App Store Subscription Plan Demolishes the Appeal of iOS

Pete Mortensen (3:14 pm PDT, Feb 21 2011)

App Store Subscription Plan Demolishes the Appeal of iOS

The broad application of Apple’s new App Store subscription guidelines to everything from magazines (sensible) to Kindle books (questionable) to Readability (delusional) to Tiny Grab and possibly DropBox (downright silly) could end up being the single-worst business decision the Cupertino Colossus has made in the last decade, for one very simple reason: it seeks to maximize App Store revenue at the expense of making iPhones and iPads the most attractive hardware platforms on the market. Getting 30% of Readability’s revenue cannot possibly justify the risk of making the iPad sell a few hundred thousand fewer units.

Think about it. If you’re an average consumer and you’re trying to decide between an iPad and one of the many Android Honeycomb tablets scheduled to ship in the next few months, the ability to put your existing content on that tablet would likely be a key decision in that process. Both can take MP3s, and the iPad can take video content from iTunes. But if the trend continues in the direction is has been thus far, the iPad won’t have Kindle books or possibly even Netflix by the time the full impact of the subscription guidelines plan shakes it self out. It’s a pretty easy choice for consumers under those circumstances.

Apple really needs to take a step back and redo these guidelines.

First, remove the restriction preventing apps from directing users to a web page to make their purchases. It simply is not possible that the lost revenue from those sales is equivalent or better than the value of having the best possible content library available on iOS.

Second, apply the revenue split only to subscription applications intended strictly for iOS. Charge that fee as it applies to magazines and publications designed for the platform and leave things like Kindle, Netflix and Dropbox out of the equation. Since Apple won’t be footing the bandwidth to deliver the content for such subscriptions, there is no possible justification for taking a cut of the revenue from them other than greed.

Third, remember what business you’re in. The entire purpose of the App Store and iTunes is to make Apple’s hardware more attractive to users. It’s not actually to enforce hardware lock-in, it’s to create a platform that is so superior in its capabilities, content, and experience that the costs of switching are too great for people to contemplate. If you drive away the content and tools they use on all sorts of other platforms, you’ll ultimately make Android and Windows Phone 7 actually start to seem like more reasonable choices. To date, Apple has only sold 10 billion songs and change. Of that, Apple cleared no more than $3 billion in revenue, and probably no more than $1 billion in profit. That’s all nice, but it represents seven years of sales so far. Last quarter, the iPad generated well over a billion in profit by itself. Apps are there to increase the latter number, not try to turn app sales into a meaningful business.

I continue to watch in horror as ever-more respected apps announce that they have run afoul of the new guidelines. This is a dumb decision on Apple’s part, and there are no excuses that make it sensible, as the increasingly desperate rationale of John Gruber has shown. Tim Cook should show some leadership here and write an open letter explaining how much more narrowly the rules will be applied from here on out. Anything else hurts the long-term potential of the platform I love. Remember: Just because you could get money from every transaction associated with your platform doesn’t mean that you should. Some charges just make you into a jerk.

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62 comments »

  • BTW

    Agree with everything except for “Demolishes the Appeal of iOS”.

    Demolishes? Really? A better word might have been, “Dampens”.

    • rontro

      “dampens”, it is much better than that, it gets rid of ridiculous apps like readability… which no one would have bought anyway. Did people understand what they wanted to do? hello….

      it is more of a brilliant move by apple, where Android will end up with all the really really bad apps. the totally useless, and the ones that are trying to charge for moronic things that are free in real world situations, like readability…

      • http://www.fort90.com/journal/ FortNinety

        “ridiculous apps like readability”

        I supposed it’s no shock that an idiot like you, who is so willing to easily dismiss all the atrocities at Foxconn, is equally clueless of the fact Readability is actually a useful app for some.

        Seriously, nothing makes me more embarrassed to be an Apple user than other Apple users. And unlike other trolls on the internet, you’re probably not some dumb teenager on the internet but some douche who managed to get a respectable job and is perhaps even married. Oy vey.

      • Lava

        Who’s calling who an idiot? Do the developers of Readability create content? Do they pen the words that flow through their app? Then why do they want to take a 30% cut from the writer who actually provide the content.

        OH THAT’S RIGHT. Readability provide a platform which justifies their 30% cut. But somehow piggybacking on Apple’s platform means that Apple is “greedy” to ask for 30%.

        Hey, how about this Readability! Make your app pure HTML5! After all, there’s nothing in your app that remotely requires access to the GPU.

        Then spend a TON of your own money trying to get users to enter in their credit card numbers or sign up for PayPay. Then you won’t have to pay Apple anything! Since it’s obvious “smart” people like you like to conveniently avoid the fact that it costs way more and requires much more effort than to simply pay the 30%.

        Put money where your big mouth is. Go it alone and pay your own costs if you feel Apple is ripping you off.

      • antic

        I totally agree with you. Why should Apple have to pay the cost of hosting these programs when they get no benefit from them.

        If they can do better on Android then let them try.

      • rontro

        ——- atrocities at Foxconn ———-

        uhhh, which atrocities does Apple sponsor? the ones where more workers die in American Cities, by more than DOUBLE that of Foxconn’s rate due to suicide? did you seriously not know this? or were you advocating that FoxConn immulate the more human conditions of American workers and DOUBLE THEIR SUICIDE RATE…. Hello? is anyone awake in there?

        seriously catch a clue and read the well documented report that spells out every single violation that Foxconn factories have against them…. (and their suicide rate) and compare that to an American factory… please.. you just sound stupid when you make statements like that:

        do yourself a favor and look something up for a change: actually try and do something useful.

        and report back.

      • rontro

        ———— Readability is actually a useful app for some. —————

        uhh, oh right you are the one that doesn’t actually read up on the subject before commenting..

        here is a clue for you…

        Readability tries to charge, or “donate” your money for something you can get for free from a dozen other apps…

        they provide no content, they try and charge for what is free on the internet… this is the main reason it was rejected, Apple does not allow apps that simply reproduce what is on the internet… worse they tried to charge for it… Apple also is cracking down on apps that copy other apps function, which this app does in spades… worse it tried to CHARGE for what other apps do for free.

        now as for blocking out ads from those websites, there are several other apps that do that, AND THEY DON”T REQUIRE A CHARGE every time you do that….

        again, you simple have zero idea of what you are talking about. Readibility is a worthless app literally. it will look good on Android device though :0)

        the reason this poorly thought out company can’t do it on the web? because Apple does this function… again.. FOR FREE with the safari web browser.

    • mootilda

      Criticism of Apple always requires exaggeration and hype.

      For example, it is not enough to say “Apple may eventually lose its dominant market position to smartphone rivals.”

      Instead, the Politically Correct statement would be: “Apple is dead, will lose all market share by next weekend!”

    • Gretchen

      This is pathetic. Your entire article is based on “ifs.” With these types of digital tumbleweeds blowing around the web with your name on them, how do you ever convince anyone to pay you?

  • Don’t think so

    All this, much ado about nothing. Apple is retailer. Just like Amazon, Westfield and several others. It wants other competition who is riding free, selling content to its iTunes users for free off its turf. It wants to deal directly with content producers, give them a hefty 70% with NO MORE EXPENSES FOR THEM, and sell directly to consumers. What’s wrong with that? I freakin love it. I’d love to give directly to content producers while using a store as easy as the App Store.

    And if I didn’t love it, I’ll go buy books from Amazon and use a kindle and buy some tablet whenever it becomes available and I won’t use Apple.

    Much ado about nothing.

  • theo

    + 1

    This is the first bad taste Apple has left in my mouth in a long time (pun semi-intentional)

    • Lochias

      Okay, will someone explain to me what pun is or is not intended?

    • Gretchen

      Pun? I see no pun.

  • iHate

    Considering Apple doesn’t give a crap about anyone but their bottom line should it be surprising that Apple’s current platform is slowly starting to employ Gestapo like qualities? Considering Apple chooses to ignore the terrible working conditions of it’s Foxxconn manufacturing partner is it really that surprising it also chooses to screw over it’s content providers? I think the answers to these questions are quite evident. Apple has chosen to play a dangerous game and because of their parasitic business practices it will come back to haunt Curpentino in the future. Apple has been on quite a roll over the last two decades but all good things eventually come to an end and when it finally does hit the final note karma will be a bitch.

    Enjoy the limelight little Apple Corp. The truth involving your sweatshop labour practices has finally started to trickle out to the average consumer. Your little PR scams have fought off the inevitable but while lies can run sprints the truth can run whole marathons. Keep smiling Curpentino but be aware that at the end of the road you have chosen to take there’s a great huge locomotive waiting to come blaring down on top of you.

    In it’s greed Apple has finally started to make the same stupid mistakes that cost them the OS wars against Microsoft and I can only smile at their stupidity. It’s always a good day when a disease like mega Corp disappears from the face of the planet. Now if only the other big business whores such as HP, HTC, Dell Samsung etc would follow also follow Apple into business hell I would truly be one happy user.

    • rontro

      —————
      I think the answers to these questions are quite evident
      —————–

      the answers are quite evident, however you apparently felt the need to comment without reading the “evidence”….. Foxconn indeed… have you seen the actual report on Foxconn? And Apple’s response? looking like a fool without reading the report only makes you look like an ignorant fool.

      • iHate

        Have I seen the report on Foxxconn? Well lets see here so far various Chinese trade unions have publicly organized protests against Foxxconn, various civil rights organizations have stated Foxxconn are on their list of companies who have committed worker rights violations, and various employees have anonymously come forward and stated the working conditions are slave like, not to mention the ex employees who have publicly on paper and on Chinese TV who have come forward to stated that Foxxconn is a hell house. Are these any of the reports you’re talking about? Oh wait I’m mistaken you’re talking about the reports both Apple and Foxxconn have submitted for public consumption. Yeah I’m sure Foxxcon would readily admit to worker mistreatment. I’m also sure Apple would readily admit to fucking up and being part of modern day slave labor practices.

        The Apple distortion field has really distorted your view of reality dude. I give you full credit though it must be really hard taking the time to write your BS on here with your head stuck up your ass. Here’s a little suggestion for you ronto. Step away from that Mac walk outside and throw yourself in front of the first truck you see. Considering you’re such a dipshit I doubt anyone would really care.

      • rontro

        —————–
        Yeah I’m sure Foxxcon would readily admit to worker mistreatment. I’m also sure Apple would readily admit
        ———————

        obviously you didn’t read the report… AGAIN….., how typical of someone to be totally ignorant of a subject, and then try to comment on it…. the Actual report done on behalf of Apple commissioned by Apple and is well documented, and yes Apple did find violation after violation, and reported on themselves and Foxconn, which you did not know and falsely accused them of “ignoring”… you basically are ignorant of what is going on, or falsifying what is going on, which is it?…. and Apple has taken steps to correct the Violations they found.

        by the way, the typical American city and town, and the entire US has a higher suicide rate by more than DOUBLE of that at Foxconn, try and catch a clue… please… you are implying that Foxconn should try to be more like American factories, (with their work place standards) and double the their suicide rate?

        you literally are that mis-informed…. that you just implied that you would want Foxconn to double their suicide rate, because that is what would happen if as you imply they go from their “terrible working conditions”, to more American like Working conditions. where Americans take their life on average more than Double what Foxconn workers are doing…

        Do your self a favor, and LOOK UP THIS FACT… for a change before you comment further.

    • mootilda

      You’ll never be happy.

  • DCH

    Having been an Apple user since the Apple II and having 10 Apple products in my house now. If Apple continues with this approach they will be the last Apple products I buy. Next will be the APP for Macs and you will be locked into buying only what Apple sells there for their 30% cut.
    No, a locked system is not the way to go. I applauded the original iTunes as it allowed anyone to use a Music appliance easily what Apple was known for. The direction they are going is absurd.

    • rontro

      ———–
      will be the last Apple products I buy
      ————–

      and since you are arm chair quarterbacking, believing since you ‘buy” products, that you know what Apple is doing when they design products, I’m sure you go through life constantly threatening…

      did you ever think that maybe Apple has a reason possibly? since you did buy Apple products a lot in the past, did you ever think that: hey Apple must know what they are doing? so maybe i should see if they still know what they are doing?

      now, since it is clear you didn’t actually see what Apple is doing, i’ve got something for you to do that will require you to get up out of your chair…

      go look up what ‘readablity” was trying to sell… You know, the thing you can do with many other apps without paying a “subscription”. and tell us all again how you are not going to buy a product that does this to you…. Apple really rejected this app because of it’s stand that it does not accept apps that just reproduce Web content, or reproduce an existing function, (a side note: or reproduce an existing app too many times) all of which have been long standing rules…

      guess how many of these rules that “readability” breaks….

      geesh man, at least look at the product that Apple decided it doesn’t want in the store for you…. Apple certainly had a reason, believe it or not, Apple did not get to be the Apple we know, because it just wants to maximize profits…

      I’m sure you arm chair quarterbacks have some more great insights for us, after you go look up what you were supposed to look up before you commented.

      • iHate

        Are your really that fucked?
        ________
        Apple did not get to be the Apple we know, because it just wants to maximize profits…
        ________

        All they care about nowadays is getting your money you retard.

    • itsmneyc

      You people are hopeless… I wish I had a dollar for every “The last Apple product I buy” I read.

      Do you have any clue what percentage Walmart gets of that candy bar you bought? or that power tool from Sears? Or anything else you ever bought? Of course not!

      So now out of nowhere we get these people who are outraged at what Apple might make?!

      The bad thing about the internet is how you get these so called “articles” by these so called “journalists” while the comments section brings out all the trolls from under the bridge.

  • Jill

    “Third, remember what business you’re in. The entire purpose of the App Store and iTunes is to make Apple’s hardware more attractive to users.”

    Are you sure apple’s profits come from hardware sales? 30% of profits for retailing digital goods sounds pretty good to me! How much of their profit came from hardware versus digital content?

    • Jill

      Should have read the article more carefully: Apple has only sold 10 billion songs and change. Of that, Apple cleared no more than $3 billion in revenue, and probably no more than $1 billion in profit.

  • Steve

    @ihate
    Ed: Steve has a potty mouth. You know nothing. go back to your wintel, fandroid basement. As for the article, none of the arguments hold water. The truth is publishers don’t care about the 30% Apple charges they want the 100% they can get by selling your data and info to the highest bidder. Do you really think the drivel they publish is actually worth anything? I don’t and they don’t.

    • iHate

      @ Steve

      lmfao, believe it or not you’re stupid comment just gave me a bellyache from laughing so hard. You see little man I’m no empty headed fandroid. Considering fandroids have their heads stuck up their asses almost as far as Apple fan boys I would never be a fandroid. Who you’re dealing with little man is someone who stopped drinking cool aid ages ago and embraced having a mind and soul. It’s so amusing when you empty headed Apple people start screaming about Android when individuals actually decide to fill you in on whats real and whats self induced Apple dementia. All that aside enjoy your little tech geek crusade against whoever you deem the enemy.

      The truth is the future more tech savy generation has already started to enter the high schools and colleges and unlike you Apple/Google/insert name here zombies I highly doubt the future users will enjoy living life like some brain damaged monkey who willingly shells out their hard earned money to greedy tech companies who lock them into ecosystems to further bleed the user of more of their hard earned cash.

      As I said before lies can run sprints but the truth can run whole marathons and truth will always win out in the end. The old Apple disappeared from the world a long time ago only to be replaced by a soulless aberration that feeds off the the poor of developing countries run by tyrants. Sacrificing lives for the sake of manufacturing tin junk all for the sake of the almighty dollar how disgusting. This monster deserves to die and when it finally does the only thing I’ll have left to say is it couldn’t happen to a better bunch of assholes.

      Enjoy living with your head stuck up your ass.

      • rontro

        you can tell when a person’s prejudice is purely stupid…like iHate… seriously you can tell if it the wrong prejudice or not….

        what you do is look at the opposite view from 1 or 2 or 5 or 10 years (what ever time frame they are referring to), and do a “what if this person invested all his money in this opposite view instead”, and if the net result is that the person could have retired on an island, AND BOUGHT THAT ISLAND, then the person’s prejudice is just really moronic. but what ever floats their boat i guess… we have to have poor stupid people in the world too.

        with your understanding of “greedy” businesses, which apparently means all business, you will get far i’m sure iHate, just keep smoking the hate, it looks good on you….

  • david

    apple shouldn’t be trying to turn off its customers.
    I wish apple would just let the publishers get 90 percent of their money, because that would make it more attractive to keep publishing and making products for iOS.

    • david

      with android turning into the dominate phone platform and the iphone losing popularity, apple cannot afford to lose its main competitive advantage to android. This is all about the apps and developers.

  • Lynch

    God this is so true. I have to believe that they’ll realize they’re
    being crazy and stop this. The money they can make will be trivial to
    the bottom line but will surely have much larger repercussions
    otherwise

  • PAUL

    As a mobile fan, I’m concerned but not surprised by Apple’s move. And this is biz no matter how you look at it. Apple will do what it “can” do just like another company in its position would do. That’s why it’s so great to have competition in the open market place with RIM, Web OS, Android, and Windows (also why there will not be any gov investigation).

    Having said that, this is such a bad article. God, I’ve seen CofM gone down the hill in the last year or so. First the stupid rumors you make up (still wait for the T-Mobile iPhone you promised us from last fall – you know, your trusted source?) and now this…

    As a consumer, I don’t care what Apple charges publishers or developers. If it comes to a point when I can’t find what I need from Apple, I’ll move on. It’s that simple.

    At the end of the day, Apple knows that the vast majority of iOS users will not abandon it because they cannot get the Sports Illustrated Swimsuit issue on the iPad. Just as the bulk of the users will not abandon it because a few developers (I happen to agree with some of the grievances) publicly blast Apple and abandoned development.

  • Susan

    I’m a long-time mac fan who has my pennies saved for an iPad 2, and I too am horrified by this. I am an avid Kindle reader and I want the Kindle on my tablet. I have to wonder if Steve Jobs is perhaps distracted by personal issues at the moment and is simply not thinking this through.

    • Roger

      Bingo!

      This kind of reckless hubris on the part of Apple is a nail in the coffin of iOS. It’s hard to believe this is a consciously made business decision.

      While Apple is no longer dominating the market, they could have maintained a profitable sector of the smart phone and tablet market for years to come while they thought up their next transformational product. But this move comes across more like they’re trying to get a maximum cash-out while they have the chance.

      Apple used to come across as a cool company that was all about user empowerment. Their new image is half Big Brother and half Gordon Gekko. Many have pointed out the irony given the famous Apple Computer 1984 commercial. Do all of you Apple die-hards still believe Apple Computer is cool? Really?

    • Charli

      Amazon hasnt indicated that they are pulling out or have an issue with this. Same with Netflix and others. Perhaps they really don’t care either way. Perhaps they are going to make the change and actually see if there is a big issue.

      I’m sorry but Rhapsody isn’t doing this just over the 30%. they are raising a stink and playing this like some kind of moral issue to get press. To get their name out there because they have to compete with Pandora etc.

  • JD

    Gruber has it completely right.

  • JD

    BTW: hey morons… before you blast Apple or jump ship, how about let them respond. It can take weeks or months to adjust, and they put out the first attempt at something completely new just days ago.

    All of you in such “horror” or disbelief need to have a reality check… sit back, relax… let this work itself out. If enough important apps jump ship because they can’t handle not getting everything for free then Apple will certainly adjust – they have done it before, but it took a while.

    How about thinking about what it takes to run a business too. Think of this.. you are running a mall, and stores are coming in wanting to rent and sell for free. Nice business model… so you charge them for their access to your mall and a bunch of bleeding hearts jump at you… how dare you try make a profit off your hard work.

    Yea, think about it.. chill people. Find something else to get riled up about.

  • Tee

    I don’t see where your opinion is coming from that it would diminish the appeal of iOS. From a user point of view, it is good to have an easy way to get the best price available and have all your subscriptions easily managed by a company with such great customer relations and high ratings.

    I think you are bringing your own publisher point of view into this. From a user point of view, Android would have the same prices as iOS, so no advantages for Android. The people on Android seem less willing to pay for stuff – if anything, the apps that would be on Android will be undercut by the ONE PASS Google is pushing – which is web-based and does not seem to appeal to optimized presentation, videos, sharing, etc. The higher value reader are already on iOS, so there is a large installed market base of premium subscribers. The publishers would be foolish to spite themselves – if they already do streaming to a large audience, there would be no cost for existing subscribers, if they already subscribe to the newspaper, there would be no extra cost for that reader. The publishers are struggling to go from giving their stories away for minimal ad based income, to actually selling their content, and Apple has proven that it could do this for music in the face of piracy that had music reduced to near free in digital form.

    The publishers are ALREADY paying 30% or more to Kindle to have their publications delivered via Kindle. Where are all the Amazon is evil and destroying its platform articles? Amazon charged even more before Apple released the iPad, and still charges more than 60% in fees for independent news sources.

    I think the in-app subscriptions will be a great thing for both software developers and publishers. Finally, instead of releasing upgrades to software, an app might have a subscription to premium features, allowing them to add features to an existing program despite lack of ability to offer upgrade pricing to existing subscribers. This will be a way for existing apps to get new functionality and have ongoing revenue OTHER THAN ADS. This is great for users that don’t want their data tracked and sold or to have their apps soured with various advertisements.

    For publishers – they already pay up to 80% or more to get partner/affiliates to get new subscribers. Many publishers earn more from their magazine sponsors than they do from subscribers. Knowing the profile of iOS users, they would be able to get even more income from higher subscriber counts. This would more than justify the 30% cut, thru both wider distribution to more affluent audience, and thru streamlining the subscriber management process.

    To the companies that say a higher charge would kill their business – I think they should look at the affluence of the target audience at Apple and see the impact of the Mac App Store on sales there. Just making sales easier and more widely advertised made a huge difference for existing software and games. If they offer a good product, it will do well.

    • Kirkland

      As a user, the attractiveness of the iPad as a platform — as something I chose to buy despite the fact that I already have a MacBook, an iPhone and an Apple TV (at the time, first gen) — was access to several key apps including Hulu +, Amazon Kindle and Netflix. Apple has no products that can compete with these offerings — it’s video option for new TV shows is far, far more expensive than a Hulu + subscription, it’s selection of videos for rent is more anemic, and more expensive, than Netflix, and the selection in iBooks pales in comparison to that in Kindle, and iBooks are typically more expensive, as well.

      I rely on these three apps, they are the core uses I have for my iPad. I’m not saying I’m a normal iPad user, but I would venture a bet that the Kindle app alone has been installed on millions of iPads, and that between these three fantastic services, nearly every iPad user uses one of them. To say nothing of similar products I don’t use, but which provide uses that Apple’s current offerings can’t match: Rhapsody, Pandora, etc.

      All these apps, to be profitable, depend on a balance between their subscription fees and the costs they give to the rightsholders whose work to which they provide user access. Many of these services, including Netflix, Pandora and Rhapsody (and I’d wager Hulu+), have a profit margin per subscription of less than 30% — meaning that if they give the rightsholders their share, and on top of that have to pay Apple 30%, they’re going to lose money off of every subscriber who signs up through iOS. For the Kindle, probably the most popular of these apps, the share Amazon takes on the books it sells most — current releases priced at less than $10 — is 30%, meaning that after paying the rightsholder and Apple, they would have nothing left.

      Apple’s 30% policy will destroy the business model for all these apps permanently, unless rightsholders are willing to reduce their cut, which seems incredibly unlikely. These apps will, in turn, likely be pulled.

      That is a major blow to the iOS platform. Perhaps you don’t see it that way, and perhaps Apple doesn’t see it that way, hoping those of us who have our favored apps torn away will shuffle meekly into utilizing Apple’s less useful, more expensive alternatives. But many people will feel as though Apple’s policy change will have harmed them personally, and will look for platforms with less capricious corporate overlords.

      If Apple’s fee was more akin to the fee charged by other merchant account managers — which is all Apple is in these situations — say, 5% to 10%, then apps like Kindle, Netflix and Hulu+ — and, yes, Readability — would continue to be viable on the platform.

      Apps sell the platform as much as the platform sells the apps. Apple needs to avoid increasing the toxicity in its symbiotic relationship with its app writers.

      Apple’s set bad policies before, and backed down just in the nick of time to avoid disaster (consider the AdMob ban, for example). Hopefully, the same level heads will prevail before I reach a decision point on when to retire and replace my first-gen Wi-Fi iPad.

      • S. Mulji

        This I agree with.

        The 30% cut that Apple takes should only apply to companies that actually create & sell content (ie: music / movie studios, magazine / newspaper publishers, game companies, etc.) not content retailers or SaaS apps.

  • brewstermax

    A Tim Cook letter? How about no? I would much rather see a letter from Jobs himself explaining what they are thinking in this. I know Apple wants to kill Netflix, Kindle, and others, but this is killing EVERYONE. Give it up, Apple. Or at least explain yourself.

    • Charli

      Based on what data.. Few to no one has done a trial run to actually know the impact.

      And remember Apple legally gets to set the rules for being in their mall. They could have required iTunes processing and banned outside payment forms. They didn’t. Nor are they requiring a cut for all who use whatever on an idevice regardless of how it was paid for. But they could have tried that trick as well

  • Clayton

    So… If I buy a ticket on American Airlines using my AA app on the iPhone does Apple get a 30% cut? DFW to SFO? This is crazy… So what does Apple have to do with a United SFO to HKG ticket? Or a SW LUV to OAK, or any other for that matter.

    Maybe my next iPhone will be Android…not as good, nor as easy to use, but can’t afford a 30% premium on airplane tickets.

    • Lochias

      Apple sells books on the iPad. Amazon sells books on Kindle — and on the iPad. But not the reverse: Apple does not sell iBooks on Kindle.

      So what is the outrage over Apple setting conditions for Amazon’s selling on the iPad? Why is it anything but an Apple business decision — just as it is an Amazon decision whether to allow other booksellers on the Kindle?

  • Iklindo

    I am a staunch supporter of Apple and it’s products, however I have noticed a major shift in the past decade. I want Apple to create the best possible products available, with the latest technology and hardware. What I don’t want them to do is try and envelope the entire process from turn on to shut down. I don’t need Apple to provide me with every possible app, program, book, tune or what not. I don’t need the to be my everything.

    Apple appears to be growing so large that the stores are no longer a place to go when I have questions that need to be answered. The employees I deal with often have to ask for help with my issue. A few on the SoHo store in NYC didn’t know how the Airport worked, or if it would work on a Hotel Internet System protected by a password.

    I have bailed on the iPhone in favor of Android. It’s a capable piece of technology, neat in some ways infuriating in others. The App store on Android isn’t close to the App store for Apple however for me it’s a toy not a business need so I deal with it.

    I am in the market for a Tablet and the iPad has some serious shortcomings for my needs. I don’t know what Android Tablets will be offering but they are going to get my serious consideration.

    I love you Mac, please rediscover your roots…

  • Shayne

    I was actually looking at dumping my Droid 1 for an iPhone now that they are available on Verizon. Everything I use electronically is essentially from Apple, MacBook Pro, iPad, iPod Touch, and Apple TV…

    I think with the changes to terms and conditions to iTunes, and boy do they change often at a whim, I am going to stick with Android.

    • itsmneyc

      LOL! So believable…

  • George

    I love how companies that JUST before this did the SAME with their customers now whine about this.

    • Lava

      This is like the music companies complaining they are only making 60% off each song sale and whining about Apple’s dominance because they were used to making 90% profits from selling $20 musics CDs, while at same fooling gullible Cult-of-Mac type bloggers into thinking they were standing up for the financial welfare of the artists.

  • Cj

    Wake me when this policy actually effects me adversely as a user. Until then WTF do I care if apple takes the same 30% from subs that they do for everything else?

  • SEAmachead

    Why was this article even published? It’s poorly written and its points overly exaggerated. You think one application (Readability) is going to be the deciding factor for a few hundred thousand possible iPad buyers? And how is Gruber’s argument any proof that there are no excuses for Apple’s decisions? Unlike you, he writes comprehendible arguments. Apple’s strict App store guidelines is nothing new. The company knows what it’s doing; don’t worry Mortesen, the future of its iOS platform is not at risk because Apple restricts a few apps – even good ones. Cult of Mac, lets stick to the real writers.

  • Paul

    Demolishes? Really? More flame bait BS from Cult of Mac!

  • skips

    This article ignores the realities of the marketplace. Here are a few facts that are relevant to the discussion:

    1. Retailers, who are selling buying goods from manufacturers or distributors, expect to pay from 50 to 70 percent of the list price of the goods.

    2. Distributors and wholesalers, who are buying goods from manufacturers, expect to pay from 30 to 50 percent of the list price of the goods.

    3. Apple’s partner agreements make it clear that Apple considers itself to be a retailer and that the organizations, who are providing the content for sale, are either distributors or creators of the contents.

    4. Apple’s 30/70 split of the revenue is at the low end of the margins for retailers. This split appears to be consistent with Apple’s stated intention of running the iTunes and App stores as “break-even” operations. In addition, it is consistent with not underpricing the marketplace. (i.e., forcing other retailers to accept margins smaller than what the market deems reasonable at this time.)

    5. Apple’s insistence at having the lowest price is consistent with the actions of other major retailers. Generally retailers demand margins based on the size of the market to which they offer access.

    The only “gem” of truth in this article is the realization that there are a number of retailers, whose business model has been to access the App store marketplace at no cost to themselves. It appears that these retailers will have to change their business models to be more consistent with a distributor’s business model to continue to access the Apple App store marketplace. This change could be a simple as offering those who distribute through them 70 percent of what they receive. Then the content provider could decide whether or not they want the “hassle” of dealing with Apple or the convenience of dealing with the distributor.

    For Amazon, this model should be an easy sell to the publishers. They were receiving from Amazon only 30 percent of the list price before Apple began selling eBooks and Amazon changed its terms. Amazon could offer them 70 percent of what they receive, which would be 50 percent of the sales through Apple and 70 percent of the direct sales, and a marketplace, which is the sum of both the Kindle Application (which is the Apple App Store marketplace) and the Kindle reader. Whereas if the publisher goes through Apple, they can access only the Apple App Store marketplace. This business model would be more consistent with Amazon as a distributor rather than a retailer.

  • Wally

    I am curious about Amazon. What will they do if they have to cough up the same 30% surcharge through iTunes purchases and how will they handle the fact that they have to offer the same price through iTunes or their own store.
    Selling through iTunes would kill their total surplus margin.
    Is it possible to imagine that if Apple forces Amazon to cough up 30% of revenues then, and only then Amazon might remember that they own a long-forgotten patent which is called “1-click payment”. Unfortunately the whole iTunes concept is based on this patent.
    Maybe Amazon’s demands to cough up patent fees might cancel out Apples subscription fees?
    Does anyone know something about this situation?
    I am curious…

  • iHate

    @ronto

    Its one thing to knowing deny something its completely another when you flaunt misinformation just for the sake of being able to act like a complete asshole. That stupid report you’re touting isn’t worth the toilet paper its printed on and only a jackass would put any stock in it. Apple got caught directly contributing to sweatshop labor practices by choosing to do business with Foxxconn and whether a jackass like you likes it or not its now a proven fact. You only have to Google the fucken subject to see article after article of people who have worked there saying Foxxconn is a hell house. You only have to walk into a library and research the subject of the second class Chinese migrant workers plight and how China’s big business has traditionally screwed these people. Did you even know that China has a two tier class system that was created and exploited by the communist govt to attract outside business investment into the country? Next time you speak out KNOW YOUR FACTS JACKASS.

    Oh and for your information I don’t hate all business I just hate cruel cocksuckers like you which unfortunately seems to have infected the business sector in mass. Its people like you who have made good peoples lives miserable for the sake of putting more money in your wallet. Disgusting lowlife whore. As for your indirect remark about my handle its actually an obtuse insult towards the Apple fanatic. You see I didn’t create it because I hate Apple. I created it because of what so many on here have demonstrated what they represent. When fanatical Apple user after Apple user shoots his stupid mouth off and shows nothing but contempt and cruelty to the less fortunate in this world it only conveys how hateful they truly are. That’s what most of you so called Apple fanatics have started to represent to the average person, nothing but pure hate. In comes the handle iHate.

    I give you credit ronto its not everyday a five star dunce like you comes along. The way you’re pulling out all the stops with your BS you must really want the Popes hat to the church of Apple. If Jobs or Cook ever read some of your posts I’m sure they would smile ear to ear. I’m also sure they would run to your door and crown you with a nice white plastic hat and proclaim you Pope ronto the first. Its fools like you who make greedy unethical mega corps like Apple such a success and make people like Jobs and Cook billionaires. Well done little ant well done I’m sure your Apple masters are very pleased with you.

  • dg

    im no expert

    but i think its fair:
    –if anything gets bought trough an ipod/iphone/ipad, it deserves the credit
    –if any apple device works for accesing any company or product , it needs to be recognized

    i think selling trough apple devices, gives you costumers possibilities, and that should have cost
    rejecting this would be like companies not wanting to pay for publicity, no?

    or did i got this all wrong?

  • Perspectively

    Blah blah blah App Store demolished. Blah blah blah Apple in trouble. Blah blah blah will jump to Android. Blah blah blah iOS will never recover.

    Blah. Blah. Blah.

  • Hamranhansenhansen

    This is the same tempest from Mac App Store all over again. The users who subscribe from within the app using their iTunes account were not going to subscribe through the website anyway. If they were, they would already have done that before they got into the app. This is a secondary source of revenue Apple has opened up for app developers, and it will make them MORE money, not less. Right now, they are getting 100% of zero. Apple is giving them the opportunity to get 70% of the sky is the limit. The rate at which iOS and App Store and iTunes accounts are growing means a ton of money for any developer who puts users first. A big part of putting users first is 1-click subscriptions with their iTunes account from within the app they are using. Booting them out to the Web to ask for all their personal information and make them dig for a credit card (which some users do not have, their iTunes account is using the cards you buy at the supermarket) is not putting users first.

    Pixelmator was for sale on the Web for over a year at $50 per copy. The developer put it in Mac App Store for $29, received $20.30 per copy from Apple, and made MORE money! All of those buyers have a Web browser, but they are not out on the Web buying Mac software. Many people simply won’t give their credit card out on the Web except to giant names like Apple or Amazon. Many people won’t give it to Readability, or thousands of other app publishers. These people are an untapped market that Apple helps you tap by extending their virtual mall around you.

    These are mall fees we are talking about. The developer has an independent store on the Web, and a store in the Apple mall. They have to pay a cut of sales in the mall store, but it has such overwhelming foot traffic that the mall store makes more money. A different crowd of people shops at each. You run both to cover everybody.

    Have any of you noticed how low magazine subscription numbers are? These magazines are lucky to have 100,000 subscribers. People don’t want to give their info to a magazine publisher because they sell you out and you get spammed and even get other subscriptions spuriously charged to your credit card. You have to subscribe for a whole year, you can’t just subscribe and then quit later, at least not easily. iTunes has 200 million users with 1-click payments who will be happy to subscribe if it means 1-click and no spam, and all they have to do to unsubscribe is delete the app. Smart publishers (yes, I am one) are excited to implement the subscription API and start serving users better and making MORE money. These are new customers! This is a new market

    > Netflix
    > Hulu

    Netflix and Hulu are iOS-only, they are not even available on any other mobile. You are currently being spoiled by Apple and so is Netflix and Hulu. I signed up with Netflix on the day I got my iPad, and I only signed up with Hulu Plus because of their iPad app. What do I like least about Netflix and Hulu? That I couldn’t just pay with my iTunes account. You’re saying what if they leave iOS? What if Amazon’s new Netflix competitor has 1-click in-app subscriptions? What if a Hulu competitor offers them? That is a reason for users to switch to those services. The in-app subscriptions are BETTER.

    Users are at the top of the pyramid on Apple platforms because users pay the bills. Developers are not the top of the pyramid, advertisers are not, hardware makers are not, carriers are not. They are all below the user, ready to provide optional services. Competing to provide them. They are making money that did not exist before when there was no successful mobile app platform. Set your own retail price and get 70% is a way better deal than anyone else has ever offered in anything. Before iBooks started, Amazon set the retail price of eBooks, and gave the publisher 30%. The paper in a magazine is more than 50% of the price, and it kills trees. Crying for iOS developers is totally unseemly.

    Finally, notice that App Store is worldwide. It is maybe the most global distribution method available. More so than the Web because it is very hard to fulfill orders outside your home country. So publishers whose entire subscription base is in their home country and whose websites only accept subscriptions from their home country will now be taking 1-click in-app subscriptions in over 100 countries, all for the effort of putting a single button in their app. Are you really still crying for iOS developers?

  • Vox

    The original piece is the best summary of this issue I’ve read.

    I use “Readability” because I have serious eye problems. That Readability presents just text and no flishy flash distracting ads is a bonus.

    On the iPad, the Zinio magazine app provides an “article view” function much like Readability. It is very useful, especially so for those like me who have eye diseases.

    Funny thing, “Reader” on OS X Safari is an Apple “lift” from public domain code created by Readability’s developers. Steve Jobs was pretty proud of “Reader” when he announced its addition to Safari. And do try to remember, the ads you don’t see when using Reader on Safari are probably ads placed by Google and, to a lesser extent, Microsoft. Blocking those ads wouldn’t bother Apple at all.

    There’s a lot of all out support for Apple in the comments above.

    My view is that Apple is becoming like King Midas, turning everything to gold, until he starved to death amidst his wealth.

    If you, like me, bought an iPad because it extended the value of Amazon Kindle books, you may have been “had.”

    If you, like me, bought an iPad because it is a great way to watch Netflix “on the go,” you may have been “had.”

    There’s been a lot of pushback against Apple’s policy. Apple has (if the Jobs email today is any indication) already backed off some. But we don’t really know that. Telling a kid he’s going to get two swats, than delivering only one isn’t charity.

    We just don’t know how far Apple will push this. One thing we do know: Apple reserves the rights to unilaterally change its user and developer agreements, at any time. So even if Apple backs down some here, it won’t be final.

    Unfortunate as it may be for those of us who own iOS gear, the nightmare is this kind of closed door, money grasping, infecting OS X. The Mac App Store is already in place, and Steve told us Apple is planning to bring iOS and OS X together. Beware!

  • Rudolf Charel

    Poor Pete, the only thing Apple is likely to change is the rule of allowing app developers to charge less on their own websites.

    They will not ever be allowed to direct users to their websites in their apps. All the other rules make perfect sense. If publishers wish to access Apples client base they have to defray Apple’s expenses by paying the 30%.

  • http://paulmwatson.com/journal/ paulmwatson

    I am Steve Job’s funny bone. Ah ha ha. Ha ha ha. Ha ha ha ha. Ahahahahahahahaha!

    Funny article.

  • Anonymous

    Now, I remember why I stopped reading Cult of the Mac. It is a waste of time.

    The ‘give me a free ride Apple or else’ argument presented in this cretinous entry has no legs and is not about to grow any. Apple will continue to attract plenty of developers and content delivery applications to iOS. Despite all the ‘gonnabes,’ the iPad has 90% of the market, is the only full-size tablet available today, and, is about to beget iPad 2. Other than perhaps explaining why it is necessary to not allow price gouging in the App Store, Apple should maintain its stance. Developers and content providers don’t have the right to rip the company off Mortensen claims.

  • Anonymous

    Now, I remember why I stopped reading Cult of the Mac. It is a waste of time.

    The ‘give me a free ride Apple or else’ argument presented in this cretinous entry has no legs and is not about to grow any. Apple will continue to attract plenty of developers and content delivery applications to iOS. Despite all the ‘gonnabes,’ the iPad has 90% of the market, is the only full-size tablet available today, and, is about to beget iPad 2. Other than perhaps explaining why it is necessary to not allow price gouging in the App Store, Apple should maintain its stance. Developers and content providers don’t have the right to rip the company off Mortensen claims.

About the author

Petemortensen

Pete Mortensen is a design strategist for consulting firm Jump Associates and the co-author of Wired to Care: How Companies Prosper When They Create Widespread Empathy, a book and blog that are significantly more interesting than you might initially think. Pete's particular Apple avocations are both around design--interface and industrial. Follow him on Twitter!

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