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.”

102 thoughts on “Store Wars: Opt out, opt in, sell out, capitulate?

  1. I like to get the discussion back to where it started, being about content subscriptions and not discussing the position of 3rd party resellers. The position of Amazon, Netflix etc. in the app store will probably work its way differently in the future. (see: Readability app re-submitted).

    I don’t know about any of you here, but I’ve read on different places that the publishers of newspapers and magazines have not so much a problem with Apple’s 30% cut, but with the lack of customer data they will get thru IAP transactions.

    What I’m wondering is, how much does it really cost a publisher to get a physical paper or magazine in my mailbox? My gut feeling says more than the 30% Apple takes off the top of subscription/single issue sales in the app store.

    If this is true, than selling a digital version of their product thru the app store ads more to the bottom line of the publisher than increasing their ‘hard copy’ sales.

    Then we come back to basic argument that has to be solved: Do publishers oppose the enforcing of IAP rules because their revenue after Apple’s take doesn’t leave them with enough profit or do they oppose because of the lack of customer data? If customer data is the crucial point then I think they should own up and let their customers know that they make more money selling their information than selling them a publication.

    So, before accusing Apple of monopolistic behavior, we should first find out what the basis of the publisher’s opposition is.

    • Publishers are concerned about renewals – more so than profits realized from initial app store sales. Typically, publishers do make much profit on new subscription sales, but make large profits on renewing those new subscribers. If apple takes 30% of renewing subscriber revenue as well, the subscription model becomes less attractive to publishers.

  2. Small detail: […] publishers don’t want readers to opt in, because they know readers will prefer to opt out.
    “Not to opt in” and “to opt out” are not the same things. The sentence implies, users prefer to take action than getting the desired result per default.

    • No wonder Journalism and writing in general have taken a beating over the past few years. The law of supply and demand gives kudos to the dictates of the editor and the middleman, and small change to the genius and the impetus of the writing hand.

      Your backstage rant epitomizes the center stage drama of widening integrity suppression …all from an editor’s rot or for a middling man’s cut on credible and consequential content. 

      You predict Apple’s demise for the absence on its platform of parasitic content commoditizers. I beg to differ. Neither would this Blog suffer from your migration to a more intellectually sterile nesting ground; no need to sprinkle creativity feudalism on nurtured enlightenment.

    • Your last rant has so many things wrong, most would be inclined to just ignore it.

      – Amazon’s Kindle Store set prices until iBooks challenged it.
      – Everyone recognizes that Apple’s 30% will force middlemen (and streamers) who use agency pricing to change or exit. For Apple, it’s not directly about the money, but about keeping the value in the device.
      – Even though you did, most people don’t buy the iPad for Kindle or Netflix or Streaming. The ebook, video stream, and music stream markets are far from having been decided with everlasting victors declared (did you see what happened to NFLX when Amazon entered video streaming). And there are still four months before June 30th to launch new offerings.
      – 69 of the comments were written on this blog before Daring Fireball mentioned it.
      – Most of the rest of your rant is just your unsubstantiated and undefended assertions like the recycled arguments from six years ago when Apple was declared the loser to Microsoft. except it didn’t happen.
      – Once you get it out of your head that for publishers, this dispute is not directly about the 30% but the loss of demographic data, you’ll be closer to the crux of the matter.
      – Whenever someone writes that Apple should beg, it is clear they have no clue about the precious value of Apple’s customer base and the unprecedented value of Apple’s already established and revenue-bearing iTunes and App Store ecosystem. One needs look no further than Nokia to find a clue.

  3. You can’t reply in a thread more than one deep, which makes sense, so to reply to some previous comments on my last comment.

    @FalKirk suggests Amazon sets prices. This is a flawed argument on two counts. 1) It is whataboutary. 2) Amazon give 70% to authors who have zero marginal cost so they get 70% of sticker. Amazon does not have zero marginal cost – they pay the author and hosting – and so their margins are <30%. Apple takes more than 100% of that.

    @harold ( and @alexl) suggests my suggestions are monopolistic. Maybe. Dunno. he also suggests that most people dont buy the iPad for Kindle. I do. Lots more services are going to go with these rules. If you dont have Kindle and NetFlix and Streaming, Android is a better device.

    @kevin has a nice anecdote about Apple and their music store. Which is probably not relevant to this discussion. The past is not prelude.

    There are a few mis-conceptions running about this blog. The author has some grandiose idea of Apple doing some kind of Grand Public Negotiation. It seems to me that this whole shebang means that Apple is actually rudderless. The company doesn't even know, and cant express, what it is actually banning or not – Jobs says one thing, and the App Store reviewers do another. It seems totally incoherent. A thought out strategy would have seen them build their offerings first – a store to match the Kindle, a streaming service to match spotify, a video service to match NetFlix. Then changing the rules.

    If Apple wanted to improve the consumer experience with one click for all IAP it could do it with KeyChain. ( That simple statement demolishes most of the Apple cares about the consumer malarky).

    Apple are not going to change the publishing industry. The Publishing industry is going to desert iOS. And do their own iAP on Android. The platform which is starting to win these new platform wars.

    Google is not exploiting anything, it is offering a better service to publishers.

    The publishers dont have to "change radically and provide useful content to the readers." Amazon sells books – booker prize winners, the literary canon and trash – and The Economist, GQ, The FT ( and others) dont need to change to help people who just read blogs. Continue reading blogs. The opinion formers who read these magazines will read them on Android and in Print. You enjoy your ghetto and your blogs.

    The defence of Apple on this blog – possibly because of the link from Daring Fireball – is the 2% of people to whom Apple can do no wrong. Clearly in this case Apple is making the iPad less valuable for people who own the thing, and this should cause consumer ire ( where's my Kindle! Wheres my Sony e-books! Why cant I use Readability anymore!) but the cult is happy. The cult of Apple, however, is about 2% of their present day market. It probably was 50% in 2001. The cult doesnt matter, most people with an Apple device have something else which is not Apple. The average future consumer will now look to an Android phone which is both cheaper and has their Kindle books ( or can play NetFlix) on it – there can be no real doubt as to how they will go.

    Apple's power is more limited than you all think. It cant win a brand war against Google, MS, and Samsung and HTC, and the FT, Amazon, Sony and other publishers. It should be begging these content providers to be on the platform – the App Store should be a loss leader. Instead, this. Its the early 90's again, the bean counters are out, the golden goose should get a boyguard. ( To mix metaphors).

    • I don’t believe for a second that the iPad will be dead because of Apple’s greedy move, nor even that Android will necessarily benefit greatly because of it. Nevertheless, I don’t see a way to spin this other than as a net loss for customers. There have to be a not-insubstantial minority of iPad customers who bought it because of apps that enable delivery of third-party content. I know I did. Apple itself markets it as a great reading device, which it is. Because the Kindle app exists. iBooks is pathetic. It’s a good way to watch video content. Because the Netflix app exists. Video content from iTunes is too expensive, and any means of avoiding the big bloated bag of pain that is iTunes is a net benefit. iOS devices are also better for the presence of streaming audio apps (if for no other reason because they enable one to avoid iTunes).

      So when Kindle is no longer on iOS or is available only via a far less usable web interface, customers will lose. When Netflix is no longer available, customers will lose. When streaming audio subscriptions are no longer available, customers will lose. Kicking competitors off the platform so you don’t have competition for your own crappy services is just wrong.

    • Eugene, if you don’t learn from history, you get to be the fool, and lose. The same hysteria, threats, and death knell pronouncements were made over Apple’s “closed” and “bullying” music stance, and yet it didn’t matter one bit.

      You brush it off as “probably not relevant” without bothering to explain how today’s subscription issue is materially different from the past. Is it because you can’t?

  4. Let’s not forget that the demographic market power of Apple’s customer base is what allows them to make these bet-the-company type of moves.

    Apple knows this, and that is why they “love their customers” (literally, as quoted by Jobs on his Antennagate -yuck- keynote in June last year). It allows them to innovate in ways their competitors can’t: cut out middlemen, introduce new business models and products. Because they know that content providers will follow the money AND the path of least resistance.

    Also, they are urging publishers to adopt their own innovation model: do not create your product (primarily) based on data analysis or customer feedback, but craft it from your own gut feeling. Create something that YOU would love to use, price it to what YOU would want to pay, and others will follow.

  5. DaringFireball sent me here, this great article will keep me here. Good work, thanks for the logical comprehensive arguments.

  6. The publishers have to change radically and provide useful content to the readers. If/when that happens they won’t need to fight the 70/30 battle, there will be enough revenue coming in to make everyone happy.

    For the publishers, sticking with “old” business models when the users are telling them otherwise won’t work.

  7. All that data collected by publishers was turned into what? Junk mail.
    If publishers had their way they’d turn any tablet-gathered data into what? Spam.

    I’d pay a third just to eliminate spam.

  8. Kontra,

    Extremely interesting and thought- (and comment-) provoking piece, well presented, not to mention defended.

    As I browse through the comments, two elements come to mind:

    a) moving away from the digital world for a moment, it is extremely frequent to have any type of distributor/middlemen take cuts of 15%-50% (depending on industry and number of layers) of the final selling price BECAUSE they supply the customer, the visibility, the publicity, the foot traffic… in short because they supply the customer.

    Any time a middleman is removed from the value chain, the end customer wins, provided the rest of the equation remains the same and that some savings are passed on. Which brings my second point:

    b) what really floors me in these frequent debates about monopolistic-or-not, closed-or-open, debates is how very little is done to supply a credible alternative to what Apple (and arguably Amazon) consistently offer: an easy-to use, convenient, trustable, and all in all agreeable customer experience…

    In the end, whoever wins the end user will win the game.

    The elements are well known but apparently hard to put together for most players: competitive (not necessarily lowest) price, convenience of usage, trust, quality of experience…

  9. I think all this conversation is way overblowen. I know its “not about me” but in my case I would never pay for text and or graphic based content. I do buy and rent video thru itunes and net flicks. Magazines and newspapers no way. there is way to much free content to resort to paying. I love a number of blogs but the day they try to charge me for content is the day I stop reading them. I dont even like to register for content, much less send a newspaper or magazine $. I have an iPhone, iPad and MacBook I travel with all three. I do not suffer from a lack of free reading or viewing material to keep me informed on current events nor any subject I care to gain some knowledge of. This Policy of Apple applies to mobile devices Just how big is the market anyway.

    • But you do pay for all that “free” content in the form of advert impressions. That’s the whole argument Google’s making by charging “only” a 10% cut. Frankly, I’m much more willing to cut out the extra adverts and the middlemen even if it means Apple gets 30%.

  10. Amazon need to play hardball with this. They are the real victim ( as are owners of Kindle content with iPads).

    1) Remove the Kindle from the iPad and iPhone. Develop for Android and other platforms. Advertise these platforms. Advertise why they left Apple with the emphasis on closed.
    2) Penalise all publishers who are on iBooks with reduced margins, or refuse to sell their stuff unless they leave.

    This will leave Apple’s e-reader tablet with no books, except for Project Guthenberg. That kills it as an E-reader

    Amazon have been remarkable quiescent.

    As for the rest who are seeing their content thieved – the Economist, Financial Times, and GQ know what to do. Leave the iPad. Change editoral direction, a few covers with pictures of rotten Apples, a whisper campaign about Apple’s platform being in decline, and so on.

    Annoying these guys was the dumbest thing that Apple has ever done. It now blinks or fades into insignificance.

    • How exactly is Amazon the “victim”.

      – Amazon sets the prices for Apps in its store: http://www.businessinsider.com/amazon-android-app-store-pricing-2011-1#ixzz1EQzdGYvb

      – Amazon has the following clause in its Store: “The Amazon price must be the same or less than at competing ebook sellers” – http://mac.blorge.com/2010/01/20/amazon-kind-of-sort-of-matches-itunes-7030-revenue-split-for-ebooks/

      – Amazon was taking a 70% cut from its store until the iPad arrived: http://thesmallwave.com/apples-30-cut-is-outrageous-yet-when-amazon-w

      Apple allows people to read Amazon purchased books on all of its iOS devices but Amazon has not done the same for books purchased from iBooks.

      Your definition of “victim” is very different than mine.

    • 1 might matter if most people bought their iDevices primarily to use Kindle. I think you’ll find that Kindle on iOS is a nice-to-have, not a must-have.
      2 sounds an awful lot like monopoly manipulation. There is a difference between “if you want to sell with us, you can’t undercut us” and “we will modify our existing business relationship to hurt you if you sell with someone else”.

      You should also look up the definition of “thieved”. It applies to Google’s “we digitize your books unless you tell us not to” and not Apple’s “you want to sell in our store, you agree to our rules”. And your suggestion to smear Apple for leverage sounds like extortion. Of course, in these days of propaganda as news and stock manipulation for bankers’ profit, it would probably fly.

    • “Penalise all publishers who are on iBooks with reduced margins, or refuse to sell their stuff unless they leave.”

      That would clearly be highly anti-competitive behavior, and likely to attract the wrong sort of attention from regulatory authorities. Ironic that people are accusing Apple of the same thing, when clearly they are not using their market power to destroy competitors in the mobile arena (e.g. this example of using their market power to force suppliers to “choose” between outlets and punitively charging them if they don’t choose you) – in fact if most of the comments on this topic are to be believed, Apple’s 30% cut of revenue will be driving customers and suppliers in droves into the open arms of their competitors!

    • A few years ago, both a really dominant big company and a little company sold digital music via an online music store. The music from both companies was not allowed onto the music player sold by a third company, who also sold digital music. Many people wrote that the third company needed to blink or fade into insignificance. The third company today dominates both the music player and digital music store markets.

    • whatever, if I minded being “sold” I wouldn’t watch TV.

      In any case I paid for the Kindle content on my iPad. it wasn’t paid for with Ads. Apple takes that away and they lose my custom – which was $3K in the last 3 years.

  11. Having been in the magazine business on the editorial side for almost 3 decades, I despair at the way publishing companies treat their readers. Nothing is more revealing than the fact they make their best customers pay the highest rates for subscriptions. And how do you think the 30 percent cut that Apple wants compares to Publisher’s Clearing House? Apple is relatively cheap compared with what publishers will do to hit their audited subscription numbers. Once the dam breaks with the leakage of a few publishers over the iOS subscription line, the rest will come pouring through. What alternative do they really have?

  12. There is one point that I see being overlooked in this argument. Apple is betting on the Ipad tablet model of computing to take over the current desktop/laptop model. Many people are already having the tablet replace the desktop/laptop, if this is true then why are we locked into one store in which to buy programs for these machines? Everyone always says Apples os apples playing field. What if MS used that argument and charged devs 30% of their profits for developing for Windows? The outcry would be insane. Yes, MS does not have an app distribution system for Windows which is why they do not. Which brings me to my next point. If apple wants to be a seller of software they can charge whatever mark-up they want, but why are we locked into the app store? If I wanted to buy software for my pc or mac I can download it straight from the devs site, or I could walk into one of the many retailers and find which one offers me the best option. Apple needs to open up to competition they need to allow netflix to give their subscribers the app from their site with out going to the app store at all. They need to allow Cydia to become a legitimate store. To allow freedom of choice on these computer replacements. This would be the best option for everyone. It gives apple the ability to fairly have a online retailer store and charge thier markup. It allows competition if other stores charge less of a markup they can sell apps cheaper. It also allows subscription apps like netlfix, hulu, and amazon to continue to provide their serviced with out using any app store reasources or advertising for free.

    • Wrong address. Apple isn’t selling “freedom of choice”. You’re confusing it with the next door neighbor, Google. You need to go there.

    • Within “Freedom Of Choice”, there are other curated strategies. RIM has one. You or anybody can chose RIM’s curation. RIM’s strategy has been rejected in India. And they are hollerin’ about it now. RIM’s strategy. Chose it but don’t go to India.

      Harvey

    • You are confused. Apple doesn’t restrict developers from offering their wares to Apple customers directly. That is what Mobile Safari is all about. You can develop web based applications and offer web based subscriptions for Apple hardware without going through the Apple Store. Apple doesn’t take a cut of such applications or content. When Apple’s iPhone first came out, it heavily encouraged such development. Apple now promotes the App Store, however, you can still develop applications for Mobile Safari. Those too would be cross platform.

      Apple is only taking a cut of subscriptions offered through its store. If it isn’t worth the thirty percent cut, develop a web based application and bypass Apple all together. Problem is that most developers think it is worth being on the App Store.

      The Microsoft analogy doesn’t work for two reasons. First, Apple doesn’t hold a monopoly in Mobile Devices. Far from it. On the other hand, Microsoft held a monopoly in Personal Computers. Second, Apple’s whole business model is offering a complete solution. Microsoft licensed the OS to hardware manufacturers who then build varying products.

    • “What if MS used that argument and charged devs 30% of their profits for developing for Windows? The outcry would be insane.”

      If they did it would be called the Xbox Live Marketplace.

    • Although tablets might be replacing desktops/laptops, the iPad model is very much different from the PC model.

      Apple learned a common lesson from both the PC model and the iPod model, which is, that at least 70% of people want a simple, quick, safe, and clutter-free way to load content onto, and operate their devices. No viruses or virus checkers. No incompatibilities and no finger pointing or run-arounds to get problems solved. No hidden surprises over privacy. No extraneous, interruptive, and distracting UI elements. Most people don’t care about open or closed (or being shepherded into one app store, especially when it is the safest and most well-stocked store.)

      So, NO, Apple doesn’t need to “open up to competition”, or “allow Cydia to become a legitimate store”. If people want “freedom of choice”, they should BUY A TABLET FROM ANOTHER BRAND (that’s the competition!) – that would be the best option for those people. I’m sure this is a mighty big surprise to you that your idea of freedom of choice is absolutely NOT the “best option for everyone.” (It’s truly presumptuous that you decided that it would be the best option for me.)

  13. Hi Kontra. We were debating this earlier today on Twitter.

    I think all your arguments about this being perfectly within Apple’s right to leverage the platform they made are accurate and valid. I also don’t think debating about emotionally loaded terms like “fairness” and “greedy” is either useful or relevant when talking about strategic matters like this.

    However, I think it’s reasonable to conclude that many people are uncomfortable with this change to the App Store, although not many people can put their fingers on exactly why. You remarked to me “30% is effective only if Apple brings you the customer” and I think perhaps this is a key point. Consider Netflix and Kindle, as two examples of the sorts of content providers who are affected by this move.

    They are both content networks of their own which include, but are not limited to, iOS devices. I see this as quite different from a digital magazine subscription, say, where the user is paying for iPad content plain and simple. Rather, when I buy a Kindle book, I am buying the ability to view that content on lots of devices: iOS, my physical Kindle, my Mac, my PC. Similarly, with a Netflix streaming plan, I can view that content on lots of devices. So Apple didn’t “bring me to them as a customer”; they were only a part of what I bought.

    In fact, I’d go further than that, and I’d say that using that content on iOS was a pretty small part of my purchasing decision. I do 80-90% of my e-book reading on my physical Kindle device, and I if I had it, I’d do 95% of my Netflix watching on my Boxee. That both services also supported me using that content on iOS is just a small perk to my mind, and Apple leveraging 30% of the price I paid for access across all platforms feels like a steep price to pay. I don’t think I’m alone in this gut feeling.

    You also don’t mention that some of the content providers might simply be unable to afford Apple’s 30%. If Amazon are selling a $5 ebook and giving $3 to the publisher, then it doesn’t matter that Apple is offering them “over 200 million of the most lucrative online demographics”; no amount of lucrative sales volume can make up for making a loss on each sale. Assuming Apple stick to their guns, that either means that prices rise or those “parasitic middlemen and aggregators” leave the platform.

    But why is Amazon’s Kindle platform any more a “parasitic middleman” than Apple is itself? Amazon have also negotiated a complex legal environment to build a technical platform to attract publishers, and done so rather more successfully than Apple managed with iBooks. I agree with you that Apple certainly have the right to depose these third parties now; what I disagree about is that iOS will be the better for it. I think it would be a weaker sell in the market without Kindle, without Netflix, without Spotify, etc etc.

    Oh, there’s also a possible reaction from the content providers you didn’t consider. I could see Netflix (for example) launching an “iOS streaming subscription” which was only accessible via in-app purchasing, and cutting iOS off from the existing streaming plan they offer. This way they can simply load Apple’s 30% cut on top of the price customers pay, if the market will bear it, without falling foul of Apple’s price protection clause.

    • “when I buy a Kindle book, I am buying the ability to view that content on lots of devices”

      You are focusing on where the content is consumed. It is where the content is sold that matters. When I buy a book at Barnes & Noble, I can read it there or elsewhere. Apple, like Barnes & Noble, is saying “you can buy your content elsewhere and read it here, but if you buy it here, you’re going to pay us. Which brings us to:

      “But why is Amazon’s Kindle platform any more a “parasitic middleman” than Apple is itself?”

      It isn’t. First, I don’t like the word “parasitic” because it carries emotional baggage with it. Second, after reflection, I now feel that Apple is squeezing out alternative middlemen and replacing them with themselves.

      The economic purpose of a middleman, like Barnes & Noble, is to help the seller by increasing sales and help the buyer by allowing them to make purchases they would not have otherwise have had an opportunity to make. A Publisher can sell directly to the buyer for less, but they know that they can sell more books by giving them to Barnes and Noble, even if Barnes & Noble has to raise the price of those books in order to do it.

      Amazon has a store of their own where they act as the middleman, increasing sales for sellers, increasing opportunities for buyers. If you buy a book at Amazon’s store, you pay Amazon, not Apple, and you can access and read that book at no additional charge on any of Apple’s devices. However, if Amazon wants to SELL content on Apples’ store, what purpose are they serving? They are negotiating the deals, but now it is Apple that is providing the bulk of the value by marketing and providing access to the books. If Amazon cannot pay Apple’s 30% commission and still remain profitable it is because they are redundant – they are charging the seller as though they were performing the valuable services of a middleman when it is actually Apple’s store that is doing all the substantive work.

      Finally, let us look at the hypocrisy at work here. Does Amazon allow Apple to sell books on their book store at all, let alone without commission? Does Amazon allow any book sold by anyone other than themselves to reside on their Kindle devices?

      Amazon gets to run their store their way. Apple gets to run their store their way. May the best business model win.

    • @FalKirk – “Does Amazon allow any book sold by anyone other than themselves to reside on their Kindle devices?” -> yes, they do. My Kindle can read PDFs and MOBI files loaded onto it via PDF, and you can turn pretty much any non-DRMd book file from the smaller online bookstores (e.g. http://baen.com/) into a MOBI to read on the device.

    • Apple: if you create content, welcome home, that makes two of us! If you pimp content, not on our watch …for the price is steep…!

      That’s what I call ‘spreading the Gospel of creativity’ both upstream and downstream within the iOS ecosystem. The message to the current or to the prospective middleman or aggregator couldn’t be more transparent if you asked me…

    • “Does Amazon allow any book sold by anyone other than themselves to reside on their Kindle devices?” -> yes, they do.”

      Thank you for the clarification. My mistake springs from my lack of familiarly with the Kindle platform. I appreciate the feedback.

    • I would add that if one cares for the middleman, one should seek a middleman’s platform such as Android, Google ad platform that caters more to eyeballs than to frontal lobes.

    • @Falkirk – no worries mate! Always pleasant to debate with people with opposing views who actually listen to your counter points!

      I’d also expand on your point about the value Apple add to the Kindle app at the moment. I’d argue its almost none. They host the free client download and list it in the App Store, true, but beyond that it’s all Amazon. Amazon market the books, provide the store, provide tech support, do payment processing. (If you didn’t know, all Kindle interactions beyond reading books are done on an iOS device via Safari, not the app). They host the downloads and the Whispersync bookmarking service. They aren’t getting any sort of free ride from Apple; Apple’s costs from the Kindle app are minuscule and (IMO) easily outweighed by the extra iOS devices it helps sell.

      To say that Amazon, as middlemen, are redundant in this brave new world is to belittle their achievement in building a credible e-book store with a decent selection of content. Is that an easy task? I would urge you to consider the anemic selection of books in iBooks, which to my mind suggests that no, it was not an easy feat.

    • “(Apple) host(s) the free client download and list it in the App Store, true, but beyond that it’s all Amazon.”-Richard Gaywood

      I think you’re missing the most essential thing that the App Store does – it makes the sale. That’s worth more in value than all the administrative services put together. If Apple’s App Store weren’t responsible for turning a prospective customer into a buyer, then Amazon would have no worries – Apple would be charging them nothing. But it’s that final step – making the sale – that makes all the previous steps worthwhile. And it’s that final step – making the sale – that Apple is charging for.

    • @Falkirk – I know what you’re saying, and for some readers (ie those who use the Kindle app exclusively on iOS) you certainly have a good point. But I, and many like me, do most of our reading on a physical Kindle and only rarely use the app (I sometime use the iPad for reading in the dark and the iPhone in long grocery queues, the, uhh, bathroom, and very boring status meetings in work). For guys like me, we weren’t ever really interested in buying that content exclusively for iOS, and Apple’s platform existing didn’t swing our purchase one way or the other.

      This is probably clearer cut in the case of Netflix, where (I’m guessing) many more people stream mostly to their TV via Boxee, PS3, in-TV app, etc than to their iPhones and iPads. If Netflix leaves iOS, will their subs go down? I’d expect so. Would they drop to zero? No, surely not – but if Apple really had brought all those customers to Netflix, isn’t that what should happen?

    • Richard Gaywood said :
      “To say that Amazon, as middlemen, are redundant in this brave new world is to belittle their achievement in building a credible e-book store with a decent selection of content. Is that an easy task? I would urge you to consider the anemic selection of books in iBooks, which to my mind suggests that no, it was not an easy feat.”

      You give far to much credit to the middleman and far too little to the writers, musicians and various creators of content. The former lingers on as a disposable commodity; the latter has the potential to stick out forever as a preciously unique non-commodity.

      In a platform such as iOS, the entry fee to a disposable commodity should be directly proportional to the burden it lays on a creator’s proclivity; that’s where iOS stands out against other platforms, their bread and butter so to speak.

    • “for some readers (ie those who use the Kindle app exclusively on iOS) you certainly have a good point. But I, and many like me, do most of our reading on a physical Kindle”-Gaywood

      I think we’re having a parallel conversation and if it is I who is misunderstanding your meaning or mis-communicating my own, I hope you will forgive me.

      Even if you read your books 100% of the time on the Kindle, you bought it in the App store. The store that sells the book is the one that gets paid. If you had bought it in the Amazon store and read it exclusively on your iPad the reverse would be true. It’s not where you read it, it’s where you bought if from that matters. I fear you know this already and that it is I who is missing your point. My apologies if that is the case.

    • Richard, I appreciate your thoughtful exchange with Falkirk. But it seems like your missing the key point: If the Kindle books or Netflix subscriptions were bought elsewhere and not via the iOS app, Apple gets $0, even if the books are read, or shows/movies are subsequently viewed on the iOS device. The one making the sale (if not Amazon or Netflix directly) got to keep any agreed-upon fee.

      Apple’s point is that if your (Amazon, Netflix) customers turn to their iOS app to buy (for whatever reason), then Apple is the one actually making the sale, not Amazon or Netflix, or other third-party. This kind of arrangement is true in almost all kinds of retail environments.

    • 1. Netflix and particularly Amazon are outliers in this argument. There are thousands of publishers but only a handful companies like Amazon that compete directly with Apple on hardware, software and online store. The issues before the vast majority of publishers are not the same as Amazon’s.

      2. It’s incredible that you say Amazon is selling you books with the promise of you being able to read them across all devices, including iOS, and yet in pricing Amazon simply assumes they won’t have to compensate those other platform providers. Amazon commoditizes iOS devices as just another hardware layer on which Amazon’s books can be read. That’s at best false advertising (they never had the right to claim that) and perfectly illustrates why Apple might see Amazon as a parasitic middleman.

      3. You keep ignoring the fact Apple’s not preventing you from reading content bought elsewhere, from Amazon or anybody else. Apple’s not demanding any money for that at all.

      4. You keep bringing up the notion that 30% is onerous. That’s especially ironic in the case of Amazon, a cutthroat competitor that nearly monopolized ebooks and was able to demand up to 70% cut, as well as demanding that its prices could not be undercut by publishers elsewhere. What brought changes to Amazon’s draconian policies and prices dramatically? iOS and iBooks last year.

      5. You deliberately underestimate what Apple brings to the table with its iOS ecosystem. But Apple is boldly putting it to test: if Apple’s one-click, frictionless in-app purchase is not worth 30% then users will prefer to go outside the store and buy stuff via the browser. And there will remain no controversy, no problem for publishers. Unfortunately, publishers, Amazon and everybody else clearly understands that is not the case and users will overwhelmingly prefer in-app purchases, exposing the lie that Apple’s 30% cut is un-earned.

      6. Finally, you also ignore the fundamental strategy here: Apple is nudging publishers to transition from print to digital. Apple is in effect saying: you can’t keep holding on to antiquated print publishing economics forever, you can’t graft your print-based pricing and distribution models on digital, the future is digital, so reorganize and drop print. That’s the bitter pill publishers will have to take sooner than later.

    • I don’t see how Apple’s policy applies to Netflix users. Honestly, how many people does Apple bring to Netflix? Hardly any I would guess.

      Everybody I know already had a Netflix account before buying an iPhone or iPad or Apple TV. Even if that weren’t true, I suspect people sign up through Netflix’s website. So, in these cases Netflix isn’t paying Apple anything.

      The same probably can be said of Amazon. Most people already have Amazon accounts. Apple isn’t bringing Amazon any customers. Amazon is just offering their customers a convenience.

      Even if I were wrong, which I highly doubt, Apple isn’t going to enforce the rule against these companies. Apple benefits from Netflix on its products. Netflix is helping APple sell Apple TVs. Many of Apple’s customers use Amazon.

      This policy is largely directed at content publishers who offer subscription (e.g. magazines or newspaper) services. If the policy applied to these other companies, you’d hear them making public comments. They are mum because they already know the policy doesn’t effect them.

    • @Richard: You say, “I, and many like me, do most of our reading on a physical Kindle and only rarely use the app (I sometime use the iPad for reading in the dark and the iPhone in long grocery queues, the, uhh, bathroom, and very boring status meetings in work). For guys like me, we weren’t ever really interested in buying that content exclusively for iOS, and Apple’s platform existing didn’t swing our purchase one way or the other.”

      But if you mostly use other devices to access the content, then you presumably mostly use them to buy the content, and so Apple will only get their fair share.

    • @Kontra: You say, “5. You deliberately underestimate what Apple brings to the table with its iOS ecosystem. But Apple is boldly putting it to test: if Apple’s one-click, frictionless in-app purchase is not worth 30% then users will prefer to go outside the store and buy stuff via the browser. And there will remain no controversy, no problem for publishers. Unfortunately, publishers, Amazon and everybody else clearly understands that is not the case and users will overwhelmingly prefer in-app purchases, exposing the lie that Apple’s 30% cut is un-earned.”

      I think this is the way things should work, but I don’t think this is how Apple has said they will work. They require in-app purchase to be at the same price as purchase outside. This seems difficult to interpret (what happens to outside combo deals and sales?) and difficult to enforce (who will police all websites for better outside deals?). They should just say (as Matt Drance has suggested) that you can charge what you like elsewhere, but don’t promote the outside purchase in the App or in the App store. That at least is clear and enforceable.

    • Just like Amazon, let’s repeat that, just like Amazon, Apple’s requiring price parity so that conniving publishers do not undercut App Store to park their app for free there to siphon off customers to their own site.

      It’s very simple, no reason to further elaborate: do not engage in out-of-App-Store deals you’re not willing to offer via IAP. As for enforcement, if Apple’s comfortable setting the penalty high, expulsion, and then letting publishers self-regulate, who’s to complain.

      Apple has two goals: 1. 30% cut from App Store initiated sales and 2. transition pubs from print to digital. Just like their determination with floppies, Apple has no desire or incentive to encourage any deals in print, period.

    • Terrin, this blogger says that *Amazon* (and Kobo and B&N) expect Apple to enforce these rules against them:

      http://www.the-digital-reader.com/2011/02/22/amazon-bn-kobo-know-their-ios-apps-will-be-pulled-in-june/

      I don’t know how trustworthy he is, but I will say that it matches up with all of the evidence I can see:

      – the rejection of the Sony e-reader (which followed the previous e-reader model) and Sony’s subsequent decision to go public with the dispute. Unlike Amazon and the rest, Sony has nothing to lose on iOS.

      – no visible effort on Apple’s part to provide infrastructure for hosting competing bookstores (the way they did for subscriptions)

      – Apple’s public statements that the new rules *do* apply to Amazon and the rest (including the Steve Jobs quote about publishers vs SaaS)

      – The absence of reassuring statements from Apple, Amazon, B&N or Kobo about the future of these apps on iOS. With the imminent iPad 2 launch, that seems particularly strange. Why would Apple want the distraction right now?

      – Amazon targeting the iPad in recent Kindle ads

      – the Readability rejection. I can understand a rule that allows Readability and rejects Kindle, but a rule that did the opposite seems incoherent

      Personally, I’d bet on the Kindle app not being available on iOS after June 30. To me, the major open question is whether or not Apple will remote delete it. I’d guess no, but Apple has surprised me so far.

  14. How can kindle or any other ebook on the IOS compete with ibooks when As iBooks have 42% price adavantage?

  15. If all of Apple’s devs were polled, you are probably correct. Some of them would say the iOS system is a gold mine. An opportunity that they never could have imagined until the App Store.

  16. No subscriptions, use single issue iTunes purchases.

    Drop the price of the digital version to the same fee as many games 99¢.

    That would likely boost circulation at least 10x (include international sales).

    Charge content advertisers accordingly for the increased readership.

    Then add all the printing and distribution costs for the true price of the traditional printed version.

    • I think you are very wrong about that. Publishers have know for a long, long time that there is a psychological aspect to subscriptions. Asking for money over and over again is very hard. But once people subscribe and can continue to receive a service without having to think about their payments, they are very likely to continue the service and, more importantly, continue to pay for that service.

    • Everybody has an opinion about what’s going on here. Me,too.
      People talking about books. The policy was over subscription services that appear to be targeted at publishers. There isn’t any successful model anywhere that I know of that is working in a digital only environment. I believe that it is Apple beginning to try to establish a model that can work. I also believe that this is just a test case for Apple to bring the real target in range. The way TV is sold.
      Steve Jobs made the record industry change to suit his view that having to buy 10-12 song albums for the 1 or 2 songs you want, would not work in a new digital age. I think he believes the old bulls that control DirecTV, Time-Warner, Satellite TV, etc, that require people to pay for hundreds of channels that they don’t ever use just to get the 10-20(?) that they watch, is an old model that needs changing.
      This is about subscription services, renewing those services, and using Apple’s store to do it.
      AppleTV is Steve Job’s hobby. I heard him say it. For me this is the first shot at the TV industry. He wants all Apple people to be able to subscribe to content on AppleTV by being able to subscribe to individual channels by buying them one at a time or in combinations that are offered in differing group amounts that the user designates which channels are in the group. The more per group the less per show probably is what Apple is going to offer. Don’t know for sure, maybe something else.
      Publishing subscriptions is Apple’s first shot at cracking digital subscriptions.
      In the olden days of broadcast, there were networks, channels, stations,and affiliates. Cable changed that model. What were independent networks are now individual channels with a new network model. I believe Steve sees that as an unworkable model for the future.
      Our television model is too expensive. I shouldn’t have to subsidize any Spanish language channel. I don’t speak Spanish. DirecTV uses my subscription money to pay for what I have no use for and takes up huge amounts of space in my guide. I only watch 10-15 channels, I pay for hundreds.
      TV is the industry that Jobs wants to crack. At least, I hope.
      Just my take.
      Harvey

  17. Excellent post. My questions:
    (i) What percentage advertising income can be expected to be generated from a typical magazine?
    (ii) Was bringing a typical magazine (Fortune) to the Apple platform financially successful? Or does the Apple platform add value to publishers to warrant 30% cost?
    (iii) Is it possible that the publishing industry has been “spoiled” to bring content to users via the internet at zero “platform” cost? The internet pipe is free. The 30% cost on the Apple platform is a new mindset.

    • (I) I don’t know the exact number, but publishers make more than 50% of their income from Ads. Even Ruport Murdoch says he expects advertising to make up at least 50% of The Daily’s revenue.
      (ii) I doubt that many publishers have been successful on the iPad so far. The only app that I found to give a good experience is the Economist. My impression is that they are trying to take shortcuts by using Adobe tools instead of rethinking what is the best way to deliver content to apps. I think the iPad could bring lots of value, such as offering a really simple and easy way to pay, but most publishers aren’t leveraging these properties correctly.
      (iii) The Internet pipe is not free and must be subsidized somehow. Apple is saying that you can’t freeload off our platform. Google is saying that you can freeload off of us as long as we get to leverage the users data as well.

  18. The Wintel ecosystem was the original digital gold rush. For two decades, the system was growing rapidly, and it was growing in the most lucrative markets (enterprise).

    Today, iOS growth is taking place when enterprise desktop market is fairly saturated. The idea of ‘zero-sum’ is quite close to the reality today. While there are a few conspicuous stories of developers striking gold with the first-mover advantage into the iOS market, there isn’t all that much uncharted territory here to be conquered; it is essentially just taking chips away from the other player (Notebook PCs, RIM, Symbian…).

  19. From a legal standpoint, Apple is on solid ground. Publishers, Writers, Musicians, etc., all have plenty of alternative means to get their products to market. iOS / OSX is but one of several windows, ethereal or material, on open trading of artistic and commercial goods and services.

    On the moral side of the argument, the rules were always there and never implemented across the board. The small and medium size content providers were marked-up 30% while the ambitious middleman was home free; and without a minimum of reciprocity …for a free ride on ‘The’ platform of all platforms. Billionaires and millionaires are well known to stake a sui generis claim on tax exemption; so do Fat Cats of the middleman game with their leeching preemption. If a 30% Apple mark-up is fair enough for framing my creative work on the net, it’s more than fair enough, generous I’d say, for opening up points of entry to commodity providers on an essentially non-commodity grid.  There has to be a price to pay for polluting, hence downgrading a creatively rich environment.

    Then there is the rationale underwriting it all. Apple wishes to nurture a direct relationship with actual content providers and do away with bandwidth hogging perimeter players altogether. The message should be loud and clear: this is a non commodity platform with a non commodity price for playing a commodity game on it. This policy is a filtering mechanism that lets seep through value adding, non trivialized premium content onto the iOS / OSX platform with no prejudice to alternative platforms in the process. The concept of platform is central to the rationale of competing in the market place; different platforms cater to different objectives and end results, and all have their own legitimacy.

    Apple partners with its end users to free up some additional authentically creative net space for both to dispose of with cross pollenized ingenuity. The market is craving for a partnership to up the ante, a match of equals so to speak. There is huge long term profit to be made in maximizing intelligence and smart on a platform, eg. Apple. There is also huge short term profit to be made in minimizing them, eg. Google, Microsoft, etc. All models come with or without a middleman… Plenty of options, lots of opportunities for all service providers and customers, and on that score alone Apple rests its case Your Honor!

    Apple pleads guilty on the charge of incitement to gimmickry curation, non mediation, and justly rewarded quality content production. And I’m willfully accessory to this market oddity Your Honor…!

  20. Publishers will be fine.

    But the alternative app-stores such as Kindle and Netflix are history on the iPhone and iPad.

    Apple must not think this will be a big loss and are presumable delighted to pick up the business with iBooks and a surely upcoming iOS video streaming service.

    This is where the real disruption lies.

    We’ll have to see how this plays out in the next few months.

  21. While your conclusions—it’s best to work with Apple—are correct, the judgment is rather harsh. Publishers have always delivered a physical product. Knowing your address was a necessity of doing business. Publishers no longer need to know your address.

    The notion that somehow Apple is the defender of readers, though, and publishers are their enemy, is laughable. Apple is the new AT&T. We just need to all get used to it.

    • And that is the point, publishers don’t need your resume to deliver their copy to you any longer, so it should be a moot point.

      I did not say Apple’s the defender of the reader. Apple’s running a business, above all else. I said:

      “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.”

      What Apple’s doing, more subtly but radically, is forcing publishers to move into digital because some can’t handle the 30% cut while still keeping dead-tree operations.

    • Kontra replied: “What Apple’s doing, more subtly but radically, is forcing publishers to move into digital because some can’t handle the 30% cut while still keeping dead-tree operations.”

      Interesting! This transition process fascinates me. It seems like a tall task to operate more than one business at a time, hard for many to do both print and digital media.

  22. The problem isn’t the 30% cut, or the ban on other payment processors, it’s the pricing parity rule. There is virtually no way a business can sell the same product for the same price both with a 30% fee and without. (They’d either be killing their margins on the iOS purchases, or charging too much in their other markets).

    That means the only way forward is to artificially segregate purchases made on iOS devices from those made externally. That kind of content lock-in isn’t good for customers, it isn’t good for content publishers, and ultimately it isn’t good for Apple.

    • Nothing has changed on that front. That’s exactly what Amazon has been doing with publishers for years: they can’t effectively undercut Amazon store prices elsewhere, which is why they’ve been clamoring for the agency model, which Apple gave them last year. Re-welcome to Store Wars.

    • Joel – I’m not really sure what you mean, or perhaps I should say … nevermind.

      I don’t think it is any more complex than anything else bought at retail stores. iTunes is the first successful digital (only) storefront for digital content. As a result, everyone is still figuring out where the money goes. How much do you suppose retail stores markup physical goods. It is not a direct relationship to what is appropriate for digital – but it is still a process.

      As someone who works in the (newspaper) publishing industry, figuring out how to deliver a digital product to consumers is complicated and it is not clear yet what path newspapers will take. Don’t expect them to die anymore than Radio died when TV came around, but transformation and retrenchment are certainly in the cards.

    • I want to clarify one thing: “… iTunes is the first successful digital (only) storefront for digital content….” by this I mean an online store that sells digital – unlike Amazon which is the first wildly successful digital (online) store that sells lots of stuff, some of which is digital only.

    • “There is virtually no way a business can sell the same product for the same price both with a 30% fee and without. (They’d either be killing their margins on the iOS purchases, or charging too much in their other markets).”

      What? In this case, the 30% fee covers the cost of the retailer (Apple) providing retail services. If they provided the product to another retailer, that retailer would charge a price higher than what they paid for mfr for it as well. The mfr’s margin has to be already factored into the lower wholesale price. The one place where this doesn’t work is in the agency model.

      Second, this is mostly moot for news/magazine publishers, who rely on advertising for the bulk of their revenues. The subscription really only serves to smooth out the income stream and provide the publisher with delivery and demographic info.

  23. But if Apple is facing Androidamageddon this year, why is everyone so uptight. Android will completely smash the iDevice ecosystem in the next 12 months.
    And I’m sure Google, Nokinsoft, RIMQnx and HPalm will have some wonderful solutions for these guys.

    Right?

    • Because you can only sell for free with Ads on Android platform, and the other platforms have uncertain future.

    • Some people have issues because they have existing investments in iPhones, iPads and Kindle books.

      Others think that Apple is accelerating “Androidamageddon” with these changes. Different people have different reactions to that, of course.

  24. Another great piece, Kontra, because it was the truth and you sorted it all out quite nicely and informatively. Thanks.

  25. good post, and overall i think apple’s approach is a good shove for the publishing industry to see if it can go in a new direction.

    what i think is really going too far is the same 30% cut that apple takes for apps. with apps, it’s not so hard to justify that cut, since apple has a lot of infrastructure to host and distribute the actual binaries, as well as the payment processing, etc.

    with subscriptions and in-app content apple hosts and distributes *nothing*, and offers little in the way of promoting the content. so the only value they add is the payment platform (and the general development tools, etc.). it’s very hard to justify that 30% for such sales, especially for small- to mid-size publishers/creators who may depend on subscription fees as the lifeblood of their company.

    i hope apple does the right thing and reduces their cut for in-app content, or introduces tiered pricing. it’s not complicated and it has *no* impact on the end-user experience. it would only make publishers happy, and i imagine wouldn’t hurt apple’s bottom line much at all, since subscription income is pretty much gravy for them.

    • @river

      It’s Apple’s ecosystem. They took the huge gamble all the way back to iTunes and the original iPod ten years ago. Who else had a hand in that? Apple was laughed at for thinking they could sell a $500 MP3 player…only to Mac users! How soon we forget that to the victor goes the spoils. There is no new paradigm for publishing unless Apple had spent the time, money and energy to create a platform in iTunes and evolve it. If these bonehead CEOs, just like the bonehead CEOs of the music industry, had half the gumption that Jobs has, they would have done it years ago. But they didn’t. Jobs has to take them by the hand, when the handwriting has been on the wall for over a decade now that everything that can transition to a digital format IS transitioning to a digital format, and lead them down the road. They don’t get it. And because they don’t get it they have to pay the piper…to the tune of 30%.

    • It’s hard for me to grasp that the only value Apple adds is the “payment platform”.
      The main value Apple offers is the ability to use the fabulous little iOS to display your content elegantly. If the App is in the store you can use all the hooks and forks,etc. From the App you can make it elegant, easy, intuitive. That’s the “main” thing Apple gives you. This can’t be about access to content on my iPodTouch. Apple has no way at all to restrict access to content on my Touch. What they can control is how elegantly it’s displayed. They control who can use control of iOS in App.
      I have NetFlix on my MacBook. I can get that content from my MacBook to my Touch. It’s not as easy. It’s not as elegant. But Apple has no way to stop me from displaying my MacBook screen on my Touch.
      I control content on my Touch. Apple can’t. I can break any DRM. Can’t you?
      This is about being in App or out. It is not about content on iOS devices.
      The challenge for Publishers, etc, is how to be in App and satisfy Apple. And that is between whoever they are and Apple. If they want to be in App, satisfy Apple. If they can’t, offer a workaround. Any of them can make an offer that any iOS user can get around and charge whatever they want.
      Most users of iOS have no idea how to use their iOS device except in App.
      A button to push. That’s all they know. But that isn’t the only way it can be used. It is an extremely powerful little computer. For anyone who sees it that way and has only a modicum of tech savvy, they can do almost anything from the device.
      I have a remote that lets me control my MacBook from anywhere I’m in wi-fi. I can be sitting on a stool in a bar in Hong Kong drinking a Singapore Sling if there is wi-fi there, I can see and control my MacBook. Apple is nowhere in sight. Anything I can do on my MacBook, I can get to on my Touch from anywhere.
      Fairly long winded. Sorry guys.
      Harvey

  26. “t’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.”

    You’ve got it upside down. It’s Apple instead whose business model is changing. Apple sells ads now, you know iAds. iAds is opt out not opt in: http://www.ilounge.com/index.php/news/comments/apple-sneaks-iad-opt-out-into-itunes-store-update/

    Jobs’ quote clearly lays it out that they are now in the business of selling their customers:
    “Our philosophy is simple—when Apple brings a new subscriber to the app, Apple earns a 30 percent share”

    • Wrong. iAds isn’t relevant to this discussion, since Apple didn’t insist that the publishers use iAds instead of their own advertising service.

      Apple provides a shopping mall where others can gain an audience with those Apple customers, but those customers can still walk right on by. They don’t sell their customer’s info so that those others can initiate a more direct solicitation.

    • @kevin
      Uh, I’m not talking about the publishers here. You and Contra keep putting the focus on the other players, while keeping the focus of Apple’s own activities. Apple is itself an advertiser and uses my info (unless I opt out) to offer targeted ads for clients who sign up for iAds. That’s beyond dispute.

      Your analogy is flawed. If Apple is just the shopping mall then why are the looking through the receipts in the cash register. The shopping mall doesn’t do that for each store within its premises. The shopping mall just takes rent (i.e. the 30% of paid and $99 per year for the developer program) not control the cash register itself while take a cut (i.e. 30% of subscription fees).

    • Thanks for clarifying your point, which I think is that Apple views itself differently than the publishers, so that it implements opt-out for itself, while forcing opt-in for the publishers. My response is Apple believes 1. it has earned a trust relationship with its own customers, and 2. it won’t make the data available to any other advertising parties; Apple controls the targeting of iAds itself (using its data). Apple says you tell me the type of audience you want to reach, and I’ll tell you how large your iAd audience is. There were many articles about why advertisers and advertising agencies aren’t too keen about Apple keeping the details from them.

      Jobs quote doesn’t imply “selling their customers”, after all, Apple won’t release any data, but he is saying he will be making it easy for others to sell to Apple’s customers.

    • I’m not sure why you make a distinction between “paid” and “subscription fees”. Both are transactions made by Apple via its App Store transaction mechanism. (In the paper world, if you buy your magazine subscription from Publishers Clearing House, or via your frequent flyer points, you can be sure PCH and the airlines, as agents, collected their cut of that transaction.)

      Perhaps a better analogy is just a supermarket or a Walmart or a ticketing agency (like Telecharge). The App Store and In-App purchase, is a distribution point or storefront for your content, i.e., it makes your content available for purchase, executes the transaction on its cash registers, and collects a fee for that service.

  27. “they have decided to cull parasitic middlemen and aggregators from the ecosystem”

    Not quite. They have replaced the middlemen with a different middleman: Apple. Meet the new boss, same as the old boss.

    • If you actually read it, it’s culling the parasitic middlemen from the ecosystem, from Apple’s ecosystem. There are no pretensions here at all. It’s Apple’s platform and those companies that park their apps free at the App Store to conduct business elsewhere to avoid Apple’s cut can best be described as parasitic.

    • Fred: Kontra’s apt response aside, there are middlemen in nearly every transaction. You don’t buy novels or news from those who create, gather or write it you buy it from companies that buy it wholesale from companies that pay individuals to generate it.

      So in novels or other creative content that is: you buy from a bookstore (or general retailer even online retailer), who buys from a distributor who buys from (or takes a cut) book printer, who pays or buys from writer.

      And in news and information there are several models, taking a weekly magazine: you buy from a bookstore (or etc), who buys from a distributor, who buys from the print producer. Or, you’ve got a subscription so you buy from a subscription service contracted (almost like Priceline and hotels) to sell “inventory” by big magazine publishers who’s small units produce content printed by print shops often not owned by the publishers themselves (not that there is anything wrong with that).

      There are several more models I could outline related to traditional print media, but the gist is: we rarely buy anything directly from those who produced it. For the record, your local newspaper is probably the closest to that and even a lot of what they publish comes from services (AP, etc)

      Why is a whole other discussion.

  28. Good insights in this post. The aspect of the “new subscription rules” from Apple that I think is troubling is the requirement for Apple to get the best pricing.

    I think it will be hard to enforce – if PopMagazine is selling subs through the app store and online and offer a 1 day special for subs do they then get banished? Or since by the time anyone realizes it the price is back where it was is all OK? What if a reseller like Amazon sells the sub and they run a special or have a store-wide discount available?

    I’m not clear if there is a legal / regulatory issue. By making pricing on other platforms a condition to get “shelf space” on the app store is there some kind of price fixing law that is violated? I don’t know consumer laws well enough (read: at all) but it’s uncommon which raises suspicion.

    • This how Amazon’s agreements with publishers have been structured for years, precluding others with competing on price with Amazon. Welcome to online Store Wars.

    • “Apple has now increased the cost of every single transaction. That does not benefit consumers.”-AndroidFan

      AndroidFan, a product is of no use to either the seller or the buyer if it is not purchased. Retail stores take a markup because they put products before consumers who then buy them. This is good for both the seller, who sells more product, and the buyer, who gets the opportunity to buy the product.

      Take for example, Barnes & Noble. It would be much cheaper for the buyer to buy books directly from the publisher. But the reality is that buyers need assistance in finding and aquiring appropriate books to buy. By providing a setting where buyers can peruse books in an orderly fashion and in a comfortable setting, Barnes & Noble is performing a service for both the seller and the buyer. Accordingly, they accept an appropriate mark up. Apple is doing the same thing. The App Store is one of the premier on-line stores in the world. When products appear in the App store, sales go up ten-fold and sometimes a hundred-fold.

      The mistake you are making is two-fold. First, you are assuming that we live in a world of perfect information. We do not. There are products in existence that consumers would wish to buy but they either do not know of the products’ existence or they do not know how best to acquire the product.

      The second mistake you are making is to assume that higher prices are always bad for the consumer. If a middleman raises the price of a product and that makes the product more valuable to the seller because he sells more of the product and more valuable to the buyer because he gets the opportunity to buy a product that would have otherwise been unknown or unavailable to him, then that is a valuable service worth paying for.

    • If Apple can’t require the “best price to my customer” rule they will adjust and move on. I agree, though, this is where Apple may have to adjust.
      If a publisher in the App store wanted to make a special deal for any school district to supply content to their schools. That couldn’t fly with the regulators for that same deal to be a required offer to Apple’s customers.
      Harvey

  29. Thank you. Apple once again attempts to change the way things are done so as to benefit the user (and Apple). The publishers should be relieved that Apple didn’t stretch further and instead take a cut of advertising revenue, which is by far the much larger revenue stream.

    There is now a very viable opportunity for some publisher, new or old, to step up and do something new and different; to actually have a vision of what would delight content consumers instead of supposedly basing it on hometown and income.

    • I think you mean that Apple once again attempts to change the way things are done so as to benefit Apple (and the user).

      We must live in an altered reality where anyone thinks that customers have anything to gain by being charged a 30% tax on their purchases.

      I get the idea that you want to force the ability to do in-app purchases. Or force the pricing to be the same inside and outside the app. I get the idea that customers might/will not want their personal info shared.

      But a 30% tax? How does any customer benefit by sending 30% of every dollar to Apple instead of the company they like to buy stuff from? I mean, do you like Netflix? Do you want to send 100% of your dollar to Netflix or only 70% of every dollar? Do you want Netflix to increase its prices to cover the difference?

      It’s not magic. It’s math. Apple has now increased the cost of every single transaction. That does not benefit consumers.

    • “It’s not magic. It’s math.”

      And you failed at it, again.

      What part of “if Apple brings in the customer it takes 30% (otherwise 0%) cut” don’t you understand?

      Without the App Store there’d be no new customers from the App Store. The value of customers is not a one-time fee, it’s the value they bring over their lifetime.

    • I fail to understand how your comment is relevant to my comment.

      At best, every App Store user has now being hit with a 30% Apple tax.

      At worst, every user has being hit with a 30% Apple tax.

      Now tomorrow, maybe we all get it by a 30% tax to finance something like healthcare. We get taxed, but get something in return.

      Here, the only thing we get is Apple having more money than it already does.

      I fail to see how pro-customer that is.

      Also, you wrote this in your post:

      ‘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.’

      How are the two related? You can have a monopoly over digital stores regardless of how much money every other player has. A monopoly is not necessarily a factor of how much money competitors have.

    • Kevin, it isn’t a tax. As long as you use that word, it’s hard to include your arguments in this furor. Neither the DOJ nor the FTC will view it as a tax.
      If the 30% cut of the proceeds of the sale is disallowed by the regulators, they will say what the correct percentage is. Google’s model is 10%.
      For now it means that the publishers have to decide if they can make their business model work with whatever percentage is offered by the revenue generated by the extra sales it gets through the App.
      Harvey

    • It’s not a “tax” to consumers if content services/publishers don’t raise their prices across all platforms because they make less through one particular outlet. It would be insane to do so because it puts them at an instant disadvantage against their competitors. Magazines don’t raise their prices when a publishing clearinghouse sells magazines for them and takes a cut. They write off that lost revenue as a part of doing business and reaching more eyeballs.

      Apple is acting as an sales agent for these companies and like any agent they ask for a cut of the sale and they have certain terms (no better deals for the same content outside the App store for example). The more eyeballs the agent has and the easier they make it for customers to part with their money, the more value they bring to the table and the larger their cut will be. There is nothing new going on here. If the App store didn’t have immense value not one of these publishers or content service providers would care about this rule. They would simply pull out of the store. But the App store does have immense value and they know it. What the content providers are mad about is that they don’t get a free ride on a very lucrative platform anymore. 30% is probably not be where this will all end up, but its Apple’s starting point and my guess is that it be negotiated down on a case by case basis.

    • Harvey, You meant to say that AndroidFan called it a tax.

      AndroidFan doesn’t really grasp the way retail works; he’d be shocked by the “taxes” imposed by the various distribution and transaction enablers in the retail system.

  30. Great piece.

    The scary part of the equation is that Apple is hardly benevolent, if you are not the end-customer. They reserve the right to…and this proves that they will exercise that right as the deem fit.

    I am not saying that that is wrong on Apple’s part. It’s not wrong for the consumer, and in many, many ways it’s right for the developer or content creator.

    But, it puts developers and content creators in an uncomfortable position.

    They now know that Apple is playing three-dimensional chess to their checkers game.

    Stop the film and discuss.

    Mark

    • Yes, but Apple IS very open about it. No Google-type hypocrisy here. This is business and Apple takes as many risks as any member of their ecosystem.

      Yes, for example, insisting on a narrow spectrum of development tool-chain is restricting to developers, but you get greater platform flexibility when Apple moves on to better infrastructure, benefitting everyone who followed their guidance/rules.

      Yes, insistence on $0.99/tune was risky for partners but it saved their butts.

      Yes, some Mac App Store rules may be onerous to some devs, but it opens a huge market.

      And so on.

    • “…three dimensional chess to their checkers….” Interesting & funny – but I thing it is the middle operators who are in the adversarial relationship with Apple, not the developers & content creators.

      But I certainly agree that developers & content creators don’t have it easy.

      The business savvy devs & creators have always had a leg up making a living on their talent and the rest have always had to rely on middle players. Those are the ones at the greatest risk of being “gamed” by unethical middle players.

      I don’t think this is necessarily where you were going with your contents but that’s where the film took me….. ;-)

    • @bradisrj, as a developer and content creator, I don’t question Apple’s rights here one iota. They have earned and created the opportunity that they are feasting on.

      My construct is simpler. It comes down to economics and alternatives. In the days of PC, while Microsoft feasted on the high margin dollars, and was every bit the bully (and then-some) that some suggest Apple is becoming, there were nonetheless LOTS of examples of third-party $100M+ revenue companies that grew out of the body Wintel.

      That is unquestionably one of the primary reasons Microsoft won. They created a big enough ecosystem of ISVs that could make a mint on their platform so that those same ISVs had a vested interest in Microsoft’s success.

      Today, at least, most developers would likely agree that iOS is a nice cottage industry, but not a gold mine.

      Part of me wonders if Apple groks the importance of seeing these types of upstart successes growing out of their rib, or if they purely view the world in terms of the zero-sum of being better than the alternative.

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