Google and Spotify’s app store deal could upend the mobile app economy

Spotify’s a start, but gaming will be the real test

Earlier this week, Google and Spotify announced a joint multiyear agreement hinting at a serious shift in how much of the mobile commerce pie the search giant takes from third-party developers. The deal, which is being billed as a pilot program, allows Spotify to implement its own in-app payment system instead of Google’s Play Store one: That means the streaming service will take home more of each subscription it sells.

The exact commission split is a mystery for now, but it’s going to be more generous than the current 85%-15% split. The implications this could have for the broader mobile economy, much of which is powered by gaming, are massive.

Spotify has been pushing for this for years. Spotify, alongside Epic Games and Netflix, has been one of the most vocal opponents of the 30% app store cut on Android and iOS. Though it has directed much of its ire toward Apple, Spotify has still supported lobbying efforts, legislation and regulation in the U.S. and abroad that’s begun to chip away at both platforms’ once-rigid policies.

• Now, however, Spotify appears to have struck a deal with Google that pleases both sides. Spotify gets a reduced commission, though neither company will say exactly what it is, and gets to call the new feature launching later this year “User Choice Billing.” Meanwhile, Google gets to hand a victory to third-party developers, keep at least some commission intact and open the door for other Android app-makers to join down the line.
• Spotify has already been paying a reduced rate of 15% on the Play Store for any subscription lasting longer than a year since 2017. Last fall, Google permanently lowered the rate to 15% for all subscription apps regardless of when the user signed up.
• The in-app payment flexibility being piloted now is reflective of mandated changes from the South Korean government, which passed an amendment last year demanding app stores permit payment competition.
• Google outlined a plan to comply in South Korea, saying it would still collect a 11% commission on sales using third-party payment systems. Spotify is presumably enjoying a better revenue split than that, and this pilot program might take regulatory heat off Google in overseas markets.

Gaming would be the real test. Spotify makes perfect sense as a first partner for the pilot program given the streaming service’s combative history against Google’s competitor. But Google actually doesn’t stand to lose all that much money here. That’s because mobile gaming, not music streaming, makes up a much bigger part of the mobile app economy.

• Users spent $133 billion on mobile apps last year, according to analytics firm Sensor Tower, with roughly two-thirds of that going to Apple. Of that amount, mobile gaming accounts for about 67% of all money spent on the App Store and Google Play.
• Not counting gaming apps, the highest revenue-generators on Android and iOS are streaming video apps, including Disney+, TikTok, YouTube and HBO Max.
• Google has been slowly conceding on subscription and media apps for years now, while managing to keep its big moneymaker — free-to-play mobile games with microtransactions — in line. Google can afford to concede with an app like Spotify, but it’s far less likely it would extend the offer to Genshin Impact, PUBG Mobile or Roblox.

Google is amplifying the pressure on Apple. Much of the pushback against app store legislation in countries like Japan, the Netherlands and South Korea has come from Apple, which has been steadfast in its defense of its 30% cut and less willing than Google to budge.

• Though Apple has made some notable concessions, including letting apps like Netflix and Spotify link to their websites from within apps, it’s looking increasingly as if the iPhone-maker will be left fighting this battle alone.
• Though Spotify appears to be making peace with Google, the company has no intention of letting up in its crusade against Apple. When contacted, the Coalition for App Fairness lobbying group, of which Spotify and Epic Games are members, told Protocol it intends to keep pushing for change.
• “Every member of CAF is committed to fighting for systemic change for all developers,” said Rick VanMeter, the executive director of CAF. “We are united in ending the monopolistic practices that stand in the way of an open, fair and competitive digital marketplace. Our mission is more important than ever as momentum grows for enforceable policies that level the playing field, including the Open App Markets Act and the Digital Markets Act.”

It’s still too early to tell just how influential Google and Spotify’s partnership will prove, and whether this will be the start of a sea change for the mobile app economy or just another concession Big Tech uses to forestall meaningful regulation. But until mobile game companies are extended the benefits other media apps enjoy, companies like Epic Games don’t seem likely to ever back down.

— Nick Statt

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Netflix Jr. magazine — Netflixjr.com. For some time now, Netflix has been on a quest to become its own best media partner. The company launched a print magazine, podcasts, newsletters and more, all doing journalism-ish things while also advertising Netflix movies and shows. The latest addition to this is the Netflix Jr. magazine, a print magazine for the preschool to early primary school crowd. Think Highlights High Five, with every page featuring characters from Netflix shows. There are puzzles, mazes, activities and even recipes (“Cocomelon” toast, anyone?). Netflix clearly isn’t trying to reinvent the wheel here, but the magazine should still be fun for little ones, especially if they’re into shows like “Ask the StoryBots” or “Ada Twist, Scientist.” A subscription to the print version of the Netflix Jr. magazine is free, and the magazine is also available as a free digital download.

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How SiriusXM bungled the Stitcher acquisition — The Verge. With the $325 million acquisition of Stitcher, SiriusXM also got its hands on the podcast network Earwolf. Insiders told The Verge that the acquisition didn’t exactly go over as expected. A worthwhile read, and another proof point that monetizing content with small but engaged audiences is hard.

A MESSAGE FROM CLARI

"Trying to make every deal as big as possible often adds complexity and extends sales cycles. To accelerate growth, sellers should focus on landing faster, and then expanding, and expanding again. Getting customers into your solution sooner helps you solve their initial problems, then later, you can grow together." - Michael Megerian, Chief Revenue Officer at Yello

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