Blog Post

Do The Math: Here’s The Percentage Cut Apple And Google Should Be Taking

James McQuivey is an analyst at Forrester Research, where he serves Consumer Product Strategy professionals. James blogs here.

The most important outcome of this week’s emerging tussle between Apple (NSDQ: AAPL) and Google (NSDQ: GOOG) is that we are about to have an intense and financially difficult conversation about what a fair price is for delivering customers to developers, publishers, and producers. Economically, this is one of the most critical issues that has to be resolved for the future of electronic content. Very soon, a majority of consumer experiences (that which we used to refer to as the media) will be digital. But not until the people who will develop those experiences have unambiguous, market-clearing rules for how they can expect to profit from those experiences.

The question comes down to this: Is 30 percent a fair price for Apple to charge? I do not employ the word “fair” the way my children often do. I am not whining about Apple’s right to charge whatever it wants. Apple may do whatever is best for shareholders in the short- and long-run. I argued yesterday that Apple’s recent decision does not serve its shareholders in the long run. Google announced One Pass yesterday – hastily, I might add – in order to signal to Apple and its shareholders that monopoly power rarely lasts forever. But none of that questions the ultimate morality of Apple’s decision or its rights.

I use the word “fair” to refer to a state of economic efficiency.

A fair price is one that maximizes not just individual revenue, but total revenue across all players. Such revenue maximization cannot be achieved without simultaneously satisfying the largest possible number of consumers with the greatest possible amount of innovation.

It is on that basis that I declare Apple’s 30 percent pricing unfair. How do we know what a fair price is? In an efficient market, fair prices land somewhere close to the cost of delivering services. This happens thanks to competition: As long as there is excess profit in the system, a rational competitor will lower prices to attract more customers until margins are thin enough to survive on but not amply so.

Right now there is no competition in this market. Apple owns more than 90 percent of the tablet PC business and is therefore immune to the effects of competition, at least for now. But as we’ve seen in the phone business, it only took Android a few years to catch up and I expect the same to happen in tablets. When it does, Apple will have to reevalute its 30 percent price. But will it land on Google’s 10 percent?

In the short run, maybe, though I don’t expect Apple to counter price directly, it’s just not in keeping with the company’s style. More to my point, however, in the long run, even Google’s 10 percent is too much to ask of experience providers.

Some will disagree with me, vehemently. They’ll raise examples like newsstand sales of magazines, where the publisher only gets a minority of the newsstand price. Or any physical retail business, where a 70 percent cut of the sales price would seem like a boon from on high. But none of those examples are relevant.

In the world of retail – including physical media distribution on CD, DVD or even in movie theaters – margins are slim for everyone in the supply chain. The producer, distributor, wholesaler, and retailer. Because everyone has physical costs to bear in a competitive market, they all offer their services at just above their own costs.

In the app world, however, the biggest incremental cost of a content experience is its creation. Once it is created and properly formatted for delivery – costs both born by the publisher or producer – the distribution of the digital asset is nearly free. Managing the customer relationship, maintaining secure login and credit authorization processes, delivering the bits to the device – these are all negligible costs that the platform operator bears as a service to the market. Any claim that these costs are burdensome is exaggerated.

Arguably, the biggest cost an app platform developer endured was building the device and creating the developer tools. These companies deserve to recoup that investment. And they do: Apple charges a fabulous premium for all of its devices. Plus, it expects the user to pick up the last mile of distribution costs. In other words, Apple paid for its investment already, many times over, and only has small residual expenses left to cover. This is why Apple’s stock is so popular. The device owner pays for all of Apple’s investments. Any cash Apple gets from developers is just gravy.

Again, there is nothing morally wrong with this. Apple can do this all it wants (though eventually, someone will call a Senator or two and the FTC will get involved; it’s just inevitable, even if there is ultimately no finding of fault).

So if we can’t compare Apple’s 30 percent or Google’s 10 percent (or Amazon’s 30 percent Kindle bounty, by the way) to other media or retail distribution businesses, what can we compare it to? The most direct analog is the credit card processing business. It’s similarly structured: One entity acts as a secure platform on which millions of consumers can transact with thousands of businesses. What do these companies charge? From just below 2 percent to as much as 5 percent for low-volume, high risk merchants. How do they justify this charge? Easily: They have to have a large physical and labor infrastructure to manage the process. Some of this infrastructure is paid for by partners and customers (your annual fee or the cost for a merchant to buy a credit card reader), but most is not.

This system works well. In fact, it works too well and we overuse it, a problem the last recession hopefully curtailed at least for a while.

Seen in this light, you can better understand why I argue that the long-term resting point for these kinds of platform fees is going to end up below 10 percent. It won’t happen until after 2012, when there’s enough competition among platforms and enough people going around the platforms altogether using HTML (expect Amazon (NSDQ: AMZN) to be among the first). That competitive pressure will lower prices and encourage more innovation. Apple will still have billions in the bank and its shareholders will still be very happy. But the happiness of other companies (measured in revenues) will also have risen and so will the enjoyment level of the end customers who will have better content experiences at more efficient, market-clearing prices.

That’s why Google’s announcement is so important. Because it signals the eventual arrival of this future and provides frazzled content companies with some hope that they can someday return their focus to generating the best content. That’s why they’ll sign up for One Pass, even if they dislike Google as much as they now distrust Apple.

This article originally appeared in Forrester Research.

23 Responses to “Do The Math: Here’s The Percentage Cut Apple And Google Should Be Taking”

  1. Richard Tobin

    John Loken’s comment above brings a valuable clarity to this topic. Apple would be well advised to act with caution not to be deemed acting in a monopolistic way by government regulators and to protect their ‘Golden Egg’ by charging at a level comparable these other web based commerce portals (like eBay & Amazon) rather than charge excessively and meet with the double jeopardy of stifling third-party applications availability and being legislated against.

    But all this takes the view of businesses. Takes the view of Apple ready to realise a maximised commercial value for the opportunity of the market place it has built; allowed to evolve and yet entirely controls. Takes the view of commercial enterprises who seek to enjoy the benefit and potential consolidated there. A feeding frenzy.

    There is another side to this coin. The consumer. Apple hardware users have a reasonable expectation that the considerable benefit offered by the previously liberal policy enjoyed by third-party application sellers would continue. One of the reasons they purchase and use the devices is that, despite this quasi intra-net that iStore & iTunes effectively comprise, what is on offer is as good as if they were roaming free on the internet – it is just these items have been put together and organised as a service to the Apple hardware users – part of the user interface included with the phone/tablet. This illusion is about to be broken down.

    If and when iPhone and iPad users realise they have been duped with this offer of plenty, seduced into growing in populous with this false promise, and have actually been corralled into a killing field, I think they will react very badly. I did not buy into this kit with the expectation Apple would turn and be gorging themselves of every buck I spend to use the kit I paid a premium to own in the first place (if the hardware was free/discounted that would be a different matter). The door was so wide open we did not see it till we were all inside and now they would slam it shut and lock it tight.

    So as a consumer I feel Apple have duped me. Nobody else is going to pay Apple’s cut other than the consumer, it is not going to come from reduced 3rd party seller’s margins – generally they do not have it to give. And if Apple’s dream that all applications would have to be the same price within the iTunes/iStore and everywhere else comparable they are defiantly suffering from a serious case of big-head-itis (or head-up-own-backside-isum). Stuff them that’s what I say.

  2. John Loken

    I thought this was a great analysis that articulated exactly *why* the 30% felt unfair. Not because Apple doesn’t provide massive infrastructure and services to “earn” it, but because it will put a number of nascent digital subscription businesses on ice. As an Apple shareholder, it irks me they would do something so egregious knowing full well it would catch the attention of the FTC. Imagine how inter-state trade might have sputtered in the early 1950s if the government had immediately imposed tolls on every mile of the fledgling highway system.

    That said, I think a better “comp” for an appropriate rate structure is what eBay and Amazon charge their 3rd party sellers. Unlike the merchant banks, which provide a commodity service enabling transactions, both of these sites are well-known aggregators who’ve spent years investing in brand equity, and offer a variety of services and value adds to both buyers and sellers. Very similar to Apple’s App Store. Except Amazon charges its Marketplace vendors around 15% for most goods sold and eBay charges around 12% for most types of auctions plus a $.99 listing fee. I’m assuming the latter is negotiated for volume sellers.

  3. Richard Tobin

    Matt Carrasco above advances an apparently convincing thesis in his comment; that Apple add great value through hands-on assistance with the development and marketing of projects, but some specifics in the quoted business examples are lacking.

    Matt presents two business models as examples; content creators and a sports brand. I submit that with a sports brand the exercise of developing material for Apple iPad and iPhone will be more about building the brand and any revenue they can win from such an exercise will be a bonus. Perhaps they would take a dim view if they had to pay 30% of the retail value of every pair of running shoes they took an order for resulting from brand awareness that an Apple app helped deliver. It sounds to me like they are just selling an app, and happy to split that revenue – why not? It is better than free advertising – but are not splitting the profit on physical sporting goods sold as a result of the market awareness developed via the Apple environment. They now will have to give away a little bit of jam but will still kept all the the bread and butter. Little wonder Apple want a 30% of that.

    But will eBay be paying 30% of their auction fees if their free app is being used; will the vendor have to cough too? I don’t think so.

    Content providers are not so greatly concerned with Apple apps building brand as a primary objective, they just want to sell their goods (which happen to be digital). Building the ‘brand’ of the publisher, author, editor, director, actor, studio, etc. is a secondary objective. Indeed it is often the strength of the brand independent to its app availability via Apple that counts for the success for media providers the likes of Warner Bros, WSJ, Times, BBC etc etc.

    The question of just how much value Apple add is one the consumers will answer – with their feet – if value is eroded. If Apple want to win a cut of the action occurring with their ‘captive audience’ and if they can bring so much to the party, to help develop great relevant applications, they should be working in contractual collaboration, with brands and content providers, developing great joint projects that win the greatest market share; rather than attempt to impose their ‘tax’ just because they currently have a monopoly of access to their hardware’s users.

  4. Just a second here… In regards to:
    “… Or any physical retail business, where a 70 percent cut of the sales price would seem like a boon from on high. But none of those examples are relevant.”

    Actually, you’re right that they’re not relevant, but for the opposite reason that you put forth.

    Physical media has overhead costs far, far higher than digital media (presses, shipping, etc). Yet, you’re willing to tolerate (for lack of a better term) a 70% cut there, but in digital media (where you’re only paying for minimal infrastructure, and most of the cost is to the writers), you assert that 30% is too much… because everyone is equally tight on their profit margins in physical distribution, so therefore they should bear equal burden in digital!? I’m not really certain as to what part of this makes sense.

    With most of the overhead *gone* in the digital realm, and the publisher getting 70% of the price (which is, like you said, an absolute godsend)? In the digital realm, the middlemen largely disappear – cutting it down to publisher+Apple. This means that the sub price leaves a relative ton of profit to go around (at least in comparison to physical media).

    I also notice that you leave out one bit: 30% of…what? It denotes a variable, but you’re arguing over things that have fixed costs. 30% of $10.00 is a lot higher than 30% of $1.00, yet most of the costs for distribution don’t expand or contract accordingly. CC processing fees, audit fees, infrastructure costs, bandwidth costs… these are things that won’t change accordingly on the distribution side just because the subscription price drops. I’m thinking that Apple has already calculated their costs, assumed a wide range of subscription costs based on typical fees charged, and came up with a percentage that accounts for the variable pricing (while making a tidy profit).

    Following your logic, are we to assume that the distributor’s take is to be just as lean/fat as the publisher’s? If that’s the case, then a 50% take would be rather equitable, considering that there are only two real moving parts in digital distribution: The publisher, and the distributor. Anything else would be on the publisher to provide (e.g. app programming and the like, which to be honest is pretty minimal, and would require roughly one or two FTE programmers on staff at most).

    Yes, I know I simplified things more than a little, but note that I didn’t remove anything important here.

  5. I’m not sure how many of the contributors here have actually worked directly with Apple, RIM, Android, and/or OS from a B2B perspective, but I can tell you from first and second hand experience that there is significant value that has yet to be accurately quantified when working with Apple. I’m not referring to the higher price point for paid apps compared to other marketplaces or the larger audience reach found within the Apple ecosystem (160MM credit card holders and counting). Nor do I refer to iAd, Apple’s hardware and software, or to Apple’s magnificent marketing machine. I’m referring to the value-added services that Apple provides to its business clients – the application consulting, the marketing promotion, the feedback mechanism on how to improve products, how to better position those products in the marketplace, and more.
    If these types of business services sound familiar to you, they should. They are typical ad agency services, which include but are not limited to: website development, app development, ad campaign ideation, paid media plans, earned media plans, and more. This is the real – and largely unmeasured – value lever that Apple provides to those that are willing to listen, learn, develop, and leverage a business relationship with Apple.
    Now, many content creators treat their relationship with Apple (and other distribution or technology partners) in a more or less adversarial way. This is particularly true of the traditional Film/Studio/Broadcast side of the business, where extracting the most value across the value chain at the lowest possible cost from any partner is pursued in an often times adversarial approach (from the artists that produce the content to the MVPD distributor). Moreover, this type of behavior is often promoted within these organizations and persons are rewarded for this often acrimonious business style.
    However, I recently spoke with a colleague that worked with a major sports brand and they approached their Apple relationship quite differently. They took key members of Apple’s marketing team out to dinner to establish a positive partnership. They discussed strategy. They developed marketing and product plans together. The sports brand shared confidential audience information to assist Apple in making better recommendations. And guess what happened? Apple responded.
    Apple helped them build a better product – scratch that, products. Apple encouraged them to develop for the iPad, in addition to the iPhone. And in the end, the sports brand profited immensely from this marketing, product strategy, and business advice. Their product (and brand) was featured during the launch of the iPad – 1 of only 16 other brands to share that distinction. What they paid in travel, app development, dinners, etc., paled in comparison to the real financial return they earned from Apple’s media expenditures for the iPad across all touch points – paid media, social media, and earned media. Moreover, they had earned Apple’s respect and trust. They had formed a strategic partnership that continues today.
    And what did the sports brand pay for these “value added” services in direct fees? Zero. Yes, they paid the 30% cut that Apple collects from everyone in the Apple ecosystem – but that very much follows a shared risk type of model. There were no “upfront fees” to be paid for all that consulting and product marketing assistance. Moreover, the sports brand earned far more from that revenue split because they approached the relationship strategically and with a long-term view of their business. This is the true value proposition offered by Apple’s evolving business model – a full service broker: hardware/software development, POS store front, efficient distribution and payment ecosystem, marketing machine, advertising, and agency benefits – all in one shop, and significantly superior to the competition at this stage in the game.
    Now, anyone who has discussed strategy with the folks from Google, RIM – or anyone else other than Apple – at this stage can tell you that you will get nowhere near the level of customer service and sophistication that Apple provides. For example, say you want to go to a new market outside of the US? See what kind of answers you’ll get from Google, RIM, or anyone else. A lot of “shrugging of the shoulders” and “We don’t know,” type of responses. At Apple? Chances are they already have the market intelligence, mechanisms, and people in place to help you move into that new market – and quite successfully and quickly I might add.
    So, what have we learned from this entry? We have learned that there is tangible value to be extracted from the 30% fee that is paid to Apple well beyond the hardware/software, distribution platform, and marketing machine with which we are all familiar. The companies that learn how to listen, learn and leverage that value will more than make up their 30% revenue share that they pay to Apple. Someday I might get around to quantifying exactly what that favorable arbitrage actually is for Apple’s partners, but for now, only a handful of companies will likely continue to tap that gold mine of knowledge and agency power for fractions of what they would pay traditional agency outlets for that same quality of service. Google, Facebook, RIM, Twitter, and others have some ground to make up in this race.

  6. editorsteve

    The folks defending Apple’s 30% cut don’t get it: That high a cut will push many — even most — publishing projects into stillbirth. That’s why it is not “fair.” The publishers created and nurtured a competitor to Publisher’s Clearinghouse — Charter — to keep it honest.

    BTW, it was not Google that “jumped the gun” with One Pass. The timing of Google’s announcement was well-known in the industry. Apple pushed in a day before to make Google look like the organization doing the catchup.

  7. The issue isn’t really the percentage that Apple is charging for transaction processing–it’s forbidding publishers from linking to their own sites from within their apps in order to process the transactions themselves, and giving Apple “most favored nation” pricing status. The combination of these two rules, not Apple’s 30% take, is what makes Apple’s actions so onerous. As far as I’m concerned, I wouldn’t care if Apple charged 100%, so long as I could sell my own subscriptions at any price I wanted and bypass Apple’s transaction processing system.

  8. The author overlooks the real threat that Apple, Google and others present to publishers. This battle is not about subscription revenue splits. Spend your time on that, and you will lose your franchise.

    Enabled by advances in three complementary technologies – mobile/pad computing devices, social networking platforms, and content curation/aggregation technologies – corporate marketing budgets for “ads” are slowly migrating into budgets to stimulate “product recommendations”, to provide “valuable information”, to sponsor “addictive games”, and to build “problem solving apps”.

    Which is to say that the old “advertising” model that has fueled the publishing industry for so long is being slowly replaced by marketers and suppliers offering their experience, wisdom, advice and content directly to consumers… instead of paying agencies to wow consumers with emotional ads. This is the real issue that publishers need to come to grips with: their definition of “valuable content” has changed almost overnight, due to technology. So has the definition of “ads”.

    I am not saying that emotional connection is losing importance… but the way that brand loyalty and emotional connection is *being created* is changing, due to technology. This is the real “app revolution”, and it directly and fundamentally threatens advertising revenue for publishers who do not adjust their “content” to fit into this new paradigm.

    In other words, “ads” and “apps” and “content” are beginning to merge/overlap, whether you like it or not. Because consumers prefer it this way.

    So… debating how subscriptions should be split while ignoring the gorilla in the room (apps & other forms of value-added content replacing ads) reminds me of the difference between the new health insurance law and true, meaningful health care *system reform*. One just changes who pays, while the other actually improves quality and reduces cost for the consumer.

    While we will have to wait a bit longer for better health care, new technologies in the publishing/advertising industry make it possible for consumer goods providers, service providers & talented journalists to provide consumers with better quality “content” – which actually helps them solve problems – at a much lower cost. So far, it appears that consumers are lapping this stuff up. They seem more than happy to pay for an app that solves a problem for them or entertains them for hours, but not so much for content they can cruise through in 30 minutes or less.

    Tech companies like Facebook, Apple and Google have known about, and fed, the gorilla for many years now. Contrary to the author’s claim that device companies have fixed costs with zero variable costs, these companies have spent tens of billions of capital to get all of us to this tipping point, where consumers literally “love technology”. And, importantly, they will have to continue to spend tens of billions on the next wave of advancements. Zero variable cost? Only if you ignore CapEx.

    In response to what I would call this “consumer-led revolution”, publishers can respond by arguing over subscription splits… or adapt their business models and learn new skills to feed the gorilla. But we/you won’t beat this gorilla in a fight. That battle was lost when iTunes crossed a million users…

  9. This is the silliest thing I’ve read today. Gee, we think Apple’s charging too much for us to participate (profit) in the feeding frenzy. So spend some money, build something better. Gee, we think Apple’s platforms are bad. You’re welcome to spend some money and build something better. Gee, we think Apple’s iPhone is being used wrong. Again please spend some money and build something better. Gee, iTunes bad, iStore bad. Do I need to say it again. OK I will. Put something better out there and generate the traffic and the business or shut the F**K up. Thank you.

  10. Richard Tobin

    If you have just one big fat apple in a barrel, sooner or later it will go rotten. Every apple goes rotten in the end. Better to have a barrel full of smaller fruits.

    If Apple make consumers pay a 30% loading – and it will be the consumers who pay – Apple will find it all comes right back right into their face. The iPhone will run with Linux and will run Android (see androidoniphone for eg). Consumers will dump the iOS and convert if they are squeezed because the business model for making competitive iPhone OS’s will become viable – plus then Flash will run (their monopolistic-motivated mistake number one).

    I cannot imagine anybody would miss using iTunes and the iStore – It is surely the most clunky user-unfriendly and unsearchable solution one could imagine. There already are alternatives, such as CopyTrans, and these products availability will grow exponentially as providers and clients realise the financial and utility advantages of getting out of the pomaceous prison.

    Apple should take care not to kill their Golden Goose. Their sales in iTunes are as a result of people who have chosen the equipment – because the equipment is good (which they are paying for) and there is ready access to a wide range of meaningful independent applications. I cannot imaging bothering to use iTunes and the iStore if I did not have Apple hardware – why would you?

    And indeed once you have decided your iPhone/Pad is better-off using alternative software – surely next time you buy a device it would not be so important that an Apple product is at the top of your shopping list at all. No no no. There are many good products out there these days.

  11. wired-4058

    Let put it this way google undercut Apple per se.

    I believe the writer also change 10% on all the articles he writes. Or he may even undercut his fellow writers by charging much lower.

    Face it you don’t live on fresh air and water neither do Apple.

  12. Why on earth would you use “fair” to mean economically efficient. That would only happen in a perfectly competitive (read: completely commoditized) market for it’s services, which is exactly what every tech and media company in the world is fighting as hard as it possibly can to avoid.

    Once there’s free entry into the smartphone business then you can bring this up again, but that’s not going to happen.

  13. Doug Petrosky

    I don’t disagree that the 30% is over the top but take issue with at a totally different layer. You argue that electronic distribution is vastly cheaper and thus the per transaction cost should be similarly cheaper. But you only argue it for the distributor and not for the content creator. Hmmm? The cost of creating an electronic piece of media is a fixed cost, just like an App. The profit per unit is effectively 100% (well 70% in the App store).
    So do you think that electronic media will plummet in price too? I mean with near zero distribution costs you could reduce the cost of your media to only a few percent over the cost of initial creation.

    You are quibbling about Apple making too much on electronic distribution but someone else is making over twice that much and it is just as wrong.

  14. Arnet Bangetilli

    The author is totally out to lunch without a fucking clue!

    Let him set up a competing platform for say half a billion dollars minimum and then sing this song about negligible costs. Clearly he’s whoring for one of the publishing entities who simply couldn’t believe their good fortune to get access to 150 million customers at nearly zero cost.

  15. James McQ

    Nick, you are totally in line with my thinking. This is really about economic scarcity. Whoever controls the scarce resource will exploit it, even if that scarce resource was contrived (as is the case with Apple’s platform). What digital suggests, however, if that our old urge to exploit a scarce resource might actually be counterproductive in a world where the scarce thing is virtual, not real. I’m developing this thought a bit more and hope to write on it at length later this year.

  16. For me it’s a question of where does the power now lie. Once upon a time when food was scarce the power lay with farmers producing meat, eggs and milk. Today when food is plentiful the power lies with the distributors: Sainsbury’s, Tesco’s and the like.
    In pre-internet days when content was scarce the power lay with the publishers producing news, magazines and music. Today when content is plentiful, the power lies with the distributors: Google, Apple and the like.
    Good thing or bad? The jury’s out.

  17. Apple is charging 30% to publishers that want to offer what they perceive as a premium experience, i.e. a stand-alone app. Google is charging 10% to publishers that want to offer an experience that’s really best-suited to content delivery via a web browser. The important point is that while Apple completely owns the APP-on-tablet market, they have zero control over the CONTENT-on-tablet market. So long as Apple doesn’t try to ban the delivery of paid content via a web browser, then the anti-competitive questions start to look a lot like the discussions around the XM/Sirius merger.

    Really what this re-raises is the question of why publishers are focused on developing apps as opposed to tablet-designed websites.

  18. wunderman

    James – I completely agree. Further, that market evolved over time and the magazines accepted the deal with the belief/knowledge that their real revenue would come from advertising. Almost anything they had to pay to get a subscription was worth it to them.

    The only conclusion I am comfortable with right now is: no one really knows how the economics will play out!

    It is hard to imagine the same ad to editorial ratio in e-mags — will there be full page ads? If ad revenue does drop, then the publishers have to make money on subscriptions. This is totally foreign territory to them, so I expect it to take quite a while for them to understand it.

    The challenge for almost all “old media” is that they have all been a conglomeration of several component businesses – some that attract attention and cost money, some that deliver revenue, some that provide distribution, cost money and deliver some revenue. The “digital” world changes details within each component business and the ways they can fit together. Tough to redesign on the fly.

    Expect many missteps!

  19. James McQ

    @wunderman, this is an important point. But I do want to contest it a bit. Publishers Clearing House spent millions to acquire customers, purely to deliver them subscriptions. They got no other benefit from that effort — consumers didn’t pay (or have to buy anything) to sign up for the PCH sweepstakes. This is equivalent to a newsstand where a stand owner invests in the space, the labor, the soda, etc. to attract you to the newsstand even if you don’t buy anything. That’s a legitimate cost and it has to be figured in to the cost. In Apple’s case, however, it has also spent millions, but consumers have already paid Apple back for that investment by spending hundreds of dollars each on the devices.

  20. This is an excellent round-up, but it seems that one key point didn’t get mentioned: How much margin are Apple resellers getting? If the content creaters have to bear the cost of generating interest (aka marketing) then Apple should not charge more to the content developers than they themselves give to their resellers. Especially as the resellers have to deal with physical good and delivery, whereas Apple only has to deal with electronic delivery.

  21. wunderman

    While 30% is obscenely huge for payment processing, it is tiny compared to what Publishers Clearing House kept on paper magazine subscriptions they sold (> 70%). Important to note:
    1) Customer acquisition is expensive.
    2) Total picture of costs and revenues (and alternatives) must be considered in considering whether any one component is “fair” or economically viable.