more profitable.
56:28 Speaker 01 Look, I think the the user experience is going to be better. I think the ability for people to subscribe and and add to their subscription will be better. You might see proliferation of the tiers of service that people might get with a with a variety of price points, which would be good to be able to tap into segments of the markets that might not be well served. Today, you're going to see innovation when it comes to the use of tokens or cryptocurrencies or other mechanisms for for for payment. And the other thing that's going to change is, of course, you know, we are, as a company, prepared to live up to the same rules that we are advocating.
57:11 Speaker 01 We ourselves want to be a platform for for creators and we fully expect that we're going to be held up to the same obligations and principles that we're advocating for others. So, you know, we will we will strive to to behave in a way that's consistent with the principles we're advocating.
57:31 Alex Kantrowitz? What does your gut tell you? I guess there's kind of three ways this could go. One is the new laws are passed. Two is Apple voluntarily relents and starts to give up a little ground. Or three is Spotify and other companies that we've talked about just end up going along with this and making good business, not, you know, well, I don't know. I would say Spotify is a great business, but like sort of operating in a place where it's suboptimal from their business perspective.
57:57 Speaker 01 Alex, I'm an optimist by nature. It could, it could be the fact that I'm vet from Latin America and we're kind of wired that way. I think this momentum is unstoppable. I think, I don't see Apple relenting in any way. They haven't given any indication that that's the mood that they're in. I, you know, I hope I can be proven wrong about that, but I actually think this is going to end up both in, in decisions by regulatory enforcement bodies and courts in the United States and other countries, as well as legislation passed in some of the major markets around the world. And then eventually Apple will adapt and they'll continue to thrive and continue to
58:40 Speaker 01 succeed and, and then realize that, you know, these, these things are not going to be the end of the world for them. If they continue to innovate, they'll continue to have a very successful business.
58:51 Alex Kantrowitz? Exactly. Well, look, Horacio, I, I know it's not, it's tough to come on and talk about this stuff. You're, it's you against a $2 trillion company, but I really do appreciate you coming on and, you know, sharing your thoughts about this. And I've learned a lot and I hope the listeners have too. It's, it's going to be something that's going to be percolating for a long time. And hopefully this past hour has given people a view into what it's like on the ground and what, what might happen next. So thank you for being here.
59:17 Speaker 01 My pleasure, Alex. Thank you so much.
59:19 Alex Kantrowitz? Yeah, it was, it was great. Thank you, everybody for listening. Thank you, Nick Guatney for editing, Red Circle for hosting the podcast and selling the ads, and most of all to you, the listeners. You can find, why should I ask? Horacio, is there something that you want to shout out? Twitter account or the app Fairness Coalition that people can check out?
59:39 Speaker 01 Yeah, just go to your Twitter and look for Open the App Store and look for the Coalition for App Fairness. If you have a minute, look at the 10 principles that the Coalition has put out and just watch this space.
59:55 Alex Kantrowitz? Yeah, and I'll say I've asked Apple to comment and talk about this stuff frequently and I haven't gotten a response back or they haven't said yes yet. So, open up for you, Apple, if you're listening. Maybe you are. I don't know. Okay, anyway, that'll do it for us here this week on Big Technology Podcast. Join us next week, every Wednesday, for another conversation with a tech insider or outsider agitator, and we hope to see you then. Thanks again for listening.
1:00:32 Speaker 02 Now, more than ever, we need someone on our side. But Rob Whitman? Whitman's votes drove up costs, cut Medicaid, and risked 350,000 Virginians' health care to pay for tax breaks for himself and his donors. He's not on our side. Shannon Taylor will fight corruption, cut taxes, and bring down costs. This November, vote for Shannon Taylor. She's for us. Paid for by HMP, the House Majority PAC dot com. Not authorized by any candidate or candidate's committee.
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