Apple’s Ambiguity: There’s an app for that

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.

Crystal ball

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.

tweet-sony.png

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.

95 thoughts on “Apple’s Ambiguity: There’s an app for that

  1. Personally, I think Apple’s change in In App purchase policy is a pretext they have come up with to get Sony, Amazon, B&N and the rest to walk away from their ebook apps (or in the almost-as-desirable alternative for Apple to hand over a huge chunk of their profits for the privilege of giving iOS customers an app).

    There are three reasons I think this:

    1. This is a significant assumption, but I believe the people in charge of the Sony e-Reader iOS app are not stupid. Their customers are pummeling them about not having an app like everyone else does. If there were any way to make the Sony e-Reader iOS app economically viable for Sony under Apple’s new terms, Sony would do it in a heartbeat. In fact, given their position in the marketplace they should have been willing to accept far less in economic viability than Amazon or B&N would. Instead, they gave up on their negotiations with Apple and went public with the dispute. That is the absolute last resort. After all, it throws a grenade at Sony’s relationship with Apple, which Sony needs if they ever want to deliver an iOS app. I don’t think the Sony team did that (and went to the NY Times, to boot) lightly. I think they waited until they saw no other choice.

    2. Apple has shown *zero* evidence of the kind of preparation required to actually have a real, non-Apple bookstore hosted under In-App purchase:

    (a) In App purchase has a limit of 3000 distinct product IDs (this is from the iTunes Connect developer guide dated *last week* – February 3, 2011). From what I understand, this limit has been in place for quite some time. My phone tells me that Amazon currently offers 838,021 books (up a few hundred from earlier this morning, I believe) plus magazines and other content. How do they get past 3000 and can others do the same? If so, who? Just bookstores? Or is it a general new capability?

    (b) What does Apple do about Kindle store items that meet Amazon’s guidelines for the Kindle store, but not Apple’s for the App Store (e.g. books and magazines about Android, erotica, etc.)? Does Apple create an army to review Amazon’s submissions? If so, what happens to Kindle users who’ve bought non-Apple approved content outside of the App Store? Are they allowed to read that content on their iOS devices? A strict interpretation of the guidelines we know about would suggest no. That interpretation may be up to Apple, but loosening the restriction leaves a potentially unstable crack in their walled garden.

    Or does Apple decide not to review In Apple Kindle store items for now? Wouldn’t that mean Apple will just end up patching this crack in their walled garden in the future once someone decides to try and drive a truck through it? And is it even possible to patch this without ending up reviewing Kindle store items? If so, how?

    (c) None of the reporting I’ve read about the iOS 4.3 betas suggests there are any changes to support the overhaul third-party in-app bookstores would be. To me, in-app subscriptions are a much, much simpler problem and we saw changes to support them. Why aren’t there any changes to support in-app bookstores? Don’t you think some people decided to look after the Sony controversy erupted? I think there aren’t any changes and I don’t think that is because changes aren’t necessary.

    3. As far as I can tell, there has been absolute silence from Amazon and B&N on the subject of the Sony controversy. If they were confident of their welcome in the App Store I would have expected some sort of reassuring statement on the matter (ideally a joint statement with Apple). I haven’t seen anything of the kind and I’ve been looking. Has anyone else?

    If Amazon and B&N are being silent, I think that can mean only one thing: they *aren’t* confident about their place in the App Store and might well negotiating with Apple about it right now. Maybe they feel they haven’t reached the impasse that Sony has. Maybe they have and have decided to lay low and for now and hope the situation changes. Maybe they’re watching how Apple and Sony play out before deciding on their next move. Maybe they’re working feverishly on an HTML5 reader interface so that it is ready when their app leaves the App Store.

    In other words, I have no idea what their silence means specifically, but I can’t think of any explanation for it that isn’t discouraging for the future of third-party ebook apps on iOS. Can you?

    Naturally, the big weakness in my chain of arguments is that I spend a lot of time arguing by contradiction. Small problems in my data or reasoning could easily change my conclusions substantially. For example, if the management of the Sony e-Reader app is not rational [sounds unlikely, though certainly possible] or if they are substantially influenced by non-ebook considerations, like the possibility of Playstation games on the iPhone [absolutely possible, though not guaranteed] that could change my conclusions. However, I haven’t really thought through the details yet because this comment is already far too long.

    • It may be simpler.

      Amazon and B&N, historically, were and still are primarily book stores (or content retailers). Sony is primarily a consumer electronics vendor. Apple let Amazon and B&N in early on, before Apple thought through the possible longer-term tablet intentions. Sony submitted their app after Apple started asking about those intentions and Sony gave Apple the “wrong” answer, while Amazon and B&N reaffirmed their priorities as content retailers and not tablet competitors.

      In any case, as you’ve noted, there are lots of possibilities here.

  2. Nicely written and balanced article, with the usual attempt to be critical of a grade A student in the name of balance (got to encourage her to do better and not to slack off, I suppose). It’s almost the diametrically-opposite version of “damnation with faint praise” (exoneration with faint criticism, perhaps? LoL).

    Hence the inevitable “Some are obviously much more detrimental to its ecosystem, like the persistently anaemic nature of MobileMe”

    It’s interesting to notice that this time last year, MobileMe would have taken second place to the publicly-pilloried “disaster” of Apple TV among the litany of failed Apple offerings; no more, now that the “hobby”‘s place in the “eco-systemic” scheme of things in the walled iOrchard is staring to solidify.

    So let it be with MobileMe…

    Meanwhile, in the heart of Kansas, a monstrous twin-structured DataCentre, rumbles into life, undergoing test run after test run, destined for purposes as yet unknown…

  3. For Amazon, books are points of entry into a consumer lock-in. This modus vivendi principle mirrors through books as “price leaders” how Google’s lures and hooks stage set themselves as free Apps: commoditized bondage and treadmill runs into monitized ad platforms.

    Apple would aim to steer content creators toward entrepreneurship through an enabling mechanism free of self-serving commoditization bias. In other words, you buy our end user integrated engineering and architectural infrastructure at cost plus thirty percent pricing, we’ll provide you with a user centric and fast maturing creative platform whereby you, the writer, the musician, the app programmer, in short… the content provider can willfully market and monetize its purported singularity.

    As a writer, in no way would I wish my penmanship to be reduced to a point of entry for a liquidation sale of pen and sundry…!

    I long for a platform that pushes me up the high ground with no prejudice to its legitimate quest for profit. iOS takes me up that path, Amazon and Google for that matter sing to Ulysses and to my work to lure them down a hole of disposable “commodity”.

  4. As always, a great article. Nicely written and very much to the point. There are probably changes coming sooner than later. Apple will likely deal more directly with competitor offerings within the App Store. Some of those dealing might be behind closed doors. I wouldn’t be surprised to hear that Apple has a special deal with Amazon. It’s very evident from reading some of the comments here that lots of folk like the Kindle App and their iPhones. I’ll bet Sony just isn’t significant enough at this point to make a similar deal but that could change too, who knows. I’m interested to see how Apple will handle newspapers and magazines and the like. Having a vibrant storefront with that kind of content would be a great for hardware sales. No doubt there is lots of chatter behind the scenes on getting that to a point of win/win. I can’t see Apple letting that slip away from them. If Apple sections off iTunes just for that purpose there would be plenty of room for negotiations with the content owners to get the revenue split just right. I doubt there will be much in the way of free stuff on Apple’s news stand. For the rest of iTunes, free stuff still counts mightily. Free podcasts, free Apps, free books. I think Apple is working harder than most realize on getting the cost of all that delivery down to a point that iTunes will make significant profit contributions or more likely, be able to support more interesting App Store rules that sell even more hardware. It certainly will change over time as Apple as it’s partners get better and better at these fairly new businesses. Competition wouldn’t hurt a bit in hurrying that along.
    Thanks for your most excellent comment section. I enjoy reading them as much as the articles.

  5. As a developer I would prefer certainty because I’m taking a punt every time I put resources and effort into making an application. However I’m small fry to Apple.

    The issue as I see it is whether the whole agency publishing model (with 30% to the publisher) can survive Apple’s interpretation. Either it will lead to a distortion in pricing in the short term or a change in the publishing model in the long term or a move to another platform.

  6. I would propose a modification to 11.2: Apps for alternative hardware readers will be refused. Apps for virtual stores (zinio etc) will be accepted as long as at least an IAP is made available for content. Reader Apps for virtual stores can also d/l content from a users website account. Fees payable will be 15% for books and video and game levels and 5% for mags and periodicals. Everybody wins except competing hardware manufacturers.

  7. Bottom line: I was planning on buying an iPad2 at launch and upgrading to a Verizon iPhone. Now I’m not. Simply because Apple has put Kindle and similar apps in the crosshairs.

    • Will you buy a Kindle, even if it doesn’t allow anyone else’s ebook reader or music/video player to work on it?

  8. “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.”

    Indeed. For Apple. You use the words “for Apple” in a very limited sense – basically it boils down to them making money.

    Unless we go into a monopoly situation, indeed, Apple should try to make as much money as possible – it serves their own personal interest. If that how you see Apple fitting in the grand scheme of things, there is not much to say. The only time people can complain about that is when iOs becomes a monopoly. At that point, they will be forced to open up.

    On the other hand, if you think that a platform is a bit more than a money making operation, for example, that users also have an interest that diverges from the objective of Apple, then the discussion takes a different turn. But while explaining the reason why Apple needs to be flexible and change the rules as it goes along, I failed to see you having a lengthy discussion on why that serves the interests of the users really well.

    But I know where I would run and hide if I were you, just like John Gruber does. You hide behind what maximizes the amount of money Apple can and will make. The best part for Apple is that if Apple users find this philosophy acceptable – even defend it, it’s one group that Apple won’t have to worry about.

    (By the way, I agree with your argument that it’s hard to create perfect rules that never change. Of course can wonder why are these rules needed at all – besides the $ argument)

    • 1. Businesses need to make money in order to stay in business.
      2. A natural monopoly will not “normally be forced to open up.” Monopolies are not illegal.
      3. No company acts purely in the user’s interest, and a company’s interests are never completely aligned with a user’s interest. In fact, one user’s interest doesn’t even align with another user’s interest. So there is always a balance.
      4. In addition, the user’s own interest can be seen as a balance between what is best for the user in the near-term and what is best for the user in the longer-term. At the extreme, if Apple provides the user some function now that leads to no more further iOS/app updates forever, that might not actually serve the user’s best interest. For example, Apple could’ve made the iPod play .wma and .wmv files, but they didn’t and they were criticized heavily for it. That might’ve been in the user’s interest. But in forcing the issue, .wma is basically dead, as well as DRM, with all music in either one of two industry standards (mp3 or aac). Plus Apple used their market power to maintain the selling of individual songs, and a price of roughly 99 cents, both of which are in the user’s interest (but not in the music industries interest). Sometimes the user doesn’t see the full picture.
      5. So back around – Is forcing App providers to provide the IAP option when there is already a non-IAP option for acquiring content in the user interest? On the surface, the answer is Yes because it provides a simpler process to obtain content, although possibly at a 43% greater cost. But it can lead to ebook/news/mag publisher/distributors to exit from the App Store, which would seem to not be in the user’s interest. On the other hand, it might force further industry changes, which could be good or bad for the user. The launch of The Daily is an indication that changes are possible.

      In sum, Apple has very often been on the side of what’s in the user’s interest (of having the best UX) in the long run. Due to that, I give them the benefit of the doubt since they have more information and insight than I do about the various industries that are converging.

    • 1. There is a difference between making money and milking every single dollar out of every possible transaction.

      2. Monopolies are not illegal, but abuse of a monopoly is. If Apple effectively controls the smartphone market (like Microsoft did with the PC market), and abuses its powers, you can expect to see the same set of problems that cropped up for Microsoft.

      3. Indeed, at it seems to me that in this post, the only real interest at play is Apple’s money interests.

      4. I fail to see how AAC is in the user’s interest? Mp3 was a fine standard. I say the opposite. The fact AAC exists is bad for the user. Instead of a common platform without DRM (mp3), you have a strong competing standard (AAC).

      5. Apple announced amazing sales and revenue numbers recently, and that’s without charging an extra 30% on top of all books purchased for the Amazon Kindle app. I really don’t see how a user benefits from Apple charging 30% on every transaction, unless you think that Apple needs this money in order to deliver to the user a better experience than they could do without that money. I mean, think about it. You will be basically paying a 30% tax on items not taxed previously. I don’t say middlemen can’t serve a purpose, but I would seriously question the benefit you will get from 30 cents of every dollar going to Apple.

      Unless you are an Apple shareholder or an Apple employee that benefits directly from that 30% tax.

    • 1. Yes, but I somehow don’t think you (with a moniker of AndroidFan) are the best person to judge what is going on in this clash with the publishing and consumer electronics industry.
      2. That isn’t what you said in your first post, but glad you’ve now corrected yourself.
      3. No, it’s not, but you fail to acknowledge other user interests.
      4. Advanced Audio Coding is the audio standard for mpeg-4 (and mpeg-2), which allows for better quality at the same size file, or equal quality at a smaller size file; both attributes of which are in the user’s interest, in terms of both device storage and/or data transport (i.e., downloading). Or do you prefer to continue to use your ancient technologies?
      5. Those who value the convenience of buying via IAP may be willing to pay extra – others can stick to the way they’ve always done it through the web. After all, quite a few people just bought 99 cent songs because it was more convenient than pirating. Regardless, NO user is being forced to pay anything extra. OTOH, the provider might choose to not raise the IAP price; and Apple might have successfully forced the industry to find further efficiencies in their supply chain. After all, haven’t people been complaining that ebooks and digital magazines are overpriced?

    • 1. I am not sure how my moniker affects my argument.
      2. I didn’t correct anything in my first post. If Apple is forced to open up, as I stated earlier, implicitly, it’s because they have some kind of closed areas that people want them to open up. Your philosophy is for Apple to leave no dollar on the table. With a monopoly, I can guarantee you leaving no dollar on the table involves abusing your power.
      3. Yes it is, everything is through the prism of what will make the most money for Apple.

      Here is a choice quote: “Apple gets nothing for footing the App Store platform expenses while Time Warner gets to leech on the huge Apple ecosystem for free.”

      See that’s not true. Apple sets up an App Store because it wants to make lots of money in part by preventing people to install their own apps on their own device. Time Warner has no other alternative (if it wants an app of course) but to go to the App Store. You are blaming Time Warner for leeching when in reality they have no other choice.

      I’m hoping you don’t think it’s leeching that somebody wants to put an app on a device they bought.

      If you compare iPhone to the XBOX, there is a difference. The XBOX revenue model is to sell a device at or below cost and make up the difference with licensing fees. The iPhone is sold for a profit. I guess your problem is that there simply isn’t enough profit. Apple needs to be able to make the money when it sells the device AND it needs to make money off of the leeches you describe. Is Kindle a leech because it does not pay Apple when you install the Kindle app on your Mac and doesn’t pay Apple every time you buy a book? Why is the iPhone any different?

      My guess is that the minute Amazon starts selling books in the App Store with a 30% premium as compared to books outside the App Store, Apple will amend the rules yet again to prevent that.

      I loved this line too: “Apple might have successfully forced the industry to find further efficiencies in their supply chain.”

      Efficiencies which will then be passed on to Apple? You are saying the industry will be forced to find 30% cost savings only to give that money to Apple. How does that serve any purpose?

      Let me ask you this question: will you be bothered if Amazon charges 30% more for books bought through the IAP and puts a big warning to users that if you go through the website, it will be 30% less?

    • Could you read this slowly so nobody has to repeat it yet again:

      Time Warner (or anybody else) does have a choice: go sell their wares someplace else or set up their own stores. If TW wants to play in Apple’s walled garden then it’ll play by Apple’s rule.

      Would Time Warner give Apple a free channel on its own cable network? Is Sony or Amazon giving their competitors free space on their platforms?

    • 1. You chose to call yourself Androidfan so that must mean something. Most Android fans advocate for open, free, and choice, which they’ve wrongly concluded that Apple isn’t. Apple, like Google, is open in areas not directly material to its revenue. (Google and its fans refuse to acknowledge it, which Kontra has written on multiple times.) Apple supports having content or convenience being priced at what it’s worth to the customer, rather than saying it’s free while selling its customer’s eyeballs for lots of money. Apple provides customers a different kind of choice, not the mix-and-match choices of MS and Google, but the integrated-system choice for people who prefer to avoid the mix-and-match complexity of non-integrated devices.

      2. You originally wrote “The only time people can complain about that is when iOs becomes a monopoly. At that point, they will be forced to open up.” Which I said was wrong. You then correctly invoked the need for abuse, by writing “Monopolies are not illegal, but abuse of a monopoly is.” That, to me, was clearly a correction.

      As for your new assertion, my philosophy is not that Apple “leave no dollar on the table.” After all, the iTunes Store and App Store have been operated at break-even for years, leaving many dollars on the table. The motivation behind IAP is not to get a bit more revenue. In the same way that telecom companies didn’t want to be dumb pipes, Apple is defending its devices from being turned into dumb devices. As I said, digital convergence is leading to a clash of industries.

      3. Again no, but you fail to grasp my previous words about a user’s longer-term interests, and strategy considerations that play in a company’s long-term survival. So let me be more clear. In hindsight, a small decision by 4 music labels about selling downloaded music may have doomed them to being irrelevant middlemen. And a small decision by AT&T about selling one handset may have doomed itself and the other US carriers into becoming dumb pipes. Likewise, a small decision now about letting competitors evade IAP can turn iOS devices into dumb devices.

      Roughly, here is the very simplified chain in 2 dimensions:
      Content creator – Content distributor/retailer – Pipe – OS – Device User($ source)/Ad viewer (free)

      An “Ad provider <– Advertiser ($ source)” can point to any item on the left and replace the user as the source of $. Content can be apps/services, music, film/TV shows, books, newspapers, magazines, web sites/services, etc. Pipe can be cellular, broadband, cable/satellite/TV, wifi, etc.

      All players (including the Ad provider) want to commoditize every intermediary between them and the user, so that they receive a larger share of the $/control. So as before, it’s not just Apple strategizing– there is a convergence war going on with major consequences. Mull it over.

    • “Apple sets up an App Store because it wants to make lots of money in part by preventing people to install their own apps on their own device.”

      First, people couldn’t install their own apps before the App Store, so “preventing” had nothing to do with the App Store.

      Second, every for-profit company does stuff to make lots of money. Google set up Android and Android Marketplace because it wants to make lots of money with targeted ads. They all hope their creation aligns with what users want and are willing to “pay” for (supply and demand). App Store provides users with more functionality in exchange for device satisfaction and “stickiness”.

      Third, in all of Apple’s marketing and documents for an iOS device, they never, never say you can put your own app on it. So don’t know who told you that. Apple always says you can use their App Store, which is conceived, built, owned and operated by Apple.

      Fourth, Apple does not “prevent” owners from installing their own apps. They can jailbreak (easy to do) or they can use the enterprise method.

      Kontra responded to your poorly crafted Time Warner argument with an obvious answer. Does TW have a right to have an app in the App Store? By the way, does Google allow anyone to leech off of its valuable web pages, even “your” Gmail or Google Docs pages, or did you think you own those pages? Facebook?

      As for XBOX, are you really so naïve to think Microsoft WANTED to sell the XBOX at or below cost? They (and Sony and Nintendo) sell consoles at or below cost because no one, no one, no one is willing to pay $300 more. That’s how supply and demand works. But MS thinks they can make lots of money (there it is again!) with XBOX because MS won’t let anyone sell games for it without giving MS a big CUT, ensuring all games are priced higher, and because MS thinks people will pay the extra per game.

      So you think just because Apple made a profit on the device, they’re not allowed to make a profit on the content? Why the distinction? Plus no one was forced to buy an iOS device at the Apple price. They buy it if they think the device (as defined by Apple) was WORTH it, or they walk away. Again, that’s how supply and demand works.

      “How does that serve any purpose?”

      Industries don’t seek efficiency until it is forced to happen when customers refuse to pay high prices (supply and demand again). But they Wasn’t it a good thing that a digital song got priced at 99 cents? How did that happen? Apple convinced the labels if it was priced higher, people would choose to pirate – in other words, they’re paying most of the 99 cents for the convenience of the automated and easy iTunes search and one-click delivery.

      Apple does what Walmart and Ford does everyday to their product suppliers. Those suppliers find efficiencies that often get passed on to Walmart and Ford, OR they go find other “platforms” who are willing to buy their wares.

      Read slowly: Any extra charge would be for the CONVENIENCE of using IAP. Users can CHOOSE to pay or not. Some people always pay extra for valet parking, first-class airplane seats, or in-door ice/water dispensers, don’t they? As an Android fan, are you saying convenience choices shouldn’t be offered?

      And no, I wouldn’t be bothered.

  9. I wonder if Apple could introduce tiered rates not depending on the type of content, but simply on transaction volume. It could be 30 % for the first $5 and 20 % for everything above that. This would help all kinds of premium content providers (be it games, movies or books) and at the same time reflect Apple’s cost structure.

    • @Tom – interesting notion, I would be surprised if something like that doesn’t come to be. Seems obvious, but I haven’t read the suggestion anywhere else.

  10. The consumer pays no more or less than he would or should normally pay for quality content that should benefit the whole value chain. He doesn’t suddenly get stuck with a 30% hike in prices for content.

    Music: the user pays 99c. Or, now, 1.29 sometimes. What Apple tries to do is set a reasonable and sustainable value that consumers will be willing to pay, and to pay often. Apple wants to ensure that everyone gets their cut (and Apple themselves are just breaking even). If it means talking music execs down from their usual high-handed expectation of an unreasonable cut, then that is what they will do. Afterall, what do the record companies ever do for their cut? A big fat nothing it appears. More and more bands are going indie now.

    Books and Newspapers: same deal. With books, Apple in fact raised the price people should expect to pay. Previously, it was 9.99 that Amazon was setting as expectations for eBooks. Apple said it should be 12.99 or 14.99.

    But you know what? Amazon wasn’t just being a virtuous patron to authors… it was keeping some 70% or so of the 9.99! Apple told them to lower their part to something more akin to Apple’s 30% or a retailers normal 40%, and raise the amount given to authors so that the creation of good content could be encouraged and rewarded.

    How is Amazon going to make nothing with this enforced in-app purchase opportunity scenario? Apple gets 30% of 15 bucks, Amazon gets 30 or 40 percent of 15 bucks. If Amazon sells through the Kindle or online, they get 60 or 70%!

    A big thing that Amazon gains from an iApp is access to 160 million people who tend to be willing to pay for good content for their iOS device, and who likely have an iTunes account they like to use as a one-stop payment processor. Amazon is certainly not giving that option to others on its platform or in its Store.

    But at the moment, Amazon is bypassing in-app purchasing, so that it can keep it’s 60-70%. It’s also developing their Kindle platform and Apps that you can bet will not include content from B&N or Sony. So, if you buy a Kindle, be sure you want to remain in that kind of walled garden.

    Even if Amazon splits mark-up with Apple, Amazon will certainly not make nothing. It was Amazon being the bad guy here with a grossly marked up percentage, and tending to take advantage of authors by commoditizing their work and having a monopoly as the only successful digital book retailer until now.

    The funny thing is that you as a consumer are complaining that Apple is a thief when it is Amazon that is angry that, due to the new Apple business model for digital book sales, Authors and Publishers are demanding that Amazon reduces its cut to 30%! So much for big, bad Apple. Did you miss all these stories when the App Store started? Amazon is pissed it can’t maintain its monopoly practices.

    Apple tries to make simple business models that will work and spread the value around, so that the ease of purchase and user experience is pleasant enough that more books will be sold and more people will be encouraged to self-publish. So, what does Apple ever for its cut, whether they host the file or not? Well, they are certainly encouraging some close looks at traditional industries in which the incumbent powers were profiting disproportionately and perhaps undeservedly.

    Apple is trying, for example, to come up with a model that will work for Newspaper and magazine subscriptions. What isn’t working for anyone, but least of all the consumer and Apple, is for periodical publishers to expect to reap hardcopy, street stand prices for each digital issue. I don’t want to download a free mag App and see that I have to go out of the Store to pay 6 bucks for one issue that is nothing more than a bunch of scanned pages saved as a PDF, while I can pick up a glossy hardcover at the train station any day of the week!

    The publisher currently tries to sell me in one of three different ways from his free App:
    1) online sale of issues/website access outside the App Store, but with a horrible business model that benefits me little;
    2) sale of a full hardcopy subscription by enticing me with a digital copy (lousy PDF) as an incentive (what’s the point? I am looking for a convenient and ecological solution to reading the hardcopy in the first place); or,
    3) each and every issue is a complete App on its own at full news stand price of 6 bucks.

    Suffice it to say, I have not considered ANY subscriptions of digital periodicals until the Daily finally did something that makes sense. Apple is simply presenting the future of periodical publishing now, and the Daily has taken them up on it. Cut the crap and the old business models with expensive production. Just produce some good content with innovative UI and get it out there for 99c a week. Done. If they can do that on their own, great! If not, hop on board. I think we’ll find the Daily announcing a million subscriptions pretty soon.

    • “Apple told them to lower their part to something more akin to Apple’s 30% or a retailers normal 40%, and raise the amount given to authors so that the creation of good content could be encouraged and rewarded.”

      This is flat-out wrong. Amazon wanted the freedom to charge *less* than 30% and, in the most high-profile cases, *lose* money by charging $9.99 on recent bestsellers (as a loss-leader to encourage people to get comfortable with buying Kindle books among other things). Publishers wanted to control the price of their books through all of the various purchase channels, so they threw in with Apple.

      E-book prices have gone *up*, not down since the “agency model” agreement. Take a look through the Kindle store sometime. Whenever you see “This price was set by the publisher”, Amazon wanted to charge you *less* for the book, not more. Think about that sometime. In fact, as admitted at the time, the publisher’s cut often goes down with the “agency model”, not up. Publishers valued control of prices more than they valued actual money in their pocket… who’s being the monopoly here again?

      “How is Amazon going to make nothing with this enforced in-app purchase opportunity scenario? Apple gets 30% of 15 bucks, Amazon gets 30 or 40 percent of 15 bucks. If Amazon sells through the Kindle or online, they get 60 or 70%!”

      You also clearly don’t understand the “agency model”. When Amazon sells an e-book, the publisher sets the price and gets 70%. If Apple gets 30%, then Amazon gets nothing unless they can tack on an “iOS Shipping and Handling fee” or otherwise manage to raise prices. I don’t think the Kindle app will last very long under those terms. After all, Amazon isn’t a charity either.

    • It is preposterous to claim Amazon *doesn’t* have the high ground on pricing. For decades, retailers bought books from publishers and decided what they wanted to charge for them – 10% off for the frequent buyer club, various sales on bestsellers / recommended books, coupons in your email and so on. As consumers, we all benefited. Apple and the major publishers colluded to take that away for e-books. No one outside that cartel can honestly claim that is a good thing.

      And I don’t think you need to worry about Amazon’s monopolistic practices with respect to e-books. In the Slate article you link, “Everyone is worried that Amazon will end up becoming to books what Apple is to music,”, but a defender of Apple should have no problem with that, right?

      Personally, I don’t fear Amazon’s intentions for two reasons:
      (1) The Kindle DRM has been comprehensively cracked, so anyone who wants to can keep their Kindle books safe.
      (2) I think the same dynamics that played out for music will eventually play out for e-books – with bookstores converging on DRM-free content (in the long run) as content providers let go of their paranoia.

      As a voracious consumer of books, I’m much more concerned about publishers colluding on pricing because that is going to cost me money – now and in the future.

    • I don’t know about high ground or low ground.

      What I do know is that Apple aims to commoditize online retailing of digital goods (since those goods serve as content for its devices).

    • I think you used to be right. There was a time when Apple’s strategic goal was commoditizing the retailing of digital goods. Digital goods are complementary to their devices and commoditizing their retailing (since the goods themselves cannot be a commodity) makes their devices more valuable by making their complements cheaper.

      However, I think the decision to reject the Sony e-reader app reflects a strategic shift. I think Apple has looked at the success of iTunes and of the App Store and decided that there’s even more value in *capturing* the retailing of digital goods, rather than just commoditizing it.

      Let me put this another way: Is an *iPhone* more or less valuable with the Sony e-reader and the Kindle app? The question practically answers itself. If users can do more with an iPhone (at negligible user cost – which seems obviously true in this case), the iPhone is obviously more valuable.

      So why is Apple going down a path of making iPhones less valuable? Don’t they sell lots of iPhones and makes lots of money from them? The only way I can see this choice making sense is if Apple believes the following: The profit they can capture from the increased iPhone value (with competitive e-readers) is less than the profit they can capture with iBooks and the App store in the absence of competitive e-Readers.

      Personally, I think this is a *colossal* misjudgement. You don’t need to have a large Kindle (or other ebook) library to make buying a Kindle (or some another e-reader) a cost-effective alternative to switching to iBooks (if you don’t have the competitive e-reader already). Beyond that, for serious readers, iBooks isn’t even a table-stakes alternative (and is not likely to become one anytime soon). Far, far too many books are missing. Both Amazon and B&N (and I think Kobo/Borders, though I’m less sure about that) have substantially wider catalogs because, well, they actually *are* booksellers. Beyond that, at least Amazon (I don’t know about other ebook sellers) has made a substantial investment in digitizing backlist books that *no competitor has*.

      In other words, blocking competitive ebook libraries from iOS makes it very likely any customer with an existing stock of ebooks will either (a) substantially increase their usage of a non-Apple device they already own (b) buy non-Apple devices (if only to avoid re-buying books). Either way, usage of non-Apple devices has increased *at the expense of* Apple devices. Doesn’t sound good for Apple.

      Even worse (from Apple’s perspective), serious readers who want to minimize the number of mobile devices they use and / or carry around now have a substantial incentive to *replace* their Apple devices with non-Apple devices. Not all of them will (it matters how strong their preference is for Apple devices and how strong their other ties to the Apple ecosystem might be), but some significant fraction surely will.

      A third problem for Apple is the increased difficulty of acquiring customers that find non-Apple ebooks important. Each of these forces adds some small negative feedback to the Apple ecosystem. Put it all together and I don’t see how the iBooks/App Store revenue could possibly be worth it. I suppose we’ll see.

    • ravi, i think you’re missing the mark here, though i understand why apple’s move might point this direction. i have a hard time imagining apple sees it as a worthwhile risk to devalue their hardware devices by limiting user choice, in the interest of some long-term gain from capturing media sales. let’s remember, they have already captured the vast bulk of digital music sales, and they did it *while* limiting user choice (you can play your music with other apps, but itunes is the only app used to buy it on ios). i think what this comes down to is their desire to balance the dominance of their platform (make sure it has the biggest ecosystem) with the quality of the platform (make sure it has the best ease-of-use and consistent user experience). apple is willing to make sacrifices in the former for the latter, and i think the in app purchase rules are largely about that.

    • Ravi, your analysis is appreciated but Apple indicated that the Sony e-reader app was blocked only because it didn’t offer the IAP purchase option, not blocked outright as a competitive e-reader and ebook store. It’s the same option Apple is asking news and mag publishers to offer for subscriptions. See http://techcrunch.com/2011/02/08/apple-subscription-itunes/

      I think this is just one negotiating step in a longer process. Will Sony (and eventually Amazon and B&N) walk away from Apple’s 160m+ affluent customer base over the offering of an option? Sony et al will have to evaluate whether this option offer has the potential destroy their ebook (and/or e-reader/tablet) business. And Apple may still change their mind (like they did with Google Voice).

      Some see Amazon becoming the true Apple ecosystem and device competitor. Here’s one article – http://gigaom.com/2011/02/04/is-amazon-the-next-itunes-competitor/ There was another from yesterday but I can’t find it again.

    • You have got to be kidding. I mean seriously. Manjoo’s incoherent piece from two years ago is a rant against DRM. The Kindle DRM model was exactly the same as the original iPod/iTunes ecosystem with Fairplay. Books/music bought from Kindle/iTunes could only be used on Kindle/iPod. Kindle/iPod could accept stuff with no DRM but were not compatible with any competitors’ DRMs. Identical. When book publishers agree to drop all DRM as music labels did, it will evolve again in the same way. Plus the whole article is an argument predicting why Kindle would be bad for publishers and in fact ebooks sales led by Amazon are the bright spot of the publishing industry.

      The 2nd piece is even worse, filled with so many of what you would call lies it’s hard to get through (“Up until its fight with Macmillan, Amazon charged $9.99 for an ebook. But instead of pricing all ebooks the same, Macmillan wanted Amazon to charge between $12.99 to $14.99″ or “lets the publisher set the price up to a $14.99 ceiling”). Amazon categorically did not price all ebooks the same and ran the Kindle store to be profitable on its own apart from device sales.

      It is preposterous to claim Amazon did not hold the high ground in pricing before Apple enabled the big publishers to force a switch to agency pricing. Ebook prices are up, way up.

  11. Utter nonsense. You lie:

    1. You can buy an iPhone right now for $49, $99, $199 or $299, not $1,000.

    2. You can buy an iPad for $499, not $1,000.

    3. You can absolutely get content into iOS devices such as PDFs, mp3s, mp4s, epubs, apps, etc without paying Apple a dime.

    4. You don’t pay Apple for “every piece of content you consume on the device you’ve already bought”.

    I invite you to retract your lies above.

    • 1. Try buying an iphone n Europe for those prices. Apple doesn’t just operate in the US market.
      2. See point 2.
      3. For now. Today its booksellers being co-opted, tommorow it will be video streamers, the day after that…
      4.See point 4.

      (Also, the ‘lies’ rhetoric is a little strong for what I thought was a friendly discussion.)

    • Your last opportunity to retract your lies.

      1. iPad, for example, in French Apple store is listed @ 508,56 € which is about $692, not $1,000. (Cheapest iPhone there is 519 €). You lie.

      2. You said: “No way to get any content onto my device without Apple demanding cash from me”. I showed you how. You lie.

      3. You’re simply FUDding about what you think might happen in some indeterminate future. That’s not a fact. You lie.

      So, for the last time, retract or I will delete your lies.

  12. Is it possible that Sony could get approved for the App Store if they just stopped “offering” purchases from within the app, and leave it up to the user to know what website to visit to purchase content? By just removing the reference to buying content, be allowed in the store? That way, Sony is not offering any purchases in the app.

  13. While I see Kontra’s point here and I agree with the logic, I do find it a bit off-putting that Apple seems to believe they should get 30% of every digital transaction intersecting with the iPad, even when they don’t store, deliver or market the content. Is the iPad a new type of computer or is the iPad itself the App Store? I certainly didn’t think I bought an App Store, but the line seems completely blurred with this latest move.

    I’m curious about how Apple plans on enforcing this. Imagine if Amazon was able to create an API to allow third parties to create Kindle reader apps (I’m not sure this would be possible without compromising their DRM). Who does Apple take 30% from in that case? Likewise, what would happen if Amazon no longer wrapped their books in DRM? Several smaller publishers (with online stores) do this already. Will Apple charge GoodReader a random sum because it can read books in standard formats purchased outside the app?

    The Kindle and Amazon’s digital bookstore established themselves at the same time as Apple’s iDevices and long before the App Store or iBooks existed. Their success was not built on Apple’s innovation, and in fact, I’d say it’s the other way around in terms of iBooks. What exactly are Amazon’s options here? Do they charge 43% more for all their ebooks or do they keep prices the same and make $0 on any purchases made through the Kindle app? Does that sound fair or sustainable? I’m asking this honestly.

    A bigger and more worrying question is, will the Mac end up this way? I certainly hope not. As Eoin alluded to, it’s interesting to think about where the iPod, and thus iTunes/iPhone/AppStore/etc, would be if Apple had to pay Microsoft 30% of all transactions through the Windows version of iTunes. Would that have been sustainable?

    • The whole piece above was written to show precisely why a strict codification of App Store rules is impossible given the incredibly fast changing nature of technology and markets, as your questions indicate.

      New challenges arise, Apple responds. Not too complicated.

      Any scenario where Amazon gets from Apple more than it gives is a non-starter. So think not what Apple can do for Amazon, but what Amazon can do for Apple and its 175 million users.

      Apple can and does negotiate individual deals for App Store content, see WSJ, for example.

    • Assume two (physical) stores that create a loose partnership to promote each other. One produces some promotional material that shows off the synergy by combining products from both stores. The other store distributes this material.
      Both stores chip in with something and both get something out of it. Sounds a like fair, reasonable and common situation.

      In the Apple-Amazon world you say, that any scenario that one store might profit more from that partnership is a non-starter, unless the winner is Apple. Since normal business logic does not apply here, Apple is so much stronger that it can completely dictate others the terms.

    • Point taken regarding your post.

      “what Amazon can do for Apple and its 175 million users”

      - provide Apple with even more users

      - provide the users with a digital bookstore with a decent library, readable on more than one type of device, which Apple seems to not be very interested in.

      Amazon is not bring nothing to the relationship.

    • @El Aura and Scott: Amazon and Sony definitely bring something to the table; but that something is a competitor to iBooks, which might be okay with Apple, except that Amazon is busy building up the Kindle hardware and Amazon digital stores to compete against the iPad and the iOS platform (books, games, music, video, etc). Same for Sony.

      Today, Apple is dominant. In five years time, it could all be different.

    • “even when they don’t store, deliver or market the content” – if this is the situation, then you should create a web based solution (and Apple won’t get 30%).

      For the same reasons that an app might be better are the same reasons that Apple feels they should get a cut – they were the ones that did/do the work to make apps the better solution.

      If Apple doesn’t deserve anything, then why is an app even necessary? Further, what did Amazon do to deserve a cut from a book sold through an app but Apple doesn’t? It was Apple, and not Amazon, that actually did the work that resulted in apps adding more value than a web page. If Amazon doesn’t want to pay Apple for their value add, then they should instead market their wares through a web page.

    • What did Amazon do to deserve a cut? Are you serious?

      Here’s an off-the-top-of-my-head list:

      - negotiated with publishers for digital rights to their books (something Apple is much, much, much worse at – see the selection in iBooks)

      - converted those books into a digital format their devices and apps could read (in some cases making the effort to digitize books *no one else has*)

      - developed WhisperSync to enable a seamless reading experience across multiple devices and applications

      - took the risk of releasing an e-reader app for iOS long before Apple did

      - took the risk of developing Kindle apps for a wide range of devices, not just iOS and Kindles

      - stores, delivers and markets the books, including cloud storage for all of your purchases, so you don’t lose anything in the event of a hard drive crash or other device problem. Note, in particular, that providing good categorization and other book metadata is a big deal here.

      Need I go on? Or do you still think that Amazon should *lose money* on every book they sell on iOS as the price of providing a Kindle app?

  14. Interesting…In a free market rules change as the market develops… this seems to be hat the app store in iTunes is a dynamic market that changes as the market develops… what they people calling for a codified set of rules is a regulated environment, which is fine if every participant paid a “tax” for access to the ‘level playing field’, which would mean adjusting the rules for any “unfair” competition. This sounds to me much like what exists now.

  15. This is all well and good, but the bottom line for me is this: I didn’t buy an iPad until the Kindle app was available, and I never wouldhave bought it but for the Kindle app. If Apple goes through with this, the Kindle app is dead. The agency model, forced on Amazon through the tacit support of Apple, ensures that any in-app sale of a Kindle title will result in zero revenue to Amazon. Why in the hell would Amazon maintain an iOS app in that world? Apple was able to sell a goodly percentage of it’s millions of iPads because Amazon allowed them to market it as an ebook reader (iBooks is beyond horrible), and now Apple expects Amazon to fork over 100% of it’s revenue? What a crock.

    • That’s utter nonsense. What kind of a person would buy an iPad only for the Kindle app, when it’s much cheaper and better to buy a Kindle?

    • Apple advertised its iPad as an ebook reader due to iBooks, not Kindle.

      In any case, even if Apple were to ban the Kindle App (or if Amazon were to pull it), based on past experiences, Apple won’t take the Kindle App off of your iPad. But you may not get any more Kindle App updates…

  16. If UX is priority one, how does mandating a 30% cut help? Isn’t the outcome 2 buttons – (a) Buy one-click $9, or (b) Buy online $6?

    Result: UX suffers.

    [And assuming the content has a margin of > 30% to trade.]

    Is that better or worse UX than putting a web view inside an App (ala Sony)?

    Perhaps all parties can co-exist if the cut was 5% to cover costs plus 5% profit due to the platform of users provided. Would there be a fee if Google Marketplace had more buying users?

    • Of course the UX suffers. That’s why there is the web and then there’s the App Store. If the web, today, was as efficient and delightful as the App Store, the latter wouldn’t have reason to be.

      What the cut should be is best left for Apple to decide on a commercial basis.

    • Then Apple will haven proven itself to be less knowledgeable about how to set its cut on online transactions than you are, and everyone will migrate to Android Marketplace, which obviously is so much cheaper and with much better UX.

    • That’s not what I meant.

      Clearly 30% is up for negotiation, but the elephant in the room is that Sony felt the web store in a web view inside an App was acceptable UX, i.e. they believed the web offered a good UX for transacting eBooks. I wouldn’t want to compare Android Marketplace in this, it’s about Web v iOS IAP. If Sony’s UX via their webstore was elegant, would the argument hold?

    • Sony eReader app would not have existed without the App Store. If Sony wants to partake in the App Store ecosystem, it has to play by Apple’s rules. Apple wants a cut or an option for a cut, and that’s the rule. The rest is irrelevant.

    • Yes agreed, that’s the take away. So, Apple…. what is the cut going to be for videos or periodicals or Books? Or is it going to be priced by vendor? And if by vendor, how will a vendor know the cut before they commission their App development? Will there be some kind of pre-build agreement?

      BTW, if I had to rank the UX in order of elegance it would be:
      1) iOS IAP
      2) Web
      3) Android Marketplace

  17. Well, my iPad is already inferior to my Kindle as an ebook reader but I use it because it does so many other things, but if Apple makes it so I can’t access my 100+ Kindle books, I’ll be getting rid of my iPad just on principle.

    • John, no one is saying that you can’t use your kindle books on iPad. What reasoned people are saying is that it looks like apple wants a cut if you buy the book via the app store. If not, buy them using safari links within the app or just buy them on your kindle or your pc.

      To many:
      How come my kindle doesn’t let me buy B&N books or Sony books? Also, it is more than a book reader as it plays games and surfs the web. Does this mean they have to open it up as it is multi use?

      Kontra is dead on…

    • Kindles are able to ready any e-book you’re able to convert into a format they natively understand (PDF or mobipocket, IIRC).

      Also, have you actually looked at the Kindle Development Kit? It permits UI, file I/O and network access. Anything else you (or, more to the point, Apple or B&N) need to write an e-reader for their format? I’ll admit the rules around the prepaid network access might make certain monetization models tricky (you might need to ask users to transfer books over USB, for instance), but that’s hardly something Apple can complain about, is it?

    • Kindles are able to ready any e-book you’re able to convert into a format they natively understand

      I nominate this as The Tautological Fantasy of the week. Like, if you can convert an orange into an apple, it’ll taste like an apple. Interesting.

    • Kontra, the only reason you think my point is a fantasy is because you missed it. Let me try restating it:

      Apple and Amazon have the exact same options to deliver content to the other company’s devices:

      (1) Deliver the content in a form that the device natively understands (e.g. PDF, mobipocket, etc. for the Kindle, HTML and whatever other options you care to cite for the iPad and iPhone).

      (2) Write an e-reader application for the other company’s device and persuade that company to make that application available to their customers.

      The *only* difference is that Amazon has bothered to write an e-reader application and Apple hasn’t. The reason for that, of course, is that Apple and Amazon are following different strategies. Amazon wants to sell you content and sells devices only as a means to deliver that content. They are happy to make that content as portable as possible – as long as you keep buying it from them. Apple (at least so far) wants to sell you devices and sells you content only as a way to make those devices more attractive. That means they have no interest in making that content portable.

      And, by the way, that strategic difference is why complaining that iBooks aren’t available on a Kindle is just a cheap, meaningless debating point. If *Amazon* is the reason why you can’t read iBooks on a Kindle, where is iBooks for Android? iBooks for Windows? iBooks for *any* non-Apple device?

    • @Ravi,
      I don’t think Kontra or anyone on this thread has complained that iBooks isn’t available on the Kindle device. We know Apple’s strategy is different, and that Apple is the reason iBook isn’t on Kindle device. What was pointed out was that B&N and Sony are not on Kindle devices, and vice versa.

    • Well, to be accurate, Kindle books *can* be read on B&N devices. So far as I know, a hacked Nook Color has zero trouble running Kindle for Android (there are even tutorials on how to do it). Amazon’s position with respect to B&N is *exactly the same* as their expected future position with respect to Apple: there is no technical, practical or even development barrier to reading Kindle books on the device. The *only* barrier is the permission of the device manufacturer / platform owner.

      As for Sony devices, as far as I can tell, Sony has said nothing about an e-Reader SDK, so Amazon doesn’t even have the option of developing a reader app. If you’re going to blame anyone for that, you have to blame Sony.

      As for the inverted cases (B&N or Sony content on Kindles), have either B&N or Sony tried to develop a reading app for Kindles (as Amazon has *actually done* in every case I can find where an SDK is available)? Did they get rejected from Amazon’s developer program after offering to allow Kindle books on their device? In Sony’s case, do you imagine they would have kept quiet about it?

      Given all of that, what exactly are you faulting Amazon for? If either Sony or B&N complain that their customers can’t read their books on Kindles, I think they should be laughed at. They haven’t even tried to be fair about the situation. I think there are exactly two companies who have standing to complain that their books are not available on Kindles: Apple and Google. We’ve already established that Apple doesn’t care. I don’t know what Google’s position is. However, given the cloud-focused nature of Google’s store, I find it understandable that there’s some negotiation necessary there – at least with respect to the Kindles with prepaid 3G from Amazon.

  18. Just to clarify, I’m not sure how much I like what Apple is doing (from a user pov) but I certainly don’t begrudge Apple the right to do it. And I suspect mainstream consumers not only have no problem with it, but actually prefer it. The seamless payment. The ease of discovery. The Apple assurance. The immediate delivery. It’s safe. It just works.

    Critics think the App Store is so very easy to do, just like they thought the iTunes Music Store was so easy to do, and that’s why they don’t think anyone should pay. Somehow Apple makes it look that way. But it isn’t. Where are all the successful music stores, providing millions in revenue to the music labels? Only Amazon has been semi-successful, and their roots are in retailing. Where are all the successful app stores, providing millions in revenue to software developers? In comparison, the Android Marketplace has sucked. Google just launched web access; IAP is coming. So why hasn’t Google invested more heavily in the Marketplace? Because it’s hard when you’re not a retailer, and the ROI is unclear and uncertain.

    This is a major clash of industries, with more to come (TV/cable, anyone?). Apple clashed with the troubled music labels; the labels soon realized they couldn’t build their own, and only one other could (Amazon). Apple is now clashing with the troubled publishing (books, magazines, newspapers, etc) industry; can they build their own? Can Google save them? Can Amazon or B&N save them? How much are they willing give up to be saved?

    • Note that being in retailing or being big is no guarantee of digital Store success – see Walmart, Best Buy, and Microsoft.

      Also, Apple has now found one (News Corp) taker who understands that the iPad is one to two years ahead, and so is willing to pay the fee. They know that right now, there is no other choice (if you don’t build your own). That might be enough to get the ball rolling. Are the others going to risk sitting it out (i.e. stick to the web with paywalls like NYTimes)?

      As for TV/cable, Netflix and Hulu are leading the charge (while Apple watches), but the TV/cable industry looks like it will try to build its own (i.e., TV Everywhere) and doesn’t look to be desperate enough yet (see reaction to Jason Kilar comments).

  19. This is a largely spurious argument.

    1) The fact that these free apps are downloaded via the App Store is a mandated policy of Apple. Apple could allow them to be distributed for free ( i.e. from a website).
    2) In App Purchases ( IAP) are forced to use the App Store for transaction costs, the App Store has nothing to do with storing or owning the content.
    3) It is the very existance of clause 11.2 which forced apps to use the Kindle methodology of going outside the app to buy. If they were allowed they could do that in-app in an embedded website or using their own webservices. This is what Kindle allows.

    IAP works for games because the content is already downloaded. When you buy more levels you open up levels in the app which were already contained in the app package.

    For an e-book the vendor (the vendor is not Apple) all that Apple is doing is forcing 30% to handle credit card transactions.

    Thats not going to work. For e-Book vendors who are not getting a 40% margin already it would result in a loss per sale. For those on 50% or more ( very few I would assume) 1 or 2 sales using their own fufilment channel on an Android device would be more profitable than about 10 sales on iOS bought through the IAP ( which probably will be the only button allowed on the UI).

    All of this means that, in 2011, just as publishers and content providers were porting to the iPad, they have now stopped, and are looking at Android.

    ” It is making available a customer base, not just the device and platform on which those third-party products are being used. ”

    So is Windows. Which isnt charging 30% for all iTunes purchases on windows.

    • So you really have nothing to worry about then, App Store will shrivel and die, whereas Android Marketplace will prosper and dominate.

    • oh, no. I have stuff to worry about as an iOS dev I have to retool to learn Android. At least for this kind of stuff. As a purchaser of Apple products I have to worry about not getting the content I would otherwise get on an Android device.

      The defence of Apple here is a bit stockholm syndromey – Apple users should be the most vocal against these rules, as it will affect their choices on the iPad.

      ( Also let the record show that Kontra did not answer the points made, just assumed I was an Android fan. Wrong)

    • Kontra didn’t assume anything and did address your points, if only you could actually read the article above:

      “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.”

      It’s exactly the same logic, same arguments, same accusations. No doubt you also want Flash on iOS too.

    • You want responses? Here goes:
      1. If they don’t want to give Apple a cut for this ready-made access to Apple’s customer base, then they shouldn’t use the App Store. Like you already noted, they can and should deliver the whole thing via a web app.
      2. In-App purchases allow access to Apple’s simple-for-customers-to-use payment system. Again, the other choice is don’t use the App Store, go ahead and build your own payment mechanism via your web app.
      3. Clause 11.2 only “forced” going outside if they were trying to get the benefits of using the App Store, while not giving Apple it’s due for using the App Store.

      “When you buy more levels you open up levels in the app which were already contained in the app package.”
      Ah, so the content was already stored and distributed by Apple’s servers after all. The only difference is that the customer’s payment was delayed.

      “For an e-book, … all that Apple is doing is forcing 30% to handle credit card transactions.”
      Nope. From the customer’s POV, content bought through the App Store or IAP has Apple’s “seal of approval”. Even for an ebook (which for security reasons, would also be stored and delivered from Apple’s servers).

      “they have now stopped, and are looking at Android.”
      Fine. The content providers can each build their own subscription delivery and payment mechanism (through an app or !even through a website!), or wait until Google gets around to it. Google’s IAP for tablets is coming soon.

      “So is Windows. Which isnt charging 30% for all iTunes purchases on windows.”
      Windows never provided a curated App Store infrastructure for its customers and content providers to use, with all the benefits that come with it. Their loss and their Windows user loss. Again, Apple has provided a way for anyone to bypass the App Store; just use the web. And if you say the web isn’t as good a method, well then, there it is staring you clearly in the face; the difference is exactly what Apple is providing and wants to get paid for.

      Another example: the stock exchanges. People give the stock exchange their cut, or they go build their own market.

      So, no, this is not largely a “spurious argument.”

    • Um, right.

      1) They have to use the App Store to get their app downloaded.
      2) They already have their own mechanism. Thats what got the Sony Reader banned, going outside the app to authorize the purchase. Using their own backend.
      3) I have no idea what you think Apple is owed for content owned, distributed, curated and downloaded from Sony’s servers. I say nothing.

      “even for an ebook (which for security reasons, would also be stored and delivered from Apple’s servers).”

      No. It is not. No content is stored whatsoever for any In-App purchases. They are clear about this in their documentation. You store it, own it, and document it. What you get from Apple ( via the StoreKit framework) is an authorisation receipt. The user’s details ( and thus credit card) was accepted,declined, or cancelled. The UI is up to the user of StoreKit.

      “Fine. The content providers can each build their own subscription delivery and payment mechanism (through an app or !even through a website!)”

      They already have done that. Do you think that Amazon need to build their own system – the whole story here is about how Sony have their own system which they had to redirect through a website. The reason they had to redirect to the website was to get around 11.2 which stopped them using their own version of IAP ( as it was then read by the mystics in Cupertino. They now read that as illegal unless there is a way to for Apple to get it’s cut) . For people who have back channel fulfilment already done, that kind of authorisation is trivial. Its a web service.

      “Another example: the stock exchanges. People give the stock exchange their cut, or they go build their own market.”

      And heres another example. my iPad, not owned by Apple which I own and want to use the Sony E-Reader on. Its been built. It works. It has books I may want to buy. They want to install it and handle their own processing which they can clearly do. They want to give me content. I want to give them money.

      Apple seems to think that
      1) I dont own the iPad.
      2) Any app on the iPad has to pay rent if they make money, regardless of what services Apple provides after the initial download.

      I was not all that opposed to a curated app store – provided its used to curtail fart apps, but this new ideology that being distributed through the app store to the iPad is like setting up retail space on Apple’s property is absurd, ugly, feudal and finally counter-productive. Keep this up and the platform dies.

      The 30% wipes out most margins. Content providers will move en-masse to Android is this stands

      (However, I bet it wont stand. I bet Apple will say ” we never meant that” or ” we dont want 30%” real soon now. Like next week)

    • “Even for an ebook (which for security reasons, would also be stored and delivered from Apple’s servers).” This is my only issue with Apple charging 30% for all in-app purchases. Their own dev rules make it clear that they will NOT host any files, handle the bandwidth for downloads, etc. for in-app purchases unless they are part of the app bundle to begin with. For periodicals, ebooks, some games, and other things not thought of, it’s not possible to include all the possibly unlocked data in your app from the get-go (or with a future update).

      It creates a situation where the user has paid for the app, the dev has paid Apple $99/yr for the privilege to make iOS apps, and Apple has already taken their 30% cut from the app (for hosting, bandwidth, payment processing, etc.). And now they are taking a second (and third, and fourth) 30% cut, of everything sold in the app, and they are only providing payment processing.

      Add to that situations where an app’s wares are not created by the developer but are being resold (comics, ebooks, periodicals, etc), or available in multiple ways (web, PC/Mac, Android, Kindle, iOS), and the result is certain items being sold in-app with 0% or even negative net profit to the developer. Multiple ways to buy something. Multiple prices, assuming the developer can contractually do that (ex: ebook sellers can’t change prices, they’re set by the publishers with the agency model).

      I don’t think most people would argue that it’s unfair that Apple get a cut of every app sold, and even some cut of every in-app purchase on their platform, but having it be the same cut for all situations, despite different services provided and different economic models, isn’t going to be tenable. Of course, the App Store is Apple’s world and all the devs and users are living in it. But sticking to the current split could in a certain devs thinking long and hard about offering a native app versus a web-app, which will likely be a subpar experience for the user, just to maintain profitability.

    • 1) Sony doesn’t have to have an e-reader App on the App Store.
      2) But Sony has an e-reader App because it’s so much better than a cloud-based e-reader. And if they have an App, Apple wants them to offer IAP of ebooks. People can still buy their ebooks off the web, and cut Apple out.
      3) To clarify, the benefit to Sony was the e-reader App (which they priced at free so Apple gets no cut).

      Misspoke on storing of ebooks – my bad.

      In the end, I think it comes down to this: Sony is building their own platform, which is on a path to evolve into a full-fledged tablet competing against the iPad. Sony would likely not let Apple onto its platform (just like Amazon isn’t opening up its Kindle to all comers without it getting a cut), so in this competitive environment, why should Apple continue to let Sony grow on the iPad?

  20. the only i take with your post is that apple could certainly publish clear app store guidelines without locking themselves into our out of certain policies or strategies. all it takes is a clause that makes it possible for them to change guidelines at will, with no notice.

    i’m not a lawyer, but i’ve seen plenty of examples of this kind of language. in this regard, i do think apple’s approach has been somewhat capricious and less than ideal. i think they could do a miuch better job of balancing their own flexibility with clarity for developers.

    that’s not to say that it would end the complaining. i’m sure we’d hear much the same outcry every time they changed the policies.

  21. Why should a game developer pay Apple 30% of a new level pack, if Amazon doesn’t pay for each book sold. Apple simply applying the rules across all content.

    • That’s the point. What if Gameloft or EA decide to sell their level packs through a web portal that then loads the content in the app? There are greater technical challenges, but it’s the same principle.

    • Because App Store users aren’t there to be jerked around the web just because something is technically possible. The UX matters, and Apple’s banking on it.

    • If I’m not mistaken the problem with in-app-content has been all along that Apple does not provide it from their servers. The publishers have to set up their own costly server infrastracture. Yet they still have to pay the same 30 %.

  22. This article puzzles me; it seems to be entirely oriented towards refuting straw man arguments.

    The criticisms of iTunes DRM were because iTunes was becoming a monopoly. People weren’t criticizing it because they thought a different strategy would be better for Apple; they were criticizing it because they thought it gave Apple an unfair advantage, a market lock-in. And it did! – until the labels slowly got a few more clues, Amazon got into the game, etc.

    “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?”

    This question has a completely flawed premise. Why should telephone companies subsidize conversations on their network? Oh, wait; they don’t. Developers *pay* Apple to put their apps on the market; and users *pay* Apple to get devices which can consume these apps. Apple is already getting a cut. Apple wants more.

    The mere presence of another app on the platform that consumers want to use is already a *benefit* to Apple, not a loss, because it encourages users to buy Apple’s products to get access to that app. The only “subsidy” Apple is providing is in eating an opportunity cost; an opportunity cost of getting a cut on money transacted between businesses and consumers, just because they happen to occur on devices that consumers own, but bought from Apple.

    It’s a land-grab, mafia style, plain and simple. Apple thinks it can leverage its market dominance to tax business on properties it has sold to other people.

    • No, even Apple supporters thought it was a fatal mistake for Apple not to allow the maximum number of DRMs, formats and vendors in iTunes because, as always, they didn’t want Apple to repeat the same ‘mistake’ of becoming an insular platform and relive the ‘open PC’ vs. ‘closed Mac’ saga.

      As to your argument that the App Store should become a dumb pipe for media…you probably think because you paid for cable you should get commercial-free TV. Well, dream on.

    • You have a misconception about what Apple is providing to third-parties. It is making available a customer base, not just the device and platform on which those third-party products are being used. The TV networks, and now the cable networks, provide a customer base to advertisers, and advertisers pay for the opportunity to access that customer base. (Each company that made TVs could have tried to take advantage, but they didn’t think of themselves that way, and in the end, as a commodity, had no leverage to do so.)

      I complete what you wrote as follows: “Apple thinks it can leverage its market dominance to tax business on properties it has sold to other people” that are being used on the Apple-produced device, where a tax can be a rent, a cut, a fee, etc. Every smart company that creates a “platform” attempts to do this – whether it be a Barbie doll, a shopping mall, a posh all-inclusive resort, an airport, a game console, a web site, a cruise ship, a cable network, a theme park, etc. It’s only smart business to try.

    • Is Apple really making a customer base available to Bloomberg by allowing a Bloomberg app on the iPad? Weren’t 99% of all Bloomberg iPad users already Bloomberg users?
      Wasn’t it rather that Bloomberg made its customer base available to Apple by making the iPad attractive to Bloomberg users?
      In most cases this is something that flows both ways. Only that generally Apple is much, much bigger than its counterparties. If it were one Apple against one worldwide newspaper organisation, negociations might create a solution that benefits both sides similarly. When Apple is dealing with each newspaper one by one, it can easily crush them.

    • Have you been paying attention to what all the music, TV and movie content holders have been doing to deny Apple content that they give to others, all the name calling AND banding together to set up competing stores/operations?

    • “Weren’t 99% of all Bloomberg iPad users already Bloomberg users?”

      I don’t know that that is true. But if so, it likely means Bloomberg thought many of its users had iPads, and it needed to meet its own users’ desires to have access via an App, or risk losing them to an alternative financial news source who had an iPad App. If not, then Bloomberg was looking to gain access to additional affluent people (who tend to be iPad owners) in order to sell them services.

      As for your latter point, I present to you Walmart. Closer to this situation, news organizations have become fairly large (like News Corp or Conde Nast or Time Warner). In any case, note the coming together of news/mag publishers to confront Apple that’s occurring in Europe. It’s what businesses do.

    • 1. Developers don’t pay Apple squat unless they sell something. So if they take up space in Apple’s app store but don’t actually sell stuff through the store…. Well, I think you get my point. LIke Walmart or any other retailer would ever let that happen.
      2. It not a land grab. Apple invested enormous amounts of money into buying and “developing” the app store “real estate.” Anyone can set up shop there and pay Apple nothing till they actually sell something. Try that in your local strip mall.
      3. Consumers pay to eat at the mall, shop owners pay rent space at the mall, and sometimes you even have to pay just to park at the mall, especially the really nice malls in high rent districts. And the Mall owners can kick anyone out–customers or retail–they want. Apple’s 30% is simply how Apple collects rent, most of which simply pays for Apple’s virtual mall. The profit is very minimal for Apple.
      4. Allowing Sony to sell stuff in Apple’s app store without paying Apple is like allowing a sleaze bag retailer to put up a small booth in a ritzy mall telling people that if they just walk across the street, they can get the merchandise for a lot cheaper at the warehouse store. It might be true and it might be “legal” but no mall owner would allow that to happen.

    • Amazon is hard at work creating hardware and media offerings to compete directly with iPad. Amazon wants it’s own platform to sell non-book media through.

      Getting a pass to generate customers on the Apple platform with the goal of ultimately migrating those customers away from Apple is a disingenuous participation in the ecosystem.

      While it was a surprise to Sony, I believe Amazon was warned up front about this. Which is why native controls for Kindle book purchasing were never made available, and users were always redirected to the web.

      In the grand scheme of things, The Kindle is a barnacle on the iOS ship and its continued presence is at the pleasure of the captain.

  23. I was wondering whether they will also kick Kindle app. This way it may end into kicking everybody building catalog-apps, even for offline products, like Amazon app, Pizza Hut or Movies. Why not taking 30% from the movie tickets sold thru App Store, after all?

    • If you do in-app transactions you pay Apple. If you don’t, you didn’t have to. Now, Apple says if you sell stuff related to the app outside of the App Store, then you have to offer equivalent in-app purchasing as an option.

    • Such an interpretation of section 11.2 (“Apps utilizing a system other than the In App Purchase API (IAP) to purchase content, functionality, or services in an app will be rejected.”) suffers from some huge reductio ad absurdum flaws.

      If the service offers paid, premium features, must all of those features be accessible as in-app purchases?

      Does the Netflix app need to offer subscriptions through in-app transactions?

      Does Apple expect every app that can upload to Flickr to offer in-app purchasing of premium membership? (even though that would be probably illegal/impossible for third-party apps)

      Of course, none of those apps allow you “to purchase content, functionality, or services” in the app itself, but they clearly rely on or benefit from such purchases, and often have a handy link to the service’s website where you can do that. What makes them so different from what Kindle does? (Has it been confirmed that this is what Sony’s rejected app also did?)

      This new interpretation by Apple might work on a case-by-case basis where content platform owners attempt to gain iOS beachheads while doing an end-run around Apple’s cut on in-app purchases, but it’s untenable in the bigger picture, where the app developer and the service/content provider are not a single vertically integrated entity.

      But that’s probably the point: Apple does not want to facilitate another company offering a vertically integrated combination of client software plus content service, because if such a service gains traction it would give that company leverage over Apple.

      Taking a cut of the purchases at least helps mitigate the risk; better yet is the presence of an open API that ensures another party does not have such unilateral control.

      It’s something of a do-as-I-say, not-as-I-do scenario, but Apple can get away with that: they own the hardware, they don’t have to depend on anyone else.

      In the end, it goes to show that you’re only truly vertically integrated if you own everything from the content service down to the hardware — which is, of course, what Apple did, and the hardware is still where they make the vast majority of their profits.

      The difference between Apple and Amazon in this manner is notable: Amazon sells books. It sells the Kindle as a means of selling more books.

      Apple sells devices. It sells music/books/movies/apps as a means of selling more devices.

    • @Westacular: At one time, Amazon sold books. Most people did think that Amazon sold the Kindle in order to sell more books. But given that Amazon already has a music and video store, and are accepting apps (including games) for the Kindle, can we start to think that Amazon is planning instead to sell a platform and devices?

    • Because one doesn’t actually eat the pizza or use the movie tickets on the iOS device, unlike the ebooks, mags and newspapers that are read on the iOS device. This whole concept is not very complicated, and not very different from the physical world of stores (malls, hotels, resorts, airports, etc). After all, “rent” is one form of taking a cut of sales.

    • And what about Dropbox storage space? Is it fair for Dropbox to sell storage space outside of iOS that is also used inside iOS? Or this Flickr Pro membership?
      Your idea about what is consumed on an iOS device is the relevant one but there is way too much stuff for which the answer is not that simple.
      Think about cellphone microcells in trains. Should the cell phone company pay for them? They make the money and the railway company provides a location where people ‘consume’ telephone calls? Should the telecoms company even pay 30% of all revenue from calls made on trains? Or should it be the other way around?
      The answer is simply who has the greatest interest in enabling cell phone calls in trains. Which generally is both the railway and the telecom company, ie, they might split costs. In short, their usually is some negociation but if one side is much bigger than the other, this becomes very one-sided.

    • @El Aura: Which goes back to what Kontra wrote as to why it’s hard to spell everything out. And I totally agree that it’s a “negotiation”, but those are often not between equals (see Walmart, Microsoft, etc). Who needs who more? Businesses strategize in building their brands and scale so that they don’t wind up losing even before negotiations begin.

      Witness that Apple has backed off of TV/cable subscriptions because they don’t have any advantage yet – they’ve even had to “allow” Netflix into the AppleTV – who do you think is paying who in that platform clash?

    • Simply put, Apple wants to charge 30% when it competes with it’s iBookstore, which is exactly what Amazon and Sony are doing and other “pizza” apps are not. And it does rightfully bring up the question of anti-trust.

      When rules are not clearly defined or Apple decides to reject something on a whim, thats when lawyers get involved.

    • anti-trust? whims? not really, no. they are free to reject apps for inclusion into their platform at will. do you complain when Nintendo rejects p0rn games from that platform? or games they dont think should be there? why not?

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