Apple Allegedly Buys Ads for Subscription-Based Apps to Collect More Commission [Updated]

[lazyrighteye]

Generally, the company for whatever product is being advertised is required to sign off on the ad before it runs. This also allows them to plan their media spending accordingly, so that they're not directly bidding against a partner for ad placement.

The allegation that Apple is running these ads secretly is the really shady part of this. Apple is driving up the cost of user acquisition for the developer, and then taking a cut where they might not have before.

Whether it's technically illegal or not I can't say, but it's certainly not the norm for these sort of things.

I have seen it, contractually, where 3rd party brands that (say) Target is advertising, knows that, and agrees to, Target advertise their product in multiple channels across a certain timeframe. This removes the need for said 3rd party to "approve" every potential ad target places and allows for a more efficient advertising cadence. That is certainly not the only way those relationship function. Regardless, I'm still not seeing where Apple is behaving any differently than other house-of-brand retailers. What is potentially different here, is that Apple typically isn't seen as a house-of-brands retailer, in the consumers' minds. But it is definitely a measurable part of their business, obviously. I'm open to the idea that I am misunderstanding the claims the article is making. Wouldn't be the first time I misunderstood something. ?

 

[needsomecoffee]

Not that it will happen, but Tim needs to retire, and the Apple board needs to seriously consider what is good for the brand in the long term. Profit maximization at all costs (evironment, limiting competition) has been "beaten to a dead horse status" by Tim. Tim: take your billion+ and your "labels" and run for public office. I think you will do well there. Apple Board: start taking the long-term view. Things like Airpods which EPITOMISE Apple's disposable (at the expense of the environment) culture need to end. Open up the App Store. Allow side-loading. Find a CEO who is not afraid of this, but who welcomes the competition because she/he realizes that Apple can win in the free market. Nadella did this with MSFT. Ballmer bet on the "closed garden". Stock reached all-time highs, then tanks because the "walled-garden" tells your employees they do not need to be creative, and compete. Tim == Ballmer. SAD. Apple: get Tim to retire, and find your Nadella.

 

[JGIGS]

Atv+ along with being in the tv (shopping) app is all about selling 3rd party channels. This only aids in the effort.

I don’t see it as companies losing money. Apple is paying for ads to draw subs which you can’t say the company would get instead if apple didn’t. If said app dev didn’t like paying 30% they wouldn’t be in the App Store. It’s no different than retailers advertising apple products.

OH it's very different. And you're also wrong. You can't even carry Apple products in your store without permission let alone advertise without Apple's permission. The issue isn't Apple advertising for these developers the issue is the developers don't want them to because they are purposely directing them to subscribe through the app that is downloaded through the App store and then gets dinged by 30% by Apple.

 

[visualseed]

This is an arbitrage situation.

Let's say developer A's cost per acquisition is $10, in return, they get 100% of a $100 subscription fee. Net profit is $90

Apple makes an ad, developer A's cost per acquisition is $0 because they aren't doing anything, but developer A gets a free 70% of $100 or $70 subscription fee. Net profit is $70

If you were developer A, it makes MORE SENSE to do your own advertisements in order to get $20 extra profit. And this would purely be in year 1. year 2/3/4 the developer still owns Apple $30 each year when they could have had a one-time cost of $10....

Apple is being shady af here. It's one thing if developers know about this and agree to it, but if Apple is doing this without developer knowledge, wow. Despicable behavior.

Your scenario works on the assumption that all advertising is equal and the developer would run equally as effective ads as Apple targeting the exact same markets. If a customer subscribes to a service after seeing an Apple ad that means the developer's first-party marketing was nonexistent or failed. I'd look at this as paying a 30% finder's fee for a customer you could not have gotten (and did not get) on your own. Customer retention is almost as big a cost as initial acquisition and while your scenario may paint a rosy picture of greater perpetual profits, the world is not nearly as accommodating as a great deal of marketing goes towards protecting the existing customer base from attrition. I have lost count of how many services I canceled that sent me incredible discounts to sign up again. Also, Apple has greater incentives for customers to keep their billing information up to date resulting in fewer cancelations and lapses in service.

 

[boss.king]

Again, HBO can just stop accepting subscriptions through the app if they don't want people subscribing in app. @boss.king points out this may not be true for other types of apps (Tinder is mentioned in the article, I don't know their model), but it's certainly true for HBO because Netflix does exactly this.

Either way, I don't see the problem with Apple promoting their services.

Saying that competing for subscription revenue is somehow anticompetitive is, well, either missing what's happening or being intentionally obtuse.

The thing that rubs me the wrong way there is that Apple has argued in the past that forcing users to sign up outside of the app is a worse experience, and I tend to agree. But now they are essentially playing chicken with developers' income. Either lose revenue to Apple or make your app worse for your (and ultimately Apple's) customers.

 

[dba415]

Your scenario works on the assumption that all advertising is equal and the developer would run equally as effective ads as Apple targeting the exact same markets. If a customer subscribes to a service after seeing an Apple ad that means the developer's first-party marketing was nonexistent or failed. I'd look at this as paying a 30% finder's fee for a customer you could not have gotten (and did not get) on your own. Customer retention is almost as big a cost as initial acquisition and while your scenario may paint a rosy picture of greater perpetual profits, the world is not nearly as accommodating as a great deal of marketing goes towards protecting the existing customer base from attrition. I have lost count of how many services I canceled that sent me incredible discounts to sign up again. Also, Apple has greater incentives for customers to keep their billing information up to date resulting in fewer cancelations and lapses in service.

Let the developers make that call. Like I said, this is a non-issue and a good partnership if consent is given. When it isn't given, this is shady and despicable behavior from Apple.

 

[boss.king]

I have seen it, contractually, where 3rd party brands that (say) Target is advertising, knows that, and agrees to, Target advertise their product in multiple channels across a certain timeframe. This removes the need for said 3rd party to "approve" every potential ad target places and allows for a more efficient advertising cadence. That is certainly not the only way those relationship function. Regardless, I'm still not seeing where Apple is behaving any differently than other house-of-brand retailers. What is potentially different here, is that Apple typically isn't seen as a house-of-brands retailer, in the consumers' minds. But it is definitely a measurable part of their business, obviously. I'm open to the idea that I am misunderstanding the claims the article is making. Wouldn't be the first time I misunderstood something. ?

In those cases, the brand will usually provide the massaging and assets that the company can use. That's why Apple Watch ads all look roughly the same, whether it's an ad from Walmart or BestBuy or whoever. Again, cooperation with the brand is there.

 

[citysnaps]

Even Apple knows the end is near and is fighting to keep the money flowing as long as possible … should spark yet another investigation, the question is now when it will be enough to topple the tower rather than if

In the year 2561?

Just a guess...

 

[vipergts2207]

So what's the solution?

For Apple to stop advertising on behalf of companies that do not want them to.

 

[boss.king]

Does anybody really pay attention to those ads?

Yes. I don't, you don't, but if no one did then no one would run them.

 

[vipergts2207]

Or this would get HBO money it wouldn’t have gotten as posted above. Seems like a win/win.

No it wouldn’t. Did you even comprehend the premise that was laid out because it doesn’t sound like it.

 

[miamialley]

For Apple to stop advertising on behalf of companies that do not want them to.

I just can't compute if I owned a company that I would ask/want Apple to stop promoting my company. I get how it 'technically' might result in lowering my share of a download.

 

[visualseed]

We're not talking about small developers who wouldn't otherwise get those sales. We're talking about well-known companies with their own advertising who are already finding customers, and Apple is trying to intercept those sales to grab a commission.

To rework the way-overused retail store analogy, it's like Apple putting up signs in the Wal-Mart parking lot redirecting customers to their own store next door.

That's a bad analogy because ad networks are not the property of the store like a parking lot is. This is more like real-estate agents from multiple agencies all competing to sell the same house in an MLS listing.

 

[randyhudson]

With the apple ad:
A customer is interested in HBOMax and google searches HBOMax. The top link is apple ad for HBOMax app. The customer clicks the ad for HBOMax and buys a subscription from inside the downloaded app. HBOMax: collects 70% of subscription

No. Google ads have nothing to do with search results. Google ads are embedded inside other sites, for example a review about the movie Dune.

 

[Analog Kid]

The thing that rubs me the wrong way there is that Apple has argued in the past that forcing users to sign up outside of the app is a worse experience, and I tend to agree. But now they are essentially playing chicken with developers' income. Either lose revenue to Apple or make your app worse for your (and ultimately Apple's) customers.

For Apple to stop advertising on behalf of companies that do not want them to.

Sure, but if you extrapolate that logic out to the extreme, then eventually these companies move all their customers to non-Apple payment vectors and Apple is sourcing massively popular and profitable apps for zero revenue.

I see three options here: only let the developer advertise for revenue at the expense of Apple, only let Apple advertise for revenue at the expense of the developer, or let them both advertise. Seems the latter is how markets are meant to work.

There seems to be this general feeling that Apple should run an app distribution charity because they're making too much money. I just don't see that point of view...

 

[boss.king]

I just can't compute if I owned a company that I would ask/want Apple to stop promoting my company. I get how it 'technically' might result in lowering my share of a download.

Imagine if you spent $1,000 on ads and it netted you $100,000 in sales.

Then Apple comes in and raises the cost of your ad placements while also taking some of that revenue. Now, your same $1,000 in ad placements nets you $85,000, with the other $15K going to Apple (in perpetuity, since it's a subscription model).

Now do you see the issue?

 

[visualseed]

OH it's very different. And you're also wrong. You can't even carry Apple products in your store without permission let alone advertise without Apple's permission. The issue isn't Apple advertising for these developers the issue is the developers don't want them to because they are purposely directing them to subscribe through the app that is downloaded through the App store and then gets dinged by 30% by Apple.

Let the developers make that call. Like I said, this is a non-issue and a good partnership if consent is given. When it isn't given, this is shady and despicable behavior from Apple.

The developers did make that call. The language was in the terms they agreed to.

 

[vipergts2207]

Saying that competing for subscription revenue is somehow anticompetitive is, well, either missing what's happening or being intentionally obtuse.

Or you could just follow some simple logic. Apple uses shady tactics to get 30% of HBO’s subscription income. Now HBO has less money and Apple can use that money to subsidize the cost of their own competing service. Customers that can only afford one or the other may choose Apple’s cheaper service, further hurting HBO.

 

[lazyrighteye]

In those cases, the brand will usually provide the massaging and assets that the company can use. That's why Apple Watch ads all look roughly the same, whether it's an ad from Walmart or BestBuy or whoever. Again, cooperation with the brand is there.

Agree: cooperation is there, in whatever shape that takes. I just can’t imagine a brand as controlling as Apple, not cooperating with a brand as [likely] controlling as HBO.

 

[boss.king]

Sure, but if you extrapolate that logic out to the extreme, then eventually these companies move all their customers to non-Apple payment vectors and Apple is sourcing massively popular and profitable apps for zero revenue.

I see three options here: only let the developer advertise for revenue at the expense of Apple, only let Apple advertise for revenue at the expense of the developer, or let them both advertise. Seems the latter is how markets are meant to work.

There seems to be this general feeling that Apple should run an app distribution charity because they're making too much money. I just don't see that point of view...

How do you get to that conclusion? If they leave the ability to buy through the App Store, there will always be a certain number of users who pick that option and no amount of advertising will change their mind, or who find apps without seeing ads at all.

This isn't about asking Apple to run a charity, just to stop competing with devs who are already doing well and already bringing in money to Apple. Besides, there are plenty of other apps out there that could use an ad boost and could also bring in more money, and the devs would also benefit from.

 

[miamialley]

For Apple to stop advertising on behalf of companies that do not want them to.

Imagine if you spent $1,000 on ads and it netted you $100,000 in sales.

Then Apple comes in and raises the cost of your ad placements while also taking some of that revenue. Now, your same $1,000 in ad placements nets you $85,000, with the other $15K going to Apple (in perpetuity, since it's a subscription model).

Now do you see the issue?

Of course, in that exact scenario I see the issue. What your scenario does not account for is the increase in sales as a result of Apple's ads, which I did not have to pay for. With those additional sales I'm getting a smaller percentage, but increased opportunity for sales. It really comes down to seeing the real world numbers. In your exact scenario, sure, I get it. But your numbers leave out completely the benefit of the ads from Apple and how they BENEFIT my app.

 

[Analog Kid]

there will always be a certain number of users who pick that option and no amount of advertising will change their mind, or who find apps without seeing ads at all.

It seems this cuts both ways, right? I mean, you can read "that option" to be either in-app or out of app.

This isn't about asking Apple to run a charity, just to stop competing with users who are already doing well and already bringing in money to Apple.

You're asking Apple to not only make it possible for people to use their infrastructure at no cost, but to allow them to actively steer customers away from Apple without being able to present the alternative.

Besides, there are plenty of other apps out there that could use an ad boost and could also bring in more money, and the devs would also benefit from.

Apple prioritized these. You're saying Apple shouldn't be able to allocate their advertising budget in a way that brings them the most benefit. Saying there are other apps that could bring in more money seems unfounded...

 

[boss.king]

Of course, in that exact scenario I see the issue. What your scenario does not account for is the increase in sales as a result of Apple's ads, which I did not have to pay for. With those additional sales I'm getting a smaller percentage, but increased opportunity for sales. It really comes down to seeing the real world numbers. In your exact scenario, sure, I get it. But your numbers leave out completely the benefit of the ads from Apple and how they BENEFIT my app.

That assumes that Apple is advertising to a significantly different population of users than the developers are, which seems unlikely. Otherwise, I don't get how Apple's ads would be convincing people that wouldn't be convinces by ads from the dev? It's not like they can use wildly different messaging or art or anything without dev approval and not open themselves up to a lawsuit.

 

[Analog Kid]

Or you could just follow some simple logic. Apple uses shady tactics to get 30% of HBO’s subscription income. Now HBO has less money and Apple can use that money to subsidize the cost of their own competing service. Customers that can only afford one or the other may choose Apple’s cheaper service, further hurting HBO.

Apple gives HBO easy access to every one of Apple's customers-- that doesn't seem anti-competitive to me at all. HBO could choke off that revenue stream by pulling their app from the AppStore.

 

[vipergts2207]

I just can't compute if I owned a company that I would ask/want Apple to stop promoting my company. I get how it 'technically' might result in lowering my share of a download.

Because apparently you don’t understand that Apple can direct customers HBO would already be getting through their own ad and take a 30% cut. If there’s a 50% chance Google serves up the Apple ad rather than the HBO ad, then 50% of customers are being directed to a place that costs HBO 30% when their own ad being served up would not.