Apple’s Big Subscription Bet: Brilliant, Brazen, Or Batsh*t Crazy?
techcrunch.com
techcrunch.com
Essentially, Apple is acting as the big box retailer, but without any other big box retailers, they set their margins and the software vendor just has to live with them. No real competition.
Not sure how I actually feel about this. On one hand, Apple is creating an ecosystem, and all they're asking for is $99 to distribute apps. Much better terms than $x / seat for MS Studio and the like. But, they're going to insert themselves at every aspect of the chain when they don't necessarily have to. It gives me an uneasy feeling, but I think the company is optimizing for business instead of goodwill.
Take Netflix, for example. Does it make sense to provide in-app subscriptions for 30% discounted distributor rate ($8 * 70% = $5.60) when that same account can be used for Roku, etc?
No. What will happen is that all these service providers will make an Apple subscription (which has separate features) that won't work with other devices.
Balkanization of content channels... this is not consumer friendly.
Now, imagine if your $10/mo. netflix subscription fee was $13 just because you are using it on an iPhone.
It's setting a minimum advertised price (i.e. price fixing) using a percentage rather than an absolute value. The FTC will have a hay day with this.
If Apple attracts a new customer via the AppStore, similar to how affiliate marketers bring new business to a vendor, they get a 30% cut.
I do however agree it is not consumer friendly. With the "most favored nation" clause in the agreement, vendors will have little choice but to raise prices to meet the commission on the fraction of sales Apple takes their cut.
It's also worth mentioning that Newspapers and Magazines make the majority of their revenue through advertisers. This is why they choose to heavily discount subscriptions in the first place. If it turns out being on iOS gets them noticeably more subscriptions, then yes they may lose money on those subscriptions, but it may be a net gain if it enables them to raise their advertising rates accordingly.
Time will tell.
Regardless of whether this is 'fair' for Apple to do or not, many content providers simply /can't/ give Apple (or any third party) 30% of their revenue - even just for for subscriptions sold through iOS apps - and still make a profit. There's just not enough margin in what they're selling. Since Apple is demanding that the prices in-app be the same as outside the app, these providers have two choices: raise prices for everyone to subsidise the iOS-purchased subscriptions, or don't offer an iOS app at all.
This is a big change to the status quo.
I could see a scenario where Amazon decides to let the kindle app be pulled, and throws their weight around with the publishers in order to damage iBooks.
If they have all the subscribers they were going to get anyway, AND some new ones thank to Apple, they've made more money and they fact that Apple is taking a cut won't bother them; 70% of more money is a lot better than no more money. It costs them effectively nothing to have more subscribers, so as long as their Apple-based subscribers aren't cannibalising their existing subscriber base, their profits go up.
You can restrict access to content (by using a TTL or encrypting the video with Apple HTTP Streaming) but someone could still capture the stream. Their stream using silverlight is encrypted and offers the kind of security that makes content owners happy.
"But a lot of third-party developers both large and small are going to be very, very pissed off by this move. Why? Because it totally changes the game. Companies with subscription elements of their content had been accustomed to leveraging Apple’s platform for free. Now there will be a fee. And it will be a significant fee."
And, here is some useful commentary:
"And, here is an answer to one of the questions that I've been wondering about: "The Amazon question (which originally sparked a debate a couple weeks ago) seems more complicated. Because Amazon content isn’t sold by subscription, it’s not clear how this affects apps like their Kindle app. It may not affect it at all, but then why did Apple reject the Sony reader app? Was there a subscription layer in it? Apple clearly wants to move towards a full in-app purchase environment, but today they’re only talking subscriptions. One-time payments may be the next shoe to drop."
Update: A couple more things. Apparently, Apple has just updated the App Store Guidelines alongside the announcement today. And yes, it seems that one-time in-app purchases like those made through Amazon for the Kindle will fall under the same rules. That brings up another question: could Amazon just make a Kindle reader app that didn’t allow you to buy anywhere in the app, but only use previously bought content? The guideline wording seems like it would still be a no-no but it’s not entire clear that such an app would be rejected. "
I guess people don't like that Apple has full control of their platform, and they sometimes do things which benefit them. If you don't like it, don't buy an Apple product! Get something open or whatever.
It's about platform vendors who are being strong-armed into providing a huge chunk of their revenue to a company who is doing relatively little to earn it, proportional to the amounts involved.
Apple is no better or worse than any other corporation for pursuing this policy. They have the installed userbase to call the shots, and they know it, and they'd be foolish to not take advantage of it.
But they're also putting publishers in a tough spot, especially when they're already struggling with a new business model and a market of unknown size. Apple does run the risk of killing the golden goose, or alienating publishers to the point where they pull their wares from iOS entirely, which is bad for both users and the platform.
In short: of course Apple can do this. It doesn't mean they should.
"Apple does run the risk of killing the golden goose, or alienating publishers to the point where they pull their wares from iOS entirely, which is bad for both users and the platform."
30% sounds like a lot but if I would take it if I were a publisher - there's still room to make much more profit than a print operation - no need for presses, ink, paper etc. I mean the 70% you get is pure profit basically.
Perhaps, Apple will allow Kindle and Netflix to offer iOS only subscriptions. These subscriptions will not allow the media to be viewed on other platforms, and will not be attractive for most subscribers. The standard subscriptions would still be usable on iOS, but couldn't be purchased in iTunes. Perhaps the iOS subscription could be slightly less expensive, to appease Apple.
Apple may be willing to let something like this slide to keep these very popular apps, while keeping what could be a very lucrative policy for other subscription services. I'm sure there are many media startups who are going to jump on this. They'll just price in the 30% and be happy.