Wednesday, February 16, 2011

Apple is actually asking for 100% of SaaS mobile revenue

This whole app store thing has me worried. Not just about how Apple's policies affect content access, but regarding how they affect my business, the online software as a service (SaaS) business.

It appears to me that the new "give Apple 30% of revenue" policy will apply to software subscriptions just as well as it appears to content. Many companies that offer a web service provide a mobile client. They charge on the web, and customers can access their service via mobile if they wish. Its a free option.

But now it appears that that will not be acceptable to Apple. Because if you offer a subscription *anywhere* you have to offer it through in app purchasing as well. This seems crazy to me for a bunch of reasons.

As an example, it sounds to me like for SalesForce to continue to offer their service, they will need to give Apple 30% of their subscription revenue for all customers that want to access SalesForce via mobile. So if SalesForce charges $50 per seat per month (I don't really know what their prices are right now), Apple wants $15 per month. They want their 30% cut of *all* of the SalesForce revenue even though the mobile product only offers a fraction of the value that the customer is paying for.

Think about it this way. Would the customer really pay that $50 if all they got was the mobile product? Lets say that, on average, the mobile product is 30% of the value of the product. The other 70% is the web based product, access to customer support, backup services, etc. If this scenario is even roughly correct, then what Apple is doing is asking for 100% or near 100% (perhaps more or less) of the value of the mobile experience. This analysis applies to any multi-platform SaaS product.

Extracting 100% of the value of the mobile product is a total non-starter, and if Apple enforces their new policy against SaaS businesses, I think most of the multi-platform ones will leave because the economics just won't work. The thing is, because Apple has so capriciously changed their policy, affecting companies like Amazon, and companies like SalesForce that have made a significant investment iOS investment, one has to wonder whether building iPhone apps is safe even if they don't initially enforce this policy against them. Because they could. If you always have to worry whether the platform vendor is going to figure out a way to put you out of business or extort you, it just may not be worth the risk. Damn I feel like I am writing about the Gambinos!

I am particularly worried about this because my company is going to launch a new service in April and we are busily working on an iOS application and we can't really turn back now. The main reason we chose iPhone is because I have an iPhone and an iPad and because the iPad currently leads the tablet market. But I am now worried that we may have made the wrong choice and should have gone the Android way.

If this doesn't get cleared up or changed, there will still be plenty of games and and productivity tools for the iPhone, but new multi-platform SaaS application developers won't touch iOS with a 10 foot pole. And existing companies will pull their iPhone apps in droves.

Well one thing for sure, the Android team must be kvelling!

22 comments:

  1. Another question that I have is: how do FaceBook credits work on iOS. To be able to play FaceBook games you need FaceBook credits. At the moment I don't think you can buy them via the FaceBook iOS app. But if you do then Apple will take its cut.

    Now image if you are the games creator. When someone buys FaceBook credits via iOS you'll be paying twice - Apple takes it cut and then FaceBook takes it cut.

    I went to a conference on mobile phone developing before the Apple iPhone launched and the big talk was working with carriers to get the app, written in Java, to the users. The carriers always wanted some sort of cut as did the handset makers.

    When the iPhone SDK was released I thought how annoyed the handset makers and carriers would be now and how good this would be for the consumer. But this is now lock-in of the worst kind if you an application developer.

    But there is an escape route that is still open: HTML. Necessity is the mother of all invention. Engineers are going to create fantastic mobile sites that act just as good as native applications because they have to, because 30% is far too much to ask.

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  2. Wow. Very good point about Facebook credits. I can't imagine how that is going to play out.

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  3. I think the easiest way out of this debacle is that SaaS providers will make Apple look bad by passing on the Apple tax directly to consumers. There's nothing in the rules stopping services from saying "our normal plan is $10, our normal plan plus iOS access is $15". As long as the cost of the offer is the same on both your website and in-app (and this "iOS plan" is the only way of accessing your content in the iOS app), Apple has no grounds to complain.

    See my post here - http://www.thetechbastard.com/post/3326771970/a-hypothetical-netflix-ios-plan

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  4. Looks like it's time to start writing mobile stuff in jQuery Mobile as opposed to native apps. They can take their 30% and shove it then.

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  5. Sorry, saturdaysaint, that's a good idea, but the Apple policy specifically states that the price via Apple has to be the same or lower than any price elsewhere.

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  7. Per Steve Jobs' statement yesterday, this isn't the intention.

    What Apple is trying to do is get a 30% referral fee for anyone who signs up to your service through an iOS AppStore app. You are welcome to promote your non-AppStore sign-up, but there must also be an in-AppStore sign-up option, so that Apple has the chance to receive remuneration in exchange for (effectively) marketing your product in the AppStore.

    I think this would be a lot easier to swallow if we could choose between different AppStores run by different companies, offering different (competitive) plans, but that's not the world we live in :(

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  8. The problem is just that Apple fucks you up! If you do too much with them, you WILL have problems. Apple wants to control everything. Apple will not hesitate to turn its back on you. And it will be you who will lose, not Apple. So better stay away from the devil.

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  9. I think you may be jumping to conclusions a little too soon. The press release and developer articles specifically state that the subscription is for apps delivering content - like publishers or magazines, etc. If your app doesn't offer that sort of content or if you don't use Apple's subscription service, I don't think you have anything to worry about.

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  10. @Bryan Larsen: No, saturdaysaint is right, because the price IS the same everywhere. Great advice, saturdaysaint.

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  11. What a lot of people don't seem to be mentioning is that this is a classic bait-and-switch for developers.

    When iPhone launched, they were all "use HTML5 to build mobile sites". Then they launched the app store and they were all "build apps to get the full experience". And people build apps that made the platform more attractive.

    Note that their position of market dominance was heavily augmented by the fact that developers built lots of cool apps. Now they say to those selfsame developers who built value for them: "if you don't like it, go somewhere else".

    As an aside: I was swayed towards the iPad by the fact that I could use it for an e-reader via the Kindle app.

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  12. People will just make their web service work in safari mobile.

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  13. SaturdaySaint,

    Take your idea one step further:

    Our application is $100 a month. iOS access is an additional $1/month. Feel free to pay the $1 on our website or in the app store.

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  14. According to Jobs - “Our philosophy is simple – when Apple brings a new subscriber to the app, Apple earns a 30 per cent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 per cent and Apple earns nothing,” said Jobs, Apple’s CEO.

    So you just need to ensure that your customers come to you outside of the App. For companies like SalesForce this is not a problem, since most enterprise customers will be internet subscribers first then add the app.

    Good luck with your SaaS app. We have been at it for a while now, its a fun ride.

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  15. If the mobile site does less, charge a separate additional fee for iPhone access, then only put that in the in app purchase.

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  16. 2011 is the year of the Mobile Web App. The App Store is helping to accelerate this trend.

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  17. Please read the relevant documentation. Apple ask 30% of subscriptions made through Apple. You still free to offer subscription via other channels and your customers can buy it there. And none of these $$$ will go to Apple. However, if Apple bring you NEW customer, Apple wants its 30%.

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  18. Lazy Old Man,

    You miss the point. The app store is a store I dont want to sell out of. But apple will force me and will bring me a customer that is a money loser. So Apple is doing me no favors by bringing me customers that I will break even on or lose money.

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  19. I am really worried about this. My SasS iOS app makes no sense to be subscribed to 'in-app'. It is just a compliment to the web app. They really need to be more clear about this. If it was was buying an in-app subscription then ok charge what you like for the service. But don't make me change by business model to conform to your wants. This sucks.

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  20. saturdaysaint: you're assuming good faith on the part of a company which has been extremely greedy since they launched the AppStore. It seems very risky to rely on something like that when Apple might just quietly stall app approvals if they feel they're not capturing enough of your revenue or plan to enter your space. That was already a problem before and I find it hard to believe that they're going to stop here if they get away with it.

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  21. From all of the discussion threads it's clearly confusing people and Apple's ambiguity doesn't help...

    It seems (at the moment at least) they are not targeting primarily web based SaaS who happen to also have a complimentary native app:

    Jobs: “Our philosophy is simple – when Apple brings a new subscriber to the app, Apple earns a 30 per cent share; **when the publisher
    brings an existing or new subscriber to the app, the publisher keeps 100 per cent and Apple earns nothing.**"

    The second situation applies to SalesForce, 37signals, and a host of others, where the primary service is web based SaaS, and the iOS app is complimentary. Their subscribers start life by being driven to the primary service outside of the app store. Under the new terms the complimentary iOS app simply can't drive sales on its own (and in my experience they rarely do today). If the complimentary app does try to drive signups on its own, this is where you might get into the new conditions.

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  22. If Apple wants 30% then they should HOST all the content too. They should be the download pipeline and host all the back issues etc. I know they do the download for the app but what about for all the data from then on? Do you post your new content to the app store? Do they keep back issues? How deep? When do they cut if off? The minute I don't pay my $99 a year? Does the app and all the content disappear at the same time?

    Is a customer a new customer the first month or every month? Why does Apple get 30% of a magazine subscription every single month? If I renew after a year is Apple still in on the cut?

    This is step one, not the final step as they have shown over and over. If they can figure a way to get in on SaaS dollars they will.

    I develop for the Android and the iPhone. So far it has been much easier on the Android in so many areas. Apple needs to be really careful here to not annoy the developers. The customers will put up with a lot more than a developer will. Hank is already questioning his commitment as will others in short order. Not that anyone will bail just due to this but over time people will look at other platforms first then iPhone later due to the constant Apple taxes.

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