Spotify and Google Announce User Choice Billing: A preliminary assessment

Yesterday, Spotify announced on its corporate website a multiyear agreement with Google, which “represents a first-of-its-kind option in payment choice and offers opportunities for both consumers and developers.” A parallel announcement was made by Google on the same day.

While the exact terms of the agreement are not known, the Spotify announcement says that:

“Users who’ve downloaded Spotify from the Google Play Store will be presented with a choice to pay with either Spotify’s payment system or with Google Play Billing. For the first time, these two options will live side by side in the app. This will give everyone the freedom to subscribe and make purchases using the payment option of their choice directly in the Spotify app. Spotify will continue to freely communicate with users about our Premium subscription service, promote discounts and promotions, and give listeners on our Free tier the ability to convert to Premium directly in the app.”

Thus, the agreement between Google and Spotify is in line with the demands of app developers vis-à-vis Apple and Google on two important points:

• First, users will have the choice to pay for their subscription by either using the in-app payment system of the developer (in this case Spotify) or Google Play Billing (“GPB”).  That choice is what app developers want.

• Second, the app developer will be allowed to freely communicate with its users to, for instance, inform them of discounts and promotions, etc. No anti-steering provision.

Now, it is important to place this agreement in context. While historically Apple has mandated app developers whose apps sell digital goods and services to use its in-app payment system (“IAP”), Google took a softer stance by allowing many app developers to use their own in-app payment system. However, in September 2020, Google decided to adopt a more aggressive approach to the enforcement of the obligation imposed on app developers offering in-app purchases of digital goods on Google Play to use GPB and pay the associated 30% commission (see our blog post on this development here). Google announced that new apps submitted after 20 January 2021 would need to be in compliance, whereas the deadline for compliance for existing apps that needed to be updated was extended to 30 September 2021. In July 2021, Google however announced that it was giving developers an option to request a 6-month extension, thus giving them until 31 March 2022 to comply with its payment policy.

Against this background, the agreement between Google and Spotify triggers the following observations:

First, it is interesting to note that it comes one week before Google is set to enforce its new payment policy, effectively ending in-app alternative payment options. This agreement also comes a day before the European Parliament and the Council of Ministers are set to reach a final agreement on the substance of the Digital Markets Act (“DMA”), which contain provisions that will effectively prohibit Apple and Google to mandate the use of their in-app payment system and prevent app developers to communicate with their users.

Second, nothing in the agreement suggests that Google will not move ahead with its plan to enforce its new payment policy on 1 April 2022. To the contrary, the agreement comes across as an exception to the enforcement of this new payment policy.

Third, Google does not seem to exclude further deals with other app developers as the Spotify announcement quotes Sameer Samat, Vice President, Product Management at Google, saying that the agreement is “an exciting first step and we look forward to adding new partners and learning how this model could be expanded across the platform.” Moreover, in Google’s parallel announcement, Sameer Samat says that:

“Building on our recent launch allowing an additional billing system alongside Play’s billing for users in South Korea and in line with our principles, we are announcing we will be exploring user choice billing in other select countries.

This pilot will allow a small number of participating developers to offer an additional billing option next to Google Play’s billing system and is designed to help us explore ways to offer this choice to users, while maintaining our ability to invest in the ecosystem.”

Thus, it appears that the agreement with Spotify is the first of a series of agreements where Google will partner “with developers to explore different implementations of user-choice billing.”

Fourth, these announcements put further pressure on Apple to alter its payment policy to authorize app developers to use the in-app payment system of their choice, as well as communicate with their users through the app. Despite being subject to multiple investigations, Apple has refused to make any concession. It a rather unprecedented move, Apple has also so far refused to comply with the order of the Dutch Competition Authority, whereby it has to allow dating app developers on the Dutch Store Front to use the in-app payment system of their choice and/or to provide links to off-app payment solutions. In this respect, the Google agreement with Spotify destroys Apple’s justifications for not allowing app developers to use the in-app payment solution of their choice as this would allegedly create security issues and would also prevent Apple from collecting its commission.

Fifth, Google’s recent announcement that it will decrease its commission on subscription to 15% (minus 4% if they do not use GPB) also places pressure on Apple, which intends to stick to its 30% commission (minus 3% if they do not use IAP as per the ACM order or Korean law). Whether a commission fee of 30% is sustainable in the long run is a good question. In any event, it undermines Apple’s argument that the App Store competes head to head with the Play Store as if it were the case, it would be forced to lower its commission on subscription to 15%. Both Apple and Google are monopolists on their own ecosystem.

Sixth, nobody knows of course which commission rate applies/will apply to Spotify and the other app developers with whom Google will sign further ad hoc agreements, but it could very well be under 11% (i.e., 15%-4%). At the moment, Spotify does not allow users to sign-up via the Google Play Store; instead Spotify re-directs consumers to its website. While Spotify will now pay a commission on subscriptions taken via GPB, the agreement should reduce friction during the sign-up process, which could benefit subscription growth. Whether Google will offer different rates to different app developers with which it signs partnerships is an interesting question. Other app developers will also want preferred rates, which could have a broader deflationary impact on commissions.

Finally, Google’s ad hoc approach of concluding ad hoc agreements with certain app developers will certainly raise eyebrows from those app developers that will not be offered such agreements. In any event, as far as the EU is concerned, the matter will be settled with the DMA, which will force Google to allow app developers to use the in-app payment solution of their choice when it comes into force. Google is effectively anticipating the DMA and, in its own words testing “different implementations of user-choice billing.” This shows that legislation (in the EU and elsewhere) is needed and that as pointed out by Andreas Schwab the “DMA matters before being finalized.”

This is of course a very preliminary assessment on a complex subject on which I will certainly return in the future.

Disclosure: I advise a variety of app developers on competition law matters. I am also antitrust counsel of the Coalition for App Fairness. The views expressed in this blog post are entirely mine.