54 Comments

Summary:

Apple is cracking down on apps that try to avoid doing transactions through the app store. The news caused a minor firestorm, but the lesson for media companies is clear: if you want to use Apple as your distribution platform, you have to pay the piper.

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Apple caused a minor firestorm of criticism on Tuesday after it rejected Sony’s eReader app from the app store, saying the service had to allow in-app purchases as well as those that take place on Sony’s website. The company later clarified that this was always the rule for apps, but it’s cracking down on the practice now, and requiring all apps which allow external purchases to also offer in-app purchases — which go through the Apple payment system, and therefore give the company its standard 30-percent cut of every sale.

The news caused all kinds of consternation, but the deal is really very simple: If you want to use Apple as your distribution platform, you have to pay the piper. That’s a useful lesson for media companies to learn, although it’s probably too late for most.

Be Careful What You Wish For

When the first rumors about the imminent launch of an Apple iPad started circulating, many media outlets leaped at the chance to partner with the company and get their content on the new device. At the time, I (and others) warned that the new tablet was unlikely to be the solution to the problems of the media industry — and that publishers should also be careful what they wished for. By giving media companies an all-in-one platform for reaching readers and viewers and potentially selling them content via iPad apps (although that hasn’t been going all that well so far), Apple was also effectively locking down its control over that distribution channel and the relationship with those users.

This became obvious when some media outlets started negotiating with Apple about a subscription-based newsstand — a service the company is expected to announce tomorrow, as part of the launch of Rupert Murdoch’s highly-touted new iPad-only publication, The Daily. Apple balked at the idea of giving publishers access to any of the subscription or user data that would come from such an arrangement, saying only it would be able to see that data. For media companies, that kind of information is a huge part of how they sell their content to advertisers, by showing that they are reaching the right demographics and therefore that their content is worth buying.

Then Apple did the same kind of thing that it just did with Sony: It reportedly told newspaper companies that they would no longer be able to give their readers a free subscription to their content through their iPad app. Instead, they would have to sign them up for a regular subscription via the app. Just as with the Sony deal, the obvious intent was to shut off a potential escape route by which media companies could provide access to their content, and thereby avoid the 30-percent door charge at the Apple store. Frédéric Filloux summed this up nicely in a recent post on the Monday Note blog.

The Landlord Will Get His Share

That Apple is doing any of this shouldn’t come as any surprise. What’s the point of controlling a platform like the iPhone and the iPad if you can’t force people to pay you a carrying charge for hosting their content and connecting them with their customers? Allowing Sony or the New York Times to either give away their content for free or to sell it under their own terms and keep the proceeds doesn’t make any sense; it would be like a shopping mall owner giving tenants space for free, then allowing them to send shoppers out to the parking lot to finish a transaction, so they wouldn’t have to pay the mall owner his share of the proceeds. Whatever happens, Apple will get its cut.

Call it a deal with the devil or whatever you want, but Apple is the one that came up with devices that are so appealing, and a content-distribution model that is so effective, that it has sold 10 billion apps in less than three years, and created a whole generation of users who look to it for content such as newspapers, magazines, e-books and games. Putting your eggs in Apple’s basket is a great way to get them to market — but just remember who owns the basket, and who you have to pay for carrying it, and who controls the route to your customer. Meanwhile, over in the corner stands Google, waving frantically.

Related GigaOM Pro content (sub req’d):

Post and thumbnail courtesy of Flickr user Bill Jacobus

  1. “What’s the point of controlling a platform like the iPhone and the iPad if you can’t force people to pay you a carrying charge for hosting their content and connecting them with their customers? ”

    Apple isn’t hosting ANY content aside from the app itself. It makes sense for them to take a 30% cut of app sales because they provide the platform, store and marketing with which to sell the apps.

    Content (such as e-books) sold within the app ISN’T hosted by, marketed by nor facilitated in any way by Apple once the app is on a user’s device, so what exactly have they done to deserve a cut of ALL sales?

    Why does the author approach the issue as though it’s just obvious that Apple should be entitled to a 30% cut of everything that happens on their devices? What’s next, a 30% cut of all mobile advertising that ever appears on an iPhone or iPad? I see little difference between the two, if the assumption is that they are somehow entitled to a cut of any activity on the devices they create. Further, I imagine that if Samsung announced they planned to levy a fee on every commercial transaction that takes place on THEIR devices, people would laugh them off the stage. We should be doing the same thing to Apple in this case.

    It’s decisions like this that are driving Android’s user base and app development through the roof while iOS remains relatively stagnant. Well played, Apple.

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    1. @beenyweenies

      Well said and I couldn’t agree with you more! It’s decisions like this that are going to cause BOTH Google & Apple to receive the regulatory oversight that Microsoft received in the 80′s (and which imho is LONG overdue for BOTH!).

      Microsoft is just quietly sitting in the background waiting to pounce after Google & Apple eviscerate each other and suck all the oxygen out of the room…

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    2. Doesn’t matter if it’s hosted or not, the 30% is the fee they have to pay to have access to “Apple” customers. They are not people off the street, they are registered “Apple” customers.

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      1. Andrew MacDonald Wednesday, February 2, 2011

        +1

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    3. If you don’t want to pay Apple, then feel free to find access to customers some other way.

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      1. Yep, and that’s why my development team are shifting focus to the Android platform.

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  2. Well, hopefully when Jobs is gone and forgotten, Apple will get somebody wise in the leadership role to view customers as assets to be catered to and not to be leeched from. Its a shame someone with such hardware brilliance has to be such a platform Nazi.

    Thank god I never wasted money on an Apple device.

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    1. They are catering to their customers – They’re demanding a unified way to buy stuff – making it easy for all to just one-click

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      1. Which should I believe:

        1. AAPL wants to make more money
        2. AAPL thinks their users are retarded and cannot use a easy to use webpage.

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      2. Oh please – Just because one-click makes it so easy doesn’t mean anyone’s retarded. Ever use iTunes or Amazon one-click? Probably not, you probably never buy anything.

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      3. So if you had to choose between an ebook that costs $10 and is on Amazon’s webpage, or the same book that costs $13 with Apple’s in-app purchasing, you’d choose the $13 one because you can just use one click? I don’t think the money difference is worth it.

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      4. Lucian – Nowhere have I said “me” – What I would do (or you) isn’t what most would do. We’re probably geeky enough to switch in and out of modes. And, on small purchases, the difference isn’t big enough for the hassle. Totally different deal on bigger ticket items.

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  3. If you want to use Apple’s hyper-popular platforms, you have to pay Apple. Sounds like American business as usual, to me.

    @beenyweenies: Are you aware that Google pays handset manufacturers to use Android, in the form of up-front payments and ad splits? If that isn’t an incentive for handset manufacturers to adopt Android, I’d like to see one.

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  4. They better not screw up my Kindle app!

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    1. Won’t that depend on Amazon more than Apple?

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    2. Apple could basically force Amazon to pull the Kindle app. Interesting that the commenter above ‘gets it’ better than the original writer. Selling books is not the same as selling apps and I agree, ZATZAi, there better not screw up the Kindle app. It’s one of the best things on the iPad including the interface to Amazon.com’s Kindle store. I love the free samples, easy search and selection, as well as the features of the Kindle app. If Apple screws that up, I’ll be pissed!

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  5. [...] this link: Steve Jobs to Media Co's: It's My Way or the Highway: Tech News … Tags: a-minor-firestorm, app-store-, apple, avoid-doing, but-the, cracking-down, lesson, [...]

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  6. I love it. The more they clamp down on their platform, the more appealing Android (and maybe someday Meego) become. The more appealing Android becomes, the more affordable, more powerful, and more competitive Android devices become. Bring it on, Steve!

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    1. Not necessarily – The more Apple makes the buying process standard, the easier it is for “their” customers – One-click, done.

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      1. Apple is like the Mob. “Pay the protection (UX) tax. It’s for your own good!”.

        I can’t believe people actually welcome it. There must’ve been some people back in the day that gladly paid the protection tax, too, thinking they actually get protection for it.

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      2. The Mob – Sorry, that’s just ridiculous

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  7. I love how people jump on this FUD. Show me where the Sony Reader and the Kindle allows you to buy or use each other’s wares? Would they allow a version of iBooks to run on their devices so you can buy from Apple? Hmmm

    Chill people! As for Apple’s markup of 30% on in store purchases, well guess what happens when a bookstore buys books from a publisher? They get the book at 30% to 40% off suggested price! How dare those nasty book stores make a profit off selling the books at retail!

    Sure I wonder if the old rule of retail markup applies anymore, but the market place can decide that. My issue is companies like Sony who own and control content also sell consumption devices! The closed garden is really a Prison. Apple at least at the moment, doesn’t own any content (well Jobs does own a fair wack of Disney) so why are people so bent out of shape??? Just blindly responding to FUD I suspect!

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    1. I think the bookstores have *slightly* higher costs than Apple’s Appstore, don’t you think?

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  8. “it would be like a shopping mall owner giving tenants space for free, then allowing them to send shoppers out to the parking lot to finish a transaction, so they wouldn’t have to pay the mall owner his share of the proceeds.”

    Or it would be like microsoft offering and operating system that would allow people to install and pay for software with out microsoft getting cut. Oh wait.
    You can change windows for OSX.

    The is argument is ridiculous. People buy the iPad/iPhone because it has access to great apps, if you start making these apps leave people will leave the devices.
    Can’t wait for android commercials start touting access to kindle, nook, borders, zinio, mog and other apps that apple is going to force out since it will not make any financial sense to be in the app store any more.
    Don’t tell me apple expects to make money directly off of apps, because every investor meeting it has had they say they do not make and have no intention to make money off it. They make the money off the hardware and people buy the hardware partly because of the apps.

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  9. Gee, if I ever buy a new Dodge pickup truck, I guess I should tell the dealer I want a Ford engine put in at the factory?

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  10. My issue with this isn’t the rule itself; it’s that Apple waited so long to enforce it. Now you’re have people invested in an app – be it Kindle or something else entirely – who may no longer have access to content they’ve already paid for? By approving an app that violated the rules, Apple was essentially saying “Yeah, this isn’t *technically* something you should be allowed to do, but we’ll allow it anyway.” Look at Apple’s app approval history. Some app store rejections are more questionable than others, but I don’t believe for a second that Apple “accidentally” approved the Kindle app (or any similar app) without knowing that it violated the guidelines. They wanted to lock enough people into using the Kindle app (and similar apps that allow for the same method of purchase), and then pull the rug out from under Amazon, who at this point will really have little choice but to comply with the “newly-enforced” rules. Even for Apple, that’s pretty low.

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    1. That’s a good point, Jonathan — I think one thing Apple could justifiably be criticized for is having a rule but not enforcing it until everyone had already become used to doing things a certain way. Kind of a low blow, even if it is within their rights to do so.

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  11. Apple may well wrest the evil banner from Microsoft’s tired shoulders at long last. For all the hoopla about Microsoft anti-competitiveness, even they never had the balls to stick it to their users like Apple. Suppose Microsoft had said that to be able to buy anything on Windows you had to buy it through a Microsoft store (giving Microsoft 30% of the sale price), do you suppose there might just have been a little bit of an outcry. All this bullshit that Apple deserves 30% for doing all the work and making life so “one click convenient” would have made even the robber barons of the 19th century BLUSH. This move by Apple finally exposes there true marketing model. The Apple hardware is simply there to feed Apple’s 30% cut. There has been a lot written about printer manufacturers using printers as a ploy to soak user with overpriced ink. At least they have been willing to loss lead on the printers for the privilege raping us on the toner and ink cartridge. All those Apple profits are starting to make sense. Thank God there are alternatives.

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    1. Don’t be silly… A simple look at Apple’s most recent earnings report would tell you that what you’re saying makes no sense.

      Apple operates the itunes store at just above break even. This is for all the music, movies, apps and TV shows.

      Just think it through for a moment. The ebook download market was estimated to be $300M in total for 2009. The Yankee group thinks it’s going to be $3B in total in 2013. If Amazon were to sell all those books via the itunes store to ios users, Apple’s take would be $1B. Their profit margins on this (it does take bandwidth, infrastructure and transaction fees to operate the store and purchases) are probably not great, but even if we pretend they’re half, this still isn’t a lot of money for a company Apple’s size.

      Apple makes money selling hardware, wash, rinse, repeat.

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      1. Well, NOW they will be making more money from apps, right?

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  12. Hah. Google in the corner? With the announced news today that Android took 33% of the global market share in Q4, while Symbian got 31% and iOS got 16%. Who is going to be waving soon? Google is the pro at giving stuff away for free for ad revenue. Pretty soon we’ll have all the books, magazines and newspapers for free with ads running at the bottom. I’d read a free book, or free mag with ads at the bottom. Or how about free per song on demand music streaming with the alternating 10 second ad? Or the option to have small banner ads that run at the bottom of the screen whenever your screen is on instead of audio ads. Googles free services with ads scrolling is the future. Apple will get passed up just like in the PC market.

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    1. Just what I need, an ad-infested mobile life – NOT
      Free is not cheap – Life has only so many minutes – I’m not wasting them on ads just to save a penny here or there.

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      1. 1. Media costs ‘pennies’? What planet are you from?
        2. Does iAd ring a bell?

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      2. @dave…
        1. Media costs ‘pennies’? What planet are you from?
        Huh? What’s that got to do with my not wanting ad infestations.
        2. Does iAd ring a bell?
        Did I say I liked those either?
        My point – which you obviously didn’t get since your planet seems to be mars – is I’ll pay for apps rather than endure ads of any kind.

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  13. Sorry, your argument is flawed. It’s not “natural” that when you sell a computer you automatically should have a right to a cut of proceeds from apps. I write this from a desktop computer with an operating system and an Internet connection, and I can install anything I want, surf any sites I need to surf, and pay only for what I use without the computer manufacturer or the operating system seller even knowing it.

    Apple gets money every time an iPad is sold, and every time an Apple app is sold, as well. That’s where it should end, really.

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    1. It may not be “natural,” but it is the way Apple functions, and at the moment it has the market control and the platform control to get people to accede to its demands.

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      1. Of course. But then you say:

        “What’s the point of controlling a platform like the iPhone and the iPad if you can’t force people to pay you a carrying charge for hosting their content and connecting them with their customers?”

        And “the point” can very well be to sell the computers themselves and your own apps. It is not necessary that you also get a cut of what others offer, as I’ve shown before. You’re effectively naturalizing something that is arbitrary.

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  14. “the obvious intent was to shut off a potential escape route”

    I’m a bit lost. Isn’t Apple only requiring an app to have an in app 30% cut buy button in addition to a browser based buy route? The customer is free to choose the method used and if no customer buys in app, then Apple gets no money. Of course consumers will probably choose the lazier course of action. Perhaps Apple will clarify this matter further.

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  15. I really don’t understand all the fuss here.

    Does Amazon allow iBooks on Kindle?

    Does Sony allow iBooks on their eReader?

    Why is Apple the only one to ever get flack for not being “open”?

    Apple created the iPhone/iPad platform that revolutionized the industry, they have every right to a cut of revenues.

    This altruistic idea of “open” is just a euphemism for “I don’t want to pay for things”.

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  16. “That Apple is doing any of this shouldn’t come as any surprise. What’s the point of controlling a platform like the iPhone and the iPad if you can’t force people to pay you a carrying charge for hosting their content and connecting them with their customers?”

    Apple is not hosting anything. This is like Samsung demanding Cable TV Companies give them a 30% cut anytime someone pays for a VOD download with a Sumsung TV

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    1. It’s Apple’s customers publishers are paying for access to as well as the App Store/iTunes ecosystem.

      They are welcome to not participate if they like, no one is forcing them to, but if they want access to Apple’s iOS devices through the iTunes Store they have to play by Apple’s rules.

      It’s no different than what Sony, Nintendo, Microsoft, etc. do with their content.

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      1. This is the same tired reply repeated over and over from Apple defenders. Can’t you come up with something more original and compelling than “if you don’t like it, you can leave?”

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      2. It’s not a tired line, it’s the “bottom line”, get used to it.

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  17. Apple considers iOS device users as “Apple customers”, and views content providers and app developers as “Apple suppliers”. Would your business freely give out its customer list to its suppliers? Apple obviously will not.

    (I do view users of the apps I develop as my customers, but since Apple doesn’t, I have to try other ways to find out who they are.)

    I may wish it were different, but for now I am content to be a sharecropper in Apple’s fields.

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  18. [...] Steve Jobs to Media Companies: My Way or the Highway Apple (s aapl) caused a minor firestorm of criticism on Tuesday after it rejected Sony’s (s sne) eReader app from [...] [...]

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  19. New feature is the extort App Developer function where Apple wants to be hardware, software, and marketplace for everything on the iProducts.

    If Microsoft tried it they would have been sued every which way in under 5 min.

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    1. Yes, Microsoft was a monopoly, 90% market share. Apple’s not, in fact droidies ballyhoo the fact that android is outselling iPhones. Little hard to sue if that fact’s true.

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  20. Title suks, but the article is quite good

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  21. [...] would have allowed users to buy e-books from the Sony Reader Store. GigaOM’s Mathew Ingram did a great job of putting the decision in the context of Apple’s past moves, explaining why they make good [...]

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  22. The haters need to calm down. I, for one, think in-app purchase improve the user experience and should be an option for every app. Why the hell would I want to exit the app, open the browser, wait a couple of page loads, struggle through another payment system, wait for authentication, and reload the app before I get to use the content.

    and… it’s still about the user, no?

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  23. [...] how much ownership publications will have with their consumer relationship. These are issues that publishers are struggling with Apple on. A lot will depend on how elegant Yahoo can make the experience and whether it can make Livestand a [...]

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  24. The shopping mall analogy is ridiculous. We pay for the hardware (iPad, iPhone, Android tablet/phone). We own it. We should be able to do with it what we want.

    No one gets space in this “shopping mall” for free. Consumers PAY for the mall itself (ie. hardware). Businesses PAY for the privilege of being in this “mall” (ie. 30% of gross sales).

    When shopping malls start charging $499 entry fee just to shop, then the analogy might fit.

    At some point, consumers (at least beyond early adopters) are going to get tired of paying a lot of money to be tethered to one monopolistic corporation’s wares and policies.

    Just as open source software ‘wants’ to be free (as in free to use how you see fit). Hardware will eventually be free again as well, once we get a choice in the marketplace again via competition.

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  25. [...] it is very inviting and pleasant and well-maintained, comes with some serious trade-offs, as I tried to explain when Apple’s subscription plans were being discussed a few weeks ago. There’s a pretty attractive carrot, but there’s also a big [...]

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  26. [...] Apple informed publishing content owners that going forward, they’ll need to include an in-app payment option through iTunes in their offerings. The issue came to a head when Sony said its Reader app was rejected after Apple apparently began enforcing its reported existing rules on in-app payments. As my colleague Mathew pointed out, this was a reminder to content publishers that it’s Apple’s way or the highway. [...]

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