Tim Cook:

The European Commission has launched an effort to rewrite Apple’s history in Europe, ignore Ireland’s tax laws and upend the international tax system in the process. The opinion issued on August 30th alleges that Ireland gave Apple a special deal on our taxes. This claim has no basis in fact or in law. We never asked for, nor did we receive, any special deals. We now find ourselves in the unusual position of being ordered to retroactively pay additional taxes to a government that says we don’t owe them any more than we’ve already paid.

The Commission’s move is unprecedented and it has serious, wide-reaching implications. It is effectively proposing to replace Irish tax laws with a view of what the Commission thinks the law should have been. This would strike a devastating blow to the sovereignty of EU member states over their own tax matters, and to the principle of certainty of law in Europe. Ireland has said they plan to appeal the Commission’s ruling and Apple will do the same. We are confident that the Commission’s order will be reversed.

I’m with Cook on this one. It’s about what the Commission (and many observers) think the tax law should have been, not what it actually was. It’s telling that Ireland is objecting just as strenuously as Apple.

Also: 13 billion euros pounds isn’t all that much to Apple.

Speaking of Peter Kafka, here’s his report on Spotify’s complaint over Apple’s App Store policies:

In a letter sent this week to Apple’s top lawyer, Spotify says Apple is “causing grave harm to Spotify and its customers” by rejecting an update to Spotify’s iOS app.

The letter says Apple turned down a new version of the app while citing “business model rules” and demanded that Spotify use Apple’s billing system if “Spotify wants to use the app to acquire new customers and sell subscriptions.” […]

“This latest episode raises serious concerns under both U.S. and EU competition law,” Gutierrez wrote. “It continues a troubling pattern of behavior by Apple to exclude and diminish the competitiveness of Spotify on iOS and as a rival to Apple Music, particularly when seen against the backdrop of Apple’s previous anticompetitive conduct aimed at Spotify … we cannot stand by as Apple uses the App Store approval process as a weapon to harm competitors.”

Cry me a river. Spotify has long charged $12.99 via in-app subscriptions to get around the 30 percent “App Store tax”. And Apple has now cut the long-term subscription split from 70-30 to 85-15. And Spotify is the streaming service most at war with artists over their abysmal royalty rates.

Read between the lines and the real message here is that Apple Music is kicking Spotify’s ass.

Micah Singleton, writing for The Verge:

Regardless of the pressure, Spotify isn’t married to its free tier, according to sources, but it does strongly believe it drives users to its premium service, and currently has no intentions of giving it up. The free service also draws a significant amount of revenue — much of which goes to the music labels — and attempting to cut off a revenue stream goes against the music labels’ usual practices. “You would never dry up that revenue stream unless someone is making promises they ought not to be making,” a music industry source said.

You can never be certain with unnamed sources, but it seems pretty clear that someone from Spotify is the “music industry source”. What they seem to be doing is preemptively seeding the idea that Apple’s approach to their upcoming streaming music service is analogous to what they did when they entered the e-book market. That they’re colluding with music labels to eliminate free streaming tiers the same way they colluded with publishers to switch to the agency pricing model.

Given how that turned out for Apple, who knows, maybe there’s something to this. But this stuff about Apple’s 30 percent cut of subscriptions through the App Store is amusing:

Apple charges a 30 percent fee toward any sales through its App Store, and that includes subscription services. That means if Spotify wants to sell its premium subscription service — which usually costs $9.99 a month — through the App Store, it has to raise the price 30 percent higher to $12.99 to pull in the same revenue, while Apple can still offer Beats at a lower price. Spotify and many others in the music industry believe Apple’s App Store tax gives them an unfair advantage over the competition.

To make things worse, Apple’s rules disallow companies from redirecting users to the browser to get the lower subscription price. “Apps that link to external mechanisms for purchases or subscriptions to be used in the app, such as a ‘buy’ button that goes to a web site to purchase a digital book, will be rejected,” Apple wrote in its App Store review guidelines. That means if you tried to sign up for Spotify or Rdio or Tidal through their apps in the App Store, you would think they raised their prices, much like what happened last week. “I get that there’s some administrative burden so they should get some kind of fee, but 30 percent is fucking bullshit,” one music industry source said.

Welcome to 2008. What’s interesting to me about this line of argument is how it’s predicated on the assumption that in-app purchasing is essential. The fact that Spotify can sign up customers on the web, without one penny going to Apple, isn’t really part of the discussion because the convenience advantage of IAP is so overwhelming.

I remain highly skeptical that a modular design can compete in a product category where size, weight, and battery life are at such a premium. Even if they can bring something to market, why would any normal person be interested in a phone like this?

In a letter to employees, AOL CEO Tim Armstrong reversed the company’s recent decision to change some 401(k) benefits. The move had caused controversy inside the company, especially after Armstrong made a mess of an already tense situation with staffers by rationalizing the cuts because of higher healthcare costs.

Worse still, he used the example of two “distressed babies” of employees — claiming each cost $1 million to care for — as one of those expenses.

Armstrong’s public utterance problems comes just as the company turned in a very decent quarter, which should have been the focus this week, if not for him essentially stepping all over it with what is a classic case of foot-in-mouth disease. Wonder if that’s covered in the plan?

Here is the internal memo to employees, which is Armstrong’s second in a few days:

AOLers -

We began our journey together in 2009, and for the last four years have had an employee-first culture. As I have said before, the ability to change is a strategic advantage for us. With benefit costs increasing, we made a strategic, financial decision last year to revise our employee matching 401K program from a per-pay-period contribution to a yearly lump-sum contribution. We then communicated this decision in the fall through multiple channels to every AOL office in the US.

The leadership team and I listened to your feedback over the last week. We heard you on this topic. And as we discussed the matter over several days, with management and employees, we have decided to change the policy back to a per-pay-period matching contribution. The Human Resource team will be in contact with all employees over the next week to explain the change and to answer any other benefits related questions you might have. We are proud to provide AOLers with a robust benefits offering that spans from exceptional healthcare coverage to 401K’s to AOL fitness programs and beyond. On a personal note, I made a mistake and I apologize for my comments last week at the town hall when I mentioned specific healthcare examples in trying to explain our decision making process around our employee benefit programs.

Thursday we announced an outstanding Q4 and end to our fiscal year. More importantly, it validated our strategy and the work we have done on it. AOL is positioned for future growth and our long-term strategy to be one of the world’s leading media technology companies.

Now, as we begin 2014, let’s keep up our momentum. Thank you for the great 2013 year and for your ongoing passion. And know that I am a passionate advocate for the AOL family – TA

Sam Grobart, writing for Businessweek:

To Cook, the mobile industry doesn’t race to the bottom, it splits. One part does indeed go cheap, with commoditized products that compete on little more than price. “There’s always a large junk part of the market,” he says. “We’re not in the junk business.” The upper end of the industry justifies its higher prices with greater value. “There’s a segment of the market that really wants a product that does a lot for them, and I want to compete like crazy for those customers,” he says. “I’m not going to lose sleep over that other market, because it’s just not who we are. Fortunately, both of these markets are so big, and there’s so many people that care and want a great experience from their phone or their tablet, that Apple can have a really good business.”

“We’re not in the junk business” is exactly why none of us should have expected the 5C to be cheaper than it is.

Concluding, Grobart writes:

You could say that Apple’s approach in mobile ignores history, specifically the Mac/Windows wars of the 1990s, which Apple clearly lost.

I know this is universally accepted as gospel in the business world, but how does this jibe with the fact that Apple has been the most profitable PC-maker in the world for the last decade? Not counting iPads or iPhones, just Macs, Apple makes more profit than any company producing Windows PCs — and yet we’re supposed to accept as fact that Apple “clearly lost” the Windows-vs.-Mac war? Methinks Grobart should have paid more attention to Cook regarding junk businesses.