On subscriptions, the App Store is Apple's Achilles' heel

I was in this weird relationship once: all we'd do was lie to each other. Thing is, I learned a lot about human behavior and the tendency to over-complicate your explanation when you know you're doing something indefensible, and for some reason that memory came to mind when I tried to translate Apple's rapacious new rules on App Store subscriptions. I'm beginning to wonder if Apple [AAPL] has changed its Kool-Aid supplier and begun turning into Microsoft...

A swift recap in case you've missed it. Apple announced new rules yesterday in which anyone selling subscription or in-App purchases through the App Store will have to hand over 30 percent of the revenue to Apple. Sell anything outside of the App Store for use within an App and you have to also sell it for the same price or less in the App. See: even when you try to make it simple the explanation is confusing, that's because Apple knows it is asking too much.

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A step too far

Who is impacted? Newspaper and magazine publishers running Apps, small start-up publications exploring the App as a new publishing form, Pandora and all the streaming services. Netflix and Hulu are impacted, and Amazon will have to hand over the loot if it wants to maintain Kindle on the App Store.

[This story is from Computerworld's Apple Holic blog. Follow on Twitter or subscribe via RSS to make sure you don't miss a beat.]

This is terrible. With one deeply flawed decision Apple is creating enmity with every major media organization; not only that, but it could easily be accused of using its market power to force competing services out of the store. Incredibly popular music streaming service, Pandora, is threatening antitrust action. I don't blame them.

Here's a smattering from a Wall Street Journal article on Apple's pro-Android advertising: "My inclination is to be suspect" about Apple’s new service, says Shubha Ghosh, an antitrust professor at the University of Wisconsin Law School.

Ghosh questions if it is in market dominant position (how is Spotify's US launch progressing -- and why?) and if the company is exerting "anti-competitive pressures on price."

I don't think Apple's hold on the App Store constitutes a monopoly -- there are other platforms -- but I'm pretty certain the stupid new subscription charge rules will serve to lock competitors out. And that smells a little anti-competitive to me.

(ABOVE: Apple CEO launches App Store)

Care and simplicity?

Here's Apple CEO Steve Jobs' statement on the new rules:

"Our philosophy is simple—when Apple brings a new subscriber to the App, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the App, the publisher keeps 100 percent and Apple earns nothing.

"All we require is that, if a publisher is making a subscription offer outside of the App, the same (or better) offer be made inside the App, so that customers can easily subscribe with one-click right in the App. We believe that this innovative subscription service will provide publishers with a brand new opportunity to expand digital access to their content onto the iPad, iPod touch and iPhone, delighting both new and existing subscribers."

Any statement which follows the expression "Our philosophy is simple..." with statements of such baroque complexity is a lot of things, but it certainly isn't simple.

When I read these words my mind flashed back twenty years into that bad relationship I mentioned earlier. I mean, I know enough about love to know when I'm being asked to consent in my own abuse, and in this particular case, Apple's asking all the participants in its App Store value chain to take it like they really like it.

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It makes me seriously consider a future for the platform in the event the company does decide that Mac software should only be sold via the Mac App Store.

What's with the App Store?

I love Apple products, I've had a lot of pleasure from them over the years, but it seems to me that the App Store is the hub of hubris for this company. The Apple serpent that will eventually cast the company out, into the Fall.

App Store mistakes have included wrong-headed censorship of political debate, over-prurient attitudes toward grown-up games and the long-held public contretemps with Google over Google Voice. These subscription rules join that catalog of errors.

What I don't understand is why Apple needs to chase the money like this. It is heading toward becoming the world's richest company --even while its own labor reports reveal forced and child labor at some of its manufacturing partners. It has billions in the bank, and while I agree its costs should be met and the company has a right to find and agree to a profit stream, this 30 percent share for virtual distribution harkens back to the cost of brick-&-mortar retail. The business plan looks great on paper, but the analogy is all wrong.

History repeating

Think on what is happening to music right now as consumer tastes are shifted from ownership to access. Napster's Shawn Fanning back in 1999 toured the labels asking for distribution licenses on the basis that millions of track downloads for 10-cents each would generate huge piles of cash for labels and artists. The labels refused, lost millions to file-sharing, killed Napster, and spawned iTunes. Now, with streaming services, labels are taking the Napster deal -- they're accepting low revenue per track playback.

Surely Apple can't have missed this evolution? The company is asking for brick-&-mortar cash in a digital world. Naturally, friend-turned-foe Google has immediately responded to Apple's folly with the introduction of Google One Pass:

"A system for user authentication, payment processing, and administration, Google One Pass lets publishers focus on creating high quality content for their readers. Publishers have flexibility over payment models and control over the digital content for which they charge and the content that is free for consumers."

Google isn't taking 30 percent -- it has settled for a far more palatable 10 percent. Just like Apple should. Apple's new subscription rules are flawed.

This is great news for Android's power. Google can now argue for Android's so-called "openness" while pointing out Apple's App Store subscription services greed.

Let's hope this isn't the beginning of a series of flawed diktats as the company consolidates its position after a period of extremely rapid growth. 

What do you think? Is Apple right, or is it wrong? Let me know your thoughts on this in comments below and if you'd like please follow me on Twitter so I can drop you a short message each time I post new articles here first on Computerworld

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