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Spotify Vs. Apple: Invading The 'Walled Garden', And How The Garden Will Continue To Flourish

May 06, 2021 9:06 AM ETApple Inc. (AAPL), SPOT47 Comments


  • Spotify's and the European Commission's claims of anticompetitive behavior by Apple have major flaws, political undercurrents, and a novel definition and application of the economic concept of monopoly, in my opinion.
  • A worst-case short-term impact to the business would likely be painful: a one-time fine of up to 50% of yearly EPS in 2024 or 2025.
  • A worst-case long-term impact may be a ruling that forces the company to lower its App Store fees to 0% or to allow competitor App Stores on the iPhone.
  • Even in the worst case, Apple will likely be able to innovate and adjust its business model to continue monetizing and growing Services revenue.

Tip The Scales
Photo by wildpixel/iStock via Getty Images


Apple (NASDAQ:AAPL) is under fire from Spotify (NYSE:SPOT) and under scrutiny by the European Commission for claimed anticompetitive and monopolistic behavior via the App Store, in stark contrast to established economic

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Avid long term oriented investor with an interest in value, growth, and special opportunity (spin-offs, insider trading) investing styles. Strong believer in identifying companies with competitive advantages in order to avoid stock investment losses. Self-educated.My expertise and unique investing style has arisen as a result of nearly a decade of professional experience in three highly regulated industries (aerospace and defense, medical devices, and pharmaceuticals) inclusive of work experience within the telecommunications and customer service industries. An engineer by education, a project director at work, and a writer at home, I am meticulous and apt at both the qualitative and quantitative aspects of investment. Income statements, balance sheets, and cashflow statements are for me a pleasant read.

Analyst’s Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (47)

JSOD profile picture
very biased pro apple, and anti spotify.
having said that eu probably gonna fine apple, and to be honest as the biggest company in the world highly profitable they can take it. standards are different in europe and usa. if they want to play in the european market they have to live with it.
Investing For The Future profile picture
@JSOD OK - so being protested in 30+ countries by music workers is not a concern? The European Commission isn't biased? The lawsuits over copyright infringement for years are a sign of an ethically run business?

Your comment seems to be suggesting that you consider the EU to now be a socialistic / communistic regime whereby the "cost of business" for non-EU companies is to have your wealth redistributed to EU companies simply because you have a better business model, product portfolio, and ecosystem, and thus are profitable.

Last I checked, the EU purported to be a free market. Perhaps I am mistaken, and if so, in future analyses, I will adjust accordingly.
AAPL needs to cut their fees!
magichr profile picture
Apple is going down hill. The innovation is over. They aren't good with movies and tv. All they had was the iphone and now everyone has it and the new models are the same. And they can't compete with spotify or netflix. This business is going to continue to go downhill. Their products are oversaturated in the market and they don't have any new break through items. When warren buffet invests you know the tech is old news.
Investing For The Future profile picture
@magichr Thank you for reading and for commenting. Just to clarify, your thesis on why Apple is a poor investment is because "they aren't good with movies and TV" and "can't compete with Spotify and Netflix?" ...and because, at nowhere near major marketshare in any of their product categories, "their products are oversaturated in the market?"

Well, yes, based on those criteria, I agree with you: Apple is doomed. The billions in free cash flow and EBITDA are clearly an illusion, and the accelerating revenue growth in many product categories are the by-product of a lack of "new break through items" and a business model that "is going to continue to go downhill."
magichr profile picture
@Investing For The Future apples value was based on its innovation not copying other companies in a way thats not as well done. And they lost that excitement when steve jobs passed away. He was the one that made this an exciting company. They are recycling old products. Their ecosystem is not going away but as far as investment this is a terrible investment. this is for old people when you say they have accelerated revenue growth is short term nonsense that boomers fall for. And then have stale investment that barely moves for the next 20 years. Enjoy not making money. In the next 20 years they have ground breaking invention or product that blows people away like when they came out with iphone. The party was over on this investment when jobs passed away. They are surviving on is idealogy but they aren't him. Tim cook is like talking to an amoeba. He is lame boring guy hes no steve jobs. hes not worth investing in. You will find out. Especially warren buffet is invested. Thats a great time to get out of a tech stock.
Investing For The Future profile picture
@magichr I disagree regarding the party being over, however I respect your opinion and I wish you the best of luck with your investments, wherever they may be!
Disclosure I am/we are long AAPL.. say no more. A completely biased and uninformative article.
Investing For The Future profile picture
Dear @AdAstra91,

Thank you for reading and for commenting. Please note I find "ad hominem" attacks a sign of weak emotional intelligence and a poor way to try to discredit someone without actually engaging in conversation or using logic to counter-argue.

While I am not without bias (my LONG position on AAPL is disclosed), I did clearly stipulate how I came to my conclusions and I did clarify the parts that are my opinion, and as evidenced by other commentators this opinion is one that others have arrived at as well independent of my analysis.

If you would like to point out the areas you disagree with, and why, I'd be happy to discourse with you further. If you present factual based evidence and solid arguments to contradict what is in my article, I will gladly adjust my opinion and position on the topic.

Best of luck to you with your investments, wherever they may be!
magichr profile picture
@AdAstra91 apple has mostly old people investing in it now realizing they are a decade to late and their products are old news. They think people will continue to buy their way over saturated products. Their entertainment side of their business is not very good. I don't even know who watches apple tv or listen to their music over netflix and spotify. they are trying but apple is gonna go down hill over the next 10 years. They ran out of ideas when steve jobs passed away.
Investing For The Future profile picture
@magichr I will write an article on how Apple is indoctrinating the young and why young people all around the world will continue buying products for the foreseeable future (let's say, the next two decades).

Perhaps you should read some of my other articles that dispute your claim that "Apple is gonna go down hill over the next 10 years." I look forward to your rebuttals.


Best of luck with your investments, wherever they may be!
I agree with your interpretation of the lawsuit. I don´t like Apple products mostly because of their proprietary policy (and the lousiness of their Ipod which is the only Apple product I bought years ago) but I hold several thousand shares. Independently of this I think the Spotify lawsuit is dishonest and MV rather biased.
Investing For The Future profile picture
@iozappa Thank you for reading and for your interpretation!

Agreed on the SPOT lawsuit. I am all for holding companies accountable for wrongdoing (Apple) included, but it just does not seem like Apple is in the wrong here. The Spotify lawsuit and the issued European Commission's Statement of Objections seems on rather flimsy legal footing, but I am no lawyer and would appreciate commentators with a legal degree to weigh in on the conversation.
@Investing For The Future My pleasure!

A summary is given also here:

Spotify´s opinion: timetoplayfair.com/...

I didn´t read Apple´s take but so far it seems Spotify wants to use Apple´s IP for free and some of their complaints are ridiculous (2016: "Apple rejects Spotify's proposal for an Apple Watch app yet again" Why should Apple allow a third party to compete with them on their own platform)?

Also the claim that 30% is too much is a childish argument. Is there a law that a seller has to charge a fixed, lower sum? Actually bookshops charge sometimes 50%. Isn´t this onerous? Yes but you can sell the book via FB, friends if you want to avoid paying fees.

It´s just a prima facie opinion and I´m not a lawyer and, more importantly, not an Apple user, but I have 25 years in the patent world and I´m used to reading thoroughly both parties´ submissions before making a decision.
Investing For The Future profile picture
@iozappa Thank you very much for sharing! Indeed - reading the timeline gives a strong sense of entitlement on the part of Spotify - as if Apple shouldn't have a choice or a say in what applications it should allow on the iPhone or Apple Watch.

The crux of the matter is that some of us view Apple's IP (iOS, iPhone, Apple Watch, App Store) as something proprietary that the company owns and controls, and thus should have final say in B2B partnerships regarding the products and the apps.

Yet others appear convinced that they are entitled to free use of Apple's ecosystem for their own monetary gain, and if Apple refuses to do business with them or - heaven forbid - starts competing with them it is "monopolistic" or "anticompetitive."
A very well summerized article over the issue. If EU wins, I wonder how this would impact google and other similar businesses that operate app stores.
Investing For The Future profile picture
@Ckat2Invest Thank you for reading and for your comment! Please feel free to share with other interested investors.

If EU wins, proprietary App Stores and platforms will be under rapid fire and both the EU, the US, and eventually APAC / ROW would need to pass new legislation to set the "ground rules" for App Stores.

Steam (Valve) is being sued recently due to monopoly allegations: www.gameinformer.com/... Sony over PlayStation exclusivity.

It's absurdity on a global level. All of these smaller companies unable to disrupt the existing ecosystem of larger competitors end up suing instead of innovating.
Fooly Finance profile picture
So EU and Spotify are attempting extortion because they are both broke. Sounds about right.
@Fooly Finance You see to the core of the story.
Investing For The Future profile picture
@Ckat2Invest @Fooly Finance That is definitely one interpretation. The other purported one is for "the benefit of the consumers."

What I find most interesting is the lack of oversight or regulatory action against Spotify by the European Commission despite the company being mired in lawsuits and engaging in questionable business practices as evidenced by the growing dissent from music workers and artists. Instead they choose to investigate Apple for the App Store, even though Spotify does not pay Apple any commission on over 99% of their music subscribers.

Personally, I find the entire situation distasteful.

I'm all for holding companies legally accountable - especially if they are harming the consumer - but in the recent cases brought against Apple I am finding it harder and harder to view this as anything else than a communistic / socialistic re-distribution of wealth sought by companies like Spotify / Epic, which they are expecting regulatory government bodies to enable.
Fooly Finance profile picture
@Investing For The Future It's nothing more than a shakedown. EU is a non-elected body that has regularly behaved in undemocratic activities and certainly against free markets.

I get a kick out of organizations and people who believe Google or Apple are monopolies because people choose to use their services over their competitors; the key point is customers 'choose' to use their services because they are frankly superior. Instead of competitors trying to offer up a superior service (or admit they are inferior) they try to win through crony capitalism--using state power to harm their rivals.

I find it all unethical and anti-capitalistic.
EU again..
A well drafted and very concise article on the issues. I'm also waiting to see if the EU High Justice Court has a ruling on the Ireland tax case issued before the end of the year.

Thanks again for preparing a well researched and very informative article.
Investing For The Future profile picture
@cuttysark8301 Thank you for reading and please feel free to share with interested investors!

I am also curious on the EU High Justice Court ruling on the Ireland tax case. As I am not a lawyer by profession, I can only speculate. I'd greatly appreciate if any readers do have a legal degree and are able to comment on the topic.
The Clairvoyant profile picture
There’s isn’t really much left to opine on about Apple, yet there’s a new article everyday.

Great company but overvalued... Nuff said.
Investing For The Future profile picture
@The Clairvoyant Thank you for reading and for your comment!

Here's an article where I speak about Apple being undervalued based on their growth prospects: seekingalpha.com/...

Here is an article where I elucidate the growth prospects based on contesting feedback from readers: seekingalpha.com/...

If Apple bores you, here is an article also published today on a small-cap spinoff technology company with immense growth opportunity ahead (Arlo): seekingalpha.com/...

But yes, a lot of Apple articles - it is a highly covered stock. One must be discerning as an investor with what one reads about Apple and what one chooses to believe.
Pianodude profile picture
Great article. I want to point out that the Music Modernization act doesn’t only apply to Spotify, but to all streamers. Apple too. It has no effect on artist royalties. It applies only to the fees paid out to publishers/songwriters. Unlike the fixed statutory rate that has been paid up until this point, it is based on an aggregate of subscription and all other revenue. Since the payout scales with revenue, it would seem to benefit the streamers if they grow, but even more so if they shrink. I think the big issue is what will drive growth for any individual streamer. In Apple’s case, the growth of Apple Music will always be tied to the growth of Apple customers. Spotify is at a disadvantage here.
Investing For The Future profile picture
@Pianodude Thank you for reading and please feel free to share with interested readers! Excellent point about the Music Modernization act.

I wanted to highlight that in the case of Spotify it appears that the act was used as leverage to facilitate the close out of the lawsuits against the company.

I agree that Spotify is at a disadvantage, especially considering their relationship with music workers and artists. I believe Apple pays x3 what Spotify pays to artists. It is my contention that Spotify's lawsuit against Apple is more of a distraction than anything; e.g. hey we are doing so poorly because of Apple!

This won't fly with savvy and discerning investors or with disillusioned music workers and artists... I mean, being protested against globally in 31 countries just sounds like a PR nightmare.
Didn’t quite understand air tags, not sticky not magnetic not Velcro no string or tape just a disc that can burn if swallowed
Pianodude profile picture
@Will-G You attach it to your keys, or whatever else you might misplace, then use your phone to locate it. If you’ve ever used Tile, it is a similar product. I have Tiles now, but will probably switch over to Airtags when they need to be replaced (yearly).
@Pianodude I get that but the author had to drill his own 1/16” hole, they don’t come with any means of attachment
Pianodude profile picture
@Will-G I actually didn’t notice any discussion of the Airtags in this article as I was tuned in to the Spotify and EU issues, but the item requires a holder to attach to a key ring. They sell them on Amazon. I’m sure that drilling a hole in the Airtag would void the warranty, not to mention it would probably detract from it’s appearance.
Great article and thanks! One of the best I've read on SA lately and will make sure to pass around. What the EU is doing vis a vis American Tech companies is all but too obvious to any but the most partial. Hopefully (unfortunately ) the congress critters will get into the fight if needed. EU:' Airbus isn't subsidized'. Right. Here we go again...Thanks for the Spotify history. And, we do seem to have entered a phase, even here, where the so-called leadership of companies are expecting a 'free' or 'government legislated' ride.
Investing For The Future profile picture
@Blowback2 Thank you for reading and for sharing the article! Yes, too many companies expecting a communistic / socialistic redistribution of wealth to be facilitated by governments.
pauliedeuce profile picture
Sounds like Apple has facts on its side and will wipe the floor with spot in court. Looking forward to resolving these trash cases with companies that don’t want to pay for access to apples ecosystem. Go it alone or pay the fee for access to billions of potential customers
Apple has spent on r&d over the years to develop multiple products/revenue streams and they’re able to provide better value given the synergies. That’s all this is - companies with single revenue streams being threatened as they haven’t been able to successfully diversify revenues
I’m pretty sure 5-10 years from now Netflix, auto manufacturers and telecom companies will be suing AAPL on similar grounds.
@kbellia This is the same as Amazon is doing ; bundling offers and using their size to gain win-wins.
Investing For The Future profile picture
@kbellia I keep making the point that if Tile, Spotify, Match, Epic or any company is overly reliant on just one technology or platform, to which they do not own proprietary intellectual rights, that is an incredible business risk.

It comes down to poor business planning and risk mitigation and contingency planning on behalf of many would be start-ups and small to mid cap companies struggling to survive. Apple is just an appealing target.
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