Daniel Eran Dilger in San Francisco
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Does Apple deserve a 30% cut of iTunes in app subscriptions?

Daniel Eran Dilger

Get ready for the iPhone Crisis-Gate of February 2010: Apple is evil for demanding a 30% cut of subscription sales. But is this issue of the month really a legitimate outrage?

¿Apple se merece un 30% del valor de las suscripciones hechas desde dentro de las aplicaciones? (en español)
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Apple has just released new App Store policies for titles that involve subscription content, in concert with the coming release of iOS 4.3, which will support in app subscription sales.

What’s not new is the idea that Apple wants in app subscriptions to pay a 30% fee just like other in app purchases. What is sort of new is that any titles that involve subscriptions or content purchases will have to offer an in app option, and that option can’t be priced higher than elsewhere.

That’s only sort of new because Apple has never supported non-in-app purchases in most cases, only allowing a few companies, like Netflex and Amazon, to sell subscription-based or atomic content elsewhere that could be called up from within their app. That loophole has now been closed.

It’s also forbidden to expressly link to an external market for things that can be purchased within the app, although developers can incorporate their own subscription sales independent of Apple’s store. That means I can’t sell an app that directs users to my own website to buy a subscription to my content, although I can sell direct subscriptions to customers I have found on my own. And if I sell subscriptions, in order to put my app in iTunes i have to make it possible for users to buy subscriptions through iTunes without trying to make it more expensive to entice customers away from using iTunes.

Critics are generating some hysterical responses to this, with at least one <em>CNET</em> blogger announcing that he’s going to sell his iPad because this is just too much to take. I wonder if he’s also going to sell his kid’s Nintendo Wii, Xbox 360, and PlayStation, all of which demand a far larger cut from game developers just to sell games for those platforms.

Aren’t subscriptions different?

There’s little controversy left about whether Apple “ought” to charge developers a cut for selling their apps. But some have noted that selling a subscription is different. One analogy is that Apple is acting like a newsstand, selling magazines but refusing to allow publishers to digitally insert those subscription cards that fall out as you read them.

The difference between iTunes and the real world of paper periodicals is that when Apple sells a subscription within iTunes (or within the app), Apple must also service the subscription, managing the delivery of new content and acting as a toll booth. So rather than acting as a virtual retail newsstand, Apple is acting more like FedEx, charging for each delivery, whether it’s a one time purchase of “War and Peace” or a regular delivery of “Readers Digest” or the beer of the month club.

But Apple isn’t just shipping; it’s also servicing the subscription, from handing the sale to fulfilling the order throughout its duration. Amazon is certainly familiar with shipping costs. Imagine the tech media getting unbuttoned about UPS, USPS, and FedEx “charging for each and every time” you get a book or magazine, even when you order the same book more than once (!!). Oh the humanity.

Who’s minding the mint?

What about sustainability? It is improper for Apple to charge a set percentage of revenue when a media source might not even be making much per sale? Again, let’s ask Amazon or the New York Times or Netflix about how much of their profits are eaten up by postage. I know I’ve bought items from Amazon that were less expensive than their shipping, and Amazon didn’t make any money on the shipping charges.

Boo hoo. Send in the profit police. Nobody should make money on delivery if the shipper isn’t also getting rich! Isn’t that a law somewhere? I bet there are also developers who make apps, who end up going out of business even though Apple makes money off their failed endeavor. But you know what? Apple also makes no money on free apps, or podcasts, or iTunes U, even though it spends some significant resources supporting all those millions of transactions on its servers, even in cases when the content is hosted elsewhere.

Not everyone makes money all the time. Apple certainly makes very little on a computer it sells to people who bring it back three times in a row after breaking various things that are fixed under warranty even when they needn’t be. That kind of thing is an expense that occurs when you do business.

Getting what you pay for

The alternative to iTunes’ content market which individual vendors must pay a revenue cut to support is the Google Way, which makes content free when it’s placed next to ads. The downside to this business model is that instead of getting 70 percent of retail proceeds, the content generator gets a tiny fraction of the minimal ad revenue generated. That’s why periodicals are currently imploding.

The long term result is also different; rather than creating value in establishing branded periodicals with earned reputations, you end up with a lot of content from unknown sources all pretending to be equally legitimate and important. You also lose any sense of who is behind a given article, because in the Google world, everything is a search result rather than something you select from a known source.

There’s a big difference between searching for “Volkswagen” and consulting Car and Driver. One gives you all manner of results crafted by SEO experts, who only care about ad revenue, while the other gives you organized reports written by professional writers and managed by editors, who care more about their own reputations and professional standing.

That has a profound impact on the kind of content each model produces. In a periodical market, users are courted as customers, treated to engaging, informative and important content. In a search results market, users are not the customer, advertisers are. Users are fed garbage as that is as cheap to produce as possible, and it’s the advertisers who are courted with service and innovation. That’s why ads load first on web pages. You’re just along for the free ride. You’re not selecting products in a market; you are the product being sold to advertisers.

Another analogy: a periodical market works like television, where you pick a channel you want to watch and change the channel if the content isn’t up to your standards. Google’s search market is like YouTube, where you browse through lots of garbage looking for things that might be worth a fleeting chuckle. Of course, Apple’s video market actually is actually iTunes, where you can find a la carte TV, Podcasts and iTunes U, something I prefer over ad-based TV, which like the web or YouTube, caters to advertisers over viewers.

101 comments

1 chrish { 02.15.11 at 9:43 pm }

I wonder if there isn’t maybe an easy, non-ideological answer to the question about Apple’s cut on subscriptions. If it were any less, wouldn’t developers game the system, offering cheap apps with expensive subscriptions, so as to make Apple’s original 30% only nominal? Retaining the 30% across the board would simply seem to discourage pricing shenanigans.

2 lmasanti { 02.15.11 at 9:50 pm }

quote:
“…you are the product being sold to advertisers.”

I think you forget to comment in the “second part” of Apple’s subscription model.

In my words… “the user must approved Apple to send the publisher his/her data…”

I think this is the main problem with publisher. Like Google, they sell your data to advertisers, making –I guess– lots of money.

Of course, publishers will claim that the 30% is the problem.

But Apple gives back the power to the user: you can protect yourself from being “elegantly spammed” and also, allowing you to cancel easily the renovation.

That are two things that publishers hate more!

3 amlethus { 02.15.11 at 10:52 pm }

Ultimately, Apple should have a strong case for this move. I find it somewhat duplicitous that folks such as Rhapsody complain about a fraction of their subscription based revenues going to Apple when they are already distributing an app for “free” through Apple, taking advantage of all of the plumbing, maintenance, and support at no cost while charging a fee from the user on the other side. They have a right to sell a product to a consumer, but they don’t have the right to dictate terms to their suppliers, esp if it means having the supplier transfer value to them for free. Think there is a valid question as to whether the 30% should be the right level or not, but think it’s hard to argue that Apple deserves a fee for all of these services if the developer is ultimately charging for the app through other means. (And note that Apple is not forcing a fixed charge on the developer if the susbcriptions are sold elsewhere, just if the subscription and effectively the relationship originates through Apple.)

I also found the WSJ story on the potential antitrust issues to be somewhat of a red herring. I’m not a lawyer, but don’t think this meets either of the two main antitrust standards: 1) company must exert monopoly type control over the relevant market, and 2) consumer must be hurt by the move. It’s hard to argue that Apple exerts a monopoly over mobile telephony (esp with all of the overhyped press over Android recently) and the moves would only make it easier for the consumer to get content and protect their identities.

The one question I’m surprised no one’s asked is: Apple’s terms require that a developer offer offer a subscription at the same cost on the iPad/iPhone as on their web site, but not sure that means developers can’t try to differentiate their web-based subscriptions. Here’s what I mean: a newspaper XYZ could offer multiple subscriptions on their web site (i.e., $100/year for print/web/iPad/iPhone and $90/year for iPad only). However, from a practical standpoint think they would only be required to offer the $90 iPad only subscription through Apple’s subscription service on the iPad. If XYZ truly differentiated the content / access services they provide elsewhere that could help steer the consumer to their web-based subscription service. (On a personal note, if this is indeed where we end up, this would likely steer me to web based subscriptions for daily papers but Apple-based subscriptions for weekly/monthly magazines.)

4 brew57 { 02.15.11 at 11:43 pm }

Deserve or not, this will force Netflix off iOS (possibly even Kindle) giving competitors a huge weapon.

Not sure about Kindle, because books are not subscriptions.

What’s next? Apple would want 30% from every e-commerce app for each item sold? 30% for everything Amazon sells via their iOs app?

This is going in a weird direction…

5 brew57 { 02.15.11 at 11:54 pm }

What about SaaS vendors? Will Salesforce.com be forced to offer their subscription in their iOs app, because they offer one on their website? Except they can’t, because Apple demands a 30% cut AND a price match to the external subscription.

Where does it end? Apple is on a path to demand a 30% cut for ANY commerce flowing through IOS an requiring a price match to the one that doesn’t

Something is not right here.

6 Mike { 02.16.11 at 12:38 am }

It’s not just that Apple is getting a 30% cut, it’s also not providing a way to do transactions outside of the iTunes store in the event the developer chooses not to use the subscriptions from iTunes. And price matching, well, that’s Apple telling the publishers what content they want their subscription set at (whereas if they had less of an overhead somewhere else, they could pass the savings onto the customer, but with iTunes, they cannot offer a cheaper price elsewhere). So if they decided to take 30% off the app and then 30% of the monthly subscription price, don’t you think that’s double dipping?

7 davitron { 02.16.11 at 1:48 am }

What I do not understand yet: are all the subscribed content supposed to be downloaded from the Apple servers ?
I can understand that if the content comes from the Apple server, it deserves to receive the same 30% fee.
But, if the content is downloaded from the editor site, I think that 30% is to much, only to manage the transactions.

8 iQuack { 02.16.11 at 2:02 am }

I think it’s perfectly legit for Apple to require 30%. The overhead for these media companies is very very high. It also costs Apple to maintain their servers as well as updating content and pushing the notifications.

These companies would have to maintain their own sites and pay their own hosts if they did not build their own server farms. Not only that , they would have to pay people to maintain their web sites whether or not they host their own site.

I am sure they are getting a good deal though Apple and lets not forget they can still include Ads in their publications.

Just my 2¢.

iQ

9 tonortall { 02.16.11 at 4:21 am }

Daniel, you wrote:

“But Apple isn’t just shipping; it’s also servicing the subscription, from handing the sale to fulfilling the order throughout its duration.”

Are they? My understanding is that all content is served from the third party. I think I agree with a poster on another forum who suggests this is a way for Apple to squeeze third parties out of the distribution system. For a content creator, right now is a good time to think whether talking to Apple directly is in their best interests.

If that is the case, then Apple have pulled the pin on vendors such as netflix and amazon. They’ve lured them into the app store by not actively enforcing their own rights under the agreement (aka contract), with respect to the purchase of content outside of the app. All of a sudden they decide to enforce their rights.

In some jurisdictions, this would arguably give rise to an estoppel. Even if, as I suggest you might argue, Apple was always entitled to enforce those rights, sometimes that is not enough under the law. Acquiescence is a dangerous thing.

If that argument is not tenable, then morally, and if you accept the premise that Apple’s intention is to direct content creators to interact directly with Apple, then it is difficult (at least for me) to come to any conclusion other than Apple are being complete pigs in the matter. Building on the goodwill of Kindle, Netflix and myriad other companys, and then pulling the rug out from underneath them cannot be characterised in any other way.

Of course, there is always the old chestnut that it’s Apple’s ecosystem, and if you don’t want to play, you can GTFO, but it would seem to me that Apple are very close to jumping the shark.

This is very much a hand in glove type of situation. Content needs ios just as much as ios needs content.

Would appreciate your thoughts on it.

[Apple clearly has no interest in squeezing publishers out of its system. Additionally, there are rather immaterial costs in "shipping" bits, but there are very real costs in maintaining, designing, and running a market like iTunes. This seems to be something Google should be good at, but no. It's not easy, nor cheap. And before getting carried away with concerns about what will happen to the vendors Apple chases out of its mall, lets see if they even leave first. Because there is no real indicate they're going anywhere. They are just floating an appeal in the court of public opinion, and I'm seeing less sympathy for this cause than the plight of the RIAA in saying Apple was preventing them from marketing music for $2-4 per ringtone. - Dan]

10 adamyh { 02.16.11 at 5:57 am }

I just downloaded and subscribed to Popular Science – very nice experience to be honest and I opted out of sharing my personal info with Popular Science for marketing purposes. Apple has found a way to eliminate the middle man and I think more and more content creators will jump on this because the 30% will be much less than dealing with middle tier parties and advertising and to have a one to one relationship with the users will pay off tremendously. Apple would not have made these changes unless they already had an agreement with their partners. Amazon and Netflix may have already been consulted before this announcement was made – hence they are quiet and not saying anything. Rhapsody – what a joke – the company will cease to exist soon. Time Magazine – well they do not have a growing readership by recycling old news from the web. It will be interesting for the newspaper apps to see how they react to this – perhaps they will see the positives and take advantage. As a user, this all seems to be win-win to me and I can see lots of pain for the middle tier of the old economy – whereas the new economy companies will take advantage and reap the benefits while the end user only needs to worry about one bill at competitive pricing. Wired Magazine is case and point – double to triple the price of the printed magazine and it is only a big PDF. Good riddance to apps like this. Popular Science – you have a new subscriber and I’m a happy chappy.

11 kdaeseok { 02.16.11 at 6:10 am }

It doesn’t matter if Apple takes 30%, 40% or 50%… if publishers don’t like it, they have all the freedom not to have their magazines on iOS.

12 lmasanti { 02.16.11 at 6:33 am }

quote:
“Building on the goodwill of Kindle, Netflix and myriad other companys, and then pulling the rug out from underneath them cannot be characterised in any other way.”

Is this that way or the other?

Did “Kindle, Netflix and myriad other companys” built its iOS business “on the goodwill” of Apple, paying for serving and updating all the free apps?

Like when publishers gave their paper’s subscribers a “free” (a.k.a. “paid by Apple”) subscription?

It was in the contract and they surely read that.

13 counterproductive { 02.16.11 at 6:39 am }

@Mike
Mike: “It’s not just that Apple is getting a 30% cut, it’s also not providing a way to do transactions outside of the iTunes store in the event the developer chooses not to use the subscriptions from iTunes.”

There certainly is a way to do transactions outside the iTunes store — it’s called a website. People buy content all the time on sites like Amazon and use it on their iOS devices. I have an Audible account and bring the content into iTunes. I don’t purchase that content through an iApp.

Of course Apple are not “providing” this alternative — that’s the point; which is why Apple does not get 30% of that transaction.

Mike: “…And price matching, well, that’s Apple telling the publishers what content they want their subscription set at (whereas if they had less of an overhead somewhere else, they could pass the savings onto the customer, but with iTunes, they cannot offer a cheaper price elsewhere). So if they decided to take 30% off the app and then 30% of the monthly subscription price, don’t you think that’s double dipping?”

Double dipping? These Apps are usually free. Apple hosts them and serves them, does not receive a cut, and the App acts as a direct conduit for sales, placing 160 iOS users in the hands of the App maker.

Since when do publishers ever “pass savings on to customers”? There is a “newsstand price” / “cover price”, period. People are already making analogies between iTunes Store and newsstands and supermarket shelves; and various outlets for different magazines would already be negotiating different percentages of the cover price. That’s a fact of life. Are you suggesting the Daily would be 66c per week instead of 99c if we were to subscribe directly through its own website? I don’t think so.

There is the service Apple is providing, along with its overhead on the one hand, but more importantly, there is the idea of Apple acting as a Store front / Newsstand and providing the publisher access to its customers on Apple’s own platform.

There has been much good input in some of these discussions by media professionals, to the effect that: the most important thing is not the cut that the publisher gives away — after all we are talking about intangible items that cost no more to “produce” 2 million digital copies than 1 million — it is, rather, the regular subscription base of guaranteed readers that the publisher can pitch to its advertisers.

14 davitron { 02.16.11 at 6:45 am }

@ kdaeseok They have the freedom no to go on iOs.
I, as an iPhone and an iPad owner, have the freedom to say to Apple that, as I have *bought* my Apple Device, I should have the freedom to freely use it to do my business with any content owner.
Hey, once I have downloaded my app, no Apple server infrastructure is used to get my content from this provider, right ?
I accepted the idea of the AppStore as the only way to download app in order to protect the plateform against virus, bad programming and “incorrect” content.
I can accept the idea that Apple get a 30% fee for an app it stores and promotes.
But, I have a internet device, that I *bought*.
I should be free to download any content without passing through Apple.

I know. Many content providers will propose a free app, and get all their revenue from subscription. So, no fee for Apple.
But I believed that the main revenue for Apple was intended to be hardware revenue.
Perhaps, the free app policy may apply only to no subscription app. Or the subscription fee should be less less that 30%

Apple jumped the shark.

15 Richardb { 02.16.11 at 6:53 am }

It’s understandable that Apple would like to have some revenue for:

1. Customer acquisition – they are bringing the client to the publisher like a retailer brings customers to publishers (retail margins can be >30%).

2. Infrastructure – as Daniel rightly says, there are costs to managing the app store.

Of course, publishers have other options, they can offer incentives to users to purchase via the web rather than via iOS. I outlined a few ideas on my blog.

16 shadash { 02.16.11 at 7:54 am }

So you’re actually arguing that the costs to Amazon to ship a 2 pound book to me are the same costs that Apple faces in shooting 2 megs of data? Seriously?

As someone else said – if this stuff is hosted on Apple’s servers then maybe there should be this large of a cut. If not, then a processing fee might still be in order, but 30% is exorbitant.

Right now, maybe you can argue that the “Google Way” is the only alternative. So Apple can pull this and maybe get away with it. But that won’t always be the case. What makes the iOS devices valuable is the content. If Apple pushes content providers off their system, Microsoft and Google will be waiting with open arms.

17 The Mad Hatter { 02.16.11 at 7:54 am }

It’s going to be amusing to watch this play out. The various screams from the usual suspects make me think that Apple has actually hit upon the best way of satisfying both consumers, and the average producer, i.e. the only ones that are screaming are companies known for ripping off customers when they can get away with it…

18 4phun { 02.16.11 at 7:57 am }

Dan made some concert points. Do Apple users want constant bombardment by Google’s advertising partners? It reminds me off how crappy free TV became when filled with ads which drove people to Blockbuster and cable.

If I pick up a magazine in a book store and a flood of cards drop out of it, I generally will not buy it. I used to evaluate subscription magazines that came in the mail by tearing each and every card and multi-page ad insert out of them. If the product amounted to less than a third when finished we let the subscription expire.

When I reject Android, I am really rejecting everything I hate about advertising and the lying misleading ads that manipulate people.

If Netflix were to drop out of the app store in favor of Android our family would cancel Netflix in a heartbeat.

We expect the Apple experience to be far superior, an exclusive experience.

19 jfutral { 02.16.11 at 7:59 am }

There really are two issues here, but both based on the same policy. The print media subscription issue and everyone else.

Regarding print media trying to figure out how to convert to digital media, the product really is the reader data. No newspaper or magazine (not even Consumer Reports) makes money from subscriptions, or at least not significant enough to pay for publishing costs, much less overhead in general. As a point of evidence, just look at the newspapers that are distributed free. Every city has them. Creative Loafing, Skirt, etc.

They make money selling ads (Consumer Reports is a different model based on the non-profit model, like NPR and for newspapers a large part of that was classified ads. They are getting hit on two fronts). That ad space is valued based on the reader information the publisher can leverage to offer access to a certain type of reader the advertiser is trying to reach.

With Apple in the middle, Apple is essentially taking the publishers product away from them. That 30% is at _worst_ commission. Subscription services have been around long before Apple and probably received an even larger cut than Apple. But those services surrendered all the subscriber data. That is what is different here. Not the measly 30% cut.

Plus, subscription prices are a form of market research. With Apple saying “You need to offer the same deals to our customers that you offer elsewhere”, they are removing the publishers ability to test and research market dynamics in different contexts.

Now as to Amazon and Netflix style “subscriptions”. I think this is a different beast. They are offering subscriptions to products they do not create. This potentially increases their over-head per product. But I don’t know enough about those models to comment beyond that. These guys are already making only a cut off of the product they are offering.

As for any music subscription service (Rhapsody, etc.), they have to figure out what they are selling—if subscribers are like print media subscribers (where the real customer is the RIAA/music industry and they are selling access to customers for the music industry) or if they are selling the subscription service, (in which case they are selling access to music and the subscriber is the customer).

They may try (as I think they are currently) to create a cable tv type model, where they make money on both ends, but that model is dying, too, so they would be wise to avoid that model.

At some point, if not already I think, most models that try to be based simply on a soft portal, of sorts, will die (Apple is a symbiotic software/hardware portal with the big money being made on the hardware side). Even the cable model now relies on ad sales and content creation to keep income healthy and diversified. For instance, how long ago did HBO stop JUST playing other people’s movies? And now Comcast owns NBC.

Joe

20 TheMacAdvocate { 02.16.11 at 8:11 am }

There’s a difference between buying a movie that is sent to my device via iTunes and when I stream content via Netflix. There is nothing sent to my device or hosted by Apple, hence the only “goodwill” being built is by people who don’t understand how it currently works. There is no inconsistency in Apple’s policy to charge a cut for content that is served by Apple (yes, it has to be served by Apple to be downloaded through its store) and marketed (to some degree) by Apple.

21 davitron { 02.16.11 at 8:12 am }

@The Mad Hatter: only ones that are screaming are companies
Not true. I am a consumer.
If we don’t upset, Apple will take for granted that he can sell both the device and the usage we do with it.
Can we imagine that, given Apple provides a plateform of millions Mac, it has the right to get a fee on any content we consume on it ? No.
We are talking about an app that is downloading to a third party server !
Is it really the cost of serving a (probably free) app that can justify such a policy ? I don’t think so.

What would be the right approach for Apple: let an app do is own business, like on any PC (in the limit of security, privacy, etc…).
And give an optional service of subscription through iTunes with a incentive price.

If the cost of reviewing free content providing application is to high, ask to the publisher for a nominal and annual fee to enter in the AppStore.

22 tundraboy { 02.16.11 at 8:16 am }

@davitron “I should be free to download any content without passing through Apple.”

And you still will because Apple’s terms do not say publishers cannot sell content through channels outside of the app store. They are only saying that if they wish to do that, then they have to make the same content also available through in-app purchases at the same price.

Seems that Apple has the best antitrust lawyers because they sure know how to go very close to the line without crossing it.

As to whether or not 30% is excessively high, that’s a matter of negotiation between Apple and the publishers because certainly Apple brings ready access to tens of millions of potential subscribers and the publishers would be foolish to think Apple is obliged to give that to them for free. If 30% is too high for Apple’s own good, then I expect they’ll adjust it downwards, perhaps as an across-the-board rate for all subscriptions or through secret discounts on a case-to-case basis. On the other hand, maybe Apple is intentionally pricing it high so as to screen out the dodgier subscription operations.

It would be helpful to know what a 3rd party subscription vendors’ cut is when they sell a magazine subscription.

23 tundraboy { 02.16.11 at 8:31 am }

@davitron. “Can we imagine that, given Apple provides a platform of millions Mac, it has the right to get a fee on any content we consume on it ? No.”

Apple has always said there are two channels for selling content through the iOS, the App Store where Apple reserves the right to set terms and fees as they choose, and through the open internet via the Safari browser where publishers can basically do as they please. So no, you are overreacting when you claim Apple is trying to claim the right to charge a fee for all content consumed through iOS.

If the App Store really adds no value to the publishers then they wouldn’t be screaming about the 30% cut, they’d all just go “in that case, I’m going through the web.” But they’re not and so there must be some value to selling through the App Store. Are you telling us that in a free enterprise economy, Apple is not allowed to seek renumeration in exchange for that value whichever way it pleases?

24 nextguy { 02.16.11 at 8:41 am }

“And you still will because Apple’s terms do not say publishers cannot sell content through channels outside of the app store. They are only saying that if they wish to do that, then they have to make the same content also available through in-app purchases at the same price.”

Which again is the rub. I’m sure Amazon does not *want* nor *need* their material for sale on itunes.

Correct me if I’m wrong, but does this mean they have to make available their books via ibooks? OR, if they simple do not allow any stuff for sale on their kindle app, then that means they avoid the clause?

It really makes the app much less useful if you have to use a browser or other means to make purchases. Not impossible, but still annoying. For netflix or others that don’t even deal with games, software or anything else itunes sells, what then?

This is business as usual for apple. It’s all about protecting their app store business. And yes, it is their right to do so.

But for people to claim “Oh, but we host and allow people to download your app for free so we deserve a cut your app makes!”, well, who made it mandatory in the first place that all app distribution has to be done via itunes? If it weren’t the case that iOS allowed sideloading this wouldn’t be such an issue as each person would do all the hosting itself.

25 tundraboy { 02.16.11 at 8:41 am }

@shadash “So you’re actually arguing that the costs to Amazon to ship a 2 pound book to me are the same costs that Apple faces in shooting 2 megs of data? Seriously?”

If you think the price of any product should be based primarily on the cost to produce it then you would be frothing in the mouth if you found out how much most of things you buy really cost to build. The price of anything is always determined by how much the buyer is willing to pay for it. If it weren’t Apple would not be as profitable as it is.

26 davitron { 02.16.11 at 8:48 am }

@tundraboy Are you telling us that in a free enterprise economy, Apple is not allowed to seek…

Beside antitrust consideration, it has perfectly the right.
In the state on Offline HTML5 capability, the argument of web based application is quite unfair.

I remember the open letter from Steve Jobs regarding music drm. He criticized the greediness of the Music Labels and said he did not want to screw up their customers by raising the 99c price after attracting them to the iTunes Store.

Too much greediness will harm this new press market, and will harm Apple if the consumers feel themselves screwed up.

I don’t want to feel screwed up by Apple. I love it too much.

27 gatorguy { 02.16.11 at 8:56 am }

Apple’s iTunes plans are certainly getting the attention of even the carrier’s. No less than Vodafone’s CEO indicated at MWC that he had “concerns” over Apple’s policy.

I’ll also project that the carrier’s will be looking to Apple, as they have to Google, to begin sharing the cost of the infrastructure required to supply sufficient services for the data streams eaten by their customers.

28 tundraboy { 02.16.11 at 9:19 am }

@nextguy.
“Correct me if I’m wrong, but does this mean they have to make available their books via ibooks? OR, if they simple do not allow any stuff for sale on their kindle app, then that means they avoid the clause?”

No (and I don’t claim to be an expert) but it seems pretty clear that Amazon is not required to make their books available through iBooks. All they are saying is any stuff you sell outside for consumption through your iOS app, should also be available through in-app purchasing and subject to the usual (here’s the sticking point) 30% cut.

Of course this hurts the Kindle App because Amazon is just a middleman and the cut they get from the publisher has to be passed on to Apple. And this might hurt Apple too if the loss of the Kindle App significantly affects iPad sales.

I’m not claiming this is a smart business decision by Apple. I don’t know that. If it turns out to be a dumb move, I’m sure Apple will adjust. I’m just saying this is a free enterprise economy, Apple is running a food court and they’re saying if people want to eat in Apple’s food court they should buy from the various vendors in the food court and not bring their own food in. Oh but wait, it’s a little better than that. Patrons can bring in food bought elsewhere as long as that exact same dish is also available from a food court vendor at the same price.

29 tundraboy { 02.16.11 at 9:29 am }

@davitron. “Too much greediness will harm this new press market, and will harm Apple if the consumers feel themselves screwed up.”

I agree with you on that. And as I said, I’m not sure this is a smart business decision. If anything though, Apple is quick to change tack when something isn’t working out well for them.

If the content providers don’t go along and they desert the App Store in droves to the point that iPad and iPhone appeal is damaged, I would expect Apple would adjust.

30 counterproductive { 02.16.11 at 10:03 am }

@tundraboy
“Oh but wait, it’s a little better than that. Patrons can bring in food bought elsewhere as long as that exact same dish is also available from a food court vendor at the same price.”

Yes, and similarly: the vendors at the food court can set up a stand outside, at which they can sell food to be eaten at the food court tables by patrons at no extra cost, with full use of the the napkin, straw and condiment dispensers; and through which the vendor can make a little more profit per item (because those sales are not subject to food court cut) — as long as the price is the same as inside. This stipulation is the prerogative of the mall, since the tables would fill up with outside customers and all the napkins would be gone, if vendors were undercutting themselves to take undue advantage of the benefits of having a presence in the food court. The vendor shouldn’t offer its outside customers alone free refills inside the food court, telling the mall: “well, technically we didn’t ‘sell’ those items here, therefore you don’t get your cut”. If the vendor wants a presence in the food court, which it is to its advantage to have (more people with ready wallets are looking for lunch in the food court than in the parking lot or down the street), then it needs to abide by the terms.

31 WebManWalking { 02.16.11 at 10:04 am }

A subscription is a recurring revenue stream that increases the volume of sales. Apple is well within their rights to continue to charge full retail price, despite increased sales volume. They’re also free to charge less without jeopardizing their full retail price point, inasmuch as it represents special circumstances, a volume discount. Failure to do so raises the wrath of consumers who expect discounts when they make purchase in greater volume.

Apple understands the mind set of volume discounts. They rely on the practice themselves from their suppliers. In time they will realize that it’s in their own best interest to extend the same consideration to their customers.

32 davitron { 02.16.11 at 10:12 am }

@counterproductive Yes, and similarly:…
In this analogy, there is at least one caveat: the customers did indeed bought the table where they eat (the device). So even if the customer eat free food, the vendor has an interest.

33 LuisDias { 02.16.11 at 10:14 am }

The issue about subscriptions being the same 30% have to do with cheating by developers.

If apps cost 30% and subscriptions 10%, for instance, developers could build an app that costs very little upfront and get the 70% of it, and then in-app subscription getting the whole price for the app, and returning 90% for them.

This kind of gaming and shenanigans is what apple is trying to avoid with this system. Not that I like it though. I hope that the quality and variety of apps serviced by iTunes doesn’t suffer too much for this. It is obvious that it will suffer, at least a little bit.

34 gatorguy { 02.16.11 at 10:24 am }

In any case, Google OnePass may force Apple to change it’s “tune” somewhere along the way no matter what they would prefer to do. Granted that Apple can do what they wish, the devil to pay. If publisher’s have another outlet at less expense (Google would like 10% I believe), what would keep them from taking it other than Apple’s saying if they do they can’t play with us anymore. And that would not come as a shock to me.

35 Alan { 02.16.11 at 10:41 am }

And I thought the Paypal and Google Checkout fees were high at 3.2%. Not to mention the commission that amazon and Ebay charges sellers. I can understand (somewhat) a 30% fee IF Apple is hosting and serving the content, but not if they are just a simple conduit. Apple doesn’t charge Netflix 30% for every subscriber to view their movies or TV shows through an Apple TV or Mac, so why should they charge them 30% to watch them on an iPad or iPhone? Unless I didn’t understand how this new fee will be applied.

As a nascent platform, I think Apple need to be very careful not to be perceived as being too greedy. The iOS ecosystem really only took off after the amazing success of the app store which gave them bragging rights about the thousands of apps. They need these content contributors to keep the buzz going. As an Apple stock holder I hope that they are right and no one will leave and they will make money hands over fist. But as a consumer, this just leaves a bad taste in my mouth if it results in fewer apps and content or higher prices. I think if they had gone with 15% or 20% you would not have seen such a big backlash, but 30% does seem excessive if they don’t even host or serve the actual content being distributed to the end user. Google announced today it was charging 10%, so I guess we will see how this plays out in the market.

If we lose some notable apps like Netflix, Kindle, and a few other big ones that really make the iPad useful then they will make people who would otherwise buy an iPad consider an alternate tablet. I don’t think this will effect the iPhone as much due to the smaller screen and the fact that it is a phone which means you tend to use it in a different manner.

36 gprovida { 02.16.11 at 10:45 am }

I believe the cost is entirely irrelevant issue including equal charges between outside and inside the store. As you point out, Apple provides a very valuable service and a lot of costs are avoided by using Apple. The real argument is all about personal information. The money and the business model entirely turn around selling the consumer to advertisers. Apple restricts information and requires an opt-in versus at best an opt-out option. The end result is magazines and newspapers will need to address this part of their business model similar to TV and Radio etc. through different processes. In the end this is a big win for consumers and if Magazines, Newspapers, and Book Publishers change their model can be a big win for them. They will have an enormous world-wide market at near zero cost with high visibility, low overhead, and access to a population of consumers who are richer and more inclined to buy quality than they currently have. It will be interesting to see how they manage this new market. Music, TV, and Movie businesses are also still stuck in the 20th Century business models and their delay to adapt and accept the destruction of the old to make way for the new is deeply engrained and will be expensive for them. I can see Google and MS assiduously courting this Luddites, but in the end Google and MS will not solve using old models in the new world and more importantly will not advance the necessary business changes these industries need to embrace. Thereby dragging out the inevitable at great expense to these industries.

37 Alan { 02.16.11 at 10:49 am }

I forgot to add that what I think galls people the most is their insistence that content distributors cannot sell their content at a cheaper rate on their website. Why should they have any say so at what price you choose to sell your product outside their store? If they want to charge a 30% commission, that is fine, but don’t then try and dictate prices outside of the iTunes store.

38 gatorguy { 02.16.11 at 12:08 pm }

From the New York Times:
“Google’s service seems to directly respond to some publishers’ concerns about Apple’s plan. Apple will keep 30 percent of any sale of digital content, like books, music and magazines, within an iPhone or iPad app, and will own the subscriber information, like names and e-mail addresses. Users can choose to share that information with publishers if they want.”

“When publishers use One Pass, which for now is limited to online newspapers and magazines, Google will keep 10 percent of the sale price and share the customer’s name, zip code and e-mail address, unless the customer specifically asks Google not to. ”

So in effect, Apple gathers information from you whether you like it or not. You don’t have any option to decline, only to opt in if you’d like to share Apple’s information on you with the service provider. The only difference is opting in and opting out for sharing. But both Apple and Google collect and own the data anyway, and know what you buy/where you visit.

A year ago publishers didn’t have the viable option of the Android Market for distribution. Now they do. Google OnePass at least makes it harder for Apple to call all the shots, their way or no way, which I think will be good for consumers overall in holding down costs.

39 berult { 02.16.11 at 12:10 pm }

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 on the Arts and on Commerce.

On the moral side of the argument, the rules were always there and never implemented across the board. The small and medium size content provider was marked-up 30% while the ambitious middle-man was home free; and without the 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 middle-man 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 pollution, the downgrading of a creatively rich environment.

Then there is the rationale. Apple wishes to nurture a direct relationship with real 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. 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. There is also huge short term profit to be made in minimizing them. Both with or without a middle-man… Plenty of options, lots of opportunities for all service providers and customers, and on that score alone I rest my case Your Honor!

40 gatorguy { 02.16.11 at 12:57 pm }

According to a statement from Rhapsody this morning, they won’t be playing ball on Apple’s field. There’s not enough profit in their service to give Apple 30% off the top. Even more, they’ve stated they will be consulting with other subscription services offered thru iTunes on a unified business response. This might not be the smartest move that Apple’s made. Can’t wait to see how this all plays out.

41 MikieV { 02.16.11 at 2:12 pm }

@gatorguy
“According to a statement from Rhapsody this morning, they won’t be playing ball on Apple’s field. …Even more, they’ve stated they will be consulting with other subscription services offered thru iTunes on a unified business response. This might not be the smartest move that Apple’s made. Can’t wait to see how this all plays out.”

I see it being something like what happened when the content-owner(s) started pulling music/video content from iTunes – because they wanted variable pricing.

Apple negotiated and wound-up allowing the tiered pricing of songs.

I just see this as Apple’s opening bid in the negotiations… and that the final number will be less than 30%, but more than the zero-percent free-ride it has been.

42 counterproductive { 02.16.11 at 2:23 pm }

@davitron
“‘@counterproductive Yes, and similarly:…’
In this analogy, there is at least one caveat: the customers did indeed bought the table where they eat (the device). So even if the customer eat free food, the vendor has an interest.”

1) not sure how you are using the word “interest”. Certainly, the vendor is “interested in” the potential customer. That’s the whole point. But I don’t know think you can say the vendor has a legal or vested interest in the table, even if he supplied the free food. The table belongs to the mall and is maintained by the mall.

But, yeah, the vendor is interested in the diners in the food court. That’s what makes the vendor’s space and license to operate in the food court so valuable.

2) Analogies are only good as far as they go. There is never a one-to-one comparison for everything in an analogy. Going too far with it can stretch it and lead to odd conclusions (“Buying a table”? That’s an odd thing to imagine :) ).

Yes, your very real iPad that you paid very real dollars for is a physical object; and, yes, you own it. And, yes, for the purposes of the analogy, the fictitious table where these fictitious customers eat is also a “physical object”. But both being physical objects doesn’t make them analogous.

The simple truth of the matter is: you may have bought your iPad, and you may own the physical components you can weigh in your hand. But you did not buy the iTunes Store or even iOS. These are software properties that belong to Apple and Apple gives you a license for them to reside on your property. The iTunes Store is not “in” your iPad. It’s in Cupertino, or NC or somewhere. You have access to it, granted by Apple under certain terms.

The table in the food court is no more your physical iPad, than you and I are really walking around a physical food court. Call the table UX, if you like. It’s nebulous, but Apple spent years of effort and hundreds of millions of dollars to develop it. Apple owns it, and the vendors want to leverage it to gain your custom.

43 killamike { 02.16.11 at 2:36 pm }

Ok, well, I’ll just add this to the argument: as an electronic music producer who is well known but not super famous, iTunes is not the best option for me as far as monetizing my music is concerned.

In reallity most of my sales come from Beatport.com, around 70% of them in fact. Beatport unlike iTunes charges 50% per sale of an mp3 and nobody bats an eyelid.

Honestly 30% is realty rather good. Weather it’s for a single sale or for a subscription. Mind you 50% is a step up from the days of vinyl and CDs which thanks to manufacturing costs used to take up to 90% of the sales away from the artist/label (content producer).

My 2c.

44 gatorguy { 02.16.11 at 2:43 pm }

So try telling McDonalds it’s fine to be in the Food Court as long as the price on a McFlurry is the same or lower than at every other McDonald’s. And BTW, they’d like 30% please. They’ll be no McDonald’s at your mall. And no Rhapsody at iTunes.

45 counterproductive { 02.16.11 at 2:50 pm }

@Alan
“And I thought the Paypal and Google Checkout fees were high at 3.2%. Not to mention the commission that amazon and Ebay charges sellers. I can understand (somewhat) a 30% fee IF Apple is hosting and serving the content, but not if they are just a simple conduit. Apple doesn’t charge Netflix 30% for every subscriber to view their movies or TV shows through an Apple TV or Mac, so why should they charge them 30% to watch them on an iPad or iPhone? Unless I didn’t understand how this new fee will be applied.”

PayPal and other processors are not providing you with a platform to sell your services — they are merely processing the payments. And Apple must still pay these fees out of its own pocket, for every iTunes Store receipt.

Secondly, Netflix et al probably have an arrangement with Apple. They probably pay Apple to be on the ATV system, just as Google pays to place its search facility on iPhones.

If Netflix or similar can’t compete with cable companies on their own, and they can’t find a good business model that would make it profitable to produce and distribute their own set-top boxes, then they would be very glad to use Apple to get their core services (movie rentals) in front of viewers.

Same with companies like TomTom. So many iPhones out there with GPS, who’s buying TomTom’s hardware? So, TomTom make a 99-dollar app and, despite the 30%, probably sell more software and make far more profit than they would selling their normal amount of hardware with the costs which that entails.

It’ll be the same for publishers once they get their heads around the new paradigms and the convenience that millions more people are willing to pay for. I don’t think the Publishers are thinking big enough. Their sales are shrinking, and they are holding on to what they have so darn hard that they are not thinking about making a compelling product for all the potential customers that Apple has lined up. Scan the hardcopy and make a simple 100MB PDF and sell it at newsstand prices? pffffft…..I’m not buying! Think bigger and start over. Hopefully stuff like the Daily will begin to show the way.

46 brew57 { 02.16.11 at 2:53 pm }

Apple is saying buy to Kindle, Netflix and any other aggregator that needs to pay content providers as part of their business.

Clearly they must feel to be able to take over this business themselves (iBook, future apple video streaming service…) without taking a hit on the iPhone/iPad sales.

47 John E { 02.16.11 at 3:00 pm }

here is Ed Bott’s excellent take on what Apple is doing over at ZD Net: “How Apple will crush its competition with iTunes Online”.

http://www.zdnet.com/blog/bott/how-apple-will-crush-its-competition-with-itunes-online/3030?tag=content;selector-blogs

Apple is playing hardball folks. and the new iTunes subscription service will launch before June 30.

48 alansky { 02.16.11 at 3:02 pm }

I very much agree with Steve Jobs’ attitude toward these kinds of issues: If Apple’s customers are unhappy with the products and services that Apple is offering, they won’t purchase them. If customers don’t buy, Apple will listen—a totally pragmatic approach. Same for developers and media publishers: If they aren’t happy with the deal Apple is offering, they won’t participate and Apple will have to take another look at what they’re offering. Otherwise, Apple is quite right in interpreting their stellar success as a tacit approval of their policies. Critics on the sidelines love to complain, but who’s listening? Not Apple.

49 gatorguy { 02.16.11 at 3:12 pm }

Actually the TomTom example is a poor one. Their AppStore offering has made them very little money. Last I knew (late fall/10) they’d grossed an estimated $12million US, giving Apple $3.6million of that. There’s a lot more revenue in hardware.

50 John E { 02.16.11 at 3:19 pm }

and i think Seth Weintrub gets the bottom line at 9to5Mac: “Apple to world: put up or shut up.”

http://www.9to5mac.com/52179/apple-to-world-put-up-or-shut-up?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+9To5Mac-MacAllDay+%289+to+5+Mac+-+Apple+Intelligence%29

but Apple can still cut special deals with “partners.” probably Netflix. maybe Hulu. Amazon? i don’t think so.

51 daryl4d { 02.16.11 at 4:08 pm }

I think part of the misconception here is that some people think that buying an iPad is just like purchasing a computer and they feel they should be free to do anything they want with it… but as Dan has stated, it is more like buying a PS3 or Xbox where you are allowed to use it the way they want you to. (ouch, but you know what I mean… the way it was designed , as part of their ecosystem, etc)

About 20 years ago I went to seminar detailing what to expect from the coming digital age, and the presenter said something to the effect that those who were “controlling, distributing, and selling the information” would be on top of the food chain. I was not sure what he meant at the time but it’s pretty clear now… the ones in control are the gatekeepers, and make no mistake about it, Apple is a gatekeeper (among other things, of course).

In a way, this isn’t new, it’s just a recycled, updated insight…. there have always been gatekeepers… banks… visa… and now entities like paypal and eBay, etc. The trick is to get you hooked, to draw you in, by the experience and/or a low cost and then when you’re dependent on them… well, raise the price, call the shots. Remember when it cost $15. for an NSF cheque instead of the$40. + they want to charge you today (say hello to the efficiencies of technology, right)… how banks and now paypal keep creeping up their fees…. hey, remember when eBay fees were fair and you could actually give a terrible customer a negative rating because he really was a crook? eBay is really the only game in town (auction-wise) so they can do what they want, right? Btw, is finding ever more and creative ways to charge fees evil or just business…? I’m sure you can decide for yourself.

In a sense it feels like a shift of power going on here and that’s what is probably making alot of people uncomfortable. Time, NBC, NetFlix, Amazon, etc want to be gatekeepers in their own right, but what happens in the future when you have, say 200-300 million iPads out there. The landscape is going to change.

Yes customers will benefit somewhat, but what about the people/businesses on the other side of the transaction… I hope Apple doesn’t go too far down this line and stays fair, because they make alot of great products.

52 donarb { 02.16.11 at 4:31 pm }

Oops, manufactured outrage. Amazon charges its marketplace sellers up 25% (+ a variable closing fee + a fixed closing fee) for all items they sell. And what about pricing?

“By our General Pricing rule, you must always ensure that the item price and total price of an item you list on Amazon.com are at or below the item price and total price at which you offer and/or sell the item via any other online sales channel.”

So Amazon dictates pricing on items that its sellers advertise in its online marketplace. Where’s the outrage over that?

53 gatorguy { 02.16.11 at 4:41 pm }

200-300 million ipads? They better get a move on with about 14m total so far. To put things into perspective, Android is projected to sell over 120m units just this year. That would eclipse the total sales of iPhones and iPad since they were launched.

That’s probably figuring into Apple’s current iTunes strategy. With both hardware and on-line service revenue potentially stagnating (relatively speaking) Apple has begun looking elsewhere for market. According to a Codex survey, only 29.4% of ebooks read on iPads came through the iBookstore, while 40.3% were purchased from Amazon’s Kindle store. I’m sure Apple would like to reverse those figures, and if it takes Amazon leaving the Appstore to make it happen, so be it.

54 counterproductive { 02.16.11 at 5:24 pm }

@gatorguy
“Actually the TomTom example is a poor one. Their AppStore offering has made them very little money. Last I knew (late fall/10) they’d grossed an estimated $12million US, giving Apple $3.6million of that. There’s a lot more revenue in hardware.”

Of course there is more REVENUE in hardware! I said, “with the costs which that entails”. Once the software is developed and paid for, there is no further cost to TomTom if 1000 Apps are sold, or if 10,000,000 Apps are sold. The profit is greater on intangible goods (digital copies). This is why MS is said to be “printing money” with its Windows and Office businesses, and why Windows and Office still prop up its XBox division however they spin it.

After a development phase which affects both tangible and intangible goods, there IS a difference to TomTom in costs going forward between selling 1000 or 10 Million GPS devices — each and every hardware GPS unit has a real, fixed cost for components, assembly, packaging, shipping, warehousing, distributing, selling. Maybe they get 30% margins like Apple does on its hardware, I don’t know. Maybe they sell some at discount, have some returned, or EOL others — who knows?

But, regardless of the actual margins and profits on one hardware unit versus one App, I highly doubt each App Store sale represents a lost device sale anyway. Rather, I think TomTom has opened a new market for their valuable core services to people who are enjoying simplifying their life to one mobile device and who wouldn’t have bought a GPS device anyway, because that one device has GPS. I know I wouldn’t ever buy a dedicated GPS device; as I wouldn’t buy a portable DVD player for the back seat of the car because we have an iPad.

55 counterproductive { 02.16.11 at 5:32 pm }

@gatorguy
“200-300 million ipads? They better get a move on with about 14m total so far. To put things into perspective, Android is projected to sell over 120m units just this year. That would eclipse the total sales of iPhones and iPad since they were launched.”

I’m curious about this perspective: who, or what company, is “Android”? And given the breadth and manner of things this vague banner encompasses, how or why is that in any way relevant to the projected number of iOS device sales?

56 counterproductive { 02.16.11 at 5:35 pm }

@gatorguy,
BTW, what figures are you using for iPhones and iPad? I fear 120M would not dwarf all iPhones and iPads sold since their launches.

57 counterproductive { 02.16.11 at 5:51 pm }

@gatorguy
“So try telling McDonalds it’s fine to be in the Food Court as long as the price on a McFlurry is the same or lower than at every other McDonald’s. And BTW, they’d like 30% please. They’ll be no McDonald’s at your mall. And no Rhapsody at iTunes.”

I didn’t start the analogy of the food court, but I’ll reiterate two of my points anyway, just in case you didn’t get them:

1) This is an analogy (not a model for what we would do in each and every totally unrelated, real world scenario), and as an analogy it only goes so far. No, we wouldn’t tell McDonalds that… because it is analogy. And the points in need of analogy were the idea of a market place with products sold by a variety of vendors to a ready audience who are looking for convenience — NOT the dynamics and economics of any conceivable product that might be for sale in such an environment, especially considering that your example is tangible (see point 2) and the items require an analogy in the first place are intangible! Apparently, a “real world” anolog is required because you just can’t seem to get the value that Apple is adding to the vendor’s business conducted “within” Apple’s marketplace!

2) intangible versus tangible goods. Need I say any more, really?

58 counterproductive { 02.16.11 at 6:03 pm }

@Alan,
“I forgot to add that what I think galls people the most is their insistence that content distributors cannot sell their content at a cheaper rate on their website. Why should they have any say so at what price you choose to sell your product outside their store? If they want to charge a 30% commission, that is fine, but don’t then try and dictate prices outside of the iTunes store.”

What is rather galling is people’s apparent insistence to turn everything around. I think you rather describe it backwards:

A vendor may set any price he pleases for himself. IF, in addition to his own marketplace(s) and/or other marketplace(s), he wants to use an iApp to promote his product or services to an attractive demographic through the iTunes Store, then he is asked to make the same product(s) available in the iTunes Store at the same or lower price.

59 daryl4d { 02.16.11 at 6:22 pm }

@gatorguy
“200-300 million ipads? …”

yes, 200-300 million iPads :) Look, I’m just musing about future possibilities, I don’t have hard numbers. The main message is the shift of power and also the possible abuse that comes with it.

I remember when the first iPhone came out… Steve Ballmer came out and said… “oh yeah, they may have sold a few million handsets, but we have our software on 40-50 million cellphones across a number of manufacturers and I’d rather be in that position, iPhone is not a threat…” Now that was not his exact words and may not be the exact numbers he used at the time, cause frankly, all I can remember was his maniacal laughter. But in a few short years history has re-written itself.

This is what I’m trying to say… in a few years things can change rapidly in Apple’s favor as far as iPads go and I’m sure certain businesses who deal with them now may be uncomfortable with what that could mean as far as their distribution model goes. Heck, they’re uncomfortable right now…

60 gatorguy { 02.16.11 at 6:34 pm }

@counterproductive.

Approx 80million iphones to date along with an estimated 18 million iTablets so far.

61 gatorguy { 02.16.11 at 6:38 pm }

OOPS. My mistake. Apparently it’s not 18 million iTablets. Closer to 14-15 million.

62 stefn { 02.16.11 at 7:51 pm }

Meanwhile, in related news, Amazon lets nobody sell anything on the Kindle. Except Amazon, which takes its 30% cut. And the three year media silence about this continues unabated. So total lock out is OK apparently, while Apple’s freely allowing every kind of online sales, using any browser, on all of its hardware is not OK?

63 daryl4d { 02.16.11 at 8:00 pm }

hey, I have google too…. look at this:

“This list tracks the dates and totals of Apple’s announcements of iPad sales (sales figures are cumulative sales all time, not for a specific period) and is approximate.”

Jan. 18, 2011 – 14.8 million
Sept. 2010 – 7.5 million
July 21, 2010 – 3.27 million
May 31, 2010 – 2 million
May 3, 2010 – 1 million
April 8, 2010 – 450,000
April 5, 2010 – 300,000

ok, now project that rate of growth 2-3 years out and maybe even consider all iDevices (iPhones and iPod Touches) and now you see why some content providers are smiling and others are worried.

64 scottkrk { 02.16.11 at 8:10 pm }

I think Apple are taking a bit of a gamble but they can always reverse the decision. I for one would be disappointed if Kindle is removed from iOS. Notice the June timing, by then we should know what services that data centre will be providing

65 nextguy { 02.16.11 at 8:44 pm }

stefn, what books have been banned on the kindle? That’s all it is for. Publishers that do not wish to have their content digitally are also banned. Not amazon’s fault either.

And they’ve been called out on their kindle not supporting the more open e reader format that public libraries use. But just like apple they have the upper hand in selection over others.

66 gatorguy { 02.16.11 at 9:07 pm }

I have a few iTablet friends, some of whom like and own the Kindle reader too. They like that they can access their books on both. Thee would be several of them who would join you in being disappointed with Kindle leaving the AppStore. Unless Apple rethinks their new policy I don’t see how Amazon could continue their consumer-friendly pricing. That would provide a potential opening for Barnes and Noble who are on the ropes right now, while strengthening Apple’s hand at the same time. Amazon will simply leave rather than raise prices 20-25%. They did fine without Apple and would continue along nicely without them.

67 stefn { 02.16.11 at 9:33 pm }

@nextguy You’re making my point. Amazon can do no wrong. Yet they charge exactly what Apple charges for stuff sold on the Kindle. And btw before Apple opened the iBook store, Amazon was charging 70%! And you don’t think Amazon’s surcharge hasn’t effectively banned books? And, finally, anyone who wishes can set up shop online to sell anything they wish by any browser to be read on any Apple OS device. Whereas the Kindle is the proverbial walled garden Apple is constantly accused of being. It’s a textbook case of willful blindness.

68 gctwnl { 02.17.11 at 1:22 am }

Apple deserves to be paid for services provided. Making use of the AppStore to access >100M customers is such a service. But there are more ways for Apple to charge for the service than this one and as amlethus already wrote, there are many ways to game this current setup by Apple by differentiating offers via iTunes/Web.

69 nextguy { 02.17.11 at 5:06 am }

stefn, they’ve been called out for this; amazon has not had a free pass. Saying they “do no wrong” implies no one criticizes them for this.

But, unlike apple, they DO allow DRM free mobi files, txt, files, and others to be synced without going through amazon. And they do not limit kindle books to just a kindle; they are available on the computer, iOS, android, BB, etc, wherease iOS apps are only for iOS. ibooks though perhaps isn’t limited to iOS either but I doubt I can read iOS on android.

70 counterproductive { 02.17.11 at 5:29 am }

@gatorguy,
“Approx 80million iphones to date along with an estimated 18 million iTablets so far.

OOPS. My mistake. Apparently it’s not 18 million iTablets. Closer to 14-15 million.”

OK thanks. I guess it is a matter of opinion that 120 (projected) “dwarfs” 95.

My question yet remains: how is this relevant?

“Android” figures include all manner of devices running on all manner of offshoots of Android or disparate versions of Android, and these devices may or may not be upgraded or be able to effectively run the same programs as other Android devices. This 120M will be made up of a large number of different models made by different manufacturers, limited in different ways by different carriers and using different search engines.

As has been pointed out many times, including on this site: “Android”, if important, should be compared to “iOS”. In which case, you can add iPod Touches to the 95 million iPhones and iPads.

You may, however, make some kind of relevant comparison between the iPhone and any other single model of phone running Android.

Secondly, since we are talking about in-App subscriptions here, lets talk about “tablets”. How many of these projected 120M devices will be tablets? Proper tablets are really relevant because we are talking about digital magazines and books. Magazines, certainly, will be aimed at tablets…

So, how many Android tablets are out there right now (of all makes and dimensions)? Does the paltry 15M iPads “dwarf” whatever number you can come up with? Are there, say 200,000 7-in and 200,000 10-in Android tablets in the hands of consumers right now, or what? I have no idea.

Got a few questions:
• What Android tablets are actually going to ship this year? How many will sell? What online stores will be available to users?

• Will digital magazines like the Daily really care to target Android tablets and develop digital magazines for Android? If so, will these digital magazines have the innovative interfaces and features that are possible using the iOS SDKs, or will they merely be scans made into PDFs (or, worse, Flash)?

• Will Google provide a compelling ecosystem for Android users, AND the technology for publishers to produce compelling products AND viable business models for those publishers to pursue expanding numbers of new subscriptions despite their initial grousing? How will the business models for publishing on Android be affected by 7-in widescreen and 10-in form factors? How will they be affected by disparities between the different versions of Android running at any one time on different platforms? (as opposed to the, say, virtually 100%, of 15M tablets being identical in every way?)

So, given this unbridled enthusiasm for the outlook of Android this year… what are the true attractions for a digital publisher? I’d really like to know. Let’s stop throwing theoretical numbers around and get down to business. Are digital publishers really hankering after 100% of some unknown profit, on who knows how many magazine sales, to who knows how many “open-loving” users, of who knows how many tablets, of who knows what quality? …And this is after the publishers sort out their own digital distribution or eco-system and re-invent to some degree what Apple has spent several years developing. Or, are they looking at 70% of a pretty sure thing, but just grousing about it for the sake of it? I guess we’ll see.

71 counterproductive { 02.17.11 at 5:35 am }

edit: “How will they be affected by disparities between the different versions of Android running at any one time on different TABLET DEVICES?”

The 15M iPads are currently in use. Add at least a further 5M per quarter.

72 gatorguy { 02.17.11 at 6:05 am }

I’m not in any way suggesting that Android is a better alternative than iOS. Quite the opposite really. Apple’s ecosystem makes a great platform for publishers. The Android platform still has a way to go. My point in mentioning numbers is that Android has become too large for those publishers to ignore. There’s empirical evidence to suggest the number of user’s could be double that of iOS within a year. I don’t think anyone here would suggest that publishers, app developers, subscription service providers and the like would ignore a market of 250 million consumers. And that’s the reason Apple won’t be able to continue treating their AppStore as the only game in town, and they make all the rules. Deal with it. There’s viable options fast developing, with the major player being Android. That doesn’t spell doom and gloom for Apple in any way. The bigger money will still come from the AppStore over the Android Market for sometime, perhaps another couple of years. Still, Apple is no longer the only game, and thus won’t be making all the rules. They’re going to have to re-learn to deal in a market where they may not be the big dog. People are finicky. A few chinks in the armor and many may go looking for the next shiny toy.

73 gatorguy { 02.17.11 at 6:16 am }

And really the silly argument that no single Android phone outsells the iPhone as proof that most consumer’s prefer Apple, is just that. . . Silly. It’s Apple’s choice to not license the tech to companies like Samsung or Moto, allowing some variation. And their choice to release a new version once per year (tho an off-contract iPhone JR may be added this year). If there were only one Android phone, or one Blackberry, then we’d have something to compare. With but a single choice from Apple there isn’t. You certainly wouldn’t suggest that if there were 20 different iPhone models that each would be the the #1 sellers in their market would you?

74 rvr { 02.17.11 at 6:41 am }

the problem with your post and many comments is that apple *does not* have to service and deliver the subscription. my understanding is that all in-app content is delivered from the app publisher’s servers. so the app publisher is getting charged the same 30% cut for basically just payment processing. no marketing support, no hosting, no bandwidth costs.

am i missing something? because that seems over the line to me. it would seem to make a lot more sense for apple to take a small cut (10%?) for subscriptions, since the overhead for them is nominal, and it would have zero impact on the user experience.

[Yes: first, Apple does host, promote market the app. In a subscription model, it's often given away for free. Even if the publisher provides its own data (which I'm not sure they do, but it doesn't really matter) that means that Apple's platform is just being used for commerce at Apple's expense, which is far less fair than Apple taking a cut of all iTunes transactions.

One can argue about exactly how much that cut "ought" to be, but when did the public begin debating the righteousness of business contracts that have no impact on the finished good? Are you even aware how much of a cut Nintendo takes from Wii games? Did you know Amazon established the distributor cut for Kindle at 70% prior to Apple getting into the business and setting its own cut at 30%, with a Zero cut for publishers who sell their own subscriptions (something you can't do on Kindle)? Why the sudden outrage? - Dan]

the other point that has been made about pricing shenanigans (free app, make money on subscriptions) is a red herring. if apple doesn’t have any real cost associated with subscription sales, then what do they care if the app is free and the developer makes money on subscriptions? they’d still get their modest cut, which should be more than enough to cover their associated costs.

it’s hard to figure this as anything bug a greedy move on apple’s part, and hopefully an initial position to test the reaction. i’m optimistic that they will make an adjustment before long to lower the fee if there’s enough of an outcry. this hurts publishers directly (and a lot), which hurts consumers indirectly, and helps apple little. i don’t see how they have much to gain, but the potential is ther for them to lose a lot of good will and some significant content publishers on their platform.

[You can call it "greedy" or you can acknowledge it as necessary to the survival of the platform. Kind of depends on what you want to believe. - Dan ]

75 counterproductive { 02.17.11 at 7:37 am }

@gatorguy,

It depends what you are comparing, why, and what conclusions you are drawing from the comparisons.

No-one said “most consumers prefer Apple”, because, obviously, most phones are something other than iPhones. The iPhone has, what, <10% smart phone market share.

What's interesting about phone on phone comparisons, however (apart from the fact that Apple is in the enviable position of having a highly profitable phone), is that consumer surveys show that consumers choosing iPhones DO prefer their iPhone more than other consumers prefer their ____Android phone.

What's silly, is that you are doing exactly the same thing you accuse of others: a number like 120M "Android" devices is trotted out to prove a meaningless contention like yours: "My point in mentioning numbers is that Android has become too large for those publishers to ignore."

It should be enough to say, "iOS devices only account for 6% of all smart phones and media tablets, therefore let's ignore the iOS platform or let's spend more effort targeting a different platform(s)". But it's not so easy is it? It's not like you can say, "Great, here's a 120M device-a-year platform we can go for instead".

This "120M device-a-year" 'platform' doesn't really exist for all practical purposes, does it? There is little about it that is cohesive or that adds value all along the chain to consumers (#1), plus developers, plus publishers. When you get right down to it, the pieces that are actually individually addressable in any practical or valuable way are actually quite small — as comparing 15M (+ 5M per quarter) iPads with some unknown quantity of inter-compatible Android tablets in the wild shows.

76 counterproductive { 02.17.11 at 7:41 am }

…and the value chain includes hardware manufacturer, platform developer, retailer and carrier.

77 stefn { 02.17.11 at 7:52 am }

@nextguy “But, unlike apple, they DO allow DRM free mobi files, txt, files, and others to be synced without going through amazon.”
So the fact that I can read any doc of any kind from any source on ALL of my Apple iOS devices means nothing? Walling off any and all competition using hardware (the Kindle) is somehow OK? While allowing anybody to buy, sell, and read anything on a Mac or iOS device, outside of Apple’s shops (iTunes, App Store), is not OK? is not allowing freedom enough? is somehow a monopoly? Unbelievable.

78 gus2000 { 02.17.11 at 8:14 am }

For those of you outraged by the 30% cut taken by Apple, you’ll be shocked to learn that your $1.00 soda contains 5¢ worth of product and 95¢ of sales, marketing, packaging, delivery, and retail markup.

Unless, of course, it’s OpenCola.

79 gatorguy { 02.17.11 at 8:58 am }

Conterproductive, I’m not sure what point you’re trying to make about my post since it has little to do with what I contended. You did attempt to twist the post to erroneously imply I said iOS should be ignored, which took you in an entirely different direction than my statements. It’s very difficult to have a meaningful exchange if you take every positive mention of Android as a slap against Apple. From the beginning I’ve acknowledged that Apple has a great product according to millions of users and 100′s of glowing articles. They have a well-developed ecosystem and creative product releases. Lots of advantages for those who have chosen to use them. What diehard Apple fans such as yourself fail to grasp is that millions of buyers made a choice not to go with iOS, and thus there’s a huge market developing for Android, much bigger than iOS will deliver in the long run IMO. I haven’t seen anything from any objective analyst that says different. Apple had the smartphone market by the balls for three years. That’s now coming to an end. No big deal and completely normal for any product. Eventually something new comes along. The same will happen with the iTablet within a couple years at best. I’m certain Apple recognizes this and is already working on the “next big thing”. In the meantime they’re going to squeeze what they can from the AppStore while they still have a hot commodity. It’s obvious that developers took notice of the Android potential in the past year. Tripling the number of apps in the Android Market in just 9 months (to 150K) happened because there’s substantial revenue to made there. Whether Apple fanatics want to admit it or not, it’s a fact proven by the investment in time, energy and money that thousands of developers are putting into it. It’s easy to say it has no value when you don’t use it. Several million Android users would disagree with you, and yet still have the honesty to admit Apple’s got a great market too. Without them to kickstart the mobile market, there might not even be Android smartphones. Surely even a diehard Apple fan such as yourself can conjure up the same honesty to admit there just might be a few good things on the other side.

80 counterproductive { 02.17.11 at 10:10 am }

Gatorguy,
Quite the opposite, in fact. I do note your acknowledgement of Apple’s platform. And I wish the ‘Android platform’ all the best. I am merely noting that 120M devices does not make a readily addressable market of 120M consumers for any practical purposes, perhaps especially for digital magazines.

I am trying to draw attention to the incongruity between, on the one hand, your repeated mentions of 120M (and similar posts and sentiments regarding the size and potential of the “Android market”), and what, on the other, is in fact a relatively cohesive, albeit smaller, marketplace platform. Nothing more. What is interesting is the “objectivity” of those ‘objective analysts’ whom you reference in this particular regard.

All this is interesting to us diehard Apple fans, because on the one hand Apple is accused of monopoly practices — and yet, as you unfailingly point out, Apple is small bit player in the scheme of things.

What is interesting is that analysts and die hard Android fans constantly point out that Apple needs to watch out lest publishers and developers and the like take their toys and go home, because they can just go ahead and develop for 120M devices tomorrow, instead of wasting time with iOS.

What is interesting is that diehard Android fans constantly take umbrage on behalf of the common man at Apple’s apparent high-handedness, when Apple works for the end user and Google is shown to sell the end user to its customers, the advertisers.

What is interesting is that Android fans apparently think that Google or Android licensees or Carriers or Chinese cloners or someone can duplicate tomorrow exactly what it is that makes the Apple platform “successful”.

What is interesting is that so many competitors actually think they know what it is that makes Apple’s platform successful — apparently, whatever it is, it didn’t involve almost ten years of hard work.

I don’t find any of your points or contentions a slap in the face — rather I am intrigued at the level of fantasy regarding all the above and the significance of this 120M. I hope you don’t take that as a slap against Android: I just think that Android may have a little more distance to travel than you think, despite all the numbers, market share figures and features on spec sheets. That would be my point.

81 harrywolf { 02.17.11 at 10:13 am }

I am a Marine Contractor, and whether or not a customer hires me, I still have to maintain and keep extant my ‘infrastructure’.
This involves a large number of specialised tools, two boats, and some workers.
If I DONT maintain this, when the customer calls me up and demands immediate attention to his sinking boat/floathome/boathouse, then everyone is unhappy because no work can take place.

Apple, although slightly bigger than me(!), have to do the same.
In the end, like it or not, (and I know the Internet should be free because its just electrons for gods sake, blah blah) the customer MUST pay.
Thats business, and its surprising how we can take it all for granted and yet still whine about costs.

Amazon would be my main concern – books on my iPad have been a huge thing for me on the last 8 months – but I wont complain if I have to pay another buck to get a book I want NOW.
I have a Kindle, but the iPad does a LOT more, so I wont be switching back to it.

Apples infrastructure means I dont have to drive to a bookstore, which saves me a few dollars and a considerable amount of time.
Thats a good thing.

Real world, real costs. You get your tokens from working in some fashion, you spend them to get the stuff you want, someone else uses your tokens to buy their stuff, and on and on it goes.

Thats our world trade/work system, so lets not whine about it – there isnt a reasonable alternative, at this time.

82 gatorguy { 02.17.11 at 10:45 am }

I don’t look at Android as copying Apple’s strategy at all. Even Dan has posted much the same opinion, making note of Google’s different (and inferior?) methods of developing Android. Is there imitation. Absolutely. Just as Apple thought they could mimic but improve on Sony’s Walkman (and like Android, taking a platform developed by someone else, modifying it, and rolling it into their own), Google feels they can improve on several aspects of iOS. Way too soon to tell if they can or not. But simply having Toyota’s being mass-produced with 4 wheels and an engine doesn’t mean they copied Henry Ford. Instead they’ve found their own ways to take what Henry started and improve on them. And note: There was only one Ford model too,while other imitators quickly spread, each with their own “improvements”. I don’t know what “120M devices does not make a readily addressable market of 120M consumers for any practical purposes, perhaps especially for digital magazines” means exactly, or what evidence that’s based on. That’s the same type of vague comment that Apple had to deal with when they were forming their mobile plans. It wasn’t hard to find analysts that didn’t see how the whole picture could be put together. In the end it worked out quite well didn’t it?

83 nextguy { 02.17.11 at 12:21 pm }

stefn, “So the fact that I can read any doc of any kind from any source on ALL of my Apple iOS devices means nothing?”
You can, but what about ibooks?
“Walling off any and all competition using hardware (the Kindle) is somehow OK?”
You don’t need a kindle to get ebooks from amazon. That’s my point. It may be the only eink reader for it, but as mentioned, can I use ibooks on android unlike amazon?

“While allowing anybody to buy, sell, and read anything on a Mac or iOS device, outside of Apple’s shops (iTunes, App Store), is not OK? is not allowing freedom enough? is somehow a monopoly? Unbelievable.”

Notice my first post I mentioned it is within apple’s right to do that, and I never said it was a monopoly, since they do not have a monopoly on the market, but just the itunes store.

Let them deal with the back lash. Apparently they learned nothing of the FTC fiasco of 3rd party dev tools and google voice.

84 stefn { 02.17.11 at 1:57 pm }

@nextguy “what about ibooks?” I thought whole discussion was about Apple forcing readers to pay Apple. But I don’t have buy books from Apple or use iBooks or even think about iBooks. And yet I can read anything from anywhere on all my Apple devices. While to use Kindles or Kindle apps, I must buy from Amazon. Sure, once Amazon has your money, you can read where you want, within the Kindle apps and DRM. Follow the money to find the walled garden. Apple hardware offers complete freedom; Kindles lock out all competition.

85 counterproductive { 02.17.11 at 4:06 pm }

Yes, it worked out quite well for Apple and Apple’s customers in the end (whatever “it” is), because Apple worked to a well-laid plan. It doesn’t matter that no-one knew what Apple’s plan was. All we know is that Apple patiently lays foundations sometimes years in advance, plans and executes.

Contrast that with a bunch of companies (OS developer, hardware manufacturers, carriers, store developers) that have varying degrees of relationship, with varying motivations and responsibilities and strategies, and who are supposed to produce a bunch of somethings that are supposed to work together (different devices, different form factors, different versions or customizations of the OS with different features, intentional additions or limitations, different store models) — and you begin to see that this is not an ideal environment for the developer or publisher to find himself in and know with any confidence which consumer he can serve effectively or not. But, hey, volume, ads and customer data will always trump good old fashioned work.

The developer or publisher would be irresponsible to simply gloss over all these differences (motivational, physical, practical, philosophical, what have you), and revel in the giddy but naive appraisal that he will easily reach 120M potential new consumers this year alone without some considerable extra effort.

Now, all the parties involved may talk all the time about their plans, and “objective” analysts may get all gooey talking about the rosy picture they are painting, and Google may “feel” it can improve this or that (though it tends to be fairly lackadaisical in its approach to following through on projects it starts). However, it’s not vague and unwarranted criticism to take note of Google’s own admission about things like the current version(s) of Android not being the optimal for tablets. What was vague on my part, perhaps, was that I was trying to spare the feelings of Android fans and not spell out the ‘F’-word (Fragmentation). Sorry if you therefore didn’t catch my meaning for that long winded description of the state of play in Android land. Apparently Google is now talking about an OS split between phones and tablets. But what do I know? I am sure that is not really anything to do with true fragmentation, and that none of this, nor the differences suggested above, have any bearing on how easy it would be for publishers to pick up a few million subscribers of some compelling new media quickly built out in either HTML5 or native code, and handily distributed across the board with the same experience for all Android users. No sweat. It’s not like no-one except Apple has sold media before. They all sell media all the time. So, all kinds of stores and market places arise and fall all the time; so what?

You and these analysts may choose to treat all this as optimistically as you like. For me, I agree with your assessment — I don’t quite see “how the whole picture can be put together”.

And, no, I certainly didn’t want to imply that Google et al were intending or hoping to copy Apple’s strategy. They most evidently are not. By “what makes Apple’s platform successful” I was, admittedly, being vague (sorry); I guess I was talking about “essence” or “commitment to excellence” or “passion” or “precision” or “bet-the-company attitude” or “flexibility” or “insight”… something, whatever it is that makes Apple’s platform successful. It’s a lot of little things, and not being satisfied with any of them.

But that’s the 64000-dollar question, isn’t it? Whatever it is, though, we keep hearing how everyone else is going to deliver it tomorrow… or the next day.

Personally, I don’t care if they all do try to copy Apple or not, so don’t be defensive about that (I wasn’t meaning that as a slap at Android). It’s just interesting that people think they can latch onto something, anything and say, “Aha, we’ve got this down”, or “hey, we are doing such and such better than Apple in our next product which we are releasing any day now”.

Like Google, talking about its new subscription service right after all this about Apple’s: and Google announcing they are taking a 10% cut. OK. And publishers will flock over there and be able to easily sell to each of these 120M new Android users this year? OK. I don’t suppose any real hard work, or precedence, or experience, or anything else is really required for it to all pan out smoothly. However, talk is cheap. But, certainly, the choice and opportunity are there. I do hope they all go for it.

86 gatorguy { 02.17.11 at 5:20 pm }

One of the first things Apple fans repeat: Android fragmentation. And it’s always treated as an Android exclusive issue. Of course you already know that’s not true. Some older Apple products no longer have an upgrade path to the latest OS including some percentage of iPhones.

[There's a big difference between 4 year old iPhones being bumped from the latest release, and new Android phone--like the HTC Hero that won MWC's 2009 "phone of the year" --being updated once and then left to rot, unable to run the summer 2010 2.2 Froyo release, let alone the updates released over its original users' 2 year contract. Half of *active* Android users in the Market can't run the latest API level, which is required for even basic new apps like Twitter. That's a fragmented platform.

Apple not only has no real fragmentation of its iPhone platform, but it has the reverse: a huge platform extenuation served by the iPod touch and iPad. So iOS is a huge platform to target, with easy optimization to reach very different devices like the iPad, while Android, despite being constrained to smartphone devices, is split between OS API levels, hardware types, configurations, technologies, and so on.

You can argue all you want about how little this matters, but look both at what developers are doing AND the decisions being made by HP/Palm and Microsoft/Nokia, both of which are working to create an Apple-like, limited range/coherent platform. HP, Palm, Microsoft and Nokia have already tried to work with broadly licensed platforms and failed (PlaysForSure, Palm OS, WiMo, Meego, etc. - Dan]

Apple understands that backwards compatibility should only go so far to avoid handicapping the current devices. But Android is so bad that developers couldn’t realistically offer a product that the vast majority of Android Market buyers could use, correct? Every iPhone owner knows how miserably fragmented the android platform is, right? Everyone knows about the huge percentage of old version Android devices with no upgrade path. You’ve been told that so many times it must be true. Well, surprise. It isn’t. In fact only about 10% are over a year old. The other 90% are on 2.1 or higher, with 2.3 the most recent.
http://developer.android.com/resources/dashboard/platform-versions.html

[Sure, Android 1.6/1.5 is slowly going away. But it's super old! They're comparable to iOS 2.x, while 2.1 is on the level of 3.x. Android 2.2 was released at iOS 4.0, and supplies an API level change that results in incompatible apps for previous devices that don't/can't upgrade.

So you can try to muddy the waters about how 2.1 and 2.2 are nearby numbers, or you can recognize the fact that throughout the "Year of Android" phones continued to ship with archaic OS versions, updates took 3-6 months or more to trickle down to users, and developers simply can't reach more than half the *active* population with the latest release, even when you charitably call last summer's release "modern." How long will it be until Android 2.3 accounts for more than 0.8% of the active population of Android shoppers? That's a serious problem if you want to move development ahead.

In contrast, Apple's developers started releasing "4.0-tested" apps before it was available, and users can update the day each major (and minor) update is released. So fragmentation isn't a statistical trick, it's a real problem holding back new apps, app sales, and app development. And Android clearly has those problems, whether you think you can distract from them or not. - Dan]

Not sure where you read that a tablet OS would be developed separately from the smartphone one, adding more version confusion. Perhaps a misunderstanding with the interim 3.0 Honeycomb used for the latest tablets? Google already announced that IceCream (gotta love the names) would be a unifying version for both, set for release in a couple more months. http://www.dialtosave.co.uk/mobile/news/2011/02/17/google-details-android-ice-cream-plans-at-mwc/

[Vaporware promises don't distract from the fact that Honeycomb currently delivers (when it arrives!) features exclusive to a bunch of tablets that don't yet exist on the market. Smartphone users can't actually "mkdir android ; cd android ; repo init -u git://android.git.kernel.org/platform/manifest.git ; repo sync ; make" to put Android 3.0 on their smartphones can they? ]

Google’s been excellent at laying out their plans compared to the ultra-high secrecy at Cupertino, contrary to what you may have read here. It’s reassurance that improvements are coming, development continues.

[All hail the god of vaporware. Microsfot was great at outlining its future strategies too. They were carbon copies of everyone else's plans, they just never got delivered (clones of an object oriented OS/2 and NeXTSTEP in Cairo, cross platform QuickTime in ActiveMovie that never appeared, and so on ad naseum).

So Google can promise everything. Where's the deliverables? Because today, Android sucks: its market doesn't work, the OS is buggy, its missing critical enterprise and security features, it's ugly, and it doesn't even offer significant cost advantages. ]

App developers have no more reason to worry they’ll be hung out to dry or abandoned than they do at Apple. So do I feel confident that Android can deliver another 100 million potential customers to publishers, booksellers, the music industry and many more this year? Yes I do. There’s no evidence at all that they won’t and plenty of indications they can. Correct me if I’m wrong.

[Smartphones are an existing market with a well defined demand. Android supplied an iPhone-clone to carriers who couldn't sell an iPhone, racking up impressive numbers that really only indicate that there was a lot of demand for Apple's product. Where is the evidence that tablets represent a huge market that Apple can't service?

What tablets predated the iPad? What tablet platforms? Have you conveniently forgotten about all the tablet failures that have stretched on for the last decade? Have you failed to notice that Google has two tablet strategies, one based on proprietary development tied to 3.0 Honeycomb, the other based on the web (Chrome OS)? When Honeycomb fails, Goole will back HTML5 apps, but users can see a vast difference between glorified web pages and native apps. That's why nobody is flocking to the open web to power tablets. Native apps are better, and nobody has a native app tablet platform outside of Apple. Chrome OS and HP have native hooks in their HTML platforms, Microsoft has a limited Flash-clone-based Silverlight mobile platform that could potentially power tablets but hasn't proven itself on phones yet, RIM is frantically dropping buzzwords about vaporware that lacks a real platform yet. So you're betting Android will solve everything with a temporary Java-like layer when it really is banking on the web? You can acknowledge your ideological defeat next year - Dan ]

87 nextguy { 02.17.11 at 9:50 pm }

“Let them deal with the back lash. Apparently they learned nothing of the FTC fiasco of 3rd party dev tools and google voice.”

http://www.appleinsider.com/articles/11/02/17/ftc_looking_into_apple_subscription_terms_while_first_publishers_get_on_board.html

[What exactly was the "backlash" related to Apple delaying Google Voice? - Dan]

88 gatorguy { 02.18.11 at 6:30 am }

Some more specific details concerning the two major app delivery stores was posted by Lookout as part of their App Genome Project begun last year.

[By "two major" you apparently mean "the one major store with +80% app revenues and the fourth largest store behind RIM and Nokia, with piece smaller than 5% of the market." Let's use a context of facts, not spew absurdity - Dan]

http://www.businesswire.com/news/home/20110216005602/en/Lookout’s-App-Genome-Project-Finds-A
(Disclosure notice: Lookout offers security software available on the Android platform but not yet available for iOS. While not evidence that the results are then certainly skewed in favor of Android, anytime a source has a potential vested interest in the results the reader should pay close attention as to how the facts are presented, even tho the facts themselves may be accurate. But in any case there is no intent by me to imply the results linked here are anything other than valid )

Not mentioned in the article is that there have been some reports (note the disclosure mention above) that the AppStore received in excess of 80% of the total revenue from 3rd party application purchases via smartphone markets in 2010. That would make sense on a couple of levels. Apple had much more than triple the number of applications available in it’s store compared to Android for much of the past year. There’s still fewer than 90,000 total apps available to the US market, with the total worldwide a bit over 160K. In addition, a larger percentage of Android apps are offered free, tho it should be noted that the percent of paid apps is rising on Android, increasing from 22% to 34% in the past 6 months. As Apple further integrates their iAd plans to share revenue with their developers mimicking Google, the percentage of paid apps there has fallen from 71% to 66%. Still a healthy difference between the two, tho on the surface they appear to be on a move to meet in the middle at some point. Unstated in this is the shared advertising revenue flowing to developers in the Android Market, and the AppStore for that matter.

Google’s efforts to increase the direct revenue for paid applications is still in it’s infancy, so no indications as to it’s success or lack thereof yet. Still the huge number of Android appliances, the speed at which the platform is being taken up, and the resultant 100′s of millions of consumers using that platform can only increase the revenue exponentially over the next several months.

[Why do you keep arguing that fragmentation doesn't exist for Android and that handset sales somehow make Android a bigger, more important platform than iOS, given Android's inability to sell apps, inability to support other products (Google TV, tablets, music players)? - Dan ]

89 stefn { 02.19.11 at 9:21 am }

And where were the regulators when Amazon was taking 70% of proceeds on Kindle sales?

90 Alan { 02.19.11 at 9:58 am }

I can sort of understand the 30% fee for print and apps, but I think there is a big difference with streaming content publishers like Netflix, Pandora, Spotify, Hulu and others. Now if Apple was actually serving the music or movies that would be one thing and would certainly justify the 30% fee, but they aren’t. They are asking for 30% of the revenue in perpetuity just because a customer chose to sign up in iTunes? That would mean that they would have a nice revenue stream for possibly many years for nothing more than a finder’s fee.

[What's wrong with taking a cut for attracting new customers? Should shopping malls only charge vendors the first month's rent? If Apple's platform is selling their subscriptions, and they know it will, why shouldn't Apple get a cut? - Dan]

I imagine the margin for Netflix is already very tight. After all they stream unlimited TV and movies for $8 a month. How could they possibly afford to pay Apple 30% and still hope to even break even. I am not arguing that Apple shouldn’t get some revenue, after all they did bring a new customer to the service, I just don’t see why that commission doesn’t expire after fr example 3 months or so. Imagine if a real estate agent continued to get a 7% commission from home buyers every month until the mortgage was completely paid in full.

[They do! They charge a commission based on their entire home sale, so they effectively get a cut of each mortgage payment, but in advance. Other people who get a cut: Attorneys. They take 25-33% of your settlement, regardless of how big it is, or how much work they do to help you get it. ]

Maybe not the best analogy, but I am just waking up. My main point is that I don’t see how just providing a platform for someone to join a paid monthly service justifies a 30% fee in perpetuity UNLESS Apple also hosts and serves that content.

[Hosting and serving the content is not much value! It's not hard to host and serve content, and subscribers already have websites capable of that. What they LACK is the ability to sell subscriptions, because nobody wants to pay. Apple created a business model and market where people will pay.

So you're going on an on about how the publishers should get more than 70% instead of realizing that without Apple, they'd have 100% of nothing, which is considerably less. Ask the music business if they preferred getting 100% of nothing from Napster, or 70% of billions from Apple. ]

Just charge them 30% for 3 or 6 months or something reasonable. The probable outcome is that these companies will have to raise their prices by around 41% to just to make the same amount they do now if they want to stay on iTunes. Or Apple is getting ready to launch their own unlimited and monthly streaming music, TV show, and music services and wants to run them off iTunes before it launches this summer. Who wants to bet that Apple will charge a lot more than $8 a month like Netflix.

[Remember how the music business had to raise their prices 30% to sell music in iTunes? Or how the movie studios had to raise their prices 30% to sell movie rentals in iTunes? Or how mobile software went up 30% in the App Store? No? I don't either, I recall everything getting cheaper. - Dan ]

91 Alan { 02.19.11 at 10:04 am }

P.S. Netflix is the main reason I even got an iPad. It is by far the most used app on my iPad. so I would be very upset if they were force to raise prices to stay on the platform or just leave altogether. I watched all 4 series of Doc Martin on my iPad, great show btw. I agree that we have to wait and see what will transpire after the deadline. I hope and pray they come to some mutually agreeable solution that is fair to companies like Netflix to allow them to stay and keep their low monthly rates.

92 berult { 02.19.11 at 11:06 am }

Alan,
Why is it that your outlook on Apple’s policy seems entirely derived from your emotional bonding with one content provider? After all, Netfix doesn’t create content, it acts as a middleman to your viewing options.

Wouldn’t it be fair to say that Netfix, as all middlemen and aggregators, is redundant in that context? 

Can’t Apple be as creative in clearing the field of intermediaries as it is in providing you with a ‘touch sensitive’ and increasingly smart tailor made portal to exercise your freedom of choice over content?

Apple seems to have concluded that they are better positioned, and with more efficient tools, to manage the whole of the user experience; from a creativity nurturing platform on to the streaming infrastructure that gets the fruit of geniality on to you and me without heavy handed ‘undue process’ interfering.

Netfix could be expendable; so would Apple believe …in their DNA. DNA can’t be argued upon, it just has to be acknowledged and taken to task by the beholder.

93 The Mad Hatter { 02.19.11 at 12:03 pm }

It’s curious. I use my Ipad for writing, and for computer art. Oh, and I use the Exoplanet app to keep up with the latest discoveries of planets outside of our solar system.

94 Alan { 02.19.11 at 12:09 pm }

My outlook is hardly derived from any emotional attachment to one content provider. I was just pointing out that I derive a great deal of pleasure and spend a lot of time with streaming media. I certainly will not be buying an iPad 2 though if Netflix is no longer available of that you can be sure. But do you honestly think Apple would ever price an all you can watch movie and TV show streaming service for $8 a month? I don’t. Not to mention even if they did I couldn’t view the content on my TV with my PS3 or my Roku box in my bedroom like I do now with Netflix. How can you possibly justify that any content provider that charges a monthly fee pay Apple 30% in perpetuity just for signing up a subscriber when they don’t host or serve the content? Answer this question for me with some logical arguments because nothing I read in the article above justifies it so maybe you can do better.

When an App developer pays Apple 30% it is a one time fee and Apple hosts and serves the app to the end user. That is not the case with digital streaming services. Written content like newspapers and magazines can deal with this cost since they create the actual articles so they have little overhead. When it comes to videos and music, their margin is too slim to pay Apple 30%.

Finally, I don’t see how Netflix is redundant as a middleman or aggregator of content since they provide a very valuable service to which Apple currently offers nothing even close in value. Let me see, pay $8 a month for all I can watch or pay $2 for one 30 minute sitcom. Hmm…difficult choice.

95 berult { 02.19.11 at 3:51 pm }

Allan, A highly integrated platform like iOS can compete on price with any service provider as long as the latter doesn’t get a free ride on the intrinsect value of the said platform.

Netfix’ cost structure is subsidized by Apple’s leniency in enforcing the 30% rule across all off-platform generated and imported contents, be they apps, books, music, etc. Now it seems it will. Your future dealings with Netfix, that is if it survives a brush with economic reality, will simply be on a basis of real cost-plus content …as it should be.

Netfix and others have outlived their usefulness as outsourced platform builders, hence those middleman and aggregator tasks can be easily be taken on by iOS itself within a close, un-mediated, and justly rewarded partnership among creative equals. The evolution of the iOS platform has finally reached the stage of closing the loop of content creation and content diffusion.

Apple as it always does will raise the stakes on Netfix’ valuable services, but will price them for what they’re worth within their own ecosystem. I bet you’ll win in the trade-off.

For Netfix and others, adapt or perish…

96 counterproductive { 02.19.11 at 4:10 pm }

@gatorguy,
“As Apple further integrates their iAd plans to share revenue with their developers mimicking Google, the percentage of paid apps there has fallen from 71% to 66%.”

Sounds like you are making a direct link between iAds and a drop in the percentage of paid Apps? I have downloaded several hundred apps for my iPod Touch an iPad, both paid and free, and I have yet to see an iAd — in fact, I have been looking out for one, because I am curious about it.

In all likelihood, the reason for the lower percentage of paid apps is the recent addition of in-app purchasing. Instead of making a “lite” version of an app, plus a paid version, many app developers are offering added f functionality or game levels via in-app purchasing. That I frequently have seen. I have also seen cross-promotion, from which I gather that developers can receive some kind of affiliate commission — such as buying a song in iTunes that has been featured in a game.

97 gatorguy { 02.19.11 at 4:12 pm }

Wow…
You mean prepare to be assimilated? Resistance is futile.

98 gatorguy { 02.19.11 at 4:37 pm }

ConterProductive, that’s certainly a possible cause. When it comes to Apple (I don’t use them) or developer reasoning (I’m not one), I defer to you guys. Understood they’re strictly business and these types of changes aren’t meant to benefit customers except in the sense of encouraging them as consumers, making it easier to find ways to spend their money. But that’s as it should be in business, and just what investors look for.

[You mean, as opposed to Google and HTC/ZTE investors, who are all about supporting openness as a philosophy rather than turning Chinese child slave labor into ad revenue? Let's get a little more intellectually honest than that. - Dan]

99 berult { 02.19.11 at 5:50 pm }

“Wow…
You mean prepare to be assimilated? Resistance is futile.” gatorguy

How…
I mean, as a content creator prepare to be value-added! Resistance is simply nonsensical. berult

100 counterproductive { 02.21.11 at 1:58 am }

@gatorguy,
“Understood they’re strictly business and these types of changes aren’t meant to benefit customers except in the sense of encouraging them as consumers, making it easier to find ways to spend their money. But that’s as it should be in business, and just what investors look for.”

How does it not benefit the consumer?

- Significantly reduces the number of apps to either search through or install / uninstall.
- improves the review and rating system by keeping them focussed and therefore more accurate; so I don’t need to look at two sets of reviews for the same app.
- I can use the app in free mode, add functionality as needed, but STILL have ongoing use of my data in the app dating from my ‘lite’ use.

One of the very things you complained about as a consumer — money-back trial period — is addressed precisely this way. In fact, it’s much better all around, than paying money and trying to get it / give it back. This is cleaner and simpler. So, if you are unwilling to try more expensive apps — then go to the developer website and ask them to add this functionality to the app.

101 Alan { 02.23.11 at 2:17 pm }

Supposedly SJ sent the following message:
“We created subscriptions for publishing apps, not SaaS apps.

Sent from my iPhone”

If I understand that correctly, apps like Netflix would be safe, but Kindle would be charged a fee. I am no fan of Amazon, I know without any competition they would get away with charging the absolute maximum possible. As an Amazon seller it galls me that they take a 9% cut on every sale I make, but smaller sellers have no real choice but to sell on Amazon. Some profit is better than none. They also have a bad habit of undercutting sellers which is very easy since they don’t charge their 9% commission on themselves which makes it hard to even compete with them on products they choose to carry.

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