Apple: if we get you subscribers, we deserve a cut
arstechnica.comFull disclosure: I generally like apple products and have used NeXT / apple products for a long time.
I don't see how Apple's stance here is defensible or honest. They using their position as a large platform provider to steal from 3rd party developers.
To me this is akin to me writing a program for OSX that allows users to sign up for a subscription service, and apple taking a 30% cut of my cash flows just because I targeted their platform. They have been paid for their device by the consumer, they don't own all the software running on the device. They provide an OS, 3rd party developers provide the applications.
Most iOS programs receive absolutely no advertising from apple. In these cases how has apple contributed anything - how as Apple brought them customers. What if I run an ad-words campaign and drive my own app sales? If Apple were to make deals with developers for cuts of cash flow in exchange for advertising on the store, that would seem more honest.
To me this seems anti competitive and just plain dishonest. Apple is at risk of becoming the troll under the bridge here.
I think we are going to start to see Apple pull more and more moves like this. They are basically where Microsoft was at their peak. Apple's share price is sky high, their growth and margins are phenomenal, and at this point to continue to deliver shareholder value, they need to grab money from more and more sources - that means squeezing their position for every possible dime. What's next after the iPad? What comes after the app store? Well, why not tighten up monetization of the app store by directly tying revenue with publishers.
I'm eager and a little weary of seeing Apple's next moves over the next couple years.
Philosophically this doesn't seem much different from a case where Apple requires a 30% cut on all commerce done through OSX, Mozilla demanding 30% of a MBP sale through firefox, or MS demanding 30% of that WinXP iTunes sale. I wouldn't expect it to escape the review of various competition authorities.
I also mirror your sentiment. I think that this will lead to lost hardware sales (I may have to buy a Kindle now) and may as well develop for that if I have one.
When did Apple turn from a hardware focused company to a software company/platform company only? It seems their platform is taking precedence to their hardware now.
Then again you can't buy iBooks on Kindle or Nook but the point of an iOS device is a bit of a smart phone singularity. I want all my stuff on that device.
This will not get me to buy more iBooks, it may make be buy a Kindle though instead of using my iPads for reading books.
Let's hope they all go PDF.
I can say that it has led to at least one lost sale of an iPad. I was getting ready - essentially money-in-hand - to buy an iPad. I will no longer be doing that. From a purely consumer perspective I don't believe this policy benefits me at all and there are some pretty exciting alternatives on the horizon. Notion Ink's Adam looks pretty good to me and with Honeycomb on the way and being optimized for Tablets, iOS is no longer the only choice.
It's a bit off-topic, but PDFs, with their fixed page size baked right into the file, make for a truly miserable eBook experience.
I couldn't agree more. I think what your parent post meant to convey was the need for a standard format for ebook files. I think MOBI or EPUB could both fill that role.
"Dishonest", "steal", "anti competitive" - these are some heavy accusations. In the context of Apple's relationship with developers, dishonest would mean deliberately lying, cheating, or signing a contract and then reneging on it (in which case the developer has legal recourse). "Steal" is quite irrelevant here - if Apple stole anything from anyone, it would have been sued. "Anti-competitive" - if your definition of non-anti-competitive is letting anyone (especially small players) do whatever they want with your product for free (just because you are big and they are small), you would be right, but that would be a wrong definition. The reality is that Apple is offering a product, a service, and clear terms of how it wants these to be used as a precondition for doing business. Developers can take it or leave it. I don't think dishonesty, theft, or the super-vague term of anti-competition can be applied here.
Sure. These are 'heavy' accusations. I feel pretty strongly about seeing a company I like go down this road. They are attempting to steal, and their behavior is dishonest and anti-competitive.
If they want to make money selling books or subscription services let them try on equal footing with other companies. They are actively attempting to grow their own ebook store and at the same time charging competitors an unavoidable 30% tax to sell on their platform.
Providing a store infrastructure on the phone is fine. Forcing application developers to use your api for in-app purchases is borderline. Disallowing any subscription based content to be viewed on the phone unless you get a shot at taking 30% is crooked, especially given the fact that they are in direct competition with some of those providers.
I understand big business. Apple desires to take a piece of every cash flow associated with a iphone from cradle to grave - whether they had anything to do with creating it or not. And why not? We're talking about a lot of money and the ability to diversify into the cashflows of businesses (journalism etc) they have nothing to do with. They are actively attempting to set up a toll bridge for all content consumed on mobile devices running their OS. They will probably succeed.
This may or may not end up being seen as legal. (I believe they are in a grey zone) I'm saying I don't believe it is moral. Apple didn't do anything to earn this money; they are simply trying to take it because it is there, and they can.
Apple is one of my favorite companies, it bugs me to see them acting this way. If MSFT were doing this sort of thing you'd have grabbed your torch and pitchfork long ago.
I understand your reasoning and completely disagree with it. The only way I can answer is to urge you to check your premises. That would mean thinking about the meaning of "equal footing" and answering why, in your view, Apple has the obligation to provide developers with any kind of footing.
You also use terms such as "unavoidable 30% tax" and "forcing application developers". Do you really think Apple has the status of a government (i.e. the ability to charge mandatory tax) and do you really think Apple is actually physically forcing anyone to do anything? And finally, since you believe their platform policy of taking 30% is "crooked", why do you think that charging for the use of your property is immoral? Or do you think that there are some "moral" boundaries that should be acceptable? What prevents the other parties from walking away if they don't like these terms?
I'm not sure I follow. A lot of your thinking seems to be predicated on the fact that Apple somehow owns your phone after you purchase it. They don't - you do. That's why you give them money for it.
Apple has tried to argue that it needs to retain strict control over what software you can and can't install for your protection. The fact of the matter (now apparent) is that they want to insert themselves into a transaction between two willing parties, without creating any marginal value.
What if your TV maker tried to charge a fee to your cable company because you were watching on 'their' TV?
What if Microsoft charged amazon a 30% fee because you purchased a book through 'their' browser.
What if Kitchenaid charged your bakery a fee per cupcake as you were using 'their' mixers.
The list is endless. At some point you need to assert your rights.
Again: if apple wants to make money selling me books, let them sell me books. Don't let them get away with selling something they don't own.
"... why do you think charging for the use of your property is immoral?"
This is the fundamental problem. Apple doesn't own my phone nor do they pay for my data connection. They are charging for my property.
When framing arguments about Apple, I find it helpful to ask, "Would this defense apply just as well to Microsoft in the '90s?" And as far as I can see, your arguments apply better to Microsoft in the '90s than they do to Apple today. All Microsoft did was create a Web browser, create terms favorable to their interests and ensure that their Web browsing experience was the default. Unlike Apple, they didn't require competitors on their platform to pay them money or GTFO, they didn't require competing Web browsers to use a restricted subset of Explorer's engine, and they certainly didn't demand a cut of any revenue from transactions done through Netscape.
And yet Microsoft was convicted of anticompetitive behavior by pretty much every court in the world. So even if Apple really is on the up-and-up, your reasoning doesn't come close to showing it.
The cut is high, but Apple does do more with iOS than they do in your hypothetical.
Apple has created a ecosystem in which it is very easy for consumers to purchase subscriptions. They're further enhancing the usefulness of this system by blocking applications that do not allow consumers to easily purchase subscriptions in a uniform way (e.g. in-app). And they're requiring app developers to pay 30% for the benefits they receive by exposing your app to the users of this ecosystem.
The rate may be high, or it may not be. We will see by how many developers pull their apps from the AppStore.
I might agree if Apple didn't force developers to make the price in Apple's ecosystem the same as the lowest price available elsewhere. If you want to take 30% of my money for the service of "exposing" my app (which I think that means "not banning" in the context of a walled garden), I need to charge 50% more just to maintain my profit margin.
Hmmm....and if my app gets someone to buy your iPad, what do I get?
You get heavy promotion. Look at how Angry Birds and all the other games did by being featured on "New and Noteworthy" or "Staff Picks" or "Top Grossing Apps". It's a two-way street; don't make it sound like Apple is taking advantage of your efforts.
That works for a hugely small subset of apps. Each (well written) app creates a lot of value for iOs, most of those won't get anything at all from Apple.
So again, why isn't the inverse true? If I'm building something that helps sell an iOs device, why shouldn't I get a cut?
Of course I shouldn't, but that's the problem in Apples logic here.
> Each (well written) app creates a lot of value for iOS
We all, being programmers, like to assume this, but I don't think it's really true. I think the bulk of the value for both Apple and iOS users comes from a pretty small core of apps (Mail, Maps, Browser, Music, YouTube, Publisher subscriptions).
> If I'm building something that helps sell an iOs device, why shouldn't I get a cut?
I don't think Apple agrees that you're "helping sell the iOS device". I think Apple correctly assumes that most people who buy iOS devices do so in ignorance of your app. They can take it or leave it, and if they're not going to get a cut, what possible reason do they have to take it?
It's a small subset of apps that matter to each individual, but collectively it's a big number. Lets take my wife. She'd describe each of these as being indispensable to her:
- Quickoffice - Local weather app (9news here in Denver) - OpenTable - Her password store (not sure what she's using these days) - Evernote - Probably 8-10 others
My list is completely different. These apps, together, create a lot of value for the phone. When we recommend phones to other folks we do it in the context of the applications running on it. Angry Birds has undoubtedly sold a ton of devices (both Android and iPhone) but it's hardly alone. Hell, I'm positive that I sold an iPhone one day while showing someone a document in Quickoffice.
Each app provides a ton of value to Apple. They owe us, not the other way around.
That's like saying because Paris Hilton has an address in Beverly Hills and attracts tourists, the city should pay her. Actually that's not quite as insane as it sounds. Cities and counties give tax breaks to companies that bring jobs to their constituents, all the time. It all depends on who is in the position of power. If your app really is that good, concessions can always be made. Look at how long it took the Beatles to get on iTunes.
Maybe you are right, maybe you should leave apple and help Microsoft sell WP7 devices. They will be grateful.So again, why isn't the inverse true? If I'm building something that helps sell an iOs device, why shouldn't I get a cut?
I guess my point is that it really does work both ways, the iPad existing may help me sell things, and me selling those things helps sell iPads. So how about both sides just focus on taking money from the customers instead of each other.
You don't get "heavy promotion". You have an incredibly small chance of getting any promotion at all.
I think people hoping to hit the app store lotto by getting mentioned by Apple or TechCrunch are the same kinds of people that get duped into doing spec work.
"I'll be a millionaire just as soon as my iFart clone gets listed as one of Apple's Staff Picks."
An enormous and unwarranted sense of entitlement.
Edit: Man goes to store to buy cereal. Buys milk, too. Cereal company asks store owner "But what do we get?"
If MS tried something like this, would you be ok with it too?
The name of the company is not a circumstance I find especially relevant to whether I am "ok with it".
As an indie developer, this excites me. Sure, I can understand how the big guys might see it differently, but now I don't have to build an entire distribution network should I decide I'd like to develop subscription based content.
I read many digital PDF's (like Hacker Monthly) and though I enjoy downloading and reading the PDF on my iMac, I would be delighted to pay 99 cents to have each issue delivered to my iPad on a monthly basis.
And as a developer, it's added value.
So arrogant - "We get you subscribers"!
How did they do that? They didn't create the ad, they didn't put it in the app, they did diddly-squat in fact. You (the app developer) did the work, take the risk, and now cannot even get paid properly - you have to essentially make iPhone your sole outlet, or charge 30% premium everywhere else.
They created the very ecosystem in which your app exists. I'd say that's a pretty important aspect of the whole app development model.
First, this argument isn't over the share that's due for the purchase of the App itself.
Second, they may have created the ecosystem, but they also created and maintain the walls surrounding it. It sounds like Apple is trying to have their cake and eat it too.
Third, Apple is providing a repository, marketing, searchability, etc., for the app itself. They're not doing anything to "earn" the income from the content. I'll be the first to say that prices aren't based on the underlying cost of a product, but ethically this still seems like a racket.
So microsoft would be within their rights to take a 30% cut of all cash flows from subscriptions made using internet explorer?
What about 30% of all sales of Windows Software?
Where does the ownership of the OS author end and the ownership of the 3rd party developer begin?
What if Apple insisted upon 50%?
IIRC, each video-game console manufacturer charges royalties to all games that are compatible with its hardware.
Does Microsoft deserve a cut of every application written for Windows?
No, they can't even put IE in a walled garden without the US Senate getting involved.
Apple walls their garden, locks everybody inside and shakes them down - and folks leap to their defense?!?
I'm a huge Apple fan, but I admit there's something about this which doesn't feel entirely... right, and that's concerning.
That said, however, there's decent and non-evil reasons for them to think like this - at least in terms of subscriptions, IMO.
One issue is that subscription-based apps are almost always free in the app store. Apple loses money on free apps that don't include iAds. If the subscription fee itself is also outside of Apple's control, they're hosting your app, getting you "shelf space", driving people to your app, etc. and they get nothing in return. With such an app, the content is basically replaced every month (or week or day or whatever) which makes the process a bit like a scheduled purchase of a new version of an app - hence the 30% cut.
On the surface, I disagree that Apple should get 30% forever for a subscription - especially if the publisher is providing all the infrastructure necessary to deliver that content. What if, though, the subscription system allowed publishers to upload the content once to Apple, and Apple hosts and distributes it to the apps and users? Now the 30% starts looking a bit more reasonable. If indeed it works this way (or will eventually work this way), you could be a very small shop and still manage to support thousands or, indeed, millions of subscriptions with virtually no support infrastructure of your own. That's certainly worth 30% IMO.
The flip side, though, is if you already have your own content delivery mechanisims in place, Apple taking 30% each billing cycle seems unfair. IMO, they should offer the subscription products in two flavors - one where they host and distribute your content, and another where you are doing that work. In the second version, Apple could easily take 30% of, say, the first billing cycle and take diminishing amounts for as long as the subscription remains in effect - perhaps even going all the way down to something like 2% just to cover the payment processing. That would seem a lot more fair to me than taking 30% forever.
Sadly, though, I haven't yet seen anything that suggests that either of these situations are even true. For all I know, Apple might not be offering any distribution or hosting services and might not even have an API to allow apps to easily take delivery of subscription content, and if that's the case, taking 30% forever seems excessive.
Funny, I just e-mailed some friends about how Apple was starting to get a bit of the stink of Evil about them.* there's decent and non-evil reasonsAs I read your comment, I was struck by how Apple does everything in a very one-size-fits-all fashion (Mac -> no window menu; iPhone -> home screen is a list of apps; subscriptions -> one revenue model). There's a rich set of monetization schemes out there and Apple might offer a range of monetization models. Apple could use an affiliate fee style model where App maker pays Apple $X for each subscription+. Then Apple could just use the eCPM or expected revenue to rank search results (App gets a lot of subscribers and pays a healthy CPA, they get ranked higher). App makers would then need to figure out how much $$$ to pay Apple for an install. This could also apply to free apps [...but we've seen the harm that causes elsewhere].
Then Apple could add simple hosting/management fees for hosting an app's content.
+ I've been fairly heavily involved in the affiliate/CPA space, so know the kind of unpleasantness the model can bring, but am fairly confident that Apple could work around it.
[ed: formatting]
The flip side of course is that these apps make the iPhone/iPad more appealing to more people. I can see Apple shooting themselves in the foot with their predatory practices against app publishers. Losing a big chunk of your margin while developing apps for free for Apple's products is only going to be sustainable for so long. And more likely then not, it will drive away the big players first where each percent means more.
A supermarket that sells magazines will appeal more than a supermarket that doesn't. That doesn't mean it owes its success to the magazine publishers.
I very much doubt that the availability of magazine and newspaper apps like The Daily will be a primary reason for customers to buy an iPad.
Magazines in a supermarket are slotted, so the publisher is paying the supermarket to stock the magazine.
In a supermarket, shelf space is limited. Online retailers like Apple and Amazon have virtually unlimited shelf space. That's one of the reasons why distributing paid content online is so much cheaper than in print. Compared to print, Apple's 30% take for payment processing, marketing and distribution is a great deal. That's how News Corp can offer a daily newspaper via the App Store for only $1 a week, for which you would normally pay $1 a day.
Apple is trying to prevent the following maneuver:
¶ FooPub Inc. publishes FooMag through the App Store, at a price of $1/year.
¶ Each issue of FooMag contains some small amount of content and a link: “To read more, go to foopub.example.com and subscribe to FooMag Deluxe for $20/year!”
¶ Users download FooMag Deluxe through FooPub’s own servers, bypassing the App Store completely.
¶ Scads of people discover FooMag through the App Store, subscribe to it (giving Apple 30¢ out of each $1 subscription), and a significant fraction of them upgrade to the deluxe version (giving Apple nothing).
Is discovery via the App Store really that common? As a previous iPhone user and current Android user I don't think I ever discovered a single app for either platform via the App Store itself.
I always went looking for something on the App Store (or now on the Android Market) after hearing of it elsewhere. I suppose I may be in the minority there and I can't say for sure I'm not, but I'd be pretty surprised if I were.
If Apple puts you on the new and noteworthy or featured lists, app sales go way up. I think it is safe to say that a lot of app sales are driven by discovery on the store itself. As to if it is the majority of sales, well, I have no way of knowing. :)
If an app publisher wants to avoid all the App-Store-related restrictions, can they just put their app on the Web and let people download and install it through the browser? I don’t have any iStuff so I don’t know the practicalities.
No, they can't do that. On iOS it is the App Store or nothing when it comes to native apps. (Of course, if users jailbreak their phones they have more freedom to install apps, but I assume we're just talking about the standard OS here).
On Android the publisher can bypass the store by distributing their own APK files. Some carriers (glancing towards AT&T) lock this down in some phones, but by default Android is happy to install new apps from anywhere as long as the user agrees to a dialog warning them of the dangers of running random code they download from the net.
This is one of many reasons I'm currently an Android user and self-described "Apple hater".
the only company that will kill apple is apple
Hyperbole, yes, but there's truth to it. Apple simply is in a position to make these demands right now; the test will be whether they scale back their demands once the market has matured to the point where they no longer have that leverage.
In related news, the US Interstate Highway system will now require a 30% cut of the purchase price of every vehicle purchased in the United States. "Our philosophy is simple—when US Highways bring a new driver to the car company, US Highways earn a 30 percent share."
The US Postal Service considered a similar regulation, but found that customers would simply divert shipments to competitors UPS, DHL, and Fedex, and is instead filing suit against those companies for unfair trade practices, and lobbying congress for a retroactive grant of a business method patent on package delivery with corresponding extension of patent duration to life of the organization plus 70 years.
kb
Apples and Oranges, my friend. The highway and the USPS are funded by tax dollars. The App Store is a culmination of Steve Jobs and co busting their collective asses for decades on their own time without any mandatory help from you. Now they're going to charge you an arm and a leg for the privilege of using it. If you don't like it, you're free to take a stand with your dollars and go elsewhere.
Using Apple products is not mandatory, of course...but the real question is whether a 30% cut is a fair number or the methodology itself is fair to being with?
Oh, that's why I didn't have to pay for my iPhone, then.
You're precisely correct, You did not have to pay for your iPhone. You chose to.
Yes, I chose to pay for the phone. Apple chose to sell the phone at a price they felt adequate compensation for their "decades" of work.
Apple is currently seeking to leverage their monopoly[1] on the iOS platform by extracting additional rent[2] from content providers.
Their probability of success directly correlates with their pricing power.
Is this rent-seeking good for Apple customers? Unlikely. Is it legal? Depends on how the FTC views Apple's pricing power.
kb
[1]In economics, a monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. (http://en.wikipedia.org/wiki/Monopoly)
In the private sector, it’s not uncommon for the party that controls a distribution channel to extract rent from both ends.
For example: I know a guy who worked for a startup that made a new kind of low-fat mayonnaise. They had trouble getting their mayo into grocery stores, because the grocery chains charge fees (something in the five figures, IIRC) for giving new products shelf space, and the company didn’t have enough cash on hand to pay those fees.
Gas Tax?
By this logic, the customer's ISP also deserves a cut.
They do, from the customer.
(Disclaimer: I don't work for Apple or own any of their stock, just a happy dev in their ecosystem)
I completely agree with this model.
Apple's marketing muscle is HUGE. I'm perfectly OK with splitting one-time or recurring revenue with them if they help bring me customers.
Obviously, any app store-only app will not care about this other than reduced margins for subscriptions -- they weren't making money any other way. But folks who sell through other channels than ipad will .. just leave. I wonder if that's the goal.
But then again: it's like the ebook purchase thing -- Amazon and BN have been strangely silent -- maybe they decided to relent, maybe they're going to get a special deal, or maybe they'll pull their apps just before the ipad2 launches. :-)
"All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app."
"Apple's announcement went on to emphasize that publishers are not limited to using the App Store for subscriptions; they're allowed to use their own websites to sell subs."
So purchase can be made in Safari in order to bypass the AppleVAT ?
> Oh, and the subscriptions offered within iOS apps must be the same price or less as the company's other offerings
No. If Apple isn't forced into a climbdown, those vendors not making a >30% margin on digital subscriptions will either be forced to raise prices across the board or dump the iPhone app.
Essentially what they're saying, as far as I can tell, is that I can't offer in app-purchases without going through Apple.
So something like Rhapsody, for instance, CAN build an app giving you access to your existing collection. They can NOT, however, provide for the ability to sign-up new customers without giving Apple a cut. My bet is that punting out to Safari from your app won't cut it. It has to be initiated completely from outside your application.
safari is not inside the app
In addition, publishers may no longer provide links in their apps (to a web site, for example) which allow the customer to purchase content or subscriptions outside of the app
I think this whole thing is overblown.
When I trade stock, options or pretty much anything, I get charged commissions. So by the same reckoning e*trade, Schwab, Ameritrade, <insert brokerage here> are thieves and have been "stealing" from investors/traders for centuries.
It's more than just providing a subscriber base, it's the infastructure to process recurring payments, while making it stupid simple for the customer. Whether this is worth 30% is debatable, as some of us know it's not trivial/cheap to do on your own.
Does the upcoming launch of Apple's NFC system and general purpose payments platform suggest that the same rules will be coming for ecommerce and general transactions? Sounds like bad news for people like Square or PayPal.
Just based on that one line argument in the subject, I can't say I disagree.
To round the issue out from their side, not that I agree, from their point of view, it's "If we bring you subscribers via our devices, we deserve a cut"
Once you have purchased a phone from Apple - doesn't it cease to be their device?
Doesn't this all seem a little wrong?
Only if you jailbreak it