Regulators probe Apple 30% subscription plan

http://www.reuters.com/article/2011/02/18/us-apple-doj-idUSTRE71H4DU20110218

by jhamburger • 15 years ago

48 73 15 years ago

Fully recognizing that Apple's 30% is highway robbery, isn't Google's "only 10%" still fairly outrageous? This seems like more a 5% feature, since the app providers still have to provide all their own infrastructure to actually support the subscription.

bradleyland2• 15 years ago

This isn't a "processing" fee. This is a new kind of fee. It's a "platform access" fee. Apple sees value in the fact that they've cultivated a mass of users who are more than willing to repeatedly spend small amounts of money on content. I don't think that point can be overstated. iOS users buy a ton of content, and anyone with content to push wants access to them.

Hence, the standard rules of supply and demand apply. If you control 100% of the supply, you are a monopoly, so the question will become one of defining the supply. Is it iOS users? Is it mobile device owners? Is it media consumers? Where the definition falls on that continuum will define the outcome of the investigation.

I'd be very surprised if the regulatory agencies defined the supply as iOS users, so I think Apple will get away with this. Not that it matters much. I believe Apple has crossed the critical tipping point where sustainability exists only in niches, and will ultimately push away so many content distributors that the actual creators (those with the room to sell at a 30% markdown) won't be able to fill in the gaps fast enough. There will be volumes of content available on other platforms, and the attractiveness of iOS devices (and platform) will diminish. This will have the effect of accelerating competing platforms' growth lead. At that point, Apple will either react to the market, or relegate themselves to a small portion of the market that they will happily turn a huge profit on.

r00fus• 15 years ago

This platform-markup (30%) will affect other players because in order to show any of your content on iOS, you must not just mark up your price, but Apple demands price matching with other markets... that's the uncompetetive part, as that will just raise prices for everyone, unless all those subscription services and content providers ditch iOS en-masse (unlikely).

If Apple were to relinquish their price-match requirement (unlikely) or allow apps that had no external store references (more likely), they would not cause such an upheaval in pricing.

alanfalcon3• 15 years ago

It's not highway robbery.

It's the cost of doing business on the App Store. You always have the option to serve your customers on their iOS devices over the web. If you want the convenience of the App Store and a native app, then 30% is the going rate.

SoftwareMaven3• 15 years ago

And paying the bandits on the highway was the cost of doing business if you wanted to run your trade caravan through the forrest.

I love my Apple products. I'm in awe at what the company has accomplished over the last decade. That doesn't mean they can do no wrong and their decisions can't be questioned.

I'm not talking about the cost of doing business here. I'm talking about the cost of being a customer here and the potential cost I might be forced to take, even if I decide not to be a customer any longer. If Netflix raises its prices across the board so they can stay in the garden, then it doesn't matter whether I accept Apple's rules or not: the prices are raised across the board.

kalak451• 15 years ago

Does google require you to use their service the same way apple does? Or is their service just there for developers that want to use it(at a 10% cost?)

michaelcampbell• 15 years ago

I believe the latter. Android has always allowed app installs not-from-the-market. Some CARRIERS (notably AT&T) have removed that ability for some handsets, but it's not universal and as far as I know, not common.

Kylekramer3• 15 years ago

10% does seem a bit high, but it is also unclear what the terms actually are. Google's system is pretty vague at the moment and seems much more varied than the Apple plan to the point I can't imagine a straight 10% off the top is the deal.

Of course, as far as regulators are concerned, the big difference is Google isn't railroading publishers into using it on Android or enforcing price matching.

danilocampos5• 15 years ago

> the app providers still have to provide all their own infrastructure

Like the credit card processing, the hardware manufacturing facilities in China, the software libraries, the industrial designers...

Apple has made it absurdly convenient to consume rich content. They have built fucking science fiction. 30% to get delivered to someone anywhere, any time is a bargain. You're paying to be part of the gut wrenchingly difficult channel Apple has created from scratch, which no one else had the foresight to predict or the balls to put money behind.

Apple bet the damn farm on this crazy iDevice shit and they get to charge whatever they like for it now that it works. Anyone who doesn't like it can go build their own fully integrated platform.

benologist2• 15 years ago

Except Apple didn't build Netflix any more than HP, Dell or LG did, all of whom provide devices you can use for Netflix.

Why doesn't Firefox get to charge 30%? A big chunk of people probably get to Netflix via it.

Kylekramer3• 15 years ago

Is that hard? I mean, yes, it took tons of manhours and billions of dollars, but the "fucking science fiction" they made is pretty much par for the course these days. You can say it is a "superior user experience" and stuff like that, but c'mon. That is how tech advances. If I wanted, it would be quite trivial to get something delivered to someone anywhere without anything made by Apple.

I'd amazed by how much people support one of the richest companies in the world get richer off the backs of others. After all, it isn't like they are hurting for money.

shade• 15 years ago

The problem I have with that argument, though, is that I already gave Apple $630 for my iPad, specifically because I can read Kindle books on it. I'd really like to be able to continue reading my Kindle books on it, and I really don't give a damn if Apple thinks they're somehow entitled to a cut of Amazon's sales for that.

Yes, Apple does bear the cost of maintaining the app store, but my sympathy for them on that point is rather limited considering that they're the ones who insist everything must go through the app store.

I can see both sides of the argument, but I still think Apple is being unreasonable. Really, I think this is the same as network neutrality -- just because Apple provides a platform doesn't mean they're entitled to a cut of every sale on it any more than it means Time Warner is entitled to a cut of Apple's sales every time I rent a movie through the iTunes store. Apple already got my money off the hardware (not to mention the other apps I've bought) and Time Warner's already getting my monthly subscription fees.

Now, if you want to argue that 30% is reasonable if Apple is doing the content hosting and other stuff, sure. 30% just to process a convenient payment? No fucking way.

necubi• 15 years ago

The difference is, Apple's 30% is a requirement to do business on their platform. Apple can charge whatever they want because there is no competition--you're not allowed to use other providers. Your only option is to leave iOS, which isn't really an option for a lot of companies.

Google isn't mandating anything; if a company finds 10% to be reasonable for the services provided, they can make use of it. Otherwise they can do it themselves, or use another provider.

blahedo• 15 years ago

I was thinking about this myself, and I'm having fun imagining an ongoing argument at Google:

M: I just don't know. 10% seems high.

A: But it's a great service, and developers will pay for the convenience.

B: M's right, 5% would be a better rate; we're not planning to force people to use it and if it's too high they'll just go somewhere else. 5% might even be too high.

M: I'll think about it.

A: But you've been thinking about it for weeks! We can't release until we agree on a number. And I still...

[all are interrupted by video of Apple announcing their 30% policy with mandatory participation]

[pause as they pick their jaws up off the floor]

M: Ten. Go.

ScottBurson• 15 years ago

Right. Now when Apple gives in and drops the fee to 15%, everyone will relax, even though if they'd asked for 15% initially, they would have gotten much the same reaction they're getting now. It's a brilliant strategy.

dialtone• 15 years ago

The problem is not the 30% fee. The problem is the requirement to offer inside iOS the same or better deal that you give outside of it.

Bossman2• 15 years ago

10% is still a bit much, I guess. But it's pretty damn smart of Google. Apple announces 30%, everyone gets pissed. Google comes out and announces their plan and doesn't make a big deal about any of it. Everyone wants to know how much Google takes and when they find out it's 10%, Google wins.

Niten• 15 years ago

Not at all. Because unlike Apple, Google isn't forcing people to play by their rules; they're just holding this out as an option for those developers who choose to use it.

ck2• 15 years ago

Apple's problem is it's company name doesn't end in AA, they are the only industries that can get away with 30% without investigation.

random422• 15 years ago

Non US guy here. Which company is it? (Must be famous, but does not ring a bell to me, right now).

bpodgursky• 15 years ago

Pretty sure he's referring to the MPAA and RIAA (they aren't actually companies.)

hardtke• 15 years ago

Apple spent millions of dollars promoting the concept that iPhone/iPad apps should not necessarily be free. How many times did you see a print ad where they showed a bunch of cool apps AND their prices? This 30% fee is simply a return on that investment. Paid apps don't sell on other platforms (e.g. Android) because these platforms never marketed this idea to consumers. 70% of something is better than 100% of nothing. It's the same story with iTunes -- Apple is the only company that convinced consumers to pay for music, and they charge exorbitant fees to the record labels.

ben1040• 15 years ago

70% of something is better than 100% of nothing.

100% of nothing is preferable to 70% of "something", if it costs you 90% of "something" to deliver the service, and "something" is already the maximum price the market will bear (and Apple will not allow you to increase the "something" only on iOS to compensate for their demands anyway).

georgieporgie• 15 years ago

This would mean customers who want to sign up for a Netflix Inc video account may have just two choices: They could do so through the Netflix website, in which case Netflix would keep the full fee, or they could subscribe through the applications in their iPhone or iPad which would cost Netflix 30 percent of its fees.

I haven't written an app, and I'm not entirely familiar with all the terms that have come up recently about Apple. Do I understand correctly that, merely by initiating the subscription from within an app running on iOS, that Apple is becomes entitled to 30% for all deliveries made on said subscription?

Is your only other choice then, within your app, to say, "please type this URL into your PC's web browser to subscribe..."?

Is the actual content delivery mechanism any different between the two cases?

benologist2• 15 years ago

From what I understand I think you're right, with the added bonus of being forced to offer the subscription in the app if it's available outside of it.

msbarnett• 15 years ago

> Do I understand correctly that, merely by initiating the subscription from within an app running on iOS, that Apple is becomes entitled to 30% for all deliveries made on said subscription?

Yes.

> Is your only other choice then, within your app, to say, "please type this URL into your PC's web browser to subscribe..."?

You don't even have that choice. If you offer a subscription via the web, you must also offer the subscription, at the same price or better, through the app. They'll reject you if you don't. And they'll reject you if you even so much as hint that there's a way to subscribe outside the app that won't cost you 30% of your revenue.

protomyth• 15 years ago

I actually wouldn't be opposed to it if (big if) they hosted the content and allowed apps with subscription/content to not have any in-app purchase at all (no Apple / no flip to Safari) to avoid the 30%. This would let Netflix, last.fm, etc do their thing and Amazon to do its thing. Everyone already knows to buy books on Amazon, so no great loss not having something in-app.

jonbro2• 15 years ago

this is exactly it. the problem with the rules is that apple requires any app that makes money outside of the app to also give apple a way to skim. Apple could of course just enforce this for the apps that they are direct competitors with, but that seems like an even bigger issue.

I just thought of some other things that would be effected: google apps for business, any app that google distribs would need the option for in app payment.

this is 3.3.1 all over again.

bryanallen222• 15 years ago

Google Launches New Web Referral Program

Google today announced a new Web Referral program as part of their search engine. Indexed web pages that accept payment will be required to accept Google Checkout as a payment option. Google Checkout payments now give Google a 30% cut per transaction.

CEO Larry Page stated, "Our philosophy is simple - when Google brings a new buyer to the web page, Google earns a 30 percent share; when the company brings and existing or new buyer to the page, without using the Google search engine, the company keeps 100 percent and Google earns nothing. All we require is that, if a company is making a product or service available on their web page, the same (or better) offer be made via Google Checkout. We believe that this innovative Web Referral service will provide companies with a brand new opportunity to expand their exposure on the world wide web, delighting both users and companies."

Page added that customers will benefit from a consistent user interface and less distribution of their credit card and personal information.

invertd3• 15 years ago

Well said sir, well said.

juiceandjuice2• 15 years ago

Paypal Reacts, proposes same thing.

Companies offering payment from both services increase prices 170%.

richcollins• 15 years ago

I don't see how that is an argument to get regulators involved (if that is the point that you're trying to make)

bryanallen222• 15 years ago

There are good arguments elsewhere in this thread. I'm just pointing out a scenario I haven't seen discussed much: What if all powerful tech companies started wielding their power as an offensive weapon?

Oracle wants a cut of JVM delivered content, Microsoft wants a premium on content that passes through their APIs, etc.

mattparcher• 15 years ago

I have difficulty defending Apple in this matter, but yours is an inaccurate comparison.

Google did not create the internet. On the other hand, Apple created the iPhones, iPads, and iPod touches on which these apps (potentially) thrive, and has gone to great lengths to support app developers.

danilocampos5• 15 years ago

If we're going to believe this website, looks like Apple will let you keep $3 more per $100 than PayPal and $11.50 more than credit card processors, assuming a $1 subscription fee like The Daily's:

http://feefighters.com/paypal-calculator

Maybe regulators should probe those guys.

(Credit to @schwa on this one: https://twitter.com/#!/schwa/status/38676753316708352 )

notahacker2• 15 years ago

PayPal doesn't require you to offer them as a payment option though if you want to be installable on the tablet with ~75% market share though, so you can get a merchant account with a ~20% fee instead.

trotsky• 15 years ago

It is interesting how the micropayment zeitgeist has evolved

- Micropayments are not possible because fees and rakes amount to unsustainable cuts

- In some specific verticals (self published, digital) some micropayments are able to thrive despite the large cuts.

- Platform provider responds to those verticals by enforcing a micropayment fee structure on any transaction size

jonbro2• 15 years ago

I think that the way to deal with micropayments is to sell them in bundles, like xboxlive points (MSDollars?). I could see amazon getting behind this with other platforms. Having your own currency is really nice for lock in, etc.

siglesias• 15 years ago

Here's the part where Apple argues that the iPad is part of the PC market, and thus represents < 1%. No antitrust.

notahacker2• 15 years ago

That's going to conflict with their magical revolutionary marketing as a "whole new class of product"

flyingyeti• 15 years ago

Is it against the rules to offer a different service to iOS devices than you do to Android, Web and/or PC users? For example, maybe Netflix could make "Netflix Premium" available on iOS devices, and charge $12/mo instead of $9/mo, covering Apple's 30% cut.

I'm sure this has been considered, but I'm not seeing where exactly.

xentronium2• 15 years ago

> I'm sure this has been considered, but I'm not seeing where exactly.

Your app needs to get validated. Bazinga.

ghshephard2• 15 years ago

The last thing we need at this stage of the game is "Regulators" messing around in the market. It's early years, in the tablet market, and Google is going to come out with some awesome android operating systems, and I'm confident we're going to see some great tablets that will let me read my Kindle books on.

If Apple wants to shoot itself in the foot, and send everyone over to Google/honeycomb tablets by coming up with some insane pricing strategy for resellers - I think they should be free to.

If _anything_ this step by Apple, at this stage of the tablet market, _ensures_ we'll have competition. If they weren't making blunders like this, then the argument for going with an Android tablet would have been much, much weaker. As it is - I, Mr Apple fanboy himself, am finally preparing to purchase a non-Apple tablet, simply because all the content providers I'm interested in (WSJ, NYT, Economist, NetFlix, KINDLE(!)) are going to start abandoning the iPad and moving over to the Android Tablets.

And I'll follow them. No government assistance required.

brown9-2• 15 years ago

How does one know when the the market has entered the stage where regulation is ok? I'm not sure how anyone can tell whether if the timing is "too early" or "just right".

zzleeper3• 15 years ago

I don't think they "shot themselves in the foot" in terms of profit. If they actually have a dominant position in the market (kinda true for ipads), then Amazon and the others will accept Apple's terms.

That means that EVERYONE ELSE will subsidize Apple prizes (since they have to sell their products at the same prize as in the ipad). With that subsidy, Apple can choose to lower the prices of ipads, thus cementing it's incumbent advantage.

Let's put it in another way: If MSFT circa 1999 forced every shop selling Windows programs for a 30% share (and lower or equal prices than everywhere else), and with that share they gave away Windows at a low price (or for free), then it would have been VERY HARD for Apple or any other competitor to disrupt Windows.

ghshephard2• 15 years ago

Netflix, Kindle, and other resellers will not be able to operate on the iPad. The 30% number eliminates their entire margin. Therefore they will abandon the platform - rocketing up Android in popularity.

I think this is Apple's Plan (To have those resellers abandon their platform) - because they want to have a "Walled Garden" in which they are the only content sellers.

The only problem is that there are a _lot_ of us who like our Kindles, and have no desire to use "iBooks" - the lack of an eInk reader that lets us read in the sun is only one reason. Our large library of Kindle books is another.

Ergo - we'll go to the next platform, and abandon the iPad - reducing it to a niche player in the Tablet world.

This isn't like the iPod where Apple was the major distributor of Music. Apple is _not_ the major distributor of Books, Newspapers, and Magazine and there is _lots_ of competition in those markets. Apple actually only has about or so magazines and newspapers compared to the close to 1000 that PressReader and Zinio have. Apple has NO streaming Audio or Movie presence that I know of.

I think they learned the wrong lesson from the iPod - and now they are going to screw their Tablet market dominance - much to their loss.

soljin2000• 15 years ago

I remember when another giant monopoly got investigated by Anti-trust regulators a few times a year. I miss hating on MSFT. But Apple actually worries me more than MSFT ever did.

reedF2112• 15 years ago

Apple has gone too far trying to gouge developers and the backlash is well deserved. I was planning on buying an ipad but I decided to boycott all Apple products until they back off from this madness. I bet if 90s Microsoft could travel ahead in time and see apple's behavior recently, even they would blush with blatant anti-competitive moves, monopolistic practices and gouging of their users.

zzleeper3• 15 years ago

Same boat. I was going to buy a new ipad for my parents but I can't see myself doing that now. However, the problem is that there is no real alternative to it..

reedF2112• 15 years ago

Have faith in Android tablets

mortenjorck• 15 years ago

There is only one thing the DOJ should be concerned about with Apple's app subscription program, and that is the price requirement. As it's highly dubious that Apple has any kind of monopoly, it should be free to set whatever requirements it sees fit for its platform, but mandating other prices outside the App Store sounds an awful lot like restraint of trade to me: http://dictionary.findlaw.com/definition/restraint-of-trade....

*Not a lawyer

juiceandjuice2• 15 years ago

I believe they have a monopoly in terms of digital music distribution, which is one of the services that would be affected.

I might be wrong, but I don't think Amazon's market share approaches that of iTunes in music.

pnathan• 15 years ago

I always buy Amazon MP3s, personally. It works really well, and I know they don't seem to have a big skin in the DRM game for music, unlike Apple.

Personally, a Kindle is my next gadget to buy. I've been very happy with the Kindle apps on PC/Mac and I've liked the physical Kindle UI.

The iPad just doesn't do anything for me.

Bossman2• 15 years ago

The issue isn't just the 30% subscription fee. The problem is they won't let app developers charge any more than they would on their own site to make up for the fee. Also, they can't link outside the app anymore to where the developer would actually get more of the profit.

ramanujan• 15 years ago

Literally the day after Apple's announcement, Google announced a competing and cheaper offer. A more clear cut case of "let the market decide" is harder to find.

Regulators probe Apple 30% subscription plan

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