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back to article Death by 30% cut: Apple app tax must change

Mobile is no longer about selling devices, but rather about selling ecosystems, and payment services are a critical component of those ecosystems. It's too bad, therefore, that Apple, GroupOn and others may be wrong in their various approaches to getting paid. The ecosystem vendors have been in a mad rush to add payment systems …

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Jobs Halo

Talk about missing the point!

Publishers are whinging that they can't get a free ride on Apple's ecosystem - tough! If you distribute your content through the App Store, you pay, just like anyone else has to do. Apple run the iStore at break-even so claims that they're making any profit in the deal is laughable. Publishers aren't interested in content: they want to sell your info to everyone else to the detriment of the consumer.

Perhaps the author would like to comment on the following article:

http://counternotions.com/2011/02/16/stores

This is one of the best analyses I've seen on the whole debate and a cursory search will turn up many more (and as many decrying the whole issue). At least Apple are putting the choice back in the hands of the consumer - and about bloody time too!

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Free ride?

How many times do we have to listen to the argument about getting a free ride from the apple ecosystem.

The vendors don't want to distribute their content through the app store. All they WANT is to enable their customers to use devices (which the customers paid for) to access the services the vendors supply. They would be quite happy to serve apps and content directly from their own websites never involving apple at all beyone making the hardware but apple insists anything involving an iPhone has to take part in their ecosystem. Yes apple make good hardware but that has already been payed for!

This is not the case of a fair payment for an essential service, but a a service that apple has artificially engineered to be essential so that everyone has to pay for it.

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Silver badge

"At least Apple are putting the choice back in the hands of the consumer"

So so many fart apps to choose from...

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Anonymous Coward

Claims that they aren't making profit on the deal is laughable

Apple know very well that one of the things that draws consumers to their devices is the apps. In fact it's not only Apple that know this, Google, Microsoft, RIM etc ..are very well aware.

Even if Apple were running the store and just breaking even, which I highly doubt, the number of customers that the vast array of apps draws to the iPhone is huge. This is what pulls a lot of people towards the iPhone over other devices. After all, without the 3rd party apps the iPhone is just another phone with a better screen and less offerings than their competitors.

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WTF?

At least Apple are putting the choice back in the hands of the consumer - and about bloody time too!

"At least Apple are putting the choice back in the hands of the consumer - and about bloody time too!" - Ha...this is funny...can you tell us what are the other choices for iCrap of your choosing?

"Publishers aren't interested in content: they want to sell your info to everyone else" - so is crApple.

"Apple run the iStore at break-even" - so maybe they should stick with what they started, making hardware not a eCommerce.

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Gold badge

Simple

If they don't want to use the App Store they can avoid it.

What they are annoyed about is having a chunk of the market unavailable at a price they wish to pay.

Apple virtually invented the whole App Store on a mobile concept (Nintendo's Wii channels was there first), so naturally their platform will cost more.

All console-like platforms have royalty fees, if the publishing world was so brilliant why didn't they invent their own store for mobiles?

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Megaphone

How about the Kindle?

What I find lacking in this argument is the comparison with Amazon's Kindle, which up until December 2010 was taking 70% of the revenue for these very same subscription services that people are so up in arms about. They dropped it to 30%, but still charge on top of that for delivering content (per Mb), which is why most subscriptions on the Kindle have few pictures...

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Big Brother

@Chas

"At least Apple are putting the choice back in the hands of the consumer - and about bloody time too!"

Which is why your iPhone will go to places other than Apple to download apps.

You are free to do as we tell you ...

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Thumb Down

Apples was certainly not the first mobile app store

They have been around for about 10 years selling billions of Java apps, just about every carrier in the world has one. There are more Java applications sold for mobile than any other platform, it just doesn't make the press as it's all spread across dozens of app stores.

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WTF?

Help me here, please.

Is it the case that the only place I can by an iPhone application is the iTunes store? I can't go to another website and down load an application to run on my iPhone (or Android or Windows phone)? I don't have an iPhone so I've never looked. If so, almost sounds like a restraint on trade - unless this is embedded in the iPhone EULA that the user has accepted.

If the user is scerwed then sounds like a very good reason for not buying and iPhone to me.... if you want to enhance the functionality of that hand held minicomputer you carry around with you...

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Happy

Apple not making a profit on AppStore?!

LOL!

YOU ARE A FUNNY, FUNNY GUY!

You need to lay off the Apple Kool-Aid bub, if you have 100% proof that Apple haven't made 1c profit from the AppStore I'll eat my kitchen, oven and all!

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Stop

Free ride

"How many times do we have to listen to the argument about getting a free ride from the apple ecosystem."

How about until you start listening. Publishers are not forced to produce iOS apps, they can produce web apps which will provide access also, and Apple get no cut at all from web apps. Having written an iOS app they put them in the app store and price them as free. Apple host the app store and get nothing for selling them. If publishers get users to sign up for subscriptions from their own site then Apple still get nothing. So Apple have expenses in the form of running the app store, but no income. Free ride for the publisher.

Under the revised arrangements Apple gets 30% of subscriptions IF the user buys via in app purchase. They get nothing for selling the original app still, and nothing if the publisher signs the user up outside of the app.

If Apple discounted subscriptions then the first thing that would happen is all pay apps would go free with subscription. Apple would make less that way (and they don't have big margins already).

If publishers want to sell their products to customers using Apple products then they have to acknowledge that Apple created the platform and deserve recompense. Apple like to keep their pricing models simple and 30% is rather a low margin for distribution and sales in publishing. Unless Apple offers a model where they discount subscriptions ONLY for paid apps above a certain price point (e.g. $4.99) what would be THEIR advantage in doing so?

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Jobs Horns

"Virtually" is right...

...and Nintendo wasn't first either by the way

We have to go back to our old friends at Nokia - their Download service predates the App Store by a couple of years at least (ok - it failed miserably - and the current Ovi store isn't exactly cutting edge), but what Apple did was to get the user experience right, and with that came the illusion of ubiquity

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This post has been deleted by a moderator

FAIL

Eh!

.

.

Methinks Ms Stella Artois paid a visit.

.

.

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Silver badge

Well

Please highlight for us any other channel where the maker of a product gets 70% of the retail price.

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Pint

"Methinks Ms Stella Artois paid a visit."

Ms Stella Artois is always welcome round these parts.

I think I brained my damage.

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Stop

but Apple is not doing anything

What is Apple doing to earn the 30%?

Nothing is the answer. If it was promoting the product or even delivering it, they would not have to prevent the maker from selling other ways. And they would gladly allow links. After all a link means Apple does not have to lift a finger.

But, Apple precludes links. And Apple precludes other channels (which may not cost 30%).

Apple thinks it gets 30% cut simply because their device is being used.

Does SONY get a 30% cut because you saw it on your TV? Does FORD get 30% of all the gas money you spend? Does Microsoft get 30% of all software running on your PC?

Apple is doing the transaction. That is all. 3% to 4% is all that Apple earns. The rest is grabbing ***.

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Anonymous Coward

Re: Well

This is just off the top of my head you understand... perhaps one run by the maker of the product runs themselves? You know - the ones that Apple are seeking to get rid of?

Now perhaps you can tell us what justification Apple has beyond 'because we say so' to force this on people?

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Anonymous Coward

re: Does SONY get a 30% cut because you saw it on your TV?

No, but if you want to sell your product in a Sony store, you'd be hard pressed to pay as little as 30% commission to the retailer.

You don't have to use the app store to make things available on an iphone - safari is always there and you pick up an extra 30%

If you don't like it, deprive Apple users of your product and push them towards Android.

Doesn't Apple do more than financial transactions for this? More like Akamai than Visa I think. Doesn't it also vet and host content as well as distribute it? Apple has put quite a bit of effort into the platform. No-one else been able to be quite so successful from a standing start. There might be lots of lock-in on the platform, but this isn't MS leveraging a historical monopoly based on years of dirty tricks, this is a company making a success of a new sector. I would expect some supernormal profits to begin with. The profits will erode over time.

I'd be interested to know retailer's cut on magazines like vogue. Newspapers may not be able to take a 30% cut to retailers, but newspapers make their money from advertising, not the ticket price, which typically covers distribution costs. The question becomes whether online sales cannibalise paper sales. Distribution costs are unlikely to change (moving a lorry from A to B) but if fewer copies are sold per location, the distribution cost per hard-copy paper sold rises.

I'd also be curious to know if this is a real problem, or if it is just the normal proceedings of big businesses bickering amongst themselves trying reduce their costs and finding that they can't outsource this one to India.

It's an interesting case. There aren't too many companies which could pull off something like the ipad. Even when it was launched there were many people who thought it would be a failure. Sony (or in the past, Nokia) Nintendo etc would be the obvious rival to Apple, but they really don't do the more complicated UI's that make Apple's mobile computing successful.

No-one else does the vertical integration that Apple does. Perhaps Steam would be interested in extending to mobile devices and moving into other media areas than games. They have a content delivery network, a billing system and a windows and mac client. I wonder if someone could add a phone to go with that?

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Coat

Taxes

30% for a glorified credit-card processing system is a bit much, any way you look at it.

As pointed out before, if they lowered the subscription fees, all (most of) the apps would switch to "download for free, but pay a 'subscription'" so they can make a higher profit. However, Apple reserves the right to give such apps the boot, and would be right in doing so. This will preclude (most) said apps from trying to take such an approach.

The thing that rubs wrong in the whole deal is that content providers, such as normal newspapers, are REQUIRED to use Apple's payment API if they offer subscription services /anywhere/. They can't just provide a reader to view their newspaper that you web-subscribed for. Nor can they even put a link to their website to subscribe. They have to provide an in-app payment API-using method, which gives the 30% fee (naturally). Also, the Apple subscriptions method has to be priced the same as other methods. So no simple 30% markup for Apple users to offset the tax, but also no special website-"today-only" deals.

Also, in response to the whole user-information hording, the article was about the 30% tax, not user information. If anyone thinks that their information and habits aren't being tracked by every company that asks (or not), they're an idiot. Everything, down to the contents of your shopping cart at Walmart, is tracked, cataloged, and reported on.

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Federal Government

Obama takes a 30% slice right off the top and doesn't provide near the value Apple does.

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Stop

but Apple is not providing the value

The value of the subscription is coming from the source of the media, not from Apple.

Apple is only processing the payment. And perhaps listing the item. But, the source of the media still has to write the app and deliver the service.

Apple does alost nothing for the 30% cut. Nothing. No inventory. No delivery. No marketing. No promotion. No quarentees.

They expect to get paid because they try to block access to the subscriber if not paid.

And they try to raise the price for everyone else buying the same subscription whether or not they buy through Apple.

Apple is the worse thing that a consumer has ever seen. Raising prices even when Apple is not involved in the least. Forcing others to keep high prices on their own web site. And forcing prices up even for those who do not own any Apple products. That is their stated objective and requirement.

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Anonymous Coward

Simples

If you don't like what the Federal Government takes (and it is not just Obama, but W before him so lets not get all partisan) then don't avail yourself of their services. Like roads, national defence, the justice system, welfare, education...

I like Apple shiney as much as the next person, and incompetent as they often are, the Guv'ment provides a bit more value than an iPhone. Like, you know, services to actually live in what approaches a society.

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WTF?

O Rly?

"If you don't like what the Federal Government takes then don't avail yourself of their services. Like roads, national defence, the justice system, welfare, education..."

So, how does that work then?

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Anonymous Coward

Re: O Rly

That whooshing sound wast the point flying past your head at supersonic speed. Do try and keep up, there's a good chap.

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Pirate

Simples...

You move to somewhere that doesn't have a public sector and national infrastructure. Somewhere like Somalia.

They can bear arms, too, so you should love it there.

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FAIL

Epic Fail

"It turns out that processing payments is a hard problem to solve"

Seriously? How many of us have implemented payment gateways? I'm assuming we all hate the PayPal API (aka Phase 1 and I use the term API generously). But Seriously, it's "hard" to have a DB table for User_Id, App_Id, PaymentAmount ?

I recently spent a day at DDD9 and MS was trying to convince us of the benefits offered by their Win Phone 7 marketplace - They utterly failed.

If they provide a service, I agree they should be paid, but 30% for running some automated tests and writing an interface for a payment gateway is a joke.

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It's worth it

Surely if Zynga thought it could save $30 million dollars a month by offering their social games through some channel other than Facebook, they would do so immediately. That's a lot of money to pay if they aren't getting good value for it.

It's worth it. That's why these content creators/publishers accept the terms. If it wasn't worth it, they'd find some other way. But they don't have the aptitude for distribution, so they pay a commission to Facebook and Apple and Nintendo and Microsoft, because that's the price of making money. Paying your distributor is nothing new in the content business.

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Stop

dead wrong

Apple is forcing the price up even for non-Apple customers.

Does Facebook require that the vendor charge the same price elsewhere? Or, be kicked off Facebook.

Apple insists that prices on Android are as high as required by Apples high cut. And a 30% cut will force up prices on iTunes. Apple in turn requires that the same high prices be charged everywhere.

Nintendo and Microsoft do not do that. They can't. Microsoft can not even force the retailer to charge the suggested retail price for XBox. What Apple is doing is almost the equivilent of Microsoft forcing the retailer to charge a given price for a PS 3.

Apple specifially wants to force all consumers to pay the high price caused by a 30% forced cut. Regardless of the channel. Even on the vendors home we site.

None of your examples illustrate a retailer controlling the retail pricefor someone else's product in someone else's store. The idiots at Apple demand that they can do that. Do as we say or do without the stupid Apple customers.

It is called preventing anyone from competing on price so that Apple customers remain ignorant of the alternative channels.

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Apples and oranges

Comparing an app store to a credit card processor misses the point. The credit card processor handles only one thing--credit card payments. An app store handles distribution, bandwidth, storage, and so on; their expenses are higher.

Do they need to be 30%? *shrug* Maybe, maybe not. Time will tell. What cut do retail outlets like Best Buy take for sales at THEIR stores?

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Silver badge

Spot on

The author's comment "Even the rapacious Credit Card companies" shows he is wide of the mark and has little understanding of the cost of business operations. When I look at the app store and see the quantity of testing Apple do, with continual updates being released for apps, I honestly wonder how they can do it for the 30% fee. Of course it can be argued this cost will be less for content as each release doesn't require testing. But even so the operational burden isn't to be underestimated and Apple are perfectly entitled to turn in a profit from their app store. But of course you are posting a perfectly reasonable business comment to a techie publication. Many readers on here expect the world for nothing.

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Anonymous Coward

Wait, what?

Perhaps somebody ought to tell the developers that Apple will do the testing for them. I'm sure they'd be interested in that.

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Anonymous Coward

Re: Apples and oranges

Except that in regards to subscriptions there is no bandwidth to pay for, no storage, no distribution.

Their expenses for users downloading stuff from other sources is nothing. Literally zero.

What then are people paying for?

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Anonymous Coward

Re: Apples and oranges

I have yet to see *any* shop demand that all their suppliers pay an arbitrary fee to sell through them and demand that the price is set at the same level in all the other chains too.

Perhaps you can name one Franklin?

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Silver badge

Bookstores

In Australia at least, a publisher/distributor sets the RRP of a book, the book store gets a 40% cut of the sale. If they don't sell the books within a predetermined period they get to ship them back for a credit.

They are effectively selling books on commission for a 40% cut

This is SOP.

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How soon we forget

I guess you don't remember that Apple's 30% cut on the iOS app store was hailed as something of a breakthrough, given that normally the percentages were the other way 'round. Also, comparisons to credit card companies miss the point that there's rather more going on than just a transaction, such as probably a pretty huge amount of bandwidth (which isn't free), not to mention the vast numbers of free apps being transmitted, the support for which is subsidized by the paid apps.

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Anonymous Coward

Re: How soon we forget

And in turn you seem to forget that a lot of the purchases now being forced to go through Apple have up until now not gone anywhere near Apple's servers, nor have Apple had to subsidise bandiwdth. Amazon and their Kindle software for example do not use Apple servers to distribute their ebooks.

With the exception of the Kindle application itself the cost incurred by Apple is exactly nothing. Zip. Zero. Zilch. Nada. I could have a thousand books on my ipad and it wouldn't cost Apple a penny more. I would think that the same applies to pretty much any magazine or subscription.

Apple are not needed in the process. They are not wanted.

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Stop

and they add nothing

Apple adds nothing for their 30% cut. Nothing.

Listing on iTunes? I can make a list too. Does that mean I get 30%? For a listing?

Boy, is eBay a good deal. And eBay does not mandate that a seller never charge a lower price for selling the same item through other channels.

Only the jerkheads at Apple attempt to force sellers to restrict their other channels according to Apple's demands.

Apple is not only not doing anything for their money. They are the consumers worse enemy.

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OK...

and you seem to forget that there is still no requirement to purchase content through Apple. Apple are saying that any subscriptions must be available within the app store but can also be available direct from the publisher. So it is possible to never give a penny of your subscription fees to Apple.

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Silver badge

Nonsense foolish and ignorant

So the entire app store business operation supporting a subscription service doesn't exist. There are no employees, no hardware, no account management, no product development, no marketing, no office costs, no connectivity costs. Nothing. Nada. Zip. Zilch. You are either a moron who has no understanding of business cost or that a business incurs both marginal and capital costs or you are such a genius you have found a way to a business for nothing. I suggest you set up your own appStore in LaLa economic zone or wherever you can work this magic and you can only be a success. How can you not be when you can implement so much infrastructure, operations, marketing etc at no, cost, nothing Zip. Zero. Zilch. Nada.

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Anonymous Coward

Re: Nonsense foolish and ignorant

I'm not a genius, but I do have another way of doing business: Don't use Apple's store.

However Apple has refused to allow people to do this without paying the same prices as they would trough Apple directly. This basically ensures that people follow the path of least resistance and help make Apple's extortion that much more effective.

Perhaps you ought to pay more attention before blindly throwing around insults like a 15 year old with too much time on his hands.

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FAIL

100% of nothing, or 70% of something

I'm tired of all the boo-hoo-ness in this column. App store sellers get a better cut than retail sellers, and more foot traffic than going it alone. If you don't like it, fine, move on.

Seems this column is more about fighting a personal crusade than anything else.

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Really?

So a magazine/paper/other subscription service which hosts and delivers its own content can take 100% of the money from a web site sign up, or 70% if its done via an app?

Please do explain how giving 30% to Apple is in some way better value when they have to have all the other infrastructure in place anyway?

I think the problem is Chad that you dont understand the difference between a 99c fart app and a recurring subscription to a content service delivered over the web through an existing distro channel.

This new approach by apple is aimed squarely at the big subscription vendors, but ultimately its short sighted, all they are going to do is drop "apps" and move over to a web browser experience for content and sign up, what you forget is that not everyone uses or wants an iPhone/Pad.

Developers with no distro channel are going to pay, but if your a large publisher with your own clearly established distro channel and content delivery you dont need to have an app, just use a browser.

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Anonymous Coward

Re: 100% of nothing, or 70% of something

Source?

If things were really that much better going through Apple then you would think that the vendors would be desperate to use Apple's store. One has to therefore ask why Apple has to force this on people?

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Silver badge

Well.

@ NLSD - What does a real estate agent add that I can't do myself? What do they earn for their commission? They get buyers through the door, buyers specifically go to them. Don't like it, yeah, go right ahead and do it all yourself if you don't need the AppStore foot traffic.

@ Anonymous: Source for what? You either play by apples rules, and get 70% of something, or you don't play, and get 100% of nothing.

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Anonymous Coward

Re: Well

From your previous post:

>>and more foot traffic than going it alone<<

I think that the Kindle software was downloading books for quite some time without any interference from Apple. I downloaded the Kindle application because I was aware of it. Nothing about the app store encouraged me to download it and I suspect that this is true of most users. Similarly for papers such as the times and sunday times I've been getting papers each day on my ipad without needing Apple's help, nor have I had to use the app store to get them beyond using the core app. And the publishers all get to keep 100% of the subscription, at least until present in any case (and in the case of the times they already have an eminently usable website that can take the place of any app should they choose to drop it).

It's true that Apple allow people to provide free apps, but if their business model is broken and the cost of free apps is not properly covered then they should either start getting the developers to pay something or get rid of the concept of free apps. They shouldn't act like little more than common thugs and simply take money because they can to make up any shortfall.

That well known scene from the Godfather comes to mind: because the director wouldn't use the mob's actor he gets a horses head in his bed. Replace actor with app store and horses head with complete oblivion from the Apple ecosystem (gods I hate that term) and you essentially have the same thing.

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You can take a horse to water!

Chad, we are not talking low level one man developer fart apps.

You buy a subscription to GQ (for example) because you like GQ.

GQ still have to host, develop and deliver the content, an in app sign up is nothing more than another way of paying.

Apple isnt bring the customer to GQ, the app provider has given a means for an Apple Customer to use the hamstrung bit of shiny they own.

Thats the difference, Apple are not advertising or bringing new customers to the subscribed content the content provider is actually giving apple a feature for its customers to use.

Your example is flawed, Apple doesnt act as an estate agent as its not trying to bring you new business or sell your house it just sells the hardware and demands the transaction goes through them regardless of the source of the deal.

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Anonymous Coward

They will lose its shine

I have several customers in the pole, yoga and spa markets who have gone down the bargain coupon and other discount site approaches and initially they get loads of "customers" all paying £20 for a months free fitness or yoga or whatever.

But the problem is the step up to a proper paying product is too great and the conversion rate is less than 3%! The ROI is non existent once you take all the factors into account.

Bargain website users are loyal to the bargains because they can get a £100 monthly pass to a fitness business for £20, what this does is fill the business up and piss off the existing clients and after they have had there fill, like a swarm of locusts they are off to the next business dumb enough to flog a month for peanuts.

What people also forget with Apple as Chas manages to show so "elequently" is that Apple products sell because the App store is well stocked, but from a business perspective are you going to sell a high value subscription through an app when Apple are taking 30% of every payment simply because you have an app you advertise yourself that clients can buy online with? On a £100 a month membership thats £360 over the year!

What has also been missed is that Club members are viewing "subscribed content" on the apps they get from the club/facility so according to the new rules they have to have an option to purchase the same in app as well. YOu have to wonder if that doesnt also apply to mobile phone companies who give free apps to subscribers?

What will happen and is already happening is that business's with high value of subscriptions wont use an app and wont populate the app store. I have just had several large customers cancel app development due to the in app purchase clause, it isnt worth there while to make life easier for iPhone owners and pay for the privelege at the same time.

Those projects being canned now mean that an iPhone app developer doesnt get paid and loses work as a result.

What Chas has missed is that the iPhone ecosystem only exists thanks to the developers and now Apples in app purchase policy is a show stopper for many business, both big and small who had previously supplied apps to Apple for free, end results, less apps and a move back to a web based platform approach and the rebirth of WAP 2.0!

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Simple

charge extra 30% to customers.

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