Apple’s Big Subscription Bet: Brilliant, Brazen, Or Batsh*t Crazy?(techcrunch.com)
techcrunch.com
Apple’s Big Subscription Bet: Brilliant, Brazen, Or Batsh*t Crazy?
http://techcrunch.com/2011/02/15/apple-in-app-subscriptions/
11 comments
I don't know if they will be successful in their endeavors but if Apple follows through, there will be a backlash.
Take Netflix, for example. Does it make sense to provide in-app subscriptions for 30% discounted distributor rate ($8 * 70% = $5.60) when that same account can be used for Roku, etc?
No. What will happen is that all these service providers will make an Apple subscription (which has separate features) that won't work with other devices.
Balkanization of content channels... this is not consumer friendly.
Take Netflix, for example. Does it make sense to provide in-app subscriptions for 30% discounted distributor rate ($8 * 70% = $5.60) when that same account can be used for Roku, etc?
No. What will happen is that all these service providers will make an Apple subscription (which has separate features) that won't work with other devices.
Balkanization of content channels... this is not consumer friendly.
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The problem with your analysis is most people already have a Netflix account, so Apple will get 0% of those subscriptions. Same thing if a new customer signs up on netflix.com, then starts viewing on their iOS device.
If Apple attracts a new customer via the AppStore, similar to how affiliate marketers bring new business to a vendor, they get a 30% cut.
I do however agree it is not consumer friendly. With the "most favored nation" clause in the agreement, vendors will have little choice but to raise prices to meet the commission on the fraction of sales Apple takes their cut.
If Apple attracts a new customer via the AppStore, similar to how affiliate marketers bring new business to a vendor, they get a 30% cut.
I do however agree it is not consumer friendly. With the "most favored nation" clause in the agreement, vendors will have little choice but to raise prices to meet the commission on the fraction of sales Apple takes their cut.
I'm not sure this will turn out to be the case. Amazon has always had a most favored nation clause with regards to ebooks, and that policy didn't cause ebook prices to climb, even though Amazon is the largest seller.
It's also worth mentioning that Newspapers and Magazines make the majority of their revenue through advertisers. This is why they choose to heavily discount subscriptions in the first place. If it turns out being on iOS gets them noticeably more subscriptions, then yes they may lose money on those subscriptions, but it may be a net gain if it enables them to raise their advertising rates accordingly.
Time will tell.
It's also worth mentioning that Newspapers and Magazines make the majority of their revenue through advertisers. This is why they choose to heavily discount subscriptions in the first place. If it turns out being on iOS gets them noticeably more subscriptions, then yes they may lose money on those subscriptions, but it may be a net gain if it enables them to raise their advertising rates accordingly.
Time will tell.
Good point. In some sense, netflix isn't so different than Amazon's app. Both are providing content the users pay for externally, and in many cases, Apple also provides that content through iTunes.
Now, imagine if your $10/mo. netflix subscription fee was $13 just because you are using it on an iPhone.
Now, imagine if your $10/mo. netflix subscription fee was $13 just because you are using it on an iPhone.
Except that it would have to $13 even if you didn't use it on the iPhone. The rules specify that the cost must be equal to or less than the same subscription through other channels.
Oh I didn't even realize this until I reread some of the article. There's no way this will float.
It's setting a minimum advertised price (i.e. price fixing) using a percentage rather than an absolute value. The FTC will have a hay day with this.
It's setting a minimum advertised price (i.e. price fixing) using a percentage rather than an absolute value. The FTC will have a hay day with this.
There is an elephant in the room here, and it's why so many content providers seem just so annoyed.
Regardless of whether this is 'fair' for Apple to do or not, many content providers simply /can't/ give Apple (or any third party) 30% of their revenue - even just for for subscriptions sold through iOS apps - and still make a profit. There's just not enough margin in what they're selling. Since Apple is demanding that the prices in-app be the same as outside the app, these providers have two choices: raise prices for everyone to subsidise the iOS-purchased subscriptions, or don't offer an iOS app at all.
This is a big change to the status quo.
Regardless of whether this is 'fair' for Apple to do or not, many content providers simply /can't/ give Apple (or any third party) 30% of their revenue - even just for for subscriptions sold through iOS apps - and still make a profit. There's just not enough margin in what they're selling. Since Apple is demanding that the prices in-app be the same as outside the app, these providers have two choices: raise prices for everyone to subsidise the iOS-purchased subscriptions, or don't offer an iOS app at all.
This is a big change to the status quo.
That makes no sense. The cost to the publisher of an additional electronic subscription is tiny. Really tiny. It's comparable to the cost of sending one more eMail when you're already sending out thousands. If they had to give 30% of all their existing revenue, they'd be down, but if these Apple subscribers are new subscribers, then they've made some more profit.
It makes sense if they're paying royalties on the content on a per-copy or retail-sale-percentage basis.
They don't seem to have a problem paying Amazon 35%, say, for an eBook.
With $60 billion in cash, changing the terms of service for developers is the most market disruptive idea they had for the iOS ecosystem? In the year of uninspired Apple announcements since the iPad, this may be the most uninspired of all.
And Jobs has just stepped over the line of brilliance to madness. It is this same God-complex that ultimately led to his original ouster from Apple. Jobs really thinks that 30% of the revenue in the mobile world belongs to Apple??? I see a HUGE opportunity for Android here (and I'm an Apple fan)!
This is a huge game of chicken with Amazon.
I could see a scenario where Amazon decides to let the kindle app be pulled, and throws their weight around with the publishers in order to damage iBooks.
I could see a scenario where Amazon decides to let the kindle app be pulled, and throws their weight around with the publishers in order to damage iBooks.
The question here for the publishers is whether or not this will increase their sales, or just move them about.
If they have all the subscribers they were going to get anyway, AND some new ones thank to Apple, they've made more money and they fact that Apple is taking a cut won't bother them; 70% of more money is a lot better than no more money. It costs them effectively nothing to have more subscribers, so as long as their Apple-based subscribers aren't cannibalising their existing subscriber base, their profits go up.
If they have all the subscribers they were going to get anyway, AND some new ones thank to Apple, they've made more money and they fact that Apple is taking a cut won't bother them; 70% of more money is a lot better than no more money. It costs them effectively nothing to have more subscribers, so as long as their Apple-based subscribers aren't cannibalising their existing subscriber base, their profits go up.
I've asked this before, but what is there to keep Netflix from creating an iPhone version of their site and directing users there? This would let them cut Apple out of the equation completely, and still provide the same functionality, unless there's issues with playing videos on the iPhone that I am not aware of.
Netflix uses drm on their players (through silverlight in a browser). HTML5 video doesn't have hooks for drm at the moment.
You can restrict access to content (by using a TTL or encrypting the video with Apple HTTP Streaming) but someone could still capture the stream. Their stream using silverlight is encrypted and offers the kind of security that makes content owners happy.
You can restrict access to content (by using a TTL or encrypting the video with Apple HTTP Streaming) but someone could still capture the stream. Their stream using silverlight is encrypted and offers the kind of security that makes content owners happy.
You can however use http live streaming with AES tokens to get the same kind of result with html5 (audio and video). It just remains to be seen if that is acceptable to nflix and the content providers they're beholden to.
I was wondering when there were going to roll this out ...
don't even post articles from MG here. Too bias and too useless.
Actually, this one is a fairly coherent review. Take this for example:
"But a lot of third-party developers both large and small are going to be very, very pissed off by this move. Why? Because it totally changes the game. Companies with subscription elements of their content had been accustomed to leveraging Apple’s platform for free. Now there will be a fee. And it will be a significant fee."
And, here is some useful commentary:
"And, here is an answer to one of the questions that I've been wondering about: "The Amazon question (which originally sparked a debate a couple weeks ago) seems more complicated. Because Amazon content isn’t sold by subscription, it’s not clear how this affects apps like their Kindle app. It may not affect it at all, but then why did Apple reject the Sony reader app? Was there a subscription layer in it? Apple clearly wants to move towards a full in-app purchase environment, but today they’re only talking subscriptions. One-time payments may be the next shoe to drop."
Update: A couple more things. Apparently, Apple has just updated the App Store Guidelines alongside the announcement today. And yes, it seems that one-time in-app purchases like those made through Amazon for the Kindle will fall under the same rules. That brings up another question: could Amazon just make a Kindle reader app that didn’t allow you to buy anywhere in the app, but only use previously bought content? The guideline wording seems like it would still be a no-no but it’s not entire clear that such an app would be rejected. "
"But a lot of third-party developers both large and small are going to be very, very pissed off by this move. Why? Because it totally changes the game. Companies with subscription elements of their content had been accustomed to leveraging Apple’s platform for free. Now there will be a fee. And it will be a significant fee."
And, here is some useful commentary:
"And, here is an answer to one of the questions that I've been wondering about: "The Amazon question (which originally sparked a debate a couple weeks ago) seems more complicated. Because Amazon content isn’t sold by subscription, it’s not clear how this affects apps like their Kindle app. It may not affect it at all, but then why did Apple reject the Sony reader app? Was there a subscription layer in it? Apple clearly wants to move towards a full in-app purchase environment, but today they’re only talking subscriptions. One-time payments may be the next shoe to drop."
Update: A couple more things. Apparently, Apple has just updated the App Store Guidelines alongside the announcement today. And yes, it seems that one-time in-app purchases like those made through Amazon for the Kindle will fall under the same rules. That brings up another question: could Amazon just make a Kindle reader app that didn’t allow you to buy anywhere in the app, but only use previously bought content? The guideline wording seems like it would still be a no-no but it’s not entire clear that such an app would be rejected. "
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Why the critical backlash? The App Store is the exclusive way to sell apps for iOS, and Apple takes a 30% cut. Now the subscription model is similar, except you can sign up outside the app as well, not paying anything.
I guess people don't like that Apple has full control of their platform, and they sometimes do things which benefit them. If you don't like it, don't buy an Apple product! Get something open or whatever.
I guess people don't like that Apple has full control of their platform, and they sometimes do things which benefit them. If you don't like it, don't buy an Apple product! Get something open or whatever.
It's not about customers, who don't necessarily care to whom they pay $9/month, NetFlix or Apple.
It's about platform vendors who are being strong-armed into providing a huge chunk of their revenue to a company who is doing relatively little to earn it, proportional to the amounts involved.
Apple is no better or worse than any other corporation for pursuing this policy. They have the installed userbase to call the shots, and they know it, and they'd be foolish to not take advantage of it.
But they're also putting publishers in a tough spot, especially when they're already struggling with a new business model and a market of unknown size. Apple does run the risk of killing the golden goose, or alienating publishers to the point where they pull their wares from iOS entirely, which is bad for both users and the platform.
In short: of course Apple can do this. It doesn't mean they should.
It's about platform vendors who are being strong-armed into providing a huge chunk of their revenue to a company who is doing relatively little to earn it, proportional to the amounts involved.
Apple is no better or worse than any other corporation for pursuing this policy. They have the installed userbase to call the shots, and they know it, and they'd be foolish to not take advantage of it.
But they're also putting publishers in a tough spot, especially when they're already struggling with a new business model and a market of unknown size. Apple does run the risk of killing the golden goose, or alienating publishers to the point where they pull their wares from iOS entirely, which is bad for both users and the platform.
In short: of course Apple can do this. It doesn't mean they should.
One of the best comments so far on this whole strategy of Apple, bears repeating:
"Apple does run the risk of killing the golden goose, or alienating publishers to the point where they pull their wares from iOS entirely, which is bad for both users and the platform."
"Apple does run the risk of killing the golden goose, or alienating publishers to the point where they pull their wares from iOS entirely, which is bad for both users and the platform."
I'm sure I'll get downvoted for this again but - Apple are the only player who have bothered to implement a subscription model. No competition! Once Android do it (and the others) and they become popular enough to compete, Apple may feel the pressure and drop the 30% rate.
30% sounds like a lot but if I would take it if I were a publisher - there's still room to make much more profit than a print operation - no need for presses, ink, paper etc. I mean the 70% you get is pure profit basically.
30% sounds like a lot but if I would take it if I were a publisher - there's still room to make much more profit than a print operation - no need for presses, ink, paper etc. I mean the 70% you get is pure profit basically.
Except they aren't the only player. Netflix, Amazon, NYT, the list goes on and on. Any major subscription service has a way to get users to subscribe via the web today. And Apple didn't just introduce a subscription model today, they introduced a subscription model that directly attacks any other model if they want to be on iOS.
This isn't a subscription model. It's a middleman model.
If you ignore the fact many of those content providers are themselves middlemen. Amazon just resells the content of others, and any ebook is 30% for anything under 2.99 and over 9.99, but everything between those price points amazon's cut is only 30%, so with said model they literally can NOT agree to these changes.
I agree. If Apple sticks to a strict interpretation of this policy, Amazon Kindle and Netflix are gone from iOS. In both cases Apple is only one piece of a much bigger distribution strategy, and a piece they can't afford on these terms.
Perhaps, Apple will allow Kindle and Netflix to offer iOS only subscriptions. These subscriptions will not allow the media to be viewed on other platforms, and will not be attractive for most subscribers. The standard subscriptions would still be usable on iOS, but couldn't be purchased in iTunes. Perhaps the iOS subscription could be slightly less expensive, to appease Apple.
Apple may be willing to let something like this slide to keep these very popular apps, while keeping what could be a very lucrative policy for other subscription services. I'm sure there are many media startups who are going to jump on this. They'll just price in the 30% and be happy.
Perhaps, Apple will allow Kindle and Netflix to offer iOS only subscriptions. These subscriptions will not allow the media to be viewed on other platforms, and will not be attractive for most subscribers. The standard subscriptions would still be usable on iOS, but couldn't be purchased in iTunes. Perhaps the iOS subscription could be slightly less expensive, to appease Apple.
Apple may be willing to let something like this slide to keep these very popular apps, while keeping what could be a very lucrative policy for other subscription services. I'm sure there are many media startups who are going to jump on this. They'll just price in the 30% and be happy.
Essentially, Apple is acting as the big box retailer, but without any other big box retailers, they set their margins and the software vendor just has to live with them. No real competition.
Not sure how I actually feel about this. On one hand, Apple is creating an ecosystem, and all they're asking for is $99 to distribute apps. Much better terms than $x / seat for MS Studio and the like. But, they're going to insert themselves at every aspect of the chain when they don't necessarily have to. It gives me an uneasy feeling, but I think the company is optimizing for business instead of goodwill.