Wed, Feb 2, 11
Apple, even during Steve Jobs second coming, has done dumb things. Some are strategically insignificant, like the mercifully terminated eCards created to mollify the “Apple must do something out-of-the-box online” meme. Some are obviously much more detrimental to its ecosystem, like the persistently anemic nature of MobileMe.
On the same continuum, however, there have been moves made by Apple that were universally seen as shortsighted and even fatal at the time they were introduced, but turned out to be nothing short of brilliant. In hindsight, for example, Apple’s refusal to “open up” iTunes by licensing its FairPlay DRM to its rivals as well as its steadfast rejection of other DRM platforms notably from Microsoft and Real was a bet-the-company type move that had no shortage of extremely vocal critics. In under a decade, iTunes has become the world’s largest and most lucrative digital media platform.
Today’s episode in the continuing saga of “Apple’s evil” is the rejection of Sony eReader app from the App Store. This controversy, too, boils down to: “Why doesn’t Apple just publish a clear declaration of what it will and won’t allow in the App Store.” The subterranean accusation here is that Apple is arbitrary, capricious and abusive of its ecosystem partners.
For any single iOS developer or company, it would certainly be best if everything was spelled out and stayed unchanged. Unfortunately, while Apple is the largest technology company in the world and one of the most nimble, it can’t foresee everything. About 65% of all Apple’s sales now come from iOS devices that didn’t even exist over three years ago.
This is not a problem just for Apple: Joost and Hulu were both derided at their launch. The former is practically gone but the latter has become an overnight success. In turn, Hulu is now so vitally threatened by Netflix that it’s contemplating changing its entire business model. Of course, Netflix is likely not amused by Amazon getting ready to stream movies at discount. All this, inside a couple of years. Sustaining large-scale platforms is a very dicey proposition given the breakneck speed of change.
Just as I can’t see how Apple could have become a $300+ billion company by making iTunes an “open for all” playground of its competitors’ commercial interests — given Google, Microsoft, Adobe, RIM, Samsung, Nokia, TimeWarner, NBC, Universal, Amazon and a host of other competitors suing or attacking Apple on a daily basis — I can’t see a way for the App Store to prosper by turning itself into a “neutral zone” app and media hosting platform.
Who’s your daddy?
Why then should Apple subsidize companies like Sony to park a free app in the App Store as a simple conduit to sell their own properties outside of the App Store? Some would argue that the mere presence of such apps enhances the value of the App Store which then sells more iOS hardware devices where most of Apple’s profit comes from. By that logic, unfortunately, Time Warner could also give away and heavily promote a free app in the App Store that whisks away iOS users to various Time Warner properties to purchase music, videos, movies, books and magazines. Apple gets nothing for footing the App Store platform expenses while Time Warner gets to leech on the huge Apple ecosystem for free. Now multiply this by thousands of other companies bypassing Apple’s cut, and see how attractive App Store becomes for Apple.
The App Store value proposition is simple: 30% of transactions done via an app go to Apple and in-app purchases is the method. That figure may change one day — lowered for certain media or split for app and in-app purchases at different rates — but not until there’s a better and more lucrative online store elsewhere. That day isn’t now. Obviously, if companies like Sony or Time Warner could build their own profitable media stores (not that they don’t try repeatedly) they wouldn’t even need the App Store to begin with. So who has the upper hand here?
The line in the water
Of course, there is a balance. Without sufficient and competitive content, the App Store would fail to ignite iOS device sales. Strategically, however, all the App Store controversy to date has not dampened the enthusiasm of app submissions or iOS device sales, which Apple can’t manufacture enough of. Digiterati teeth gnashing hasn’t been reflected in actual sales figures appreciably.
No lawyer worth his BMW would advise Apple to spell out precisely what is and isn’t permissible on the App Store. Any such prohibition would essentially pre-announce verticals or platform extensions Apple itself may be thinking of developing and, conversely, the lack of any such off-limits would prematurely handicap Apple.
Some people would like Apple to offer variable or different rates of commission based on media. That may sound reasonable at first, but what if apps in one category start arbitraging price, cross sell other vendors’ wares at a lower cut and keep the difference? What if clever developers come up with forms of transactions without downloads, conventional in-app purchases or even pinging servers by, say, converting QR Codes on physical media to real or virtual money? Should Apple spend resources to try to anticipate and police these potentialities? What if Apple is planning to bridge physical and virtual worlds in its upcoming iOS devices through its own NFC-aided payment infrastructure which may alter its 30% cut policy? Should Apple have disclosed this a year ago via its App Store rules?
Technology changes. Competitors change. Regulations change. Markets change. User preferences change. Apple’s needs change. A precise codification of what is and what isn’t permissible in the App Store at any given time period is thus neither practical nor beneficial, for Apple. App Store policies need ambiguity to keep pace and adapt. This is not Android, and Apple’s not stupid. After all, on the eve of its long-awaited entry into games, it was Google that just kicked out from the Android Marketplace the popular Kongregate Arcade app that allows downloading of — of all things — Flash games.