Apple has a right to charge for space in its digital malls

Apple’s competitors appear to be focusing on undermining the 30% business model that supports its services,

Apple, App Store, Spotify, Amazon, Apps, iOS, macOS

Apple’s competitors appear to be focusing their energies on undermining the 30% business model that supports its services, with Spotify and others arguing that Apple is taking too much cash and limiting competition.

This isn’t just about music

Think about it and it should be pretty clear this isn’t all about the music.

After all, Apple pays higher music streaming artist royalties than its competitors and is not arguing that those royalties be cut.

Apple also creates the technologies musicians can use to create, distribute, publish and popularize music – competitors just offer digital stores where they try to profit for the work creatives have done, and that’s the end of it.

All the same, arguments that Apple should allow third-parties choosing to offer services to its huge, loyal customer base access to that market at no cost have little weight -- you really should compare this to the supermarket retail industry rather than any notional ethic based on phrases so open to distortion such as “fairness”.

Does anyone out there recall Steve Jobs' reaction to something called 'FairPlay'?

I guess if Spotify allowed Apple to offer Apple Music through Spotify that might count for something. It doesn’t, Apple (probably) wouldn’t, but that’s the situation here. Has anyone else wondered why the Spotify app make it so hard to find the AirPlay button, by the way?

Why should Apple, having built its ecosystem, allow others to participate in that ecosystem without paying some form of fee?  Even physical stores pay rental to take position in a shopping mall. Spotify is just a brand in that mall. The only argument that counts is “how much” that fee should be.

Apple’s and lemons

Apple argues that it isn’t fair to say it charges digital services 30% commission because after the first year this falls to 15%.

It will point out that this fee isn’t levied on advertising revenue or on apps that charge for physical goods – if Spotify or any other service chose to sell vinyl, music-related merchandise or even T-shirts in addition to digital subscriptions, it wouldn’t need to pay Apple anything more than the subs revenue split.

Is it really Apple’s fault if a digital service isn’t prepared to diversify?

More critically, Apple can point to the additional costs of running a store in which business is done properly: app vetting, curation and all the other efforts it makes to ensure shoppers can purchase products securely with minimal fear of malware, keyloggers or worse. 

Apple’s investment means people will buy apps at Apple’s store, they will subscribe to services and they will use the apps they get. 

Money, money, money

Developers have earned over $120 billion selling software through the App Store.

Just like developers, Spotify and others who seem to want Apple to cut the cost of offering merchandise in its stores gain access to an enthusiastic audience willing to spend money on digital ‘things’.

This means Spotify has shifted hundreds of millions of apps and is presently Europe’s largest music streaming service.

Apple has faced this kind of resistance before, of course.

Think about Microsoft, which refused to offer Office 365 for the longest time until the two firms found a compromise. Think about Amazon, which now offers an app for that, though signing up for an Amazon Prime subscription needs to take place on a computer, as do any additional content purchases. 

Apple doesn’t stop them doing this.

If you purchase a subscription to a digital service from that service’s website you’ll still be able to log-in to that service via the app on an Apple device.

So, in fact, Apple is only charging for access to its market, maintenance of its trusted digital store brands, and convenience – and drops the cost in year two.

An easy fix

Apple does have an easy way to resolve this – to allow services to direct potential users to their own subscription sign-up services from within their app.

While this may dent Apple’s services income a little, I’d argue that the damage would be minimal in the long run -- particularly as its own services evolve to deliver superior user experiences.

I’d also argue that Apple would have a right to claim a percentage of those sales using existing affiliate schemes (not that Spotify seems to offer one).

Amazon pays a 5% commission for digital music and video sales affiliates driven in its direction, so why should Apple not receive at least 5% for any revenue driven to others via apps on its platform?It does, after all, provide the trusted mall in which those apps are found.

Add another component to support the costs of maintaining those platforms and the total cost is probably at least the 15% some are complaining about. I think Apple could expose the hypocrisy of those who simply want to squat space in its stores by offering a compromise around there.

However, this isn’t the only place in which Apple’s services business model appears to be under attack. Microsoft recently pushed its fees to developers selling content through its stores to a bare 5%, and there have been numerous complaints from developers that 30% is too high.

Trust, anti-trust and FUD

There are some lazy comparisons being made with the Microsoft and Google anti-trust judgements.

What’s critical here is that those seemingly revolved around demanding third parties building devices that included software from those firms stifle competition by only including certain apps.

Apple is not in that position – it builds the hardware platforms others choose to do business on. It does not license that manufacture.

Firms seeking ways in which to do business on Apple’s platform have a right to negotiate the cost of doing so, but I don’t think they can argue that being provided with a free lunch is justifiable under anti-trust law.

In my opinion, they just want to take the cake and eat it.

And the proof of their fairness ethic is now and will always be in the royalty payment they choose to make to artists, which is a long, long way below the 70 percent Apple coughs up to independent developers offering content on its platforms.

Perhaps musicians should get a similar amount?

What happens next?

I can’t see into the future, but it does seem momentum is building that will eventually force Apple to reduce the percentage it takes from sales through its App Stores, but the fact that alternative stores do exist and that there are costs to maintaining a trusted global digital mall at this scale should be borne in mind.

And artists should get paid.

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Copyright © 2019 IDG Communications, Inc.

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