Archive for February 15, 2011

Tuesday, February 15, 2011

App Store Subscriptions

Apple is of course framing this as a new feature, but one can also look at it as removing features and destroying business models. Apple is changing the rules for existing apps and services. It’s a bait and switch. If you don’t comply and pay the Apple tax, you’re banned from writing a native app for the iPhone, iPad, and iPod. (Of course, you can still use the sweet SDK/shit sandwich and write a Web app that runs in Safari.)

Most of the press coverage I’ve seen is along the lines of the ArsTechnica headline, “Apple: if we get you subscribers, we deserve a cut,” which sounds reasonable. However, combining Apple’s various statements produces a very different picture:

  1. Apple is changing the rules for “content-based apps.” Today’s announcement was about subscriptions, but the changes also affect other digital content such as e-books. Who knows where the lines will be drawn or whether this will extend to all commerce conducted from iOS devices.
  2. Unless your content is free, you must re-engineer your app (and, probably, server back-end) to support Apple’s purchasing APIs.
  3. Apple takes 30% (in perpetuity for subscriptions that auto-renew) even though, unlike with the App Store, Apple is not providing a content store, hosting, or bandwidth.
  4. You may not link to your own Web store.
  5. You may not charge more to customers who buy through Apple. This makes it impossible to selectively raise your prices by ~43% so that you end up with the same margin after Apple’s 30% cut.
  6. If you have an existing app and don’t comply with the above, on June 30th you’re booted from the App Store.

Publishers that have a significant number of non-Apple customers probably don’t want to raise prices across-the-board. Yet with current margins they may well lose money if they have to give up 30%. In some cases it may be possible to remove features from the app. For example, have the app be just a viewer, and make the user type the URL in Safari (no linking, remember) to browse and purchase content. (It’s actually not clear whether even this will be allowed.) Other publishers may be forced to withdraw from the App Store. I don’t understand what Apple expects Amazon, Netflix, and others—and their customers—to do.

Apple is setting the rules so that if you want to compete with iBooks or iTunes (even if you were around first) either your app will not be as smooth as Apple’s or your prices will be higher.

The technology itself has the potential to be great for customers (and publishers) by making it super-easy to buy content. Apple’s policies, however, seem to ensure that customers will either see their app experiences degraded or their prices increased.

See also: Kyle Baxter, Ryan Carson, Macworld, and Hank Williams,