Tuesday, March 29, 2011

Making Money Easy


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Dirty Percent


Tuesday, 1 March 2011


It’s not hard to make the case that Apple’s new in-app subscription system offers numerous benefits to users, developers, and publishers. But whatever those benefits, they stem from the mere existence of these new subscription APIs. What’s controversial is the size of Apple’s cut: 30 percent.



No one is arguing that Apple shouldn’t get some cut of in-app purchases that go through iTunes. And, if Apple were taking a substantially smaller cut, there would be substantially fewer people objecting to Apple’s rules (that subscription-based publishing apps must use the system; that they can’t link to their external sign-up web page from within the app; and that they must offer in-app subscribers the same prices available outside the app).



The reasonable arguments against Apple’s policies seem to be:




  • Apple should be taking less, perhaps far less, than 30 percent.


  • Apple should not require subscription-based apps to use the in-app subscription APIs. If it’s a good deal for publishers, they’ll choose to use the system on their own.


  • Apple should not require price-matching from subscription offers outside the app. Publishers should be allowed to charge iOS users more money to cover Apple’s cut.


  • Apple should consider business models that simply can’t afford a 70/30 revenue split.




Let’s consider these in reverse order.



Apple Should Consider Business Models That Can’t Afford a 70/30 Revenue Split



Apple doesn’t give a damn about companies with business models that can’t afford a 70/30 split. Apple’s running a competitive business; competition is cold and hard. And who exactly can’t afford a 70/30 split? Middlemen. It’s not that Apple is opposed to middlemen — it’s that Apple wants to be the middleman. It’s difficult to expect them to be sympathetic to the plights of other middlemen.



Some of these apps and services that are left out might be ones that iOS users enjoy, though. This is the leading argument for how this new policy will in fact hurt users, and, as a result, Apple itself: it’ll drive good apps off the platform. Frequently mentioned examples: Netflix and Kindle. For all we know, though, Netflix may well be fine with this policy. Apple would only get a 30 percent cut of new subscriptions that go through the Netflix iOS app, and that might be a bounty Netflix can live with in exchange for more subscribers. Keep in mind, too, that Netflix and Apple seemingly get along well enough that Netflix is built into the Apple TV system software.



Kindle, and e-book platforms in general, are a different case. For one thing, Kindle doesn’t use subscriptions. Kindle offers purchases. Presumably, given Apple’s rejection of Sony’s e-book platform app last month, Apple is going to insist on the same rules for in-app purchases through apps like Kindle as they do for in-app subscriptions. If so, something’s got to give. The “agency model” through which e-books are sold requires the bookseller to give the publisher 70 percent of the sale price. So if the publisher gets 70 and Apple gets 30, that leaves a big fat nothing for Amazon, or Barnes & Noble, or Kobo, or anyone else selling books through native iOS apps — other than iBooks, of course.



But leaving aside the revenue split, there are technical limitations as well. The existing in-app purchasing system in iOS has a technical limit of 3,500 catalog items. I.e. any single app can offer no more than 3,500 items for in-app purchase. Amazon has hundreds of thousands of Kindle titles.



Something’s got to give here. I don’t know what, but there must be more news on this front coming soon. I don’t believe Apple wants to chase competing e-book platforms off the App Store.



Apple Should Not Require Price Matching



Why not allow developers and publishers to set their own prices for in-app subscriptions? One reason: Apple wants its customers to get the best price — and, to know that they’re getting the best price whenever they buy a subscription through an app. It’s a confidence in the brand thing: with Apple’s rules, users know they’re getting the best price, they know they’ll be able to unsubscribe easily, and they know their privacy is protected.



Credit card companies insist on similar rules: retailers pay a processing fee for every credit card transaction, but the credit card companies insist that these fees not be passed on to the customer. Customers pay the same price as they would if they used cash — which encourages them to use their credit card liberally. (Going further, many charge cards offer cash back on each purchase — they can do this because the cash-back percentage refunded to the customer is less than the transaction processing fee paid by the retailer.)



So the same-price rule is good for the user, and good for Apple. But Matt Drance argues that Apple could dissipate much of this subscription controversy by waiving this rule:




The requirement that IAP content be offered “at the same price
or less than it is offered outside the app,” combined with the
70/30 split, means developers must make less money off of iOS by
definition. They can’t price their IAP content higher to offset
the commission, nor can they price their own retail content lower.



If I am interpreting this correctly, I can’t bring myself to see
it as reasonable. […] I think a great deal of this drama could
go away if Apple dropped section 11.13 while keeping section
11.14: Your prices on your store are your business; just don’t
be a jerk and advertise the difference all over ours.




And I agree with him. Yes, the same-price rule is good for users and for Apple, but waiving this rule wouldn’t be particularly bad for users or for Apple, either — and it would give publishers some freedom to experiment.



I suspect one reason Apple won’t budge is that their competitors — like Amazon — insist on best-price matching.



Apple Should Not Require Apps to Offer In-App Subscriptions



I’m sympathetic to this argument, too. “If you don’t like our terms, don’t use our subscription system.” But it has occurred to me that this entire in-app subscription debate mirrors the debate surrounding the App Store itself back in 2008 — that 30 percent was too large a cut for Apple to take, that it shouldn’t be mandatory, etc. The same way many developers wanted (and still want) a way to sell native iOS apps on their own, outside the App Store, many publishers now want a way to sell subscriptions on their own, outside the App Store.



The fact is, the App Store is an all-or-nothing affair. You play by Apple’s rules or you stick to web apps through Mobile Safari. This alternative is no different for periodical publishers than it was (and remains) for app developers in general. A lot of these demands boil down to a desire for more autonomy for native iOS app developers. Apple has never shown any interest in that.



There’s one striking difference between the subscription controversy today and the App Store controversy in 2008: with subscriptions, Apple is taking away the ability to do something that they previously allowed. There was never a supported way to install native apps for iOS before the App Store. Subscriptions sold outside the App Store, on the other hand, were allowed until last month.



Apple Should Be Taking Less, Possibly Far Less, Than 30 Percent



Another difference between the App Store itself and in-app subscriptions is that with apps, Apple hosts and serves the downloads. Apple covers the bandwidth, even for gargantuan gigabyte-or-larger 99-cent games. The OS handles installation.



With in-app subscriptions (and purchases), however, the app developer is responsible for hosting the content, and for writing the code to download, store, and manage it. So — one reasonable argument goes — given that Apple is doing less for subscription content than it does for apps (or for music and movies purchased through iTunes), Apple should take less of the money.



Taken further, the argument boils down to this: that for in-app subscriptions and purchases, Apple is serving only as a payment processer — and thus, a reasonable fee for transactions would be in the small single digits — 3, 4, maybe 5 percent, say. More or less something along the lines of what PayPal charges.



Apple, I think it’s clear, doesn’t see it this way. Apple sees the entire App Store, along with all native iOS apps, as an upscale, premium software store: owned, controlled, and managed like a physical shopping mall. Brick and mortar retailers don’t settle for a single-digit cut of retail prices; neither does the App Store.



Seth Godin argues that Apple’s 30 percent cut is too big to allow publishers to profit:




Except Apple has announced that they want to tax each subscription
made via the iPad at 30%. Yes, it’s a tax, because what it does is
dramatically decrease the incremental revenue from each
subscriber. An intelligent publisher only has two choices: raise
the price (punishing the reader and further cutting down
readership) or make it free and hope for mass (see my point above
about the infinite newsstand). When you make it free, it’s all
about the ads, and if you don’t reach tens or hundreds of
thousands of subscribers, you’ll fail.




Godin’s logic strikes me as questionable. For one thing, he freely switches between a newsstand metaphor (arguing, perhaps accurately, that the App Store is too large for publishers to gain attention from potential readers in the first place — you won’t read what you never notice) and the economics of subscriptions. But subscribers are the opposite of newsstand readers. Newsstand readers are buying a single copy, often on impulse. Subscribers are readers who are already hooked, and who know what they want. Put another way, the size of Apple’s cut of subscription revenue — whether it were higher or lower — has no bearing on the “attention at the newsstand” problem.



Second, the problem facing traditional publishers today is that circulation is falling. Newsstand sales and subscriptions are falling, under pressure from free-of-charge websites and other forms of digital content. The idea with Apple’s 70-30 revenue split is that developers and publishers can make it up in volume — that people aren’t just somewhat more willing to pay for content through iTunes than other online content stores, they are far more willing. The idea is that Apple has cracked a nut no one else1 has — they’ve created an ecosystem where hundreds of millions of people are willing to pay for digital content. Thus, potentially, publishers won’t just make more money keeping only 70 percent of subscription fees generated through iOS apps than they are now with 96 percent (or whatever they’re left with after payment processing fees) of subscription fees they’re selling on their own — they stand to make a lot more money.



I’m not guaranteeing or even predicting that it’s going to work out that way. I’m just saying that’s Apple’s proposition.



Godin’s assumption is that iOS in-app subscriptions won’t significantly increase the number of subscribers. If he’s right about that, then he’s right that Apple’s 30 percent cut will prove too expensive for publishers. But Apple’s bet is that in-app subscriptions can dramatically increase the number of subscribers. Consider the app landscape. Apple’s 30 percent cut didn’t drive the price of paid apps up — the nature of the App Store drove prices down. It’s a volume game.



The App Store itself proves that Apple might be right. Like with app sales, in-app subscriptions won’t work for every publication. But it could work for many. It really is possible to make it up in volume.



And if a 70-30 split for in-app subscription revenue doesn’t work, the price will come down. That’s how capitalism works. You choose a price and see how it goes. I’ll admit — when the App Store launched in 2008, I thought Apple’s 70-30 split was skewed too heavily in Apple’s favor. Not that it was wrong in any moral sense, but that it was wrong in a purely economic sense: that it might be more than developers would be willing to bear. Apple, clearly, has a better sense about what prices the market will bear than I (and, likely, you) do.



Competition vs. Anti-Competition



One last argument I’ve seen regarding these in-app subscription rules is that it’s further evidence of anti-competitive behavior from Apple. That makes sense only if you consider iOS to be the entire field of play. Apple, though, is competing at a higher level. They’re competing between platforms: iOS vs. Kindle/Amazon vs. Android/Google vs. Microsoft, and in some ways, vs. the free web. Why should publishers make an app rather than just a mobile web site? For happier customers and more money.



Sony has a platform for e-books. Amazon has a platform for e-books. Barnes & Noble has a platform for e-books. Apple has a platform for e-books. But Apple is the only one which allows its competitors to have apps on its devices. And Apple is the anti-competitive one? I’m no lawyer, but if the iTunes Music store hasn’t yet been deemed a monopoly with Apple selling 70+ percent of digital music players, then I doubt the App Store will be deemed a monopoly for a market where Apple has never been — and, according to market share trends, may never be — the top-selling smartphone maker, let alone own a majority of the market, let alone own more than a single-digit sliver of the phone market as a whole. As for ruthless profiteering, consider that Amazon, with their e-book publishing, originally took the fat end of a 70-30 revenue split with authors.



One question I’ve been asked by several DF readers who object to Apple’s new in-app subscription and purchasing policies goes like this: What if Microsoft did this with Windows, and, say, tried to require Apple to pay them 30 percent for every purchase made through iTunes on Windows? To that, I say: good luck with that. Microsoft couldn’t make such a change by fiat. The whole premise of Windows (and other personal computer systems) is that it is open to third-party software. Apple couldn’t just flip a switch and make Mac OS X a controlled app console system like iOS — they had to introduce the Mac App Store as an alternative to traditional software installation. If Microsoft introduced something similar to the Mac App Store for Windows, Apple would simply eschew it. If Microsoft were to mandate an iOS App Store-like total control policy for all Windows software, they’d have a revolt in their user base that would make Vista look like a success.



iOS isn’t and never was an open computer system. It’s a closed, controlled console system — more akin to Playstation or Wii or Xbox than to Mac OS X or Windows. It is, in Apple’s view, a privilege to have a native iOS app.



This is what galls some: Apple is doing this because they can, and no other company is in a position to do it. This is not a fear that in-app subscriptions will fail because Apple’s 30 percent slice is too high, but rather that in-app subscriptions will succeed despite Apple’s (in their minds) egregious profiteering. I.e. that charging what the market will bear is somehow unscrupulous. To the charge that Apple Inc. is a for-profit corporation run by staunch capitalists, I say, “Duh”.



If it works, Apple’s 30-percent take of in-app subscriptions will prove as objectionable in the long run as the App Store itself: not very.





I read an interesting article this morning that suggested Apple would change its mind and put Adobe’s Flash technology on its iOS devices within a year. I don’t think that’s going to happen.


In an open letter to users, Apple CEO Steve Jobs gave several reasons why he didn’t want Flash on the iPad, iPhone or iPod touch. They are: Flash isn’t open; the full web; reliability, security and performance; battery life; and touch.


Adobe began shipping Flash Player 10.1 for Mobile last June, but even Laptop magazine admitted that “Steve Jobs was right,” and that “Adobe’s offering seems like it’s too little, too late.” Granted, that report was from six months ago, but it still doesn’t bode well for the technology.


There is no doubt that Adobe is making advances with Flash on mobile devices, but I don’t believe future changes will be enough to get Apple to adopt the technology.


Jobs has been very clear that Apple supports HTML5, an open technology that is controlled by a standards committee, not one company. By building support for that technology into Webkit, Apple is ensuring that mobile Web browsers will be able to access what we’ve come to know as the “full web.”


Webkit is used by Google, Palm, Nokia and RIM, so it has a pretty solid base.


One of the arguments often bantered about when the discussion of the “full Web” comes up is video. There is no doubt that Flash made huge strides over the years in having sites like YouTube encode their videos in Flash. But that’s for the desktop.


As Jobs points out, almost all of this video is also available in H.264 format (a format Flash also supports), so it’s viewable on the iPhone, iPad and iPod touch.


“Add to this video from Vimeo, Netflix, Facebook, ABC, CBS, CNN, MSNBC, Fox News, ESPN, NPR, Time, The New York Times, The Wall Street Journal, Sports Illustrated, People, National Geographic, and many, many others. iPhone, iPod and iPad users aren’t missing much video,” wrote Jobs.


You may ask why other companies adopted Flash for their mobile devices when Apple won’t. That’s easy, they are looking for something they have that Apple doesn’t. Considering how hard it is for tablet makers to compete with Apple, any perceived advantage will work.


I’m not an Adobe hater—I know quite a few people that work at Adobe and I think they’ve done some amazing things over the years. Flash for mobile devices isn’t one of them.


Chris Dawson said he gives “Apple a year until they cave [and adopt Flash]. Android tablets will just be too cool and too useful for both entertainment and enterprise applications if they don’t.”


I have been using my iPhone for years and my iPad for one year. I honestly can’t remember the last time I went to a Web site that wouldn’t load because I didn’t have Flash installed. I can load videos from YouTube and a host of other sites too, no problem.


Apple has sold more than 160 million iOS devices and there are no screaming, angry hordes of users breaking down the doors at 1 Infinite Loop demanding Flash on their devices.


In order for Apple to change its mind and adopt Flash, the technology has to be proven to be indispensable and that it will benefit its users. Apple has proven just the opposite is true.


Editor’s Note: Jim Dalrymple has been writing about Apple for more than 15 years. You can follow him on Twitter @jdalrymple and on his Web site at The Loop.



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The major legislative item on the agenda in the Senate this week will be The Small Business Reauthorization Act (S. 493).  Republicans plan to use this bill as a platform to promote critical pieces of legislation through the process of non-germane amendments to the bill.  Here are some vital amendments that will be debated and voted on throughout the week:



  • Senator Mitch McConnell is offering an amendment (S. AMDT 183) to prohibit the EPA from promulgating any regulations on greenhouse gas emissions.  There is perhaps no force that is more destructive to our prosperity, consumer freedom of choice, and job creation than onerous cap and trade schemes.  There are many red state Democrats who are up for reelection in 2012 and will be hard pressed to go on record as supporting policies that are an imprecation to the interests of their states.  Make sure to call Senators Claire McCaskill, Joe Manchin, Ben Nelson, Bill Nelson, and Jon Tester in particular.



  • Senator David Vitter is offering an amendment (S.AMDT. 178) forcing the federal government to sell off unused and underused property.  This is a serious issue.  The federal government owns over half of the land in some western states and has been using it to stifle energy development.  Selling unused federal lands would also serve as a prudent means of generating revenue without raising taxes.



  • Senator Rand Paul is using the SBA bill as a platform to offer his signature budget bill (S.AMDT 199) which would slash $200 billion in spending for fiscal 2011.  Paul’s plan slashes funding by 50% to the Departments of Energy, Education, and HUD.  This amendment represents real limited government and budget austerity and will separate the men among the boys in the ranks of the Republican Conference.



  • Senator Kay Bailey Hutchison is forcing a vote (S. AMDT 197) to delay the implementation of ObamaCare until a final resolution is reached in pending lawsuits.  Unlike other bills that are designed to merely ameliorate ObamaCare, this amendment would completely halt it during the ensuing legal battles.



  • Senator Tom Coburn has filed an amendment (S.AMDT.184) to force federal agencies to compile comprehensive lists of all of their programs


Make sure that all of your Republican senators are on record supporting these amendments, especially Rand Paul’s budget proposal.  Also, let’s see which faux moderate Democrats will commit to supporting anyone of these commonsense initiatives.  Needless to say, I didn’t waste time calling my senators; Barbara Mikulski and Ben Cardin!






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URGENT: Plutonium detected in soil at Fukushima nuke plant: TEPCO <b>...</b>

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Small Business <b>News</b>: Social Media Brand

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