Stop the Noiz

Is Apple's 30% Fee Unfair or Just Another Cost of Doing Business?

Frank Fox - 2011.02.25 - Tip Jar

The right and wrong of Apple is sometimes hard to see.

Charging publishers a percentage of sales is not the same as charging the consumer more.

Operating in a divided market goes a long way to hide having monopoly power.

Protecting customer's privacy is out of fashion these days with companies like Facebook ready to make money off its users.

And the sad truth is that people don't like change, especially if it involves spending money.

I've read the reports for and against Apple new in-app subscription plan. First off, I think that antitrust investigations will find no smoking gun (at least in the US). Competing platforms - Android, Kindle, etc. - are providing Apple with plenty of coverage in regards to having a monopoly. Numerically, Apple's market share isn't big enough to call it a monopoly, and Android's share is growing.

That 30% Fee

The other tough issue is the percentage. If Apple were charging publishers only 5% instead of 30%, would its problems go away? Or would publishers have thought that 5% was too much and want to settle for 1% or less?

Publishers may want to say that Apple should pay them. Adding their content to the iPhone/iPad/iPod touch makes those devices more attractive to consumers, so Apple will sell more. Publishers argue that this "halo effect" is important enough that Apple should pay them for the privilege of having their publications on the iPhone/iPad/iPod touch.

Apple disagrees and sees the "halo effect" working the other way. In reality, Apple is benefiting itself and its customers. The 30% fee is for Apple's troubles: running the iTunes/App Store, provide a little marketing and publicity, and providing a content protection system for the publishers to sell their goods.

Is this worth 30%? Maybe not, but that is Apple's price.

Apple's other new rules are there to provide customer protections. Requiring an in-app purchase option is as much about customer convenience as Apple earning a cut. The argument against Apple isn't that consumers don't want this feature, but they will use it instead of an out-of-app process where the publisher doesn't have to pay Apple 30%.

Fair Treatment

The rule requiring that publishers charge the same price or less as through other venues when using the App Store protects Apple's customers from price gouging. The publisher cannot treat them unequally or raise the price to cover Apple's 30% fee.

Not giving out personal customer data unless the publisher is given permission by the customer is the ultimate in consumer protection. When I buy a magazine at Walmart using a credit card, and my personal data is collected by Walmart so the credit card company can bill me. I hope Walmart isn't passing on my personal data to the magazine publishers. Some of us hate renewal notices, especially when they arrive six months before the subscription expires.

Is Apple greedy asking for 30%, or is this a reasonable fee? And is it right or wrong when it is protects its customer's rights and privacy? This sounds like an easy win for Apple, so why all the fuss?

The truth is that publishers are faced with a one size fits all option from Apple. Certain publishers may find it easier to cover Apple's 30% fee than others.

It's Just Another Operating Expense

But 30% is just another operating cost. Traditional print publishers have to pay to print and ship their publications. These prices were a factor in figuring out what to charge. While you could whine that one printer is more expensive than the next, you can't avoid the cost of printing a traditional newspaper or magazine.

Publishers still have options for how and where to print their publications. Their issue with Apple is that who, how, and store owner are all rolled into one.

Publishers can go with Android or Kindle, but that doesn't get them where they want to be - in the iTunes/App Store.

As I said before, numerically Android, Kindle, etc. are providing great coverage for Apple. Looking at how fast Android is growing, how can anyone argue that Apple has a monopoly position? Apple is big, but it's not that big.

What does Apple have that everyone wants? A great billing system, a convenient online store, a brand that people respect and admire, and a lot of paying customers. These are all nice to have, but any longtime Mac user can tell you what is more important than any of these things.

First Mover Status

When the PC world was dominated by Microsoft Windows, it was riddled with issues. The blue screen of death, software bugs, computer viruses, and the pain of upgrading. But none of that weakened Microsoft's hold of the market. Microsoft held first mover status on not only its own software, but nearly every software vendor developed first for Windows - and a handful would later port their apps over to the Mac.

For Mac users, it was insulting and annoying that everyone spent so much time developing for Windows first. It helped that PCs had a much larger share of the market, but the first mover status* is what entrenched their position and made life harder on the Mac.

Like any lesson in life, you learn and adapt. Apple became the first mover with the iTunes Store. Instead of software, it handled content such as music and later movies. Apple still holds the first mover status with apps for the iPhone/iPad/iPod touch. Any major new app comes to the App Store first and is later moved to other platforms if it's successful in Apple's market.

Ignoring Apple's first mover status is bad business. Publishers want to be on Apple's products, but they don't like going through Apple to do it. It's a tough situation, but is it fair to blame Apple? Is it Apple's fault that it is so important? Should we impose limits on Apple because of its first mover status?

Being a first mover isn't the same as having a monopoly, but it does greatly increase Apple's leverage beyond its simple market share.

It would be nice if Apple could give small publishers a better deal, but then large publishers would cry foul. It would have been great if publishers got together and created a common platform to sell their products, but they didn't. Maybe Google's One Pass payment system will give publishers a better deal, but that won't help sell on Apple's platform.

The Real World

In business, you take all the "what ifs" and "might have beens" and then figure out how to make money. Maybe you give incentives for customers to send you their personal information. Maybe you sell through the App Store at a loss but use the exposure to strengthen your advertising. There is money to be made - otherwise no one would be complaining about the cost.

You just have to figure out what angle to take to get the benefits to outweigh the costs. Don't come complaining about antitrust until you can prove that there is harm to the consumer.

Apple is not being a saint over this issue, but neither is it a villain working to destroy the publishing industry. What I see is a story about the greed of publishers versus the greed of Apple. On whole this has to be the dumbest story for anyone to get upset over - except bloggers for the publishing industry. LEM

* Despite the fact that Macs shipped before Windows, for most users Windows is what they were first exposed to at work, in school, or at home. By leveraging its dominant MS-DOS operating system, Windows became the logical migration path for PC users.

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