Tuesday, February 15, 2011 [Tweets] [Favorites]

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,

18 Comments

I wonder whether this "same price" policy will come to the Mac App Store too...

I wonder what Apple's margins on e.g. music and movie content are? Is it going to insist on keeping 30% there, too? And if not, why not? The best guesses I've been able to find say it's about 20% margin there.

In other words, Apple insists on the full retailer's cut, even for stuff they aren't directly selling or marketing.

What this in turn says to me is that Apple has absolutely no interest in being a service provider for retailers. 30% isn't an unreasonable retail margin for Apple to be charging on stuff it sells itself; on the high end, yes, but not unreasonable. It's an impossible margin to be just a service provider, to be just handling payment processing and other logistical matters. Apple must know this — they're not stupid — so the conclusion must be that they've concluded that they don't want that business.

The end conclusion is that Apple wants a world where they are the only middleman between iOS users and content producers. They are the retailer.

It speaks volumes for Apple's confidence that they think they can pull this off. It's a gamble. It's a twisting of the arms of people like movie studios and book publishers who have preferred to work with other resellers, like Amazon, Netflix and the like, rather than deal directly with Apple. They haven't wanted to deal with Apple because they're terrified of Apple owning their sectors like it does music.

Apple are effectively saying, "Want to reach iOS users? You have to deal with us, like it or not, and our customer base is too big to ignore."

Of course, this doesn't prohibit another big player, like Amazon, reaching an independent deal with Apple. But it'll be one negotiated very much on Apple's terms. I wouldn't be too surprised if Apple and Amazon reach a deal, secret or public, to keep the Kindle app on iOS, but it will involve Amazon paying Apple substantial sums of money if it happens.

It should be noted that existing customers and customers acquired outside the app will not be subject to the 30% fee, just subscribers that sign up within the app.

Rumor has it that Apple has decided to kill iOS in favor of a new SteveOS, which will only run if you sign a contract with Apple which automatically sends 30% of your paycheck and bank balance to Apple every month.

From tomorrow’s WSJ:

Jobs said, “We think that iOS has had a nice ride, but we think that SteveOS will provide a more magical way for our users to directly compensate us for restoring a childlike sense of wonder to their lives.”

Dear Michael:

It has come to our notice that your blog "Michael Tsai - Blog" is available on the public internet. Since all public internet content is viewable in MobileSafari®, we will need you to provide us with 30% of all advertising and associated revenue you derive from "Michael Tsai - Blog" by June 30, 2011, or else remove "Michael Tsai - Blog" from the public internet by that date.

Thanks for your understanding,
- Apple Legal

@Kalle The “existing customers” bit simply means that the 30% is not retroactive, which is true but not saying much. Because the prices have to be the same, outside customers will end up paying more than before, even though the 30% isn’t coming directly from them.

In case anyone cares, I wrote my thoughts here (it would have been a bit too big for a comment…)

This is the comment I just left at Think Vitamin (where you == Carson):

We all hate it when someone rates our app based on its price. We say, "Hey, rate the *app*, not the price. If you don't like the price, don't buy it; go somewhere else. But don't call the *app* bullshit because of its price."

If I understand your argument, you believe it's reasonable that Apple doesn't allow people to freeload on their platform, by releasing a free app to access their externally subscribed service.

So what your argument really boils down to is that you don't like the price. You don't like the 30%. If that's the answer, the obvious answer is to go somewhere else. Or, as you suggest, do an HTML5 app.

But don't call it bullshit. It's Apple platform, and this is a free market. They can do whatever like. You have the choice to play or leave.

(And, to be clear, Apple's new policy spoils some plans we have, so I'm not personally happy about it.)

@Matt I think the price is an important component and should be considered in the rating of a product. This is especially true in the App Store where you can’t try before you buy. When something costs more we expect more of it. Since apps used to be able to “freeload,” the 30% means paying more to get less than we had before. Certainly, I think a new version of an app that cost more and did less would deserve a lower rating.

I don’t really understand your argument about the free market. Why is it illegitimate to speak out and the only choices are to play or leave? That’s seems to me like saying that in a democracy you should do nothing more than vote. Or that if you think your government’s taxes are too high you should emigrate.

To those who think it’s OK for the iOS platform to be Disney World, I assume you would have no problem if the Mac and Windows were like that, too, because people would be free to switch to Linux?

@Michael,

I don't agree that price should be considered in the rating of a product. A rating should communicate an opinion about the product that's relevant to anyone considering the purchase, regardless of personal and relative price/value threshold. SpamSieve isn't any less of a product because there's some guy who's inundated in spam, desperately needs it, but for whatever reason can't afford it.

I also don't agree that when something costs more, we necessarily expect more of it. You could conclude, at some point, that raising the price of your products compensates the reduction in your support burden. That your app doesn't do more doesn't give me a *principle* argument against what you've done; I simply have to decide whether its price still justifies the value I get. But you've done nothing wrong.

I have no issue with speaking out. I'm not happy about the situation. Apple's policy has caused me to deeply reconsider the roadmap of a product we're going to develop. I hope lots of people write about how it no longer makes economic sense to bring their compelling product/service to the iOS platform.

My only issue is with *what* is being said.

People are speaking of Apple as tyrants and extortionists, implying they've done something immoral or unethical. As far as what I can see, what they've done is within the scope of the terms we've agreed to, it makes financial sense for Apple, their shareholders, and will prove attractive to many of their customers. They are acting in their self-interest -- which is a fundamental necessity of participants in an efficiently operating free market.

So I'd prefer to read people saying, "Here's why I'm going to have to leave the iOS platform." rather than, "This is bullshit." Or, "This isn't fair." This has absolutely *nothing* to do with fairness.

@Matt Well, I suppose this just comes down to what the purpose of a rating is. Is it a measurement against a platonic ideal or a tool to help me decide whether to click the Buy button? In the App Store, with no trials, I do not have perfect information about the product in order to be able to determine whether the price justifies the value. So I think it’s helpful for the rating to include some assessment of whether other people thought it was a good value.

I would consider the quality of the support to be part of the app. Thought experiment: the same binary at two different prices, one with concierge-level support and one with no support.

Regarding Apple, some of us think that this is an error on their part. They think it’s in their self-interest, but it will actually have (long-term) negative consequences for their customers and ultimately shareholders. No one knows for sure, and it’s legitimate to disagree here.

I do think that they’ve been immoral/unethical, though, by changing the terms. Technically, they’re allowed to do what they did because one of the sections says that the entire document is subject to change at any time. But, clearly, such a document is meaningless unless there is also an implied contract that the changes will be in the details, not in the intent/spirit of the agreement. The review process started out as a way to protect users and the cell network, but now it’s become a tool to collect rent and prevent competition. The bait-and-switch (which affects both customers and developers) is what’s not “fair.”

@Michael

It would seem to me, that this will ultimately prove to be a bad move for Apple, for exactly the reasons you mention. Then again, as long as Jobs has been there, Apple seem to have a consistent record of making decisions that prove good for Apple.

Whether they've been immoral/unethical... I find that a trickier question, and personally don't agree. If they had announced the same policy, but keeping only 5% would you then have considered it OK?

@Matt There’s no control, so we don’t know whether different decisions might have been better (or worse). I think this decision is of a totally different kind, so past performance is an even less reliable indicator of future results.

The 30% is just totally unreasonable/impossible in my opinion. At 5% I think there would be fewer complaints, but I would not consider that OK. To me it’s not about the price but about the way they are changing the character of the agreement. It’s no longer about vetting for malware and preventing reasonable user confusion but about dictating business and engineering (not unlike Section 3.3.1). Plus, even at 0% they would be effectively banning the Kindle app because Apple’s system can’t handle the number of SKUs that Amazon has.

"At 5% I think there would be fewer complaints, but I would not consider that OK"

Sell us magical boxes with magical OS's. Charge premium prices. But don't commercialize system services.

There is a line. And that line separates computers from game consoles.

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[...] don’t want to give Apple 30%, which means that by the rules of the App Store there can be no purchasing within the app at all. The Google Play version does allow purchasing within the app, without giving Google a cut, [...]

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