Apple Threatens to Remove Email App 'Hey' From App Store Over Lack of In-App Subscription Option [Updated]

[confirmed]

Workaround for the developer: Create a completely separate online membership for an exclusive club with a $99/year fee. Included in your membership is a free “hey.com” email account which you can use the iOS apps to access. The service and apps are free, just exclusive for members of that completely separate club. The club has nothing to do with the App Store, so Apple has no path to demand a portion of the revenue.

Maybe an exclusive club for people who love horses or horse racing - HeyIsForHorses.com

(I’m not seriously suggesting this, but the fact that this would be a conceivable workaround demonstrates how arbitrary these policies are)

 

[pier]

This ends up being a reason why Apple has to charge what it does (30% / 15% for subscriptions) for digital goods in order to avoid running the App Store at a loss.

This point doesn't make sense.

First consider that the bandwidth and storage costs are fixed, regardless of the price of the app.

Let's say an app weights 50MB. At a price of $0.01 per GB of bandwidth 1M downloads would cost Apple $500. Apple has certainly a much better price than the $0.01 per GB of mere mortals.

Let's say this app sells for only $1. At 1M donwloads Apple would make $300,000. At $10 it would make $3,000,000.

Then consider that probably 90% of apps don't even get 100,000 downloads.

There are aprox 20M iOS developers paying $100 which in total represents $2000M ($2B) per year. With those $2B Apple can pay for the infrastructure and still make plenty of money over. For comparison, Netflix, the largest consumer in the world of bandwidth (and probably storage too) spends about $120M per year on cloud services. Source.

As you can see, there is simply no point in correlating the the 30% share with infrastructure costs.

 

[Rob_2811]

And tax avoidance is totally legal...what's your point?

Not wanting to line Apples pockets is totally legal too.

However, none of this matters in this discussion, as it is all unrelated to Apple App Store policies.

Yep and the regulators will be the judge of that, rumour has it Apple is already warming up the humble pie.

Yes Apple, like you and every other person and company on the planet, uses every tax avoidance scheme available to them. They've never denied that.

And spare us the comeback that you voluntarily pay as much tax as possible.

Yep just like the developers Apple is trying to shakedown with their own little tax. Until they get slapped for it obviously..

 

[senttoschool]

Really? Host 6300GB of data, push apps from that to millions of users on a 24x7 basis for $5 or so? Not to mention update, handle payments, control access, translate to mul;ti[ple languages and follow laws that vary by jurisdiction?

Read what I wrote again carefully.

 

[falainber]

What I find obscene are people believing they have the god given right to use other people‘s stuff for free. Maybe do your home work a bit better next time before starting to code.

What app developers want to use is people's phones. The phones (once sold) belong to people, not to Apple. For some reason, Apple believes that they have the right to decide what people can install on their phones and then charge a fee for this. App developers do not need Apple's App Store.

 

[Rogifan]

What I find obscene are people believing they have the god given right to use other people‘s stuff for free. Maybe do your home work a bit better next time before starting to code.

What about all the free apps in the App Store? Like probably most of the apps people dowload?

 

[Alan Wynn]

Not wanting to line Apples pockets is totally legal too.

That is great. I think you should make sure you do not line their pockets and not buy any of their products.

Yep and the regulators will be the judge of that, rumour has it Apple is already warming up the humble pie.

Apple has changed policies over the years, and will continue to do so. I would hardly call allowing people to change default apps "warming up humble pie." These are minor things. I find it hilarious that often in the same post, people explain that the HomePod is terrible and a disaster, but Apple is a monopolist for not opening this product up to others.

Yep just like the developers Apple is trying to shakedown with their own little tax. Until they get slapped for it obviously..

Apple is not shaking anyone down. They have control a very small part of the mobile phone market. No one is forced to develop for their devices, nor are users forced to buy them. In fact, the company in question makes a big point of talking about how great their web client is. They have a simple solution, just say that for iOS users, that is the way to get to their service.

Given how much you seem to dislike them, I am curious if you actually own their products, and if so, why?

 

[Abazigal]

This point doesn't make sense.

First consider that the bandwidth and storage costs are fixed, regardless of the price of the app.

Let's say an app weights 50MB. At a price of $0.01 per GB of bandwidth 1M downloads would cost Apple $500. Apple has certainly a much better price than the $0.01 per GB of mere mortals.

Let's say this app sells for only $1. At 1M donwloads Apple would make $300,000. At $10 it would make $3,000,000.

Then consider that probably 90% of apps don't even get 100,000 downloads.

There are aprox 20M iOS developers paying $100 which in total represents $2000M ($2B) per year. With those $2B Apple can pay for the infrastructure and still make plenty of money over. For comparison, Netflix, the largest consumer in the world of bandwidth (and probably storage too) spends about $120M per year on cloud services. Source.

As you can see, there is simply no point in correlating the the 30% share with infrastructure costs.

The initial report from AboveAvalon is in, though I must preface this with the reminder that this is ultimately still only one man’s take (albeit a very knowledgeable one who is able to take a step back and look at matters in a more impartial manner).

Gross profit is 11%, which decreases to 4% once you deduct costs.

Apple could lower their cut to 22% which would represent break-even point. Anything less and they would essentially be operating at a loss.

He has more to say about the whole matter (some of which is not very flattering to DHH), but I will not reproduce them here.

Hope this can spearhead further discussion. Not sure what more I have to say on this matter, other than reiterating my earlier stance that everyone needs to chip in to help manage the costs associated with running the App Store.

 

[Suckfest 9001]

Apples wrong here but 99 dollars a year for a mail app? Lolwut

 

[boss.king]

Apples wrong here but 99 dollars a year for a mail app? Lolwut

If you think that's steep, check out Tempo. It's currently in beta but they're planning to charge $15/month when it launches.

Honestly, as long as they know that this isn't going to be a mainstream service, I don't think the price is all that unreasonable. People drop $50 each on Apple Watch bands they wear a handful of times or subscribe to streaming services they never use, so $8.25 a month for an app you use constantly, every day, suddenly sounds a lot more reasonable, especially if it's offering something you're not finding elsewhere.

 

[TriBruin]

The initial report from AboveAvalon is in, though I must preface this with the reminder that this is ultimately still only one man’s take (albeit a very knowledgeable one who is able to take a step back and look at matters in a more impartial manner).

Gross profit is 11%, which decreases to 4% once you deduct costs.

Apple could lower their cut to 22% which would represent break-even point. Anything less and they would essentially be operating at a loss.

He has more to say about the whole matter (some of which is not very flattering to DHH), but I will not reproduce them here.

Hope this can spearhead further discussion. Not sure what more I have to say on this matter, other than reiterating my earlier stance that everyone needs to chip in to help manage the costs associated with running the App Store.

Can you provide a link to the source? There are a lot of questionable use of numbers in the post. First and foremost is making the profit a percentage of the total sale of the App instead of Apple's fee. If you recalculate based on Apple fee, the profit margin is closer 15-20%. Not outragous, but not exact the a puny 4% as the author tried to imply.

 

[Abazigal]

Can you provide a link to the source? There are a lot of questionable use of numbers in the post. First and foremost is making the profit a percentage of the total sale of the App instead of Apple's fee. If you recalculate based on Apple fee, the profit margin is closer 15-20%. Not outragous, but not exact the a puny 4% as the author tried to imply.

It’s a daily newsletter service which I am subscribed to, so there is no physical website or source I can link to, and I am trying not to reproduce the article in its entirety.

I think hiring people to vet apps and manage the App Store entails a lot more costs than people believe. That’s what really drives the costs up and net margins down.

So 10% gross, net 4% is his estimate.

 

[TriBruin]

It’s a daily newsletter service which I am subscribed to, so there is no physical website or source I can link to, and I am trying not to reproduce the article in its entirety.

I think hiring people to vet apps and manage the App Store entails a lot more costs than people believe. That’s what really drives the costs up and net margins down.

So 10% gross, net 4% is his estimate.

I am not arguing his numbers are wrong (but I really want to know what he is classifying as "Cost of Goods Sold" when Apple is not selling any goods). I am pointing out his use of the FULL sell price of the App is misleading and is being used to make the net profit look much smaller. If I adjust the numbers to only account for Apple's recognized revenue, their net profit is around 15%.

 

[brilliantthings]

Good job Apple...give the EU some more evidence of anti-competitive behavior the day that the investigation is launched

Yep. I think the EU is going to have Apple for breakfast over this.

 

[falainber]

It’s a daily newsletter service which I am subscribed to, so there is no physical website or source I can link to, and I am trying not to reproduce the article in its entirety.

I think hiring people to vet apps and manage the App Store entails a lot more costs than people believe. That’s what really drives the costs up and net margins down.

So 10% gross, net 4% is his estimate.

I would agree to do it for just 1% of profit margin. How about that?

 

[Kyanar]

I am not arguing his numbers are wrong (but I really want to know what he is classifying as "Cost of Goods Sold" when Apple is not selling any goods). I am pointing out his use of the FULL sell price of the App is misleading and is being used to make the net profit look much smaller. If I adjust the numbers to only account for Apple's recognized revenue, their net profit is around 15%.

And he deceptively fails to account for subscriptions where Apple's costs are no more than 1% (credit card transactions) as they provide no actual service except billing.

Actually, thinking about it further, I actually am going to argue his numbers are wrong. As you point out there is no COGS on products which Apple doesn't produce (as COGS is the direct cost attributable to production of a good sold) and those operating costs are plucked out of the air when we don't even know what Apple pays Akamai and Microsoft for cloud storage and distribution, let alone how much storage and bandwidth the App Store consumes. One thing is for sure, they aren't paying list price.

 

[Abazigal]

And he deceptively fails to account for subscriptions where Apple's costs are no more than 1% (credit card transactions) as they provide no actual service except billing.

Actually, thinking about it further, I actually am going to argue his numbers are wrong. As you point out there is no COGS on products which Apple doesn't produce (as COGS is the direct cost attributable to production of a good sold) and those operating costs are plucked out of the air when we don't even know what Apple pays Akamai and Microsoft for cloud storage and distribution, let alone how much storage and bandwidth the App Store consumes. One thing is for sure, they aren't paying list price.

I think payment processing is closer to 2-3 percent of revenue.

The product here is a curated storefront. As I have stated multiple times above, the cost of running the App Store would not be just the server costs alone. Who do you think vetted DHH’s app and decided that it violated App Store guidelines, as well as crafted the letter to send to him? It was one of countless employees hired to curate the App Store.

I believe the bulk of “COGS” would be employee payroll, and it’s precisely the large pool of people that Apple employs which sets it aside from the Google Play Store.

There are probably other costs that we are not seeing as well, but bottom line is - the App Store is more than just a server in someone’s basement.

 

[Kyanar]

I think payment processing is closer to 2-3 percent of revenue.

The product here is a curated storefront. As I have stated multiple times above, the cost of running the App Store would not be just the server costs alone. Who do you think vetted DHH’s app and decided that it violated App Store guidelines, as well as crafted the letter to send to him? It was one of countless employees hired to curate the App Store.

No, the product is an email app. That's what the customer buys. Therefore Apple's COGS is zero. It doesn't matter how many times you state it, it's still wrong. That is indisputable.

Additionally, I pay 1.1% of revenue for credit card processing. If you think Apple is paying above 1% for their volume, you're dreaming.

I believe the bulk of “COGS” would be employee payroll, and it’s precisely the large pool of people that Apple employs which sets it aside from the Google Play Store.

No, that's a fixed operational cost, and representing it as a percentage of the sale price of the app and subscriptions, which incur no vetting or curation is deceptive at best and malicious at worst.

There are probably other costs that we are not seeing as well, but bottom line is - the App Store is more than just a server in someone’s basement.

Which is, again, totally irrelevant.

 

[Abazigal]

I would agree to do it for just 1% of profit margin. How about that?

Even that wouldn’t drop the cut to below 20%. So in this context, calls to lower the amount that Apple takes from developers to 15% or even 10% would simply not be sustainable in the long run.

 

[Kyanar]

Even that wouldn’t drop the cut to below 20%. So in this context, calls to lower the amount that Apple takes from developers to 15% or even 10% would simply not be sustainable in the long run.

Yes it would, and that you continue to make that baseless claim is amazing.

 

[Abazigal]

Yes it would, and that you continue to make that baseless claim is amazing.

What would your numbers be then?

 

[Kyanar]

What would your numbers be then?

It's not relevant. You're the one making the claim that it would be "unsustainable" to charge less than any given percentage of sales to cover the fixed costs Apple incurs. Prove it.

Of course, you can't. Because you have to remove any cost which Apple has included a precedent of not charging on a usage basis for, including app vetting (free apps are vetted but are not charged a percentage of sale), bandwidth and hosting (Uber and Facebook are not charged additional fees for hosting their oversize apps that they update weekly for no reason).

The only direct variable cost Apple incurs is payment processing. Less than 1%. That is, literally, the only thing that should be charged as a percentage, and the only thing that should be charged on subscriptions.

 

[Abazigal]

It's not relevant. You're the one making the claim that it would be "unsustainable" to charge less than any given percentage of sales to cover the fixed costs Apple incurs. Prove it.

Of course, you can't. Because you have to remove any cost which Apple has included a precedent of not charging on a usage basis for, including app vetting (free apps are vetted but are not charged a percentage of sale), bandwidth and hosting (Uber and Facebook are not charged additional fees for hosting their oversize apps that they update weekly for no reason).

The only direct variable cost Apple incurs is payment processing. Less than 1%. That is, literally, the only thing that should be charged as a percentage, and the only thing that should be charged on subscriptions.

Which I am trying to do by posting some numbers from the only source I am able to find thus far. Granted, this are not official numbers from the horse’s mouth, Neil Cybart is not infallible in his analysis (having read through his email, he did not provide a breakdown of COGS), I am certainly no finance expert or analyst myself, and the numbers I have posted are certainly wide open to debate. I only managed to skim through his email quickly in the morning while on my way to work and will take more time to digest it more fully later tonight after I get home.

However, I think it’s better than nothing. In the very least, a lot of the responses I am see appear to be more rooted in emotion and a desire to “stick it to Apple” and extract their pound of flesh rather than actually attempt to understand the situation better.

Second, are people really only happy if and when Apple operates the App Store at a break even or even a loss? Which is basically the sentiment I am seeing here, where it seems to be taboo for any company to operate at a profit, and Apple should somehow just absorb the costs entirely?

What makes a certain amount of profit okay for the App Store and another amount unacceptable?

This DHH guy seems to be really good at using Twitter to spread outrage and getting people on his side and personally, I am not entirely convinced that his position is all that defensible either. I don’t agree that an email app is the same as a reader app, which seems to the main point of contention here. He believes he is entitled to 100% of the profits from his email service, and his entire argument seems to rest on “other apps don’t need IAP, so my app shouldn’t either”. Which is essentially a variation of the “why are you booking me for speeding when my friend was also speeding the other day without getting into trouble with the law?” It’s not that speeding is suddenly okay just because some people have been doing it without repercussions, it’s just that the law hasn’t caught up with them yet, and wrong is still wrong.

Apple could lower their cut to 15% or 10% and he will likely still not want to give it to Apple either.

There is definitely more to this story than DHH is leading more, and we will probably see further developments over the next few days.

That’s the conclusion I have come to for the moment at least.

 

[Alan Wynn]

No, the product is an email app. That's what the customer buys. Therefore Apple's COGS is zero. It doesn't matter how many times you state it, it's still wrong. That is indisputable.

You can jump and down, stomp your feet and shout as much as you want, but where you are simply wrong is what the customer buys is an application that has been curated by Apple, in a store supported by Apple, and advertised by Apple. All of those cost money and benefit both the customer and the developer.

Additionally, I pay 1.1% of revenue for credit card processing. If you think Apple is paying above 1% for their volume, you're dreaming.

I am sure they do not, but the do cover all the transaction support costs, deal with all the fraud themselves, etc., all substantial costs.

No, that's a fixed operational cost, and representing it as a percentage of the sale price of the app and subscriptions, which incur no vetting or curation is deceptive at best and malicious at worst.

It is not a fixed cost as it increases based on the number of apps and the number of releases they each do. In addition, subscriptions still incur support costs (often substantial) as Apple usually the cost of refunds in most cases.

Again, nothing forces you to purchase their products, nor forces developers to port to their platform. A company like Hey.com that has gone as far out of their way as they have to build a system for avoiding Apple's systems, and already has a web app, should be totally fine having that be their product.

 

[I7guy]

What app developers want to use is people's phones. The phones (once sold) belong to people, not to Apple. For some reason, Apple believes that they have the right to decide what people can install on their phones and then charge a fee for this. App developers do not need Apple's App Store.

Funny thing about that. If you own the phone, install android. You don’t own iOS though and there in lies the catch.

You are bound by the Apple ecosystem and the way it operates. Sure app developers don’t need apples app store. They can develop for android. But if you want to develop for iOS, there is that pesky App Store one has to go through.