Daily Archives: February 19, 2011

Apple goes too far with subscription money grab 4

You have to give Apple credit for chutzpah. Last week they announced a new subscription system for content available on iOS devices and they are trying to grab revenues that they have no legitimate claim too.  I love Apple design and I prefer to use Apple computers and iPods over any competing brands. However, I have avoided being drawn into the iOS ecosystem which includes iPhone and iPad. Apple simply exerts far too much control over these devices for my liking.

When Apple introduced the App Store for the iPhone and iPod Touch several years ago they set up a system that allowed both paid and free apps. Aside from a one-time $99 to join the developer program, developers could create and distribute apps through the store at no additional cost such as hosting fees. Developers that opted to charge for their apps would split the revenues 70/30 with Apple. This wasn’t an entirely unreasonable split since Apple provided the distribution servers and credit card processing. It’s generally been acknowledged that Apple makes little or no profit on this deal since its costs were roughly comparable to its 30% of the take. A fair deal all around.

The new subscription system allows publishers to distribute apps such as News Corp’s “The Daily” and charge a recurring subscription fee for content, just like a newspaper or magazine sub. Apple insists on take a 30% cut of this revenue which is OK if it is handling data distribution and credit card processing. However at the same time that the subscription payment system was announced, it declared that any and all purchases through apps must be handled through its in-app payment system and the subsequent 70/30 split.

This is actually very problematic for many companies. For example, Amazon offers a free Kindle e-reader app for iOS devices (and Android and Blackberry as well). Kindle users can buy books directly on their devices but on other machines, the app sends users to a mobile browser to search for books and make purchases on the Amazon web site. The books can then be downloaded through the app from their library.  Nowhere in this process is Apple facilitating anything. They are not serving data or handling financial transactions, Amazon is bearing all the costs of distribution. So why does Apple deserve any payment.

This actually started when Sony submitted a reader app similar to the Kindle App that also tried to bypass the in-app purchase system and Apple rejected it. Apple subsequently told Amazon, Barnes and Noble and other distributors that they could no longer get away without paying Cupertino its due. The situation gets even worse for streaming media providers like Pandora, Rhapsody, Netlfix and Hulu.

Those companies spend a lot of money on licenses and a distribution backbone independent of Apple.  Apple provides no service to them other than then customers that bought its products and want to use a variety of services. However, Apple already profited handsomely when it sold the devices. If Apple wants an ongoing revenue stream from media streaming it needs to get off the pot and open its own service.

Being forced to pay Apple 30% of gross revenue for the privilege of access to its huge customer base is just outright extortion on Apple’s part. Most of these companies are money losers already losing such a large chunk for no reason would make then totally unviable. If they raise prices to pay off Apple they will also have to raise the price charged to users on other platforms like Android and Blackberry because Apple also mandates that media distributors cannot charge its users more than any other platform.

The Federal Trade Commission and Department of Justice have apparently opened a preliminary anti-trust investigation into the new Apple practices.  Unfortunately it seems unlikely that the feds will end up doing anything of significance to Apple. Given that, people should stop buying iOS devices until Apple backs down on this issue. The money grab needs to stop.  Apple should not be paid for doing nothing.