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I'm not an I.T. guy by any stretch of the imagination, but I'd estimate that, on any given day, the chances are better than 50/50 that a friend, family member, or coworker will ask my advice about something computer-related. It's not really because I'm so savvy. It's because I'm so enamored with Apple technology that I've probably already encountered and researched whatever issue you may be having with one of their products. I've owned half a dozen of their computers, as many iPods, four different iPhones, Apple routers, an AppleTV, etc., etc. Now that I spell it all out, probably way too much of my income has been given to Apple over the years.
You might expect that I think that Apple can do no wrong. But, like any company, they can do wrong, and I think they just did in announcing their new subscription service for iOS (basically that means iPhones, iPods, and iPads). I'm not sure why I'm so irritated by their announcement, since it doesn't affect me directly. But I'm up in arms.
The background: Apple has created new terms for those who sell content-based applications on their lucrative iOS platform. Apple has always offered software developers a 70/30 revenue sharing split for applications sold through their App Store. Apple keeps 30% for providing the service (payment processing, servers for the downloads, etc.), and the developer keeps the rest. That sharing agreement has worked quite well for many developers, such as Rovio, the makers of the popular game Angry Birds. What's more, Apple has been more than willing to host apps that are given away for free by their developers. Apple's take on free apps is 30% of zero, but they're still willing to let you offer them to iPhone users. Of course, this isn't pure altruism on the part of the folks in Cupertino; they have a clear interest in getting as many cool and interesting applications on the iPhone/iPad as they possibly can, to encourage people to keep buying the devices, which are sold at a nice tidy profit margin and line Apple's pockets. So, in short, developers get a paying audience for their applications, customers get some cool apps (some of which are free), and Apple gets some money and some great incentive for people to buy its products. Everybody wins.
Now, Apple has announced that it wants to apply that same 70/30 revenue sharing split with content providers, such as magazines, booksellers, Netflix, Amazon Kindle, etc. The problem is that most content providers are hardly operating on 30%+ profit margins. So if they have to give Apple 30% of their revenues, they're going to lose money. Can't they just tell Apple thanks but no thanks? Ah, there's the catch. Yes, they can stop selling their applications on Apple's products. Apple can't force anybody to offer anything. But for those who want to have a presence on iOS, Apple has made the terms particularly onerous: if you want to provide paid content on Apple's iOS system at all, Apple is demanding that you offer people the ability to pay through their own payment system, and give them 30%. You can allow people other methods of payment, but you have to offer payment through Apple. What's more, the price that you offer through Apple has to be equal to or less than the price you charge elsewhere.
Apple claims that they're looking out for the consumer's best interest -- they claim their 1-click payment system is convenient (a little too convenient sometimes, if you ask some parents), they'll make sure you have to actively opt in to share your information with content providers, and they're keeping prices no higher than you would get anywhere else. But I (and many, many others) cry foul. I do respect Apple's treatment of its customers, by and large. But this isn't about respecting customers. This is about grabbing a piece of the pie.
Let's take Netflix as an example. They recently unveiled a streaming-only video service, and they have an app for the iPhone that will play videos from their library. Great! Up until now, they haven't had to pay Apple anything to give away their Netflix viewer for free, and they haven't charged their customers any more for the privilege of streaming those movies to an iPhone than to any other device. That seems like a pretty nice deal for the consumer to me. Now Apple's new plan kicks in. Assuming (safely, I think) that Netflix has priced its service at a profit margin of less than 30%, they have to choose one of three options: (1) keep offering the streaming service on iOS at the same price, and lose money on Apple customers; (2) keep offering the streaming service on iOS and raise the price to accommodate Apple's 30% cut. But because Apple demands that their price not exceed prices elsewhere, that means Netflix would have to raise its prices 30% across the board, and probably lose customers as a result; (3) stop offering the service on iOS.
It's difficult to imagine Netflix, in this scenario, opting for anything other than #3. I'm sure they want to be part of Apple's ecosystem, but I'd imagine they're not willing to inflict damage to their bottom line to do it. What that means is that Netflix (and Kindle, and various other applications) are likely to be unavailable to Apple customers in the near future. I'm not sure how that serves the customer, the application developers, or Apple. In this case, everybody loses.
I suspect that, if Apple insists on this policy, it may end up finally ending their incredible winning streak and pushing people to competitors who offer friendlier terms to content providers. I never thought I'd say it, but I just might end up being one of those people looking elsewhere for the next cool gadget.