Store Wars: Opt out, opt in, sell out, capitulate?

Apple’s new App Store rules now mandate that users themselves must decide whether they want to give their own personal info to publishers when they subscribe. What would be the reaction of the publishing industry to this? Straight from a publisher, Forbes:

Pam Horan, publisher of the Online Publishers Association, says the trade organization’s members — a group that includes Time Inc., Hearst, Conde Nast, Bloomberg, National Geographic and, yes, Forbes — are worried the new regime doesn’t give them the flexibility they need to serve their customers.

The flexibility to serve their customers

What does Apple do to deny publishers that “flexibility” then? One click to opt in to data sharing. Pam Horan, again:

Anything that requires the consumer to take yet another step is always going to reduce the number of people that participate in the process. It limits the ability to gather audience insights to build the right products. With this inability to know who your consumers are, it really affects the ultimate product for the consumer.

Put simply, publishers don’t want readers to opt in, because they know readers will prefer to opt out. Transparency is not a friend of publishers who for decades made a mint by selling out readers to advertisers and list brokers. Most readers may not be aware of this, but those who are don’t like it. Publishers know that and hate Apple for calling their bluff. If personal info harvesting isn’t essential for publishers’ business model and it is in the interest of readers, then why would they be against an instant referendum in the form of the opt in button?

Beyond the smokescreen

This, of course, isn’t about the readers. It’s not even about Apple’s App Store. It’s about the clash of two different business models. One that sells the customer to the highest bidder through a product and the other that sells a product directly to the customer. For the former, the product is a vehicle, often an excuse, since it holds no value for the publisher. For the latter, the product is the source of value, it lives and dies by the utility and delight it brings to the customer.

Transitioning from one format or platform to a new one is often a long, arduous and financially disruptive process. Lately, however, we are seeing a time compression in these transitions. For example, moving from dial-up to broadband or from landlines to wireless took quite a bit of time. Transition from analog to digital music or from featurephones to smartphones have been much shorter. Shorter the transition, bloodier the financial impact on incumbents. Print economics have been around forever, virtually unchanged for decades. All of a sudden, though, there is an incredibly convenient format (iPad) and a platform (iTunes) for what used to live in the dead-tree zone. No wonder we have publishers up in arms about the freight train suddenly in front of them.

The grand opening

We can also look at the new App Store rules as a grand negotiation being conducted in public. Apple’s iTunes and iOS ecosystem make it abundantly clear that there’s now a platform ready for transition. Table stakes: 30% cut for the platform owner. Publishers have several choices:

1. Set up their own stores — If the most business savvy of all publishers, Rupert Murdoch, who never shied away from big and expensive bets, has come to the conclusion that News Corp alone can’t set up its own independent online store, what chance do other smaller, cash-strapped, technophobic publishers have?

2. Collude to set up a BigPublishers-only store — This would be standard operating procedure…that has repeatedly failed. Disparate corporations banding together against a successful market leader nearly always fails. Witness myriad roadkill behind iTunes.

3. Negotiate with Apple directly — Murdoch did negotiate with Apple separately, but may not have received much in return other than some technical help and launch presence. Companies like Amazon and Netflix may try to negotiate with Apple directly to leverage their popularity to wring some concessions on rules or rates.

4. Wage guerilla warfare against Apple in the press — Adobe, Part Deux. This is inevitable since many of those who produce the anti-Apple hysteria write for the publications that would financially benefit from a change in App Store policies.

5. Ask for government help — Publishers will likely ask the government to intervene and conduct a threatening investigation of App Store policies to browbeat Apple into changing its policies. Also, as the last refuge of scoundrels, they will appeal to the Congress for tax payer support under the guise of saving jobs.

6. Give up subscriptions — Google would love publishers to just give up the notion of subscriptions and go ads-only, either as free apps supported by AdMob on mobiles or browser based apps supported by AdSense. Sadly, content providers aren’t immune to making monumentally stupid mistakes and…imploding.

7. Accept Apple’s terms — We heard similar, if not identical, complaints about the size of Apple’s cut or its intermediary position between content owners and customers at the onset of iTunes and later App Store. Nobody’s complaining much about those anymore, mostly because there have been no credible alternatives.

8. Create alternatives to iTunes/iOS — This is the perennial Plan B, if Apple doesn’t budge. The usual suspects are those with a store and the will to spend money liberally to undermine Apple, namely Google, Microsoft and Amazon. Google recently transferred its upcoming music store to Andy Rubin’s Android division and is now negotiating with publishers. Microsoft rolled Nokia’s Ovi into its own store and would be happy to bankroll publishers to attract Windows Phone users. Amazon has already tangled with Apple last year after the introduction of iBooks over the agency model Apple offered to publishers. These are all big competitive players with plenty of cash to render as absurd any notion that Apple somehow has a monopoly over digital stores. It is, however, a reminder that all such previous attempts to cut down Apple by direct competition has failed.

Rock and a hard place

Apple, the one company that makes bet-the-company type moves all the time, has done it again: they have decided to cull parasitic middlemen and aggregators from the ecosystem. What choice do publishers have then? They first have to ask themselves two fundamental questions:

1. What business are we in? — Are we in the business of creating scarcity in news and media to leverage it against eyeballs for advertisers? Can our current model survive the transition to digital? Are we capable of setting up our own stores? If not, do we understand we must change our revenue streams radically? What sorts of structural and financial remodeling do we have to undergo internally to adjust to giving up 30% to Apple?

2. Quo vadis? — If our current distribution has to change, on whose digital platform will we move? Is there, in other words, an alternative to Apple App Store?

Whatever conclusions the publishing industry may arrive at, there’s one undeniable fact staring them in the face:

By next year, Apple iTunes/iOS ecosystem will have over 200 million of the most lucrative online demographics ever assembled by a company.

Apple didn’t become the world’s most valued tech company by being naive. The fact that Apple’s longstanding discipline of selling products direct to customers aligns nicely with customers’ interests of accessing a well curated, efficient, price-competitive, easy-to-use store is just the icing on the cake. Nobody else comes close. You can’t do business by ignoring the App Store.

UPDATE: In case there was any doubt that Google would step in to exploit the situation, the company introduced in less than a day after Apple’s announcement its own One Pass subscription payment plan, with a 10% cut. Google CEO Eric Schmidt: “We aren’t in this to make money, Google makes money in other ways.”