Tuesday, February 15, 2011

RIP Pandora, Kindle on the iPhone (and many other content services)

Apple today announced that they now require subscription services to fork over 30% of revenue to them if they want to run on the iPhone.

This, I fear, for several types of content, is a bridge too far. The problem is pretty basic. Many types of content businesses dont have 30% of margin to play with. In books, Amazon doesn't have 30% margins to give to Apple and remain in business. In music, services like Pandora probably don't even have 5% of margin to play with. Given that Pandora has just released financials in preparation for going public, someone with a bit more time on their hands could go through their recent filing and figure out what the specific numbers are.

But Apple is not stupid, so they have certainly run the numbers. And so it seems that they have decided that they now have a platform that is so popular, that the services that can't afford to pay them 30% are not needed anymore. In fact, perhaps it might be more accurate to say, these services aren't *wanted* any more. Clearly Apple has iBooks, which they want to be the bookseller on the iPhone. And obviously, with the Lala purchase last year, and their primary position in the music ecosystem, Apple feels comfortable being the only music service on the platform.

On the other hand, services like News Corp.'s The Daily, and other newspapers and magazines *do* have margin to play with. And if Apple can help them to build their businesses (or save their businesses), the 30% cut might be well worth it.

The biggest issue I see here is Apple's total disregard for the consumers here, who have invested in the iOS platform *because* they believed they could use a broad array of content services like Amazon Kindle, Pandora, Slacker, etc. For those customers that have investments in non apple content, what are they to do? Would they have bought an iPhone or an iPad if they knew that Apple would attempt to become the single source for important categories of content. I know in my case there is no way I would have bought an iPhone if I couldn't use Kindle or Slacker.

Yes, Apple is trying to do right by its investors in its stock. But once again, Apple is showing total disregard for investors in its products.


  1. From the press release: Our philosophy is simple—when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing,” said Steve Jobs, Apple’s CEO. “All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app."

    Sounds like publishers can still offer subscription services outside the App Store, they just have to offer them inside the app now too. How does that hurt anybody? Your point is moot.

  2. " How does that hurt anybody? "

    because they have to offer the subscription at the same price in all places. This means that they would have to jack up their price or they would have to give up their margin. Presume that if there is in app purchasing, no one will use the external payment mechanism. Indeed for many publishers this is a disaster.

  3. @Dan it's not moot. The important part is "...if a publisher is making a subscription offer outside of the app, THE SAME (OR BETTER) offer be made inside the app..."

    So if you are Pandora or Amazon or Napster or some other service that can't afford to give Apple 30% of your subscription revenue, and you can't charge more on iOS than you can elsewhere, then you can't compete on that platform anymore.

  4. Hank, you failed to make that point in your post. You only covered one side of it. Disingenuous at best. If you had taken the time to clarify your point from the get-go, I wouldn't have posted a comment.

    From my POV, you intentionally skewed the perspective to suit your angle.

    I'm not defending Apple's stance, so to speak. I agree that it has the potential to be devastating to the iOS ecosystem. But you missed a real opportunity to educate the consumer here. Why not point out that the conscientious consumer has the choice to support the providers directly? That will be *my* choice (direct support). Consumers may be lazy, or ignorant, but that doesn't make Apple the devil. I do think Apple may have gone too far, but the market will decide.

  5. Dan,

    There will be no "conscientious consumers" because no services will be able to operate on the basis that people will buy through their website since most will not. Publishers must just withdraw because to do otherwise *will* put them out of business. End of story. There is no "other side" or "angle" to this story. The math is very clear.

  6. @Hank, can I just add: thanks for starting a conversation! It takes a lot to put your opinion out there and then to deal with folks like me ;-) So, thank you!

  7. As a developer with a handful of subscription-based apps in the App Store, I must say this is nothing new. Apple is simply responding to evolving trends in the market. Vendors are discovering that the most effective use of an app is as a marketing tool. Market your product (a subscription-based web service) by giving away a free native client on a popular mobile device platform. Allow all customers to try the product free for a month or more. Those who received some value from your service are more likely to subscribe. Those who don't are less likely to give you a bad rating, since they didn't shell out anything up front.

    The key here is that the majority of subscription service providers are only offering payment mechanisms through their existing merchant gateways via the web, not through the App Store. All Apple is doing is asking those vendors who do not already provide the subscription payment mechanism in-app to do so, following all the rules that go with the App Store business model. That means giving Apple 30% of money payments they process. It also means your subscription management system must include support for both payment systems at the same time, to ensure payments via merchant account and via App Store are both processed correctly and affect subscriptions in the same way.

    I published an open source library, called InventoryKit, for handling in-app purchasing for non-consumable items. It's available on github (https://github.com/agoodman/inventory-kit). I plan to extend it to support subscriptions this year, so this is a hot-button issue for me. Thanks for the post!

  8. Sad disregard for facts: investors' like for the stock is nothing but a reflection of customers' like for the product. Further, publishers will have access to customer data for subscriptions through the App Store, something they didn't have before. Last: compare the 30% take to the customer acquisition costs publishers have to pay through their usual channels. JLG

  9. JLG,

    Hmm, feels like sad disregard for actually reading and responding to what I said. Your comment is totally non-responsive to the fact that pandora, kindle, slacker and others will no longer be able to operate on the iphone. What fact did I miss? Pandora and Kindle were doing fine without paying 30% so I guess they didnt need any help with acquisition. But if you read further you would realize that I said that for certain publications, like The Daily, this would be helpful in terms of acquisition cost. I generally like your writing but you are totally off base on your comment.

  10. Apple does not care if Pandora is dead. In fact they probably would prefer it.

  11. JLG,

    Another thought re: "investors' like for the stock is nothing but a reflection of customers' like for the product".

    That is certainly true retrospectively, but it may not be true prospectively. Now that Apple has a leading position they are doing customer unfriendly things. Just like poor suckers who invested in Oracle products and are now *stuck* with that investments. I suspect many customers that pay oracle a pretty penny do not love them.

  12. Erik,

    Agreed. This is an issue for apples customers, but for apple they would certainly prefer to be the only music provider on the platform, and this is a very clever way to get that done.


  13. How is Kindle affected? Amazon sells books, not subscriptions. Does a book purchase count as a subscription?

  14. davemx,

    Your raise a good point which I should have been more clear about. Yes, while it is called a subscription plan it seems to include any content which you purchase.

  15. Based on this analysis: http://www.zdnet.com/blog/hardware/apple-launches-app-store-subscriptions-clarifies-in-app-purchases/11421

    Amazon and Barnes & Nobles would be exempt from having to use Apple in-app mechanism for *book purchases* because they are retailers not publishers, who are selling books not subscriptions. If this is right, it doesn't make me feel much better because it means that as a independent publisher I have to go through Apple's channels to sell recurring content on iOS unless I hook up with a large e-retailer.

    If Amazon/BN were to provide subscriptions then those effectively couldn't be offered to customers using iOS.

    I don't think it would kill Pandora or even Rhapsody. Most of Pandora's revenues come from ads. It's mostly their devotees who sign up for PandoraOne, so it wouldn't be an issue for them to go to a browser and subscribe. They just remove the "subscribe to PandoraOne" button from the app. It was already a tenuous proposition to build a non-Apple music biz model on iOS, b/c iTunes a core iOS feature. e-books aren't which is why iBooks doesn't come bundled with iOS devices. Apple can't even argue iBooks is best especially in terms of price and selection.

  16. If this is publisher only and not retailer applicable then it is fine - if Conde Nast as publisher puts the magazine in a retail outlet, they certainly pay more than 30% to the retail store so it is fair.

    On the other hand, if Amazon is asked to pay 30%, that is essentially running Amazon out of the App store, which I think is not reasonable as Amazon is not a publisher.

    We need to get more info...

  17. Thank you for the info. I am currently using an iPhone 3GS and love it. I was going to wait to upgrade to the iPhone 5 when it rolls out, but maybe now I will look at the Android driven phones instead. Really do appreciate the info agian.

  18. Great perspective, Hank! I totally believe you have to be considerate of your customers, and that will ultimately result in growth and income.

  19. @ctoole

    "Apple spokeswoman Trudy Muller confirmed that those rules apply not only to newspaper and magazine publishers, but also to content sellers like Amazon.com, which offers a Kindle app for the iPhone, iPod Touch and iPad."


  20. I think Apple are beginning to believe their own BS and are simply trying to play us the consumer and see if we bite. I personally will be using the iPhone browser to make all my purchases through the vendor sites. I will also be doing all I can to make sure people know why they should also pay for all content through the vendor directly.

    I am very annoyed at Apple for what they are trying to do and all they seem to have accomplished is reveal themselves as bully boys and give Android, RIM and MS a chance at gaining market share.

    I do also like the way Apple conveniently forget that their platform is successful BECAUSE of the vendors who have applications on Apple hardware.

    If the vendors all fought back and voluntarily pulled their apps from Apple, watch how Apple would quite happily pay a fee to THEM to stay onboard.

    It's all posturing. Apple want companies and consumers to bend all the while hoping we forget who is really in charge...

  21. It certainly means that for lots of people considering subscription-based services - a very important revenue model - it will be far preferable to offer them on other platforms first, possibly indefinitely. That's entirely in keeping with Apple's philosophy of maintaining a premium platform in preference to one where innovation is encouraged, which so far has worked well for them.

    The major danger for Apple is that this dissonance with the brand's highly promoted stance of being pro-innovation will poison people's perception of the company - it seems, certainly to me, hypocritical. In the past, the company has pulled back from such stances when it was obvious that it hurt them, and I'm sure it feels it can do so again if necessary, but it's rarely good when the internal machinations of the marketing department become so obvious.

  22. My take on this is that it won't be hard for the net to "route" around this damage. It just means that lots of links will go out of the apps and into the content.

  23. @Eric - Apple has said that if you will not abide by that rule, there will be no ability to have links to the web.

  24. @jammer - how could Apple possibly enforce that rule?

  25. Pandora and Kindle are not gone yet. You act as if they were. Lets see what happens before you get all hysterical about it.

  26. I feel like I'm Lando Calrissian and I was just told "I am altering the deal. Pray I don't alter it any further." If Apple succeeds here they will just keep doing this. Time to switch to Android.

  27. I would imagine the DOJ will be looking into this. It is beginning to smell bad.

    I have been mulling over selling my iPad because it isn't quite as magical as I had hoped. I am a self employed physical therapist and use it for clinical notes, but half the time find myself going back to my old laptop anyway.

    Although this new policy will likely be changed in some form before implementation, there is likely to be more of this behavior from Apple.

    Anyone want to buy an iPad? Thanks for the article, Hank.

  28. That's total bullsh**, honestly, I would hate to try to go off topic here but the crappiest thing is that if you submit an app to Apple, you practically have to 'pay for submitting your ideas'. Why pay for your thoughts? Apple is mind-nazis now or what?
    And then maybe it gets rejected, you try to re-code it a little in a 'less intrusive' way maybe, it gets rejected again. You've just gave Apple 2 dollars now. You submit it for the THIRD time revised AGAIN, You just gave Apple 3 dollars so Steve Jawbs can buy more crap for himself and not even support the developers, you just got pickpocketed by Apple and deprived of your hard-earned cash. I mean seriously, that's the most B$ Apple has ever gone to doing, fuck Apple anyways., I agree with others, the App store is underappreciated and any app that uses 'Private frameworks' and guess what? They just announced OS X Lion will have more FW then previously! But we can't use those Frameworks because it violates or is otherwise 'intrusive' to Apple and is rejected. F*** you Apple.


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