Apple’s in-App Sales Policy — an Intimidation Tactic?

Apple's in-App Sales Policy — an Intimidation Tactic?

There was so much drama and upheaval in the eBook, magazine, and subscription services on iOS yesterday as Amazon, Barnes and Noble, and others caved to Apple’s demands that they either get a 30% cut of in-app sales or all links to external purchasing systems be removed, that it is easy to assume that all this comes down to one word – GREED. But what if it comes down to one different word.

What if instead of this being all about Apple and the word “greed”, what if it all comes down to Apple and the word “Amazon”? What if this entire episode is all about Amazon, with a bit of Netflix, Hulu and Spotify mixed in rather than Apple just “wanting their cut”.

Sound crazy? Well, think about this …

What if in-app purchases aren’t about revenue, but about controlling the competition? Apple is no longer a computer company. It’s a company built around an incredibly lucrative ecosystem of movies, music, books, apps, and the hardware that showcases them. Now, look at who just had their applications crippled: Netflix, Spotify, Amazon Kindle, B&N NOOK, Hulu+. All are applications that compete directly with products that Apple offers through iTunes! This wasn’t about revenue, this was about being the alpha dog over the competition, and letting everyone know who was in control here.

It makes a great deal of sense. Now, it caught everyone from newspapers and magazines to eBooks and subscription media, but that was probably a calculated risk. Some companies, like the New York Times, agree and pay it. Others, like the Wall Street Journal, choose not to. But more importantly, it puts a stumbling block in front of Apple’s competition in movies, music, and books. Not enough to cease business, but enough to make things slightly tougher and remind everyone whose playground it is.

This also explains the sky-high cut Apple requested. Sure, it’s easy for Apple to first point to 30% as a standardized number. App sales give 30% to Apple, so why not media as well? But that’s simplifying the situation immensely. A flat fee makes sense in some areas, but not in media, where margins are super tight, something Apple knows all too well from iBooks. As we have discussed before, 30% is most of, if not all of, the profit these eBookstores and subscription companies make after licensing fees, paying publishers, etc. A more reasonable compromise might have been something in the range of 10-15%. In fact, Kobo’s CEO was quoted in the Wall Street Journal as saying that only 50% of their iOS user base downloaded books on the iPhone instead of on computers, so a 10-15% cut, while still a big bite out of margins, is somewhat reasonable if Apple truly wants a slice. But this was never directly about revenue, this was about reminding the competition who has the upper hand.

It’s pretty masterful if that’s the plan. We’ve spent the last 24-48 hours debating what Apple is thinking because we as consumers are only looking at the here and now. Apple has shown themselves to be long-term strategists, and they are looking four, five, six steps ahead. It’s not about cash and it’s not about apps, it’s about the fear of a world where iTunes is not the dominant media hub for iOS and OS X. This heads that off, or at least establishes boundaries for companies who would encroach on Apple’s media empire. In other words, ¡Viva iTunes!

What do you think? Are we seeing conspiracies in the shadows? Sound off below!

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About the Author

Zek has been a gadget fiend for a long time, going back to their first PDA (a Palm M100). They quickly went from researching what PDA to buy to following tech news closely and keeping up with the latest and greatest stuff. They love writing about ebooks because they combine their two favorite activities; reading anything and everything, and talking about fun new tech toys. What could be better?

5 Comments on "Apple’s in-App Sales Policy — an Intimidation Tactic?"

  1. cyberg00se | July 27, 2011 at 6:46 am |

    It doesn’t really matter though. There’s no ibooks to select in Euroland. Apple completely forgot about that market. I only use ibooks for the odd PDF. So what if they forced Amazon to remove the buy button? The app still works. I know how to navigate to a website and buy books. Yeah it probably is an attempt to control the competition. But it’s a bunch of work for nothing when they forgot they actually have to have a product to sell…. as if people don’t know how to use a freaking browser.

    As for Netflix and Hulu, again, US-centric. Apple is multi or transnational company.

  2. David Min | July 27, 2011 at 3:09 pm |

    What I find most interesting and ironic about your thoughts regarding Apple’s long term strategy is how Apple as a culture came to the technology sector. Remember that iconic Superbowl commercial in January, 1984? Apple, at that time and for about 2 decades thereafter, prided itself on being “counterculture” with respect to Big Blue. I can even recall an advertisement on TV known as “Lemmings” where people in business attire were portrayed as being mindless drones to the point where they were walking off cliffs.

    Now that Apple has become more mainstream, people are viewing the company as being more controlling, to becoming Big Brother. Now I’m not saying that that viewpoint is incorrect; in fact, I think that Apple has become incredibly controlling in the past 10 years. I just think it rather ironic for a company that used to pride itself on being iconoclastic.

    Think Different*

    *As long as you think just like me!

  3. Christopher Gavula | July 27, 2011 at 3:36 pm |

    I think Apple has been pretty aggressively controlling of all their platforms almost since Day One. this is likely because they have almost always controlled both the hardware and the OS, but I don’t think this “controlling” mentality is anything new or anything that recently developed.

    I think this latest move does not serve them well, but I don’t think it’s indicative of anything particularly new or sinister. It’s simply Apple asserting some authority over their platforms much as they’ve always done. Perhaps its got more visibility than past events, but I think Apple has almost always had the “long view” in their sites and driven their platforms in ways that often has drawn criticism. The difference now, I think, is that they are no longer the underdog, and they have the clout so it makes them appear to be a bully, but I really don’t see that their behavior is much different than it was pre-iphone. They still operate in a very closed way and we still speculate as to their motives without ever completely understanding them. Tell me something new!

    • I’ve thought about your comments over the last day or so, and I have to say that I have a different assessment of Apple’s history regarding control.

      To a fair extent, interpreting Apple’s past actions is opinion, so I am not trying to imply that my view is “correct.”

      Apple began in a time when the computer and OS were mostly tied to each other. Sure, there were IBM PC’s and clones, but for the most part, each manufacturer had an OS for their specific machine. Even mainframe computers had their particular “flavor” of unix or similar OS under which they were running. This was the norm of the day.

      When the Macintosh was released, it too ran under a new OS, the so-called “System” designations. While PC’s were experiencing the pleasure/pain of burgeoning clone manufacturers, the Macintosh was a niche machine much like the Commodore 64 where the OS was still tied to the hardware. At the time, Apple was using a completely different chip architecture, so there was no possibility realistically of porting the OS to a different platform. The Macintosh OS was safe, but isolated. An interesting move by Apple at that time were the standardizing of “look and feel” for Mac OS applications. Even at that time, Apple considered the appearance of programs to be of significant importance, given the focus of Mac OS on the graphical presentation of system functions.

      Then came the era of the Mac clones. In an attempt to expand its market share, Apple licensed other manufacturers to produce Macintosh clones, most at a slightly cheaper price point. The project was mostly considered a failure, as it failed to achieve the objective of increasing the Macintosh user base while at the same time making Apple itself less profitable. By this point, Steve Jobs would re-enter the picture.

      Jobs had just come from NeXT computing, a semi-failure in its own right. Initially a hardware and software/OS manufacturer, they dropped the hardware side of the equation and became software only. The ease of development with the NeXTStep OS gave it some traction in financial and government markets, but it never developed side popularity. I still remember my first look at the NeXT Cube. I had hardware lust over that device that still carries to this day! I even recall seeing it in the delightfully B-grade movie Flatliners.

      Jobs quickly ended the clone project. I think that his ultimate desire was to create a hardware and software product that were closely intertwined, and I honestly think that he would argue that in the case of the Macintosh, and perhaps iOS, the two are essentially 2 parts of a whole. To this extent, Apple since Jobs’ return has always kept a tight hold of its OS and fights to keep it exclusive to Apple hardware. However, from a software developer standpoint, Apple has always encouraged companies to develop on the Mac platform. Back in the System 7-9 days, the best developer software was probably Codewarrior, created not by Apple, but by another software house (Metroworks). Apple had its own set of development tools as well as a full library of books that detailed not only the inner workings of the OS, but also an entire book devoted to “User Interface Guidelines.” However, aside from setting a standard for look-and-feel, Apple encouraged developers across the board.

      When you look at the marketing history of Apple, with the “1984” commercial and the “Lemmings” commercial and the tag line “Think Different,” Apple was trying to position itself as David against the Goliath of the PC world. The message of the day was that when considering the purchase of a computer, the question should be more than just “IBM or clone.” Apple tried to project that by choosing Apple, you were giving the 1 finger salute to mainstream corporate America and at the same time, making the smarter move.

      When I look at the recent move with their App Store policy, if one were to argue that this is an issue of “control,” I think it begs the question of what, exactly, Apple is trying to control. I don’t think this is an issue of controlling its Intellectual Property per se; we aren’t talking about Apple demanding that iOS developers NOT create identical software for other platforms. What we are talking about is control of the monetization of iOS. Apple doesn’t want ANY developer of ANY software that is distributed through its App Store (and really, short of jail breaking and side loading apps, there isn’t another alternative) to generate revenue in which Apple doesn’t have a finger. Apple is exerting control to the extent that it can exert it; by forcing developers not to include direct links to websites from within an app. Apple can’t force Amazon to take down its website.

      I sincerely believe that in the next 6 months, Apple will be rolling out different monetizing strategies regarding different streamed or downloaded electronic media to allow iOS and companies like Hulu and Netflix to survive under iOS. I may be totally off-base, but I guess only time will tell.

  4. Great post about this, quoting the Kobo app developer, on Daring Fireball:

    It makes no sense at all. It is certainly not consumer friendly – this makes things more complicated for iOS app users, not less so.

    Dumb. There’s not much more that needs to be said.

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