Apple’s rejection of the Sony e-Reader app and announcement of App Store subscriptions, in conjunction with The Daily launch launch, seems to have agitated a large number of folks. I’d assumed the implications and resultant response was overblown. But it turns out that I was the one who misread the situation. From Apple CEO Steve Jobs yesterday:
Our philosophy is simple—when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing. 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
I can’t imagine many businesses will suddenly want to pass 30% of their subscription-based income on to Apple in exchange for a place in the App Store. In fact, those running on tight margins, like Pandora or Slacker, now find themselves confronted with a difficult decision — raise rates or abandon iOS.
But something’s got to give. Apple’s iPhone success is largely based on a vibrant ecosystem of third party apps and services. It’s symbiotic… and copacetic. At least it was. And not everyone will take this lying down. As Rhapsody stated in an email release I received:
An Apple-imposed arrangement that requires us to pay 30 percent of our revenue to Apple, in addition to content fees that we pay to the music labels, publishers and artists, is economically untenable. We will be collaborating with our market peers in determining an appropriate legal and business response to this latest development
Indeed. Additionally, the Wall Street Journal wonders if there’s an antitrust case here. For example, it sure seems like Apple could be unfairly stifling (iBooks) competition from the likes of Amazon’s Kindle with this additional new provision:
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.
Of course, I’m no lawyer. But a public backlash and threat of legal action may be enough to encourage Apple to adjust (soften) their stance.
“All power tends to corrupt and absolute power corrupts absolutely.” – John Dalberg-Acton
Apple’s slide to the Dark Side will get much worse, before it gets better. Fortunately you can just de-program yourself and leave the Cult of Mac of your own volition.
:)
“Of course, I no lawyer. But a public backlash and threat of legal action may be enough to encourage Apple to adjust (soften) their stance.”
It’s really pretty amazing how similar the Apple of 2011 is to the Microsoft of 1997.
Both of them had the same mantra: Expand revenue outside of the box. Leverage our lock-in to capture a guaranteed share of money our users spend out on the internet.
—–
All that said, my general take has been that Apple is short-term vulnerable in the EU, but has less short-term vulnerablity in the USA.
But enough public backlash can pressure the DOJ, and if you bait the DOJ into a fight, you lose even if you win the case, as the Microsoft example shows.
Apple certainly does seem intent on baiting the DOJ these days…
Chucky, the parallel for me is the recent third party app development environment scuffle. Adobe threatened to sue Apple (maybe they even filed?) and at some point Apple relented. This issue is less cut & dried though, with broader impact/implications. But I can’t imagine Apple will ultimately get 30% of every Kindle book or that Amazon would abandon iOS. Hm.
Todd, Yep, I take comfort in the fact that I’m free to depart at will and that the competition continues to improve. And, given this scuffle, my plans to migrate to a iPad 2 for an e-reader are on hold. If all the vendors vanish, I’d be stuck with iBooks. It’s not bad at all, but I prefer choice.
“Fortunately you can just de-program yourself and leave the Cult of Mac of your own volition.”
It’s funny. I’ve exclusively been in the cult of Mac for a loooong time. They build nice computers. I never considered switching away, even in the dark days of 1996-1997 when you had to make excuses for why you were on the platform.
But in the last year, I’ve started thinking about options. I actually bought an OEM copy of Windows to run in VMWare to experiment with. I’m not anywhere near ready to switch, but I do want to be prepared.
I need to be able to trust my OS vendor, and Cupertino has been acting in a shifty manner of late.
“And, given this scuffle, my plans to migrate to a iPad 2 for an e-reader are on hold. If all the vendors vanish, I’d be stuck with iBooks. It’s not bad at all, but I prefer choice.”
You talked the other day about the fact that you always had jailbreaking as an option on iOS, even if you didn’t normally run your iOS gear that way.
Thus, you might want to note yesterday’s story about how iBooks is now disabled on jailbroken iOS devices…
Yah, I did read that… and suspect Greenpois0n will see an update or Cydia will receive an app to “correct” the issue. Regardless, my Kindle is a sunk cost and I question what the iOS app ecosystem will look like in a few months when (if) these policies go into effect.
Absolutely right the EU will probably get in first if there is anti-trust action.
old MS argument: Apple is a monopolist in terms of Apple ecosystem. Silly back in the day. A little bit more now?
Also, the threat of anti-trust means lots and lots of lawyers, which means lots and lots of review, which means things move slowly. How much of MS bogging down was an (accidental) result of anti-trust?
I immediately thought about netflix in this scenario, who certainly would NOT be happy having to give 30% of a 7$ a month fee to apple. But, apparently they are somehow EXEMPT from the fees, regardless of where the cust. acq occurs. does that make ANY sense?
“Also, the threat of anti-trust means lots and lots of lawyers, which means lots and lots of review, which means things move slowly. How much of MS bogging down was an (accidental) result of anti-trust?”
I think a lot of Mister Softee’s problems over the last decade have to do with the weird corporate incentives that creep in.
Microsoft ended up winning the anti-trust case because Thomas Penfield Jackson wanted to be a celebrity and started giving press interviews, but dealing with the case definitely hobbled their entire corporate culture.
A similar story happened to IBM a couple of decades before that.
A smart corporation really doesn’t want to bait the feds. Even if you win the case, you end up losing…
“But, apparently (Netflix) are somehow EXEMPT from the fees, regardless of where the cust. acq occurs”
If my understanding is correct, that state of grace ends on June 30…
Wait…so I’ll now be able to buy Kindle books from within the Kindle app? Why is this bad?
I have a question, perhaps a loophole: What if I buy a book on my kindle, then read it in the kindle app on iPhone? Does amazon owe Apple for the sale, even though the purchase was performed outside of the iPhone app?
Total, If Amazon chooses to continue publishing the Kindle app and does not raise rates, it’s obviously an improved experience for us. But if Amazon gives 30% of each book sale to Apple, at current rates, they make no money. Other subscription services would even lose money on each sale. So there’s three possibilities here… some services leave iOS, others raise rates, or Apple adjusts the policy.
Jon, Apple only wants a cut if the purchase is made via the iOS app. However, the requirement is that every service that offers a subscription also offer it through the app itself. Not only can it be an outright financial burden once implemented, but creating a new app and retrofitting one’s backend service/subscription technology and infrastructure will be a logistical burden (with financial implications) as well.
“But if Amazon gives 30% of each book sale to Apple, at current rates, they make no money.”
Amazon already loses money on Kindle books (http://www.tbiresearch.com/talks-between-amazon-and-publishers-going-nowhere-2009-11 ), deliberately so.
That’s one research company’s hunch based on a prior pricing model. And on tent pole novels, it may be worth it to lose a few cents as Amazon builds community. But how much are they willing to lose before the whole business becomes unsustainable?
Based on conversations I’ve had today with companies that don’t want to be cited on the record, it’s going to get interesting. The enemy of my enemy is my friend seems to be the prevailing theme.
Just like in the early 1990s, when Macs cost 10K, Apple is getting greedy again.
I’d say between the weak iphone sales on verizon, and this new requirement, we are watching the beginning of the end for the iphone. Consumer goods only good for 5-7 years anyway, iphone will be 4 years old soon. Everyone in developed world who wants one will soon have one.
another point:
apple is going to be under tremendous pricing pressure in the next few years. They can’t go on selling 800 iphones to carriers forever.
Easiest place to look: music and software sales. They could easily 2x-3x profit margins. Just cut out the credit card companies.
Music isn’t not going to going to help contribute “2x-3x” profit margins to apple anytime soon if ever
“That’s one research company’s hunch based on a prior pricing model”
Sure. Was your original comment that Amazon would lose money if it had to pay Apple 30% based on anything more?
“But how much are they willing to lose before the whole business becomes unsustainable?”
I have no idea. I do know that I (as a consumer) am getting a practical immediate benefit out of this (the ability to get content from within an app, like the Kindle app) and that the negatives that people are pointing to are entirely speculative.
Purely speculative as well. And why off the cuff proclamations like that end up in the comments and not the article. However, given the realities of content licensing, I doubt anyone peddling digital media is making 30% profit when all is said and done.
As a consumer, I agree with you. In-app purchases of Kindle books, or XM streaming, would be a much smoother and natural experience all around. However, I don’t think it’s economically sustainable and something’s got to give. As I said elsewhere today, if these guys can’t collectively work out better terms, I’d expect to see many more media-capable websites. Mobile Safari will become our Kindle reader (and book store).
I’m all for Apple pissing off app makers. I couldn’t be happier about it really.
I love my Droid. ;-)
So I’ve heard (on a podcast, but by a guy who should know) that the current APIs for in app purchasing only support a few thousand items. If true, I don’t see how Apple could require things like music or books to sell EVERYTHING via in app purchases… Maybe its not true, there’s a way around it, or its being fixed with the 4.3 update that’s rumored to be coming?
Pandora is barely getting by based on the data in their public filings, so they can’t possibly agree to this without raising rates. And they’d have to raise rates on everybody given the no-lower-cost requirement.
Netflix too you’d expect. I can’t see them taking the monthly rate up to $12 for everybody just so they could offer iPhone/iPad streaming. I assume they’d just drop them. The low price is how they’re getting the explosion of customers at the moment, which I assume is what they want to continue for a while. Higher prices would certainly slow that down.
I Personally will say If netflix raises its rate across the board because of apples new policy, and i have to pay more even though I do not own any apple products, I will cancel my 2 disk+streaming subscription the second they say my rate is going up.
If I was considering buying an iPad or another iOS device, news like this will almost definitely dissuade me and I’d look elsewhere.
If I already had an iOS device and this policy stands and my content starts disappearing, I might be quite upset.
This is all pure speculation, though. :-)
No comment from siriusxm yet. The app is a must have for them. They are cornered.
@Ben… netflix just raised rates last month… why not then? Also… when their current streaming deals (which were very lucrative, because content providers never imagined their current size) end, the rates are going up anyway… this may just be another add on.
At the end of the day purchasing physical media is the way to support and sustain artists, filmmakers, etc .
Long live physical media… I LOVE IT!
Easy solution. Don’t upgrade you ebook, etc readers on your iOS devices and you still have the link. Apple can not FORCE ppl to upgrade an app
You can also downgrade:
1) keep all iTunes ipa (apps) backup up
2) delete the app from iTunes and device
3) drop the old version into iTunes and resync
If you don’t have a backup, the ipa files are on p2p file sharing. They are free apps so there is no pirating issues