Musings about the Apple 30% content tax

[abortrephrase]

I don't use an iPhone these days, and I'm doing my e-book reading on a Samsung Galaxy Tab now, so why do I care about Apple's rules about content on iOS devices?

A quick explanation of those rules may prove helpful: if you sell content (either as a subscription or as a purchase) and want an iOS application for your customers to view it then you have to make the same content/service available via in-app purchasing from your iOS application, at the same price as it is available outside the iOS in-app purchase system.

Apple takes a 30% cut of those sales, so either you have to eat the 30% revenue reduction on all sales made via IAP or you have to increase your prices across the board to keep your revenue where it was. My best guess is that any vendor who goes along with this will probably do a bit of both: increasing all your prices to take the 30% cut into account will alienate everyone, but there's a fair chance that your business model just won't survive too many of your customers switching to a channel which costs you 30% of the sale.

My particular area of interest is e-books, but you can expect this to hit other services too even if they're not immediately in the firing line. Hulu Plus, Netflix, the international BBC iPlayer, paid Dropbox subscriptions, there are plenty of possibilities here.

But to take just the e-book space for a moment...

There are a couple of players in this market. Amazon, Barnes & Noble, Sony, Borders/Kobo, plus the various stores offering Adobe ADE ePub books without their own apps. Oh, and Apple.

If you're Amazon or B&N, you're going to have to think about whether you want to lose that 30% on all IAP sales, or increase prices for everyone, or somehow re-negotiate your distribution deals to take the changed situation into account. Or you can choose to forego the iOS native application entirely and provide a browser-based service for iOS users.

That last option must be looking pretty appealing right now. Booki.sh have shown that it's quite possible to do this in a way which provides offline access to books and with a pretty good reading experience. Their reader isn't perfect, and I still much prefer the Kindle application to reading from Booki.sh, but the deficiencies are probably all solvable.

Doing that puts you at a disadvantage against anyone who'll eat the 30% and do a native application, but on the other hand you get to keep the 30% and can probably compete rather effectively on price. Except when you're competing against Apple, because of course they don't have to find a 30% cut to pay themselves, do they?

There are all sorts of reasons not to buy books from Apple -- being locked-in to iOS devices only, the really lousy range (I just looked for the last three books I bought from Amazon, and none of them are there), the iBook application itself not being all that great (though that's a matter of personal taste) -- but one imagines that pushing Amazon, B&N, and all the other content competitors off iOS is exactly what Apple wants. Why settle for "just" 30% of the purchase revenue when you can have all of it?

iOS is still a great money-maker for developers, if they can get their applications on the platform and if they get lucky and have a hit. But if you're selling a service rather than an application, consider your days on iOS numbered. Even if Apple aren't coming for you now, there's every chance they will be soon enough.

Comments

[thorfinn]

Apple is in the business of being a middleman. 30% is a cheap cut for a middleman - and employing three or more middlemen is a bad idea for both the consumer -and- the content creator. If your "service" amounts to nothing but being a content middleman, then yes, you'll be stuffed on iOS. You need to do more than that to justify your cut.

From the ordinary consumer perspective, nobody really cares. You pay for the content you want via the most convenient means you have, without regard to how many layers of middlemen there are.

And for content creators - a service like smashwords for books or bandcamp for music is well worthwhile. "Traditional" publishers who aren't changing their business model are in trouble - and nobody is crying except them.

[ideological_cuddle]

The customer may start to care when content starts to cost more than it did, even if they aren't buying from Apple.

I'm not arguing that they can't do this, I'm arguing that them doing this is bad for everyone but them.

30% is not cheap for what is effectively just a payment processor. Can you imagine the outcry if Visa and Mastercard started charging 30% on every transaction?

(Yes, Apple do a little more than Visa/MC in this scenario. Not that the vendors want them to, mind.)

I'm not surprised that you were the first person to pipe up with a one-eyed defense of everything Apple does. It's kind of expected that you'll take a they-can-do-no-wrong attitude.

[reddragdiva]

"Yes, Apple do a little more than Visa/MC in this scenario."

Their justification is that this is cheaper than the typical 50% discount from cover on print materials. This appeals to the suckers' print-oriented worldview and leaves out basic business concepts like "marginal cost approaching zero".

Steve is playing the publishers, Amazon and pretty much all the vendors for suckers here.

We have an iPad app for our flagship publication, which has a print circulation of 105,000 and an online paid userbase that's even larger. After two months, the iPad app has a paid userbase in the double digits. The internal justification is the barrowload of bollocks Steve sells around the idea. As far as I can tell the real justification is iPads for the executive suite paid for by the business.

[ideological_cuddle]

Well, if we're just talking ebooks sold directly by Apple, then 30% is pretty much standard. Amazon are (or were, last I looked) charging similar amounts.

If Apple are also providing the storage and distribution facility even in a case like Amazon Kindle books, well, yeah, that's more than payment processing but it's not what Amazon (or anyone else in a similar position) wants.

For services like Hulu Plus or Dropbox (I'm not sure if Apple has come for them yet, but if not it's only a matter of time) it really is just payment processing, and 30% is an outrageous amount.

As I understand it none of the iPad magazine/newspaper things have done very well so far. Hype at launch, then subscriber numbers rapidly dropping off. I mean, why would you bother when the same content is on the web for free? Even if it's on the web but behind a paywall, an iPad app is going to have to be "insanely great" to be worth paying the premium compared to simply using the pay website in the longer term.

We had to set up (and pay for) the special iPad support on our corporate VPN because someone very high up got an iPad and wanted it. It's not like this is the first shiny to have this sort of flow-on effect (I've talked plenty about the millions we paid to do Exchange because the suits wanted Blackberries), and it won't be the last. I'm fine with that, just not with the huge fucking-up of the content market this risks creating.

[thorfinn]

The huge fucking up of the content market is happening all by itself, with very little help from good ol' Apple there. Things like music publishers claiming a CD cut (90%!) of music licensed to iTunes instead of the license cut (50%), the good old crazy that the RIAA is trying to push, and all that stuff is not really helping anyone except the established middlemen.

Let's be a bit more clear about what the 30% thing is - they're saying "you can let your customers buy digital goods from elsewhere, then deliver to the iOS device but you must *also* offer in app purchasing of the same digital goods, and if the customer buys it via our in-app purchasing, then we take the 30% cut."

In other words - if you can convince your customers to pay you at yourwebsite.com rather than via in-app purchasing, you're perfectly fine. If you can't, then, well, you can't. That isn't playing very nice, no. On the other hand, at this point in the game, they don't entirely have to. I'm not sure whether or not that situation with the poor state of competition will last - I expect probably not, and if it doesn't last, I expect pricing models to change.

AFAICT Dropbox is unlikely to ever be in trouble - their service is nothing to do with selling digital goods, plus the vast majority of their users would continue to pay them directly anyway, I'd bet.

Hulu Plus, maybe they could have a problem, I'm not entirely sure. I suspect they'd be in the same boat - many of their users would use Hulu on other platforms than iOS, so they likely wouldn't pay for the service via iOS anyway...

As for iPad magazine/newspaper things? Yeah, they've all been pretty bad - because most of them have been horrendously big implementations of some flashy magazine lookalike thing... which is not really what people actually want to read on a digital device. Also most of them have implemented some kind of weird confusing pricing scheme, which causes people to wonder why the heck they want to read it inside an app instead of just using Safari. Not sure you can blame that failure on Apple, that's more a failure by paper publishers to really get to grips with what will or won't actually sell in this digital publishing business.

[thorfinn]

Oh of course, I disagree with you, therefore I must be one eyed and think they can do no wrong. Nice ad-hominem there.

There are plenty of things that Apple do where I wish they did certain things better. I'd love to have DRM free iBooks and movies, for example, and I hate the mess that iTunes has become because of the conflation with the store. But that's specifics, which of course you haven't seen me talk about.

Perhaps my support of their actions generally is a little simpler to explain than that - most of the money Apple makes a profit from comes directly from end-consumers, so most of the time, their priorities are:

1. Protect themselves (which is a priority for every company that plans to exist for more than a year)
2. Protect/Support the end consumer (who is actually their paying customer).

If they fuck up anyone else in a variety of marketplaces, they don't care... And it's not really their job to. If you want to criticise that aspect of their business, you should criticise a whole bunch of other companies who are much worse behaved first, and maybe even start with corporate capitalism generally.

Yes, it's bad for everyone except Apple - and the end consumer, who's the person forking out the money, and therefore wants the best price and the most convenient method of payment *and* the ability to not have their personal details sold to the advertising industry.

[ideological_cuddle]

You miss my point: I believe it's bad for the customer, even if the customer isn't an Apple customer because if they get their way they'll effectively push up prices for everyone.

You routinely respond to any criticism of Apple or iOS with a pretty heated defence. It's pretty much all one expects at this point.

[thorfinn]

If your point is that it's bad for non-Apple customers, then okay, that's a fair statement. This rule is bad for non-Apple customers. :-)

If you posted a criticism that I agreed with, then I'd most likely agree with you. Those criticisms aren't huge in number, and you haven't posted about any of them that I recall. I already mentioned two of them above, and that's by no means a complete list.

If you post a criticism that I don't agree with, then, well, funny, this is a blog with comments turned on, I might comment to disagree.

Given our relative desired features in this space, I expect that disagreements are going to be vastly more common than otherwise.

If all you want is agreement to your statements, then I shall not bother commenting in future, there isn't any point.

[ideological_cuddle]

I suggest that it's bad for all customers, whether they're buying from Apple or not. I don't buy the line Apple have been running about how this is all about the user experience -- sure, there's some UX advantage to IAP, but the way it's being done is about forcibly inserting Apple into the transaction, customer and vendor be damned.

Either sellers of digital content go along with it and effectively raise their prices across the board, or iOS users get a sub-par experience. One would not be shocked to discover that the latter would be a perfectly acceptable outcome to Apple, as it would then make their own content-sale business more compelling.

Just because one can do something doesn't mean one should.

I'm reliably informed that among certain people Thorfy-baiting on Apple-fu is considered entertainment. It's not really my idea of a good time.

[thorfinn]

If you look through my earlier commentary, I do already agree with you. I don't actually think the enforcement of price matching despite the fee is a long term sustainable tactic.

But it's going to take some much better competition and/or complaints to some kind of real antitrust body that has teeth to make it stick.

For whatever reasons, consumers actually do spend more money inside the Apple stores as compared to other platforms. Significantly more - just ask some cross platform developers and cross platform sales groups. There's lots of them out there, and there's a consistent message - if you're any good, you make more sales via the Apple stores than on the other stores, despite the "Apple tax". If you're average or bad, yes, go elsewhere.

As far as trolls go, whatevs. :-) Trolls can troll, doesn't bug me.