[Gino Cerullo]

This is not as ominous and draconian as it sounds. Let me explain by using the Kindle app as an example.

What Apple is requiring is that apps like Kindle in which the developer makes available addition content for sale, in this case ebooks, from their web site must also make that content available through in-app purchase.

What Apple is trying to accomplish here is a levelling of the playing field. They want to force app developers who want to sell additional content for their apps to also make it available in a way that Apple has an opportunity to earn some money as well. They just want the customer to make the choice as to how they want to access that additional content, not the app developer.

A customer can still purchase the content from the developer's web site, in which case Apple does not earn any additional revenue, or the customer can make the choice to purchase that content via in-app purchase in which case Apple will make their 30% cut. They are not forcing app developers to only make that content available through in-app purchase.

They are however going to enforce this by saying that apps that don't offer the in-app purchase option will not be able to sync that additional content with the app.

I think I've explained this correctly and I believe that this is Apple's intent.

 

[Gino Cerullo]

Apple has made it very clear that their business model for the iOS platform is that if a developer wants to earn money from it that Apple wants an opportunity to earn a part of the proceeds as well. In addition to the App Store itself, that's what the iAds platform is for and that is what this in-app purchase system is for.

Whatever the app developer needs to do to their pricing to take in to account Apple's 30% is up to them. Apple isn't a charity, it's a corporation operating in a capitalist market and answerable to it's shareholders.

The vast majority of these 'free' apps are going to try and earn their money through ads, subscriptions, or some type mechanism in which additional purchases are required to make the app useful, ie. ebooks. For Apple, these 'free' apps do absolutely nothing and as far as they are concerned they are getting a free ride on Apple's infrastructure and platform.

Apple has created an entire platform that's created a cottage industry for developers, both big and small, to earn a very good living. To keep it going they have to make a little off it too.

Just look at what the app store has done to the price and availability of applications for mobile devices. Before Apple came out with the iPhone, there were very few applications available on mobile devices and the few that were available cost considerably more money, 10x-20x more. So if the price of an ebook or magazine subsription has to go up $1 or the ebook vendor or publisher has to eat that $1 I think that the amount of new customers this platform brings more than makes up for it.

Look at what the iPad has done to the price of ebook readers. They've fallen to less than half what they used to be and grown the market 1000x bigger than it was. The Kindle app for iOS has brought in 10s of millions more potential customers to Amazon than they could ever have hoped to attract from the Kindle Reader alone. Especially at the price Amazon was originally asking for it.

Now Apple is trying to develop a subscription system, that will no doubt be emulated on other platforms in the near future (once Apple has worked out all the bugs), for the suffering magazine and news industries. Apple, rightly so, will want a piece of that too. And when you look at the infrastructure that these magazines and newspapers no longer need to put in place to deliver their content to there customers but is now provided by Apple you can understand why Apple wants their cut.

 

[Gino Cerullo]

Well, right now we don't know what the implications are going to be for subscription based services. With the launch today of 'The Daily' we should learn more about what the new subscription model has in store for both app developers and customers. The $0.99 weekly/$39.99 yearly subscription price for The Daily may be telling though.

 

[Gino Cerullo]

Actually, according to this blog post dated Jan. 23rd, we do know how it affects subscriptions, as well as all other apps, and why Sony is finding their app is not being approved. It was clear from the beginning, Apple was just lax in enforcing it up until now.

http://www.mondaynote.com/2011/01/23/apples-bet-on-publishing/

It looks like Apple made it clear in their terms that the in-app option needed to be there but some developers went around it anyway. Apple is now merely putting there foot down.

 

[Gino Cerullo]

No, I don't understand why Apple should get a cut of subscription/book costs if they don't provide anything.

But they are providing something. They are providing the platform that makes this all possible and that platform didn't just appear out of thin air. Apple invests a considerable amount of money and hard work (R&D) and infrastructure to make this all happen. And let's face it, if it wasn't for Apple showing the way all these upcoming Android tablets probably wouldn't be 'upcoming'.

You could argue that Microsoft has been doing tablets since 2000 but you have to be honest, it took Apple to show the market how to do it successfully. In all the 10+ years that Microsoft has been doing tablets OSs an eco-system of this scale never happened. It just didn't exist!

It hasn't been since the introduction of the iPhone 3+ years ago that this explosion of devices and services started to show up. Android that the Android eco-system is arriving on the coattails of Apple's R&D. There are a lot of companies making money with Android only because Apple is showing them how. Sure, Apple is learning things from Android but let's be honest the heavy lifting is being done by Apple. It's so lopsided it isn't funny and Apple isn't laughing, they are trying to stay ahead of the curve.

Fine, charge $0.99 for the app but even that is stretching it.

It's not Apple's place to dictating to the app developers what their business model should be. If the app developer wants to charge $0.99 for the app and include a free subscription/content, that's fine! But, if they want to charge a subscription or sell a book then they have to make that option available in the app as well.

Let me be clear! As far as I know, Apple isn't saying that the ONLY way to access ebooks or subscriptions is through in-app purchase. It's just that the option for in-app purchase must also be available. It's up to the customer if they want to do it in-app or from the developer's web site.

If the customer chooses to use the convenience of in-app purchase then Apple gets their cut, if not then Apple gets nothing.

For example, there's a great e-reader app called Stanza which has links to online bookstores. You can also add links to other virtual bookshelves (basically web pages with XML markup). Baen Books, one of the few publishers who have a clue, have had an online bookstore for about a decade (or more). They added a feature a couple years ago where each account had a Stanza-compatible bookshelf. You buy a book on the website and it automatically appears in Stanza, ready for downloading. In this case, why should get Apple get a cut? And if they move to enforce this, who would they charge? Stanza or Baen?

As for the Stanza/Baen situation, I don't know what the answers is to that. I'm sure they'll find a solution that either satisfies Apple, if they deem the Apple eco-system is important for their respective businesses, or they'll leave the Apple system behind.

 

[Gino Cerullo]

Gino, sorry if it sounds like we're picking on you, I don't mean too.

No need to apologize Hugh and I don't feel like I'm being picked on. I'm merely sharing additional information as I'm learning about it and giving another point of view. Just like everyone else in these forums.

I sympathize with your uncertainty and, in the interest of providing another point of view, it could be said that the app developers are just as much to blame as Apple for not following Apple's terms from the beginning and now possibly having to change their business model/pricing to make up for it.

Do they not also deserve a certain amount of your outrage? Are they not also complicit in creating this uncertainty by not having followed Apple's terms from the beginning?

 

[Gino Cerullo]

Hey, I *like* Apple products and I'm usually defending Apple but the argument that they created the platform carries no weight for me. Content providers aren't charged a fee by Microsoft/Apple to have their stuff on Windows/Mac OS. The in-app option with the extra 30% markup creates a barrier to entry that Android doesn't have and is going to bite Apple in the ass if they try to enforce it.

You're correct but just because it isn't done on the desktop doesn't mean it shouldn't be done on these new platforms.

If we inform ourselves with how things should be done now by how they were done in the past then by that logic the wireless carriers would still be in control of what functions are available on our mobile phones; what apps we're allowed to buy; when and if we are allowed to updated our mobile operating systems etc., just because that is how it was done in the past. You aren't saying THAT are you?

You can be sure that Apple will enforce it and any proceeds will be used to keep the price of their devices down to better compete with Android, more so in the tablet market where they are not counting on carrier subsidies to hide the real cost of the device.

We are already seeing that Apple is being very aggressive in their tablet pricing compared to Android tablets. They know that the first thing people will see is the device's price when they go comparison shopping so if they can be at the same price or cheaper than Android tablets they can make up for it in app sales.

 

[Gino Cerullo]

NeilN, how are they dictating the price for non-iOS customers? Please explain.

The developer of the app is free to set the subscription price at whatever they want. For obvious reasons the price has to be the same (or better) both in-app as it is outside the app.

Apple only makes their 30% if the customer chooses to subscribe in the app. They make nothing otherwise, especially in the case of a free app even though they incur the overhead of the app store.

 

[Gino Cerullo]

ScaryBob, you forget that the electronic model eliminates the huge overhead that publishers incur for printing and distribution of the physical media. That's where most of the costs are in the publishing industry. You don't think that they are going to pass all that savings on to you do you? Apple's feels their platform adds value and they want to be paid for it. Think of it this way, some of that overhead is being shifted to the new delivery model.

Also, publishers can't fight back by charging more for the in-app purchase compared to what they charge outside the app. It has to be the same or better. Their only recourse is to not participate in Apple's ecosystem. If they can survive then they can stay in business. If not, then Apple has a point. Their eco-system has value and they want to be paid for that value.

Would you expect the owner of a popular shopping mall not to charge rent. Sure a store could choose to locate outside the mall but if most people choose the convenience of the mall shopping experience then that mall location has value and the mall owner has a right to charge for it.

Now suppose a store has many locations, some inside malls and some outside. Some popular malls charge more rent than other less popular malls. Are you going to say that the higher rent malls unfairly influence the prices of the merchandise in the locations of the lower rent malls? It might be true but that's the cost of doing business.

 

[Gino Cerullo]

DancesWithLysol, don't look to Amazon as the saviour here. Their terms to ebook publishers were even worse until Apple released the iPad. They dictated the price of the ebook, the publisher had no say in the matter. (NY Times)

Just like Apple gave in to the record labels so they could set their own prices Amazon was forced to allow the book publishers to set their own prices as well. Isn't competition grand?

Just like in that dispute competition will determine whether Apple's terms are fair or not.

 

[Gino Cerullo]

Would you expect Microsoft to charge Apple 30% of all iTunes revenue generated on Windows machines? If not, why not?

First of all Apple does not hold a monopoly position in the market for mobile devices. Microsoft does hold a monopoly position in desktop operating systems.

Now, let me be clear on this. Having a monopoly position is not illegal. Using
that monopoly position to advance your product or a related product you own is.

This brings me to the second part. Since Microsoft also has a similar media store to iTunes it would be viewed as Microsoft using it's monopoly position on the desktop to eliminate competition with its own media store.

 

[Gino Cerullo]

This is a false analogy. Rent is charged per square foot and perhaps a percentage of sales, not from future income generated derived from the initial sale.

I'm sorry you will need to expand on that a bit. I don't understand how Apple is making money from future income after the initial sale.

In Amazon's case, they were keeping prices down. In Apple's case, they're forcing prices up.

Yes but the publishers were upset because Amazon was creating artificially low book prices at their expense so Amazon could sell more Kindles. The prices of ebooks were completely out of proportion to what they were in the real world.

Apple isn't dictating the price of subscriptions or ebooks or any other digital download for that matter. Therefore they aren't creating artificially low prices so they can sell more hardware. They are however setting a price for participating on their platform.

Expanding on DancesWithLysol's point, Apple sells iPods and iPhones in mall stores, right? So the mall owner can expect a cut of iTunes sales?

Boy you are really stretching here but I'll bite. No, since the mall owner isn't providing a mechanism by which Apple can sell the iTunes media. They are only providing a means for them to sell the hardware.

Apple has its own book store. So is it eliminating competition on the iOS platform?

You forgot one key ingredient. Apple doesn't hold a monopoly position in mobile devices.

 

[Gino Cerullo]

Gino Cerullo,

So your argument is that if Microsoft behaved like Apple is behaving with their digital storefront in conjunction with their operating system platform it would be wrong, but only because of their high marketshare (i.e. monopoly).

I'm not saying it, Antitrust legislation does. Plus, Microsoft already got slapped down for that kind of behaviour.

So, what Apple is doing is just fine, as long as they don't have a monopoly in the market where they are doing it.

We'll have to see since it seems that the Europeans may look at this on antitrust grounds. Apple seems to think so though, they could be wrong.

I will personally go out on a limb here and agree with Apple's assessment. There are sufficient options in the market that if these developers chose to abandon Apple's platform other options exist.

If it were to be shown that Apple had high tablet marketshare (80%+) then it would be wrong for them to use that position to push their way into other markets where they are just a "me too" player (ebooks), right?

If you want to choose ebooks as an example then you must consider all devices capable of being used as an ebook reader. So have at it.

 

[Gino Cerullo]

This does appear to be price fixing by Apple. They are basically saying that nobody can sell subscriptions without a 30% markup. That sets prices at 30% above cost. It's not uncommon for publishers to charge 'full retail' but offer discounts to resellers such as Apple. It's done all the time. But that's usually by agreement between reseller and publisher, it's not universally dictated by the reseller. But what if a publisher wants to sell through Amazon and Amazon wants to discount 20%. Will Apple still allow the publisher to sell through the Apple store? It's like a mall owner telling a retailer that they cannot sell for less at another store on the other side of town. As long as Apple gets their commission, what right do they have to dictate prices through other outlets?

Definition of Price Fixing:

Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand. The group of market makers involved in price fixing is sometimes referred to as a cartel.​

I don't think Apple can be accused of price fixing here. It's probably the wrong definition for what they are doing.

Are they influencing the market price? Maybe, but is that against the law? After all, what Apple is trying to prevent is a situation in which a developer gets a free ride on their platform. Free ride as in they provide a free application that Apple hosts, promotes and delivers to the end user and then the developer turns a profit on the content for the app shutting Apple out of any proceeds despite the service they provided. They are also trying to close the loop-hole in which a developer could charge more for the content in Apple's store so people will only buy outside the store thereby again shutting Apple out of a portion of the proceeds.

It could be said that Apple should only be entitled to the profit it makes on the hardware just like in the computer side of things but what Apple is trying to do prevent is a situation in which it's in a race to the bottom on the hardware side of the pricing equation. You only need to look no further than the margins on computer hardware for companies like HP, Dell etc., to see what I mean.

Are HP's and Dell's 5% gross margins sufficient? Are Apple's 35% too high. How about Microsoft's obscene 60+%. How much is a company entitled to as a profit in their business?

From a business point of view I can't blame Apple for trying to do what they are doing. After all, in the virtual world of electronic goods there is no reason that we consumers shouldn't see a reduction in the prices we are used to paying for the same goods in the the physical word. The price of news, the price of entertainment should all be able to go down in price despite that fact that a new retailer/middleman is taking their share of the proceeds.

Apple is trying to prevent the very situation that almost killed it in the late 90s. It's doing it by spreading it's income over a wide area so it isn't susceptible to price fluctuations on only the hardware side. Apple creates entire eco-systems but as you can see its competitors have no problem copying its methods after Apple has done all the hard work. Apple creates opportunities for its partners and they all flourish together. Just look outside of Apple at all the companies that have sprung up over the years and have made a good living off of what Apple creates. Look at all the software, peripherals and content that is being created to feed that eco-sytem.

Now contrast that with Microsoft. I've already given you two examples above of companies that are forced to diversify in order to survive in Microsoft's world, HP and Dell and they are barely hanging on. IBM gave up years ago and sold off their PC business. Compaq, DEC, Gateway gone! Now let's take a look at the carnage left behind in just one industry by Microsoft. The mobile industry, read this. I'm hard pressed to come up with a company that has partnered with Apple and not benefited or was taken advantage of by Apple.

Now I'm sure this is all coming off as an Pro Apple rant but if I honestly look back over the past 20-30 years of the tech industry Apple is one of the few, certainly not the only, who continuously pulls the rest of the industry forward. Don't get me wrong I certainly give props to Microsoft, Compaq and Dell for commoditizing the PC market and driving pricing down but Microsoft played dirty, and got caught, and has been selfish more than most.

I don't see Apple doing anything anti-competive here, like always, they are just presenting a new business model for the industry. It's just taking the others a little while to see past the number, 30%, and realize that what Apple is proposing here is a win for everyone including the consumer and it's competitors. Everybody has an opportunity to make a little money and be happy. The competition has been copying Apple this far I don't see why they can't continue and reap the benefits as well.

I'm done now!

 

[Gino Cerullo]

No, it's actually endangering its current revenue stream. If developers decide it's not worth it to create iOS apps and instead develop for Android then you'll see consumers shift platforms. 30% of zero is zero and Apple will also have lost the iPad revenue.

Sure there are risks in Apple's approach but I think they've been looking at what's been going on over the past year and beyond and they noticed something. That despite the fact that the subscription news and magazine industry have been looking for a business model to shift that industry into the 21st century no one has come up with a solution. No one else has even tried. Now that Apple has, in consultation with one of the biggest media companies in the world, they're complaining that they don't like it.

Well, anybody else is free to try and come up with a solution but if the past is any indication of the future, they'll have a long wait.

Again, another example of Apple pulling the industry forward because if they don't it seems no one else will. And for all of Apple's hard work they want to be compensated. The rest of the industry will no doubt copy Apple as they always do because it's too much hard work to come up with a solution of their own.

They are being handed a business model on a silver platter. They don't need to do anything else except implement it. The newspapers and magazines make money no matter which platform their content is delivered on. And on the hardware side Apple and the rest will duke it out as they always have, hardware and software differentiation.

As for Amazon and their Kindle app and ebooks, I have no sympathy for them. Before Apple came along they made and sold their Kindle hardware and used predatory pricing to benefit their hardware sales to the detriment of the publishers. They never fostered an ecosystem that was beneficial to anyone else except themselves. Now that they've got some competition in ebooks they have to adjust. Isn't competition grand.

Apple isn't playing favourites here. Everyone is being treated the same. It doesn't matter what they sell or who they are.

Just like Microsoft did with Windows. Isn't it exactly the same situation? Windows peripherals... Windows software...

Microsoft is a software company, peripherals grow out of hardware so they aren't directly responsible for that.

As for software Microsoft sure, a large industry grew out of Windows and I give them props for that but many companies were destroyed by them as well. I'm too tired to come up with an extensive list but some of the bigger ones that come to mind are WordPerfect, Borland, Novell. If they aren't dead they are mere shadows of themselves.

Can you please explain how Microsoft, a software company, forced hardware manufacturers to turn their business into a commodity based model?

They didn't force the commodity model. That grew out of competition on the hardware side. It was their brutal licensing model for the OS that destroyed any chance of there being competition on the OS side. That resulted in them gaining their monopoly position. Before the antitrust lawsuit, Any company that wanted to licence Windows had to licence a copy for every cpu they sold whether that computer was sold with Windows or not. Since the hardware manufactures were forced to buy a Windows license anyway it didn't make economic sense for them to licence any other OS for sale since they had to pay for the Windows license anyway. Microsoft directly stood in the way of any other OS's ability to get a foothold in the industry.

I can't lay all the bad things that have happened in the PC industry at Microsoft's feet but they are responsible for a considerably disproportionate amount of it to their benefit.

 

[Gino Cerullo]

It's quite laughable actually to suggest Amazon's getting a free ride. Worse, it borders on fraud the way Apple's behaved.

Without Amazon, Barnes & Noble, Kobo, et al ... would the iPad have enjoyed the huge success it has? Apple brings them onboard at launch allowing for content exchange across platforms (eg. I can buy a book at amazon's website and read it on my Kindle, Android tablet, PC, Blackberry, and if I had an iPad ... that too). Now that the iPad is established, they change the rules on Amazon et al telling them that only content purchased through Apple can be loaded on the iPad. So, that book I may want to buy at kobobooks.com and read on my Nook, Archos, and PC as well as my iPad (if I had one) I am not allowed to. It's not just anti-consumer, it's a form of bait and switch.

Your statements are completely false and you know it. If you don't then you are merely making yourself look foolish as the actual terms have been explained in this thread many times already. Try reading first before responding.

You don't have to agree with the terms but out of self-respect you should at least present them honestly.

 

[Gino Cerullo]

JohnnyCanuck, I was referring to your interpretation of the "terms." You said, "only content purchased through Apple can be loaded on the iPad" and that is a false statement.

As for the rest of what you said, in that post and all the others, you are entitled to your opinion and I will respect that opinion but I take exception to your characterization of peoples' motives for choosing one platform over another.

 

[Gino Cerullo]

NeilN, I admit I'm not familiar with Zinio. I will look into that.

As for the rest of your rebuttals I'm too tired to comment further so let's just agree that we have a different take on the tech industry and leave it at that. It's all in the past now anyway. Let's just hope that something was learned from it that benefits all.

I do want to point out one thing that I think some of you may be over-looking or may not be aware of or may be mis-understanding. Apple only takes 30% of purchases made in the app store. If the customer makes the purchase outside the app store the developer keeps all the profit and the customer can still use the content in the app.

So in the case of ebooks, if the customer buys directly from the seller Apple makes nothing and the customer can still move the ebook to the iPad and read it.

In the case of music, movie purchases and streaming services. If the customer goes directly to the seller to make the purchase of the media or the streaming service Apple makes nothing. The media can be moved to the iPad or iPhone and the customer can still enjoy it. As for streaming services like Rhapsody or Netflix, an account paid for directly at their web site will still work on the iPad/iPhone.

Do you see a pattern here? It is completely up to the customer where they make the purchase and Apple only gets a cut if it is made in the app store. Otherwise Apple makes NOTHING!

Are you understanding this part now JohnnyCanuck?

 

[Gino Cerullo]

Here is Google's alternative.

I haven't read it through yet and have no comment except, "let the games begin."

 

[Gino Cerullo]

It's not quite that simple. Publisher brings a customer to Apple, subscription runs out, subscription is renewed inside the app, Apple takes 30%. In effect, Apple has poached the publisher's customer.

No, you're thinking old model. Today subscriptions are established on a re-curring payment system where the publisher retains the subscriber's payment information on file and automatically re-news the subscription until the customer cancels. Apple will never see any of that money if it was established outside their store. If, in the case of a non re-curring payment system, the publisher needs to inform the subscriber to re-new their subscription they will most assuredly be doing it by email and providing a link back to their web site where the subscription can be re-newed. Again, Apple sees none of that money.

One of the things Apple is counting on are the people who don't want to deal with keeping track of all the separate subscriptions they may have. They figure the convenience of having to deal with only Apple will drive people to their store. And that is a part of the value proposition Apple is promoting here. It's another piece of the infrastructure that the publishing guys don't have to deal with and is another cost savings for them.

eBay built their whole business on something similar. eBay hosts thousands of virtual businesses on the principle of "you just post your stuff for sale and we will take care of everything else" and they get a percentage of the sale plus additional fees and such. It's a lot more complicated than a flat fee so it isn't a direct comparison.

In other words, Apple in planning on poaching all their publishers' customers and the publisher cannot win them back by selling a discounted subscription through any other outlets. That is, effectively, price fixing and anti-competitive in nature since it sets prices at 30% above cost. It may not make much difference to the marketplace, since publishing markups are historically fairly high, but it is probably still illegal in many countries.

That's the main problem people are really having with this. It's really not the 30%, it's the side effect of their terms that establishes a de-facto uniform market price for everyone.