Apple Debuts App Store Subscriptions

[Vizin]

I don't know what the decision-makers at Apple could possibly be thinking.

Say I'm a content provider. I know that bringing my service to iOS is going to mean 30% less revenue for a large chunk of customers. (Honestly, everyone is going to use the Apple billing service, it's much easier than going to a web page and entering your CC info)

I have three options:

A. Raise the subscription fee for *all* users. (Really bad idea)

B. Take the 30% hit on most iOS users. Keep in mind, doing this does *not* mean my expenses will be lower. All Apple provides is billing, content delivery is still my job.

C. Abandon iOS because it reduces my profit margins far too much.

Option C sounds best. Especially for content providers who distribute licensed intellectual property. For instance, if Amazon makes 30% off a book sale, and the publisher gets 70%, this means Amazon will be making absolutely nothing off any book sales on iOS. Why would they continue supporting iOS if it means giving books away for free, from their point of view?

Let's hope their aren't any content providers where the publisher gets *more* than 70%, otherwise selling on iOS will actually lose them money.

The idea of Apple's "bringing in customers" entitling them to 30% is totally ridiculous. If I buy a game with a subscription fee at Best Buy, Best Buy doesn't get 30% of my monthly fee. If I buy a cell phone at RadioShack, RadioShack doesn't get 30% of my cell phone bill. Apple getting 30% of the price of the app itself makes sense, they are a storefront after all, but the subscription is after the fact. Forcing developers into this is unjustifiable.

I like the iPad and iPhone, but this decision may end the era of having existing pay services available on iOS.

 

[LagunaSol]

as well means option? Thats news to me!
The interesting portion of my sentence was actually the "have to" which is anything but optional. That is what Steve Jobs is quoted to have said in the press release.

"As well" = "too" = "more than one" = "option."

No, the publisher does not have the option to not offer their product directly through the app (with Apple's cut); they simply are required to provide the consumer with the option (buy directly from the app or buy directly from the publisher).

That's certainly more of an "option" than you get buying published wares for Xbox, PS3, Wii, DS, PSP, Kindle, Nook...

Again I ask, where's the outrage against these other companies that also (and exclusively) force a gatekeeper storefront?

I buy a book from iBookStore: Apple get 30%.
I buy book from Amazon.com: Amazon get 30%.

So now Apple wants 30% from a sale that took place on Amazon.com, just because I can read said book on iOS? Is that accurate? If not please clarify.

I have no idea how accurate that is. Does Apple have an agreement with Amazon that equates to a cut less than 30%? We don't know.

Oh, and perhaps you can point me to a (legal) way to purchase books for my Kindle where I can avoid Amazon's unnecessary markup? I like my options, after all.

I don't know what the decision-makers at Apple could possibly be thinking.

Say I'm a content provider. I know that bringing my service to iOS is going to mean 30% less revenue for a large chunk of customers. (Honestly, everyone is going to use the Apple billing service, it's much easier than going to a web page and entering your CC info)

I have three options:

A. Raise the subscription fee for *all* users. (Really bad idea)

B. Take the 30% hit on most iOS users. Keep in mind, doing this does *not* mean my expenses will be lower. All Apple provides is billing, content delivery is still my job.

C. Abandon iOS because it reduces my profit margins far too much.

Option C sounds best.

Actually, Option C sounds worst from a business standpoint. Where are you going to take your wares to save that 30%?

Android: it's been shown time and time again that Android users don't like to pay for things. Android users expect everything to be free (apparently they love advertising). Look at the tales of woe from Android developers. iOS is a far more profitable development platform, even with 30% off the top.

webOS: small user base

WP7: small user base

BlackBerry: needs no explanation

 

[manu chao]

Please correct me if I am mistaken, but after reading the press release, I do not see how the new subscription policy poses a problem to apps like Kindle or Netflix -- Apple's press release specifically references "publishers" of content.

No, to cite from their press release:

all publishers of content-based apps on the App Store

The word 'publisher' clearly refers to those creating the apps not the ones who created the original content.

 

[cmaier]

I don't know what the decision-makers at Apple could possibly be thinking.

Say I'm a content provider. I know that bringing my service to iOS is going to mean 30% less revenue for a large chunk of customers. (Honestly, everyone is going to use the Apple billing service, it's much easier than going to a web page and entering your CC info)

I have three options:

A. Raise the subscription fee for *all* users. (Really bad idea)

B. Take the 30% hit on most iOS users. Keep in mind, doing this does *not* mean my expenses will be lower. All Apple provides is billing, content delivery is still my job.

C. Abandon iOS because it reduces my profit margins far too much.

Option C sounds best.

Except that option C reduces profits. Profit MARGINS are only part of the equation - what's really important is profits. And giving up volume for the sake of maintaining profit margins only works if your name begins with "A" and ends with "pple."

 

[Mattie Num Nums]

Android users expect everything to be free (apparently they love advertising).

Or maybe they just don't believe they should have to pay tons of money for something because Steve says so.

You lose all credibility when you say things like that.

 

[manu chao]

its the Apple Mall, which they designed, funded, built, wired, advertised, and filled with customers. entirely on their own dime. you want to be in the mall, you pay rent. since apps can be free, that means if you're selling content you pay on that.

And didn't Apple also design OS X and the Macs it runs on? Would it be fine with you if Apple required that any digital service or product, eg, Skype credit, consumed on a Mac would also have to offered through the Mac App Store and subject to this 30% cut?
Would it be fine with you if Skype phone calls would be 43% more expensive on Macs compared to Windows?
If Skype would be required to offer this in-app purchasing option for the same price as via their website, they had the option to raise their prices overall or to separate Skype credit for Macs and Skype credit for everything else and only raise the price for this Skype for Mac credit. Skype would not not simply hand over the 30% to Apple and keep the prices the same, they would make a loss on the Mac since I doubt that Skype has a profit on revenue margin of higher than 30%.
Apart from having to pay more for Skype when used on a Mac, Skype credits could no longer be used universally on all kinds of devices.

 

[LagunaSol]

Or maybe they just don't believe they should have to pay tons of money for something because Steve says so.

You lose all credibility when you say things like that.

Check any report on Android developer revenues if you'd like. I'm not stating a personal opinion, I'm stating a fact. There have been plenty of articles on the Web of late lamenting the state of Android development when actual profitability is the goal.

With an equal (or greater) user install base, iOS development is more profitable (much more?) than Android development. Fact.

Conclusion: Android users don't like to pay for things.

Credibility comes from factual data.

 

[Vizin]

Except that option C reduces profits. Profit MARGINS are only part of the equation - what's really important is profits. And giving up volume for the sake of maintaining profit margins only works if your name begins with "A" and ends with "pple."

That works if the 30% reduction in margins is made up for by increased volume. But if your margins are as low as 35% and you're suddenly reduced to 5%, the increased volume of sales from iOS users might not be worth it.

Book sellers who may only make 30% (a 70-30 split is pretty common) as it is will be left with zero. Anyone making under 30% is losing money.

What about Netflix? Are you sure Netflix is profitable enough that they can lose 30% of their revenue from a customer, and still provide unlimited streaming to that customer while paying royalties?

 

[tatonka]

"As well" = "too" = "more than one" = "option."

No, the publisher does not have the option to not offer their product directly through the app (with Apple's cut); they simply are required to provide the consumer with the option (buy directly from the app or buy directly from the publisher).

That's certainly more of an "option" than you get buying published wares for Xbox, PS3, Wii, DS, PSP, Kindle, Nook...

Again I ask, where's the outrage against these other companies that also (and exclusively) force a gatekeeper storefront?



I have no idea how accurate that is. Does Apple have an agreement with Amazon that equates to a cut less than 30%? We don't know.

Oh, and perhaps you can point me to a (legal) way to purchase books for my Kindle where I can avoid Amazon's unnecessary markup? I like my options, after all.

If somebody looses his head, he looses his life as well .. so there is an option there?

You are talking about options for the customers. That is great, but has nothing to do with the discussion at hand. We were talking about the limitations and problems the content providers now face and that they do not have a choice. They either eat the 30% or leave iOS. So you will either have to pay more for the service (the content providers will have to live of something after all) or not have the content available at all. The customer looses in both cases.

I completely fail to see your analogy with the Kindle store, which is just a store and those 30% charge cover all the cost of from the servers to the wireless data to transfer the book on the Kindle. Amazon build both a store and an entire ecosystem around it. And I have no problem with Apple charging 30% of the developers in the app store. That seems fair. They build and maintain the store and the servers.
With the subscriptions, I would be fine if that was an option. Either use our service or build your own. Changing the rules after many providers spend time and money to build their own system is just shady. And I would be similarly outraged if MS did that with the XBox and I actually cared for the XBox .. however I would probably do it on an XBox board, which is probably why you would never even see it ;-)

T.

 

[manu chao]

Except that option C reduces profits. Profit MARGINS are only part of the equation - what's really important is profits. And giving up volume for the sake of maintaining profit margins only works if your name begins with "A" and ends with "pple."

And what if you are in a business where the margins are less than 30% at the moment?
You have two options, either raise prices and thus transfer money from your customer's pockets into Apple's pockets or get out of this loss-making business.
Of course we all think this will all just get Apple a cut of the profits other companies make but at all likelihood this means higher prices for consumers for some products.

 

[manu chao]

You're wrong, because right now there is not a link in the app that takes you to netflix to buy a subscription. Apple is baning the link to buy, not outside subscriptions.

Try to read that sentence from the press release again:

All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app.

"A subscription offer outside the app" includes any subscription made on a webpage, nothing says here, 'if you supply a link to a subscription offer outside the app', it's 'a subscription offer outside the app'. Period.

 

[cmaier]

That works if the 30% reduction in margins is made up for by increased volume. But if your margins are as low as 35% and you're suddenly reduced to 5%, the increased volume of sales from iOS users might not be worth it."

if the iOS volume of sales is greater than 0, and if the profit margin is greater than 0, then it is, by definition, "worth it" - it results in IOS-VOLUME * PROFIT-MARGIN profits.

What about Netflix? Are you sure Netflix is profitable enough that they can lose 30% of their revenue from a customer, and still provide unlimited streaming to that customer while paying royalties?

No, but in that case their profit margin is zero (or less). The point that had been made was that profit margins would be reduced. My point is that if you reduce profit margin, you still have profit. Only if the profit margin is eliminated (such that it becomes a loss) do you have a problem.

 

[manu chao]

But here is the thing, Netflix can now offer an iOS only subsciption, which only works on iOS deivices as an in app purchase...

Of course, but then Apple can simply put out another press release and tell Netflix that if they offer an Android subscription, their iOS subscription has be at the same price or else.

 

[LagunaSol]

That works if the 30% reduction in margins is made up for by increased volume. But if your margins are as low as 35% and you're suddenly reduced to 5%, the increased volume of sales from iOS users might not be worth it.

Book sellers who may only make 30% (a 70-30 split is pretty common) as it is will be left with zero. Anyone making under 30% is losing money.

The argument is based on the assumption that Apple doesn't have special agreements in place with larger vendors, like Amazon and Netflix. Do we know for certain that Apple wants a full 30% from Amazon for every Kindle book sold through the Kindle app? I don't believe we do.

If Apple has proved anything over the past 5 years, it's that they're exceptionally savvy businessmen. And savvy businessmen work out savvy business agreements with savvy business partners.

Until Jeff Bezos releases a press release stating "Screw Apple, they want to bleed us for 30% - we're outta here!" it's all conjecture.

If somebody looses his head, he looses his life as well .. so there is an option there?

I completely fail to see your analogy with the Kindle store, which is just a store and those 30% charge cover all the cost of from the servers to the wireless data to transfer the book on the Kindle. Amazon build both a store and an entire ecosystem around it.

Yet as a publisher I have no "option" to sell my published e-book anywhere but the Kindle store if I want to make it available to Kindle users. Why should I have to pay Amazon if I'm willing to host the download myself and pay the merchant costs? Why should I pay Amazon 30% when I can effectively do the exact same thing for, say, 10%? Again, where is the outrage?

Sure, Apple in this particular case is adding another middle-man to the equation, but the general sentiment in this thread seems to rage against the middle-man concept in general, so Apple and Amazon are both bad here. Though Apple is "less bad" because at least they give their developers two approaches. But I don't see anyone here tipping their hat to Apple for being friendlier than the Amazons (Kindle) and Microsofts (Xbox) of the world.

 

[cmaier]

And what if you are in a business where the margins are less than 30% at the moment?

Then you're out of business on iOS. And iOS is the only platform where people pay for content, which means you're out of business.

 

[LagunaSol]

And iOS is the only platform where people pay for content, which means you're out of business.

You've just lost all credibility with Mattie Num Nums.

 

[deconstruct60]

Psst, Sony does this with the PS3 too. (I also own a PS3.)

You don't think Netflix pays Microsoft and Sony for the privilege of appearing on their locked ecosystems?

Appearing and for distributing the Netflix apps are one thing. Taking a slice of the subscription is another.

You can "watch instantly" your Netflix stream on various devices because you already have a Netflix account. There may be some steps to download the app that you use to log into your Netflix account, but

Is it "fair" that Amazon charge you a healthy markup just to allow you to download a tiny text file (Kindle) from their server when the publisher did all the actual work?

Amazon puts the DRM on, they handle the logistics , etc. Apple isn't doing jack but adding a second middleman to the equation in the case of the kindle app. The content isn't coming from Apple servers. It is still Amazons DRM and logistics chain. 30% for processing a credit card? BS, utter BS.

I would grant the point if Apple subsumed the entire workload, but they don't. If you get a Kindle book off of iOS device it *still* (unless Amazon changes the model) has to work on the other Kindle enabled devices. That means Amazon still has to manage your id , handle the logistics ,etc. Those costs didn't disappear at *all*. They just went up because now there are redundant systems doing basically the same work. You think that is helping to lead to lower costs??? It won't .

Likewise if buy a magazine subscription and get paper and electronic. Why does Apple get 30% when not taking on the paper/logistics burden? (again if publisher invent more SKUs , an additional iOS offering in addition to other platforms/mechanisms , can get in-app with largely redundant overhead).

I see the point for small publishers who have zero/small infrastructure , low volume, and/or are single platform focused. Offloading subscriber info handling , content delivery , etc. is a value add. However, this move is just as much Apple leveraging the purchasing power of the customers as it is providing any value added service.

What is it about retail sales that so many here seem to struggle to understand?

You seem to have the problem with what retail stores do. They add some value. They do the logistics, hold inventory, provide the storefront. The "storefront" for an in-app purchase is the app . Apple didn't do the app.

I can understand Apple getting another 30% for augmentations to the app that presents sthe content. However, purely for the content not coming from their servers ( e.g., streamed content from Netflix, photos from Flickr , books from Amazon, etc. ) there is very little value added service. That is primarily why they have to mandate the exclusivity. It won't compete well if consumers get an option.

There are no such options with Kindle,

The kindle SDK is still in beta

www.amazon.com/kdk/

So which apps are you talking about?

There is content that comes through the embedded Kindle app.

[qXbox, PS3, Wii, etc., where the publisher is forced (no option)

Oh the "sold below cost subsidized by later software sales " hardware? Where the low entry cost Apple hardware. Apple R&D on the hardware and software is paid for in the device price.

 

[marksman]

What business would take on the potential that they either make a profit or a massive loss depending on which button the customer ticks? There are lots of content businesses for which 30% renders them unviable. Inevitably, some customers will use the Apple box, because they don't realise that it hurts that business.

I ask again, given these terms make it impossible for these companies to continue, does this mean we'll see the withdrawl of the Kindle, Netflix, Sky and Hulu+ apps this afternoon (or as soon as Apple attempts enforcement)?

Phazer

The only people who lose are middlemen.. The content providers are not broken by this... Apple wants to replace other middlemen, perhaps you don't understand. Some other wholesaler loses out on the margin, that is good for Apple not bad.

The people who actually create the content are not going to have a problem with Apple taking 30%. if someone is buying content from the creators and then trying to resell it through Apple, well they are not likely going to be viable.. but who cares.

 

[manu chao]

wrong, wrong, wrong.

if the app wants to sell *in-app*, it must pay 30% and also honor the same prices as on their out-app website. if an app wants to sell *out-app* only, and only serve/manage content in-app, they are free to do so.

see?

From the press release:

“All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app.

You cannot sell outside the app without also offering in-app purchases.

 

[Mattie Num Nums]

You've just lost all credibility with Mattie Num Nums.

*LTD* called he wants his day job back.

 

[Vizin]

Then you're out of business on iOS. And iOS is the only platform where people pay for content, which means you're out of business.

Actually Netflix and Kindle were doing just fine before they came out with iOS apps. As was Sirius, Skype, and many other providers with subscription-based services that can be accessed on multiple platforms.

iOS is not the main focus of many of these services, being able to use them on your phone/tablet is just icing on the cake. All Apple is doing is hurting customers.

 

[RuggedPro]

1. Businesses cost money to run one way or another. Cut costs where you can and spend where it makes sense.

2. Built in exposure to how many millions of users by just getting your app in market place??? Run whatever ad campaign you want, let me know WHEN you get to the same level of exposure and what it costs you. Not to mention the time, headaches, etc.

3. 30% is steep only if not kept relative.

4. Ease of sale facilitated by clicking one button on a device you have with you nearly 24/7 (People I know go to bed looking at their screens) as opposed to entering in CC info on a website. Some of you don't understand how big a deal just that is.

If I sold you some SUPER DUPER AMAZING SALES PACKAGE for $10,000 and it truly increased your sales by some comparable amount, it would be money well spent.

If you went to a free seminar at the local hilton and gained nothing. Tremendous loss in time, gas money, etc.

It's all relative.

 

[deconstruct60]

The argument is based on the assumption that Apple doesn't have special agreements in place with larger vendors, like Amazon and Netflix. Do we know for certain that Apple wants a full 30% from Amazon for every Kindle book sold through the Kindle app? I don't believe we do.

Since Apple said "screw you" to Sony ( not exactly a small mom and pop shop) where is the evidence they haven't? They already have done this to a large vendor. Unless you are couching "large" as already popular in the App Store.

 

[manu chao]

Does Apple have an agreement with Amazon that equates to a cut less than 30%? We don't know.

We know that Rupert Murdoch did not manage to reduce Apple's cut to less than 30% on its The Daily newspaper. He has said so himself.

 

[marksman]

Apple still has to pay a portion of that 30% to Visa/Mastercard/AmEx for merchant processing fees.

I don't know why everyone is so up in arms about Apple's cut as the retailer. How much of a cut do you think Barnes & Noble makes on a book they sell in their store? Google charges developers 30% to sell their wares in the Android Market. Yet Apple seems to be the only one getting hate for participating in the longstanding tradition (and proven business) of retail markup.

Most people up in arms about this don't understand how the retail business works for anything.

A flat 30% fee for getting your product sold and distributed is actually a very good thing. Too often big chunks of that cost are variable.. With a known cost structure it makes it much easier for good providers to set prices and make deals and grow their business.

I don't think people understand how expensive/hard it is just to get your products into a retail channel for most goods. I used to be a retail buyer. Trust me it is not easy for companies to even get their product in a store to be sold. Apple will allow anyone to sell their product who meets basic guidelines. That alone is worth a huge amount of money. In some cases retailers essentially depend kickbacks to get products placed in their stores.

In less scrupulous situations salespeople for products will take buyers on expensive trips and dinners and provide them with gifts and in some cases just flat out cash. This is all just to get a product onto a store self.

Then you factor in distribution and shipping costs and all the rest. Apple's 30% is crazy for anyone who has actually run a business of any kind, even online and knows what all the associated costs really are for trying to market and sell a product.

It does mess with magazines the most just because magazines have massive spreads in subscription prices. IN some case I see people paying 900% more for a magazine subscription than I pay... Subscriptions for magazines though, are just extra money. The money is made on the ads. So having a digital price with the 30% fee taken out is not going to hurt anyone.