Apple Rejects 'Readability' iOS App, 'Software as a Service' Offerings Jeopardized

[k995]

For a publisher, it's their responsibility to exploit all revenue streams. So they certainly should go to android if it is commercially viable to do so.

But why would they abandon iOS? In what world would that make commercial sense.

C.

Not every publisher has the means to exploit every market.

If the iOS platform costs more then it brings in, of course they are going to scrap it. And with a potential 30% increase in costs and added changes for some this is going ti push them away.

 

[Carniphage]

Not every publisher has the means to exploit every market.

Which is why most focus on the most profitable. Consider the fact that Android market is 1/20 the size of the App store, is a sobering thought.

If the iOS platform costs more then it brings in, of course they are going to scrap it. And with a potential 30% increase in costs and added changes for some this is going ti push them away.

If that were true, they should certainly withdraw from the app store.

But I am not sure in which parallel reality that could ever happen. Like I said earlier. All publishers that I am aware of share royalties on the basis of what THEY receive.

In the real world, I don't see how this loss-making scenario could ever happen.

C.

 

[k995]

Which is why most focus on the most profitable. Consider the fact that Android market is 1/20 the size of the App store, is a sobering thought.

Publishers dont make money selling apps, they make money selling content.

They look at sales figures of avaible devices. The Ipad(think tablets is the market most publishers look at) is currently dominating but that isnt going to last.

If that were true, they should certainly withdraw from the app store.

But I am not sure in which parallel reality that could ever happen. Like I said earlier. All publishers that I am aware of share royalties on the basis of what THEY receive.

In the real world, I don't see how this loss-making scenario could ever happen.

C.

So in the real world hosting the data, making/upgrading the app, paying people to maintain and deliver content to it doesnt cost a thing?

Perhaps you are only considering the huge publishing firms who have no problem keeping a couple of people just for iOS but most publishing companies arent like that.

They have added the ipad as an extra service, people who already buy content now can do it easier . That just got more restricted and 30% more expensive.

 

[Carniphage]

They have added the ipad as an extra service, people who already buy content now can do it easier . That just got more restricted and 30% more expensive.

I thought we we are talking about companies which share their revenues with another entity? (Republishers) Their revenues just declined by 30%. But if they have rational contracts, the costs to the content holders has also fallen by 30% too.

We should also consider that the iPad as a platform is set to grow from 8M units in 2010 to 40M in 2011. I'd also argue that consumers are more likely to click on an in-app purchase than enter credit card details in an external site. Some people are just lazy like that.

I can see why people might be upset about sharing their revenues with the platform holder. That's unsurprising.

Leaving the platform in a flurry of open-letters is a great political statement, but as a commercial decision, it makes no sense at all.

C.

 

[k995]

I thought we we are talking about companies which share their revenues with another entity? (Republishers) Their revenues just declined by 30%. But if they have rational contracts, the costs to the content holders has also fallen by 30% too.

Thats just 1 part of that market.

And even for resellers that doesnt change the fact that this is cutting partialy into there costs.

As for real publisher they have nobody to put this extra cost on.

They cant charge extra as this is forbidden by apple (prices cant be lower outside iOS) and if too many of the current customers would start using this platform it would drive them bankrumpt (as nu publisher can take a 30% cut in income)

We should also consider that the iPad as a platform is set to grow from 8M units in 2010 to 40M in 2011. I'd also argue that consumers are more likely to click on an in-app purchase than enter credit card details in an external site. Some people are just lazy like that.

There are more ways to pay then credit card .

And yes, ipad is succesful its why a lot of publishers took or want to take the risk and develop that platform.

But as we have seen with smartphones android will take a large part of that market this year and will surpass apple in 2+ years. Publishers know this as well.

Leaving the platform in a flurry of open-letters is a great political statement, but as a commercial decision, it makes no sense at all.

C.

Again if it is costing them more (both in costs as in lost revenue) then it brings in, why would they stay?

 

[Carniphage]

Again if it is costing them more (both in costs as in lost revenue) then it brings in, why would they stay?

Like I said, I can't see any set of circumstances where this change makes that a rational decision. Especially not in a growing market.

For publishers, the App store is simply the source of an envelope of cash that arrives in the postbox every month. It makes no commercial sense to tape the postbox shut.

100% of nothing is nothing.

Yes, the revenue per sale has declined by a third. But if the number of sales double or treble in the next 12 months, does anyone really care?

C.

 

[k995]

Like I said, I can't see any set of circumstances where this change makes that a rational decision. Especially not in a growing market.

Again you are thinking about a market not already saturated. Take a newspaper for example, a subsciption isnt expensive, its delivered at home .

People arent going to all of a sudden all start buying newspapers just because it became avaible on the ipad.

Some might, others might go for the digital version and stop using or subscibing to the printed version . If the new income doesnt pay for the extra cost to be on that platform, why bother.

Again its not as if creating an app and maintaining an entire online infrastructure doesnt cost money.

For publishers, the App store is simply the source of an envelope of cash that arrives in the postbox every month. It makes no commercial sense to tape the postbox shut.

100% of nothing is nothing.

Higher costs then revenue is even worse.

You seem to think its soo easy making money.

Yes, the revenue per sale has declined by a third. But if the number of sales double or treble in the next 12 months, does anyone really care?

C.

Why would all of a sudden so many people buy content that was previously just as easily avaible?

 

[Carniphage]

But as we have seen with smartphones android will take a large part of that market this year and will surpass apple in 2+ years. Publishers know this as well.

A lot of people share your view. But I am not certain history will repeat itself.

Android as a cellphone OS has performed best with territories and carriers where iPhone was not available. In territories where the playing field is level, Android has performed poorly.

We will see what happens.

C.

Why would all of a sudden so many people buy content that was previously just as easily avaible?

Because the new platform has three times as many users.

C.

 

[k995]

A lot of people share your view. But I am not certain history will repeat itself.

Why not? PLenty of people like you wo never thought android smartphone would take over.

More avaibility, more choice, wider price spread,... and a big company pushing it.

And frankly apple doesnt care as long as they keep there margins and profit.

Android as a cellphone OS has performed best with territories and carriers where iPhone was not available. In territories where the playing field is level, Android has performed poorly.

Not really, and "level playing field" means nothing to publishers all they care about is wether the potential client has the device.

Because the new platform has three times as many users.

It hasnt, they offered trough internet, they offered trough fysical paper to tens times as much customers.

Why those same customers now they have an ipad suddendly deceide they do want to but that same paper they could have just as easily took an online subscription or got it delivered at home.

No doubt some will do it, but no doublt some with physical or website subscription will go trough apple now costing them 30% of that revenue.


iOS was potentially very atractive to publishers, but it has gotten quit a bit less with these new rules. And now apple has shown they can change the rules suddenly, who is going to say they arent going to repeat this?

 

[Carniphage]

iOS was potentially very atractive to publishers, but it has gotten quit a bit less with these new rules. And now apple has shown they can change the rules suddenly, who is going to say they arent going to repeat this?

We shall see what happens.
Market forces are brutal.

C.

 

[GroundLoop]

Yes, the revenue per sale has declined by a third. But if the number of sales double or treble in the next 12 months, does anyone really care?

You need to stop viewing this as a revenue discussion vs. a profitability discussion. Let's use some concrete numbers instead of abstracts...

You own a company that acts as a distributor of content. Since the inception of your company you have held contracts with the content owners that allow your company to keep 30% of the sales price and the remaining 70% is provided to the content owners. Let's say that you are selling content item A for $100. For each sale of A you receive $30 of revenue and provide $70 of revenue to the content owner. Let's assume that you had to pay $10,000 (+$99 developer fee) to develop your iOS application. Hosting/bandwidth fees for that content item is $0.10 per download (assumes that you have many other content items to spread these fees across). Visa/MC/Paypal charge you 3% for payment processing. Finally let's assume you have 100 downloads of A per month.

Payment processing per download is $3 (3% of sales price). With a revenue stream of $26.90 per download, you would need to sell 376 downloads before you break even on your initial costs (just under 4 months). For simplicity, let's say that you are a one person company and only have to pay your salary. After the first 376 downloads, every other download nets you $26.90 which can be reinvested into new apps or paid out as a salary.

Let's add in the 30% IAP fee...

Apple charges you $30 per download. The content owners are owed $70 per download per contract. The payment processing fee goes away as Apple is handling that for you. Since your company is still hosting the content, you still need to pay the $0.10 per download.

Here you can see the problem. You have invested $10,099 in upfront costs for your app development. And you are hit with a recurring expense of $0.10. Increased sales will only hurt you more.

The only path for your company is to renegotiate your contracts with the content providers or leave the iOS store. Then the question becomes, why would the content providers renegotiate their contracts with you, when they can work directly with Apple and sell through iBooks etc and continue making the same revenue per download (70% of the sales price)?

The drawback to this relationship is that the content purchased through Apple can only be used on iOS devices. Your company can continue to work with the content owners on other platforms as the 10% fee paid to other marketplaces, while it reduces your profit per download, it still does not eradicate your profitability.

This is the type of issue that apps like the Kindle and Netflix could face. Is it dependent on how the terms are written in the contracts with the content owners. This example uses sales price. Other examples could be based on distributor revenue (as you hinted at) and others can be based on a flat fee.

All I know is that if your model was based on a percentage of sales price you got screwed as 30% is a pretty standard rate. If you have a flat fee contract type, you likely got screwed (but it depends on if the flat fee happens to be less than the 70% of what you can actually sell the content for). If you are a revenue type (the least likely as the content owners would have to accept that they are selling there content for variable rates), then you are not affected.

This is the dilemma.

GL

 

[Carniphage]

You need to stop viewing this as a revenue discussion vs. a profitability discussion. Let's use some concrete numbers instead of abstracts...

You own a company that acts as a distributor of content. Since the inception of your company you have held contracts with the content owners that allow your company to keep 30% of the sales price and the remaining 70% is provided to the content owners.

GroundLoop.

That's not a realistic example. In the real world publishers don't pay out royalties on the basis of retail price. They offer royalties on net-receipts.

In other words they pay out royalties as a proportion of the revenue that they receive. In fact many publishers love to add in little extras. (The cost of marketing, the cost of storing the inventory, and the hotel porn at the last trade show.) Anything to make their share bigger and the royalty recipient's share smaller. Hollywood gives masterclasses in this black art.

They then decide upon a figure that represents their revenue, and it is a proportion of this figure that is handed out as royalties.

Now it's possible there are publishers who pay royalties as a proportion of the retail price, but I have never heard of any.

Do you know any companies that have publishing agreements like this?

C.

 

[GroundLoop]

GroundLoop.

That's not a realistic example. Iin the real world publishers don't pay out royalties on the basis of retail price. They offer royalties on net-receipts.

In other words they pay out royalties as a proportion of the revenue that they receive. In fact many publishers love to add in little extras. (The cost of marketing, the cost of storing the inventory, and the hotel porn at the last trade show.) Anything to make their share bigger and the royalty recipient's share smaller. Hollywood gives masterclasses in this black art.

They then decide upon a figure that represents their revenue, and it is a proportion of this figure that is handed out as royalties.

Now it's possible there are publishers who pay royalties as a proportion of the retail price, but I have never heard of any.

Do you know any companies that have publishing agreements like this?

C.

iBooks and the Kindle store pay the publishing company based on retail sales price 30/70 split. What the publishing company pays the copyright holder is unknown (and outside of your contractual view). The question still becomes, why would the publishing company deal with your company versus working with Apple directly (and save 30% - your cut)?

GL

 

[Carniphage]

The question still becomes, why would the publishing company deal with your company versus working with Apple directly (and save 30% - your cut)?

Well that's is a much better question!

C.

 

[GroundLoop]

Well that's is a much better question!

C.

I do know that if apps like the Kindle app disappear from iOS, I will disappear as an iOS customer. I prefer having the ability to read my content on any device and not get locked into iBooks. This is the value that Amazon brings that Apple cannot match at this point. But if Amazon can no longer be profitable on iOS, then they will not support it. I think many others would feel the same.

GL

 

[fabianjj]

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The best way for developers to fight this is not to remove their app from the app store.

1) Release the app on multiple platforms
2) Mark iOS subscriptions up 30%

No need for regulatory oversight. The free market will take it from there...

TOS says they cannot charge a different price.

But if the outside subscription doesn't include iOS, then it would be two different products and the price difference would cease to be relevant.

 

[Carniphage]

I do know that if apps like the Kindle app disappear from iOS, I will disappear as an iOS customer.
GL

I too would be disappointed if Amazon disappeared from iOS.

But I don't understand the circumstances in which that Amazon would lose money on the platform. After the change Amazon will continue to pay 70% of its receipts as royalties.

It can't go negative. Amazon can't lose money by staying on the iPad. And nor can it afford to lose those sales.

Yes, publishers using Amazon will receive less revenue from an iPad sale than a Kindle reader sale, but that's really not surprising.

C.

 

[GroundLoop]

I too would be disappointed if Amazon disappeared from iOS.

But I don't understand the circumstances in which that Amazon would lose money on the platform. After the change Amazon will continue to pay 70% of its receipts as royalties.

It can't go negative. Amazon can't lose money by staying on the iPad. And nor can it afford to lose those sales.

Yes, publishers using Amazon will receive less revenue from an iPad sale than a Kindle reader sale, but that's really not surprising.

C.

Amazon does use the list price when establishing the royalties...

Paragraph 1.b.ii from the Amazon pricing page: (link: http://forums.kindledirectpublishing.com/kdpforums/entry.jspa?externalID=377 )

"The Royalty will be 70% of the amount equal to the applicable List Price for the Digital Book less the Delivery Costs (as defined below) for the Digital Book."

Therefore, Amazon gets 30% of the list price (not net receipts).

GL

 

[Carniphage]

Amazon does use the list price when establishing the royalties...

If that's true, I guarantee that will change.

C.

 

[pooprscooper]

I don't get the big deal. Apple has always took 30% of any money made by an app since the Appstore first came out. How is this any different? Just because you ALSO decide to split up 30% more of your 70% to keep for yourself, what does that have to do with Apple? If you don't want to pay 30% to Apple for selling an app on the Appstore, don't use it. You can sell your app somewhere else. Just because your app says "free" to download but costs money to unlock features, why do you think you can get away with it for free? Apple is just asking you to offer the feature inside the app.

 

[Hal Itosis]

He's clearly talking about the Apple dev policy restricting languages that were acceptable for iOS apps - a policy that has now been relaxed quite a bit because the developers spoke up.

Right... iOS developers. And you went from there to "he's not talking about Adobe at all". [FYI: users of Adobe's Flash Pro IDE were squealing the loudest of any developer group at that time, iirc.]

If you only want specific people to respond to your posts, maybe you should use the private messaging system.

Oh I don't care... just curious why you felt obliged to speak for him.

 

[marksman]

I'm not defending Apple here, but didn't they just specify the terms so that if devs offer subscriptions outside of the app store, they must also make it possible to buy the subscriptions inside the store (so that Apple can get the 30 %). So readability could continue to sell subscriptions outside the app store as long as they also offer them inside?

Yes. It is that simple. But if the customer who is part of the Apple IOS Ecosystem chooses the easiest and quickest and least resistant way to subscribe then Apple gets their cut. It makes total sense.

It is clear from these threads that most people here have zero experience running a business or managing one. For everybody who sells a product there is a cost associated with selling something. You have to not only find the customer but get them to purchase that product. That is a cost that can be small for some products, and for other products it can be a year of monthly fees or more.

In this case Apple is providing a very good and relatively inexpensive way to get customers. Because of the ease of signing up on the devices itself the % of potential customers who turn into paying customers is likely to be significantly higher on an IOS device than it is on a publisher's website. That higher conversion rate has significant value for many businesses.

Too many people here simply don't understand all the real costs associated with selling a product and don't understand that the 30% Apple charges is not just some kind of tacked on fee, but it actually is offset by other real expenses most businesses would have to pay money for if it was not for Apple. In some cases the 30% Apple charges is actually going to save some of these companies a lot of money, even when taking a part of their subscription.

+1

This is starting to get ridiculous. I can see it leading to the creation of an independent app store that works with jail broken iOSes. App and service providers would flock to it.

Apple, get your act together and stop being so darn greedy.

There already is a store like this. Most people don't jailbreak their phones or care to do so. Most people who buy IOS devices are fond of the control apple holds on the ecosystem and find it of real value to them. This extends to the app store and the ability to easily subscribe to content without having to leave the app or give information to another third party.

GREAT post. This is exactly how things work in the real business world and I'm also not sure how I feel about it coming to a mainstream internet app store. People who think this is outrageous have absolutely no idea how retail works.

Actually his post is horrible and is not representative of how business works at all. It is completely devoid of the actual knowledge of what businesses have as real costs for selling products in any marketplace. It is absurd math and horrible knowledge of business. Anyone who calculates anything about this as a 30% surcharge or tax on the current price has no idea what they are talking about.

I actually run and own a middleman business. I run one where I actually compete directly with the companies whose products I resell. Imagine if all the movie studios had their own streaming studios that compete with Netflix? That is the kind of business environment I have to thrive in. Being a middle man is a dangerous position to be in and a risky one. You have to be aware the two sides could come together at any point and squeeze you out. That is the possibility for some businesses here, but it is what it is.

At the end of the day IOS customers are not going to lose any content or be missing out on anything.

The only businesses that will have a problem with this are the middle man companies. They will either rework their business model to make it happen, better designed middle men companies will replace them, or the content companies will push their wares directly to the IOS platform. In any case the content will still end up there for IOS consumers at the end of the day.

If you don't believe me just watch and see.

 

[marksman]

Ah, but everyone has choices in that scenario!

If Olive Garden was offering a "Buy $20 gift card, get $10 for yourself!" deal, I could go there .

I could go to Target to buy those too.

The problem with the AppStore is that it is the only way to purchase an App for iOS.

Yeah and part of this is apple wants to make sure that IOS consumers get the best possible price from any publisher or content provider.

The horror of them wanting to make sure their customers get the best prices. I am sure the regulators will be all over the evilness of them wanting the lowest price for their customers.

 

[marksman]

And don't forget the bait and switch apps like a certain recipe app that charged for a 'pro' version and then discontinued it to switch to a subscription based app. I am happy to see Apple doing something to reign in the scammers. I really think the whole point of this is that free apps should be free. I suspect this is more about getting rid of the plague of subscription apps than about getting the 30% cut.

To the developers out there, come up with a viable business model or go away. If your service is valuable enough to people to justify subscription fees, then a 30% cut for your sales channel shouldn't be a problem. If you're only surviving because you have no profit margins, then don't come crying to me, and don't expect Apple to keep subsidizing you. Maybe you can re-organize your 'business' as a non-profit. At least that would be more honest.

This is a big problem. Perhaps some of the bigger more traditional companies will strike different deals, but there is clear evidence lots of companies have been trying to screw Apple out of money all along. Why people don't have any sympathy for this, or think Apple should just ignore it because they are successful is crazy. Apple is successful because they don't just turn the other cheek on this stuff. These people are using valuable services of Apple and blatantly trying to avoid giving anything to Apple for it.

Even Netflix and Rhapsody are doing this. Nobody told them to give their apps away for free on Apple's dime and still make tons of money off those customers. Now is the time to pay the piper. Apple already gave these developers a chance, and most of them chose to screw Apple and only worry about how they could make the most money possible at Apple's expense. Pay back is heck.

Well, I understand it if the dev want the comfort and ease of using in-app subscriptions so they don't have to set up their own system. But it's extrotion if Apple forces devs to use this. Apple has already made money on the sale of the app and the iOS device.

It is not extortion. If Redbox wants to put their units in Target and Target says fine, if you give us 30% of all revenue, and Redbox says screw you. Target is not extorting them. That is the value that Target has put on the space they would allocate for a Redbox machine and for the access to their customers. The only way Redbox can get to those Target customers is through Target. Target is not extorting Redbox, and Apple is not extorting anyone here.

Any retailer is free to make conditions on who can sell in their store and what the requirements are for that.

Yes, but Apple shouldn't force the dev to sell subscription through iTunes. That's what's extortion. The dev should be able to choose of she/he wants to use in-app purchases (giving Apple 30 % for the ease and peace of mind) or use their own system (which would cost and take time to develop).

If they didn't force the developers to do it, none of them would do it, and they would all list their apps for "free" when they were not free and Apple would be burdened with the entire cost. Don't believe me? That is what is happening right now. The developers have already shown themselves lacking morals and scruples when it cames to paying their share to Apple, they have already used every trick in the book to avoid paying Apple anything. Apple has no choice but to either force them to share, kick them out, or shut down the App store entirely.

I don't want the App Store shut down because greedy developers bit of their nose to spite their face and tried to backdoor Apple and avoid paying them for their services.

So I am fine with them having to work it out. They made this happen, Apple didn't.

I love my Apple products (and in no way am I threatening to punish myself by switching to Android over this), but I cant see how Apple has a legal right to tell companies like Netflix to hand over 30% or they can no longer offer their program in the app store. Its not like Netflix has another avenue to get their software on iOS devices. Maybe get rid of the 30%, and just force apps that require a subscription to not be given away for free in the app store.

Why is Netflix entitled to sell their software to IOS customers? The store that provides software to IOS customers has rules and requirements for selling in the store. It is entirely up to them if they want to sell their product there or not.

 

[marksman]

Here's what will happen:

Netflix, etc will introduce different levels of service for iOS consumers. You want streaming to every device except iOS? That's $7.99/month just like it is now. Do you want iOS as well? Then it's $10.99/month. The people with $7.99/month service will not be able to stream to Apple devices but they'll be able to stream to every other device, and only the $10.99/month service is offered through in-app purchase, so there is no breaking Apple's guidelines, since the $7.99 service will not work on iOS devices and has nothing to do with Apple.

We'll see how many idiots will still remain willing to pay 30% extra to stream the exact same content to their iDevices compared to every other platform out there and then let the market take care of the rest. Sales of AppleTV would tank so bad that it would never recover.

These separate service levels are unlikely to fly. If you offer a digital subscription to ther similar devices, Apple will expect the same price. if not you will not have your app in the App Store.

So all these theories of how these already proven sleazy companies will do to get around paying Apple might be attempted, but ultimately Apple will find them in violation.

The best way for developers to fight this is not to remove their app from the app store.

1) Release the app on multiple platforms
2) Mark iOS subscriptions up 30%

No need for regulatory oversight. The free market will take it from there...

Like I said above, not going to happen. It will be considered in violation as they are not offering the lowest price available for a digital subscription to service. They don't just say for Apple or the iPhone or iPad, but for digital subscription. If they provide equivalent content for Android or anyone else at a lower price they will be in violation and likely have their app(s) removed from the App Store.