

Apple’s Big Subscription Bet: Brilliant, Brazen, Or Batsh*t Crazy? - dolinsky
http://techcrunch.com/2011/02/15/apple-in-app-subscriptions/

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randall
Imagine if the PC revolution had unfolded this way. It's pretty crazy to think
about.

Essentially, Apple is acting as the big box retailer, but without any other
big box retailers, they set their margins and the software vendor just has to
live with them. No real competition.

Not sure how I actually feel about this. On one hand, Apple is creating an
ecosystem, and all they're asking for is $99 to distribute apps. Much better
terms than $x / seat for MS Studio and the like. But, they're going to insert
themselves at every aspect of the chain when they don't necessarily have to.
It gives me an uneasy feeling, but I think the company is optimizing for
business instead of goodwill.

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r00fus
I don't know if they will be successful in their endeavors but if Apple
follows through, there will be a backlash.

Take Netflix, for example. Does it make sense to provide in-app subscriptions
for 30% discounted distributor rate ($8 * 70% = $5.60) when that same account
can be used for Roku, etc?

No. What will happen is that all these service providers will make an Apple
subscription (which has separate features) that won't work with other devices.

Balkanization of content channels... this is not consumer friendly.

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originalgeek
The problem with your analysis is most people already have a Netflix account,
so Apple will get 0% of those subscriptions. Same thing if a new customer
signs up on netflix.com, then starts viewing on their iOS device.

If Apple attracts a new customer via the AppStore, similar to how affiliate
marketers bring new business to a vendor, they get a 30% cut.

I do however agree it is not consumer friendly. With the "most favored nation"
clause in the agreement, vendors will have little choice but to raise prices
to meet the commission on the fraction of sales Apple takes their cut.

~~~
Cadsby
I'm not sure this will turn out to be the case. Amazon has always had a most
favored nation clause with regards to ebooks, and that policy didn't cause
ebook prices to climb, even though Amazon is the largest seller.

It's also worth mentioning that Newspapers and Magazines make the majority of
their revenue through advertisers. This is why they choose to heavily discount
subscriptions in the first place. If it turns out being on iOS gets them
noticeably more subscriptions, then yes they may lose money on those
subscriptions, but it may be a net gain if it enables them to raise their
advertising rates accordingly.

Time will tell.

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jrmg
There is an elephant in the room here, and it's why so many content providers
seem just so annoyed.

Regardless of whether this is 'fair' for Apple to do or not, many content
providers simply /can't/ give Apple (or any third party) 30% of their revenue
- even just for for subscriptions sold through iOS apps - and still make a
profit. There's just not enough margin in what they're selling. Since Apple is
demanding that the prices in-app be the same as outside the app, these
providers have two choices: raise prices for everyone to subsidise the iOS-
purchased subscriptions, or don't offer an iOS app at all.

This is a big change to the status quo.

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MoreMoschops
That makes no sense. The cost to the publisher of an additional electronic
subscription is tiny. Really tiny. It's comparable to the cost of sending one
more eMail when you're already sending out thousands. If they had to give 30%
of all their existing revenue, they'd be down, but if these Apple subscribers
are new subscribers, then they've made some more profit.

~~~
jrmg
It makes sense if they're paying royalties on the content on a per-copy or
retail-sale-percentage basis.

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brudgers
With $60 billion in cash, changing the terms of service for developers is the
most market disruptive idea they had for the iOS ecosystem? In the year of
uninspired Apple announcements since the iPad, this may be the most uninspired
of all.

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pdaviesa
And Jobs has just stepped over the line of brilliance to madness. It is this
same God-complex that ultimately led to his original ouster from Apple. Jobs
really thinks that 30% of the revenue in the mobile world belongs to Apple???
I see a HUGE opportunity for Android here (and I'm an Apple fan)!

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juiceandjuice
This is a huge game of chicken with Amazon.

I could see a scenario where Amazon decides to let the kindle app be pulled,
and throws their weight around with the publishers in order to damage iBooks.

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MoreMoschops
The question here for the publishers is whether or not this will increase
their sales, or just move them about.

If they have all the subscribers they were going to get anyway, AND some new
ones thank to Apple, they've made more money and they fact that Apple is
taking a cut won't bother them; 70% of more money is a lot better than no more
money. It costs them effectively nothing to have more subscribers, so as long
as their Apple-based subscribers aren't cannibalising their existing
subscriber base, their profits go up.

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kgermino
I've asked this before, but what is there to keep Netflix from creating an
iPhone version of their site and directing users there? This would let them
cut Apple out of the equation completely, and still provide the same
functionality, unless there's issues with playing videos on the iPhone that I
am not aware of.

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gnubardt
Netflix uses drm on their players (through silverlight in a browser). HTML5
video doesn't have hooks for drm at the moment.

You can restrict access to content (by using a TTL or encrypting the video
with Apple HTTP Streaming) but someone could still capture the stream. Their
stream using silverlight is encrypted and offers the kind of security that
makes content owners happy.

~~~
etherael
You can however use http live streaming with AES tokens to get the same kind
of result with html5 (audio and video). It just remains to be seen if that is
acceptable to nflix and the content providers they're beholden to.

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therealarmen
I was wondering when there were going to roll this out ...

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arron61
don't even post articles from MG here. Too bias and too useless.

~~~
ghshephard
Actually, this one is a fairly coherent review. Take this for example:

"But a lot of third-party developers both large and small are going to be
very, very pissed off by this move. Why? Because it totally changes the game.
Companies with subscription elements of their content had been accustomed to
leveraging Apple’s platform for free. Now there will be a fee. And it will be
a significant fee."

And, here is some useful commentary:

"And, here is an answer to one of the questions that I've been wondering
about: "The Amazon question (which originally sparked a debate a couple weeks
ago) seems more complicated. Because Amazon content isn’t sold by
subscription, it’s not clear how this affects apps like their Kindle app. It
may not affect it at all, but then why did Apple reject the Sony reader app?
Was there a subscription layer in it? Apple clearly wants to move towards a
full in-app purchase environment, but today they’re only talking
subscriptions. One-time payments may be the next shoe to drop."

Update: A couple more things. Apparently, Apple has just updated the App Store
Guidelines alongside the announcement today. And yes, it seems that one-time
in-app purchases like those made through Amazon for the Kindle will fall under
the same rules. That brings up another question: could Amazon just make a
Kindle reader app that didn’t allow you to buy anywhere in the app, but only
use previously bought content? The guideline wording seems like it would still
be a no-no but it’s not entire clear that such an app would be rejected. "

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Synaesthesia
Why the critical backlash? The App Store is the exclusive way to sell apps for
iOS, and Apple takes a 30% cut. Now the subscription model is similar, except
you can sign up outside the app as well, not paying anything.

I guess people don't like that Apple has full control of their platform, and
they sometimes do things which benefit them. If you don't like it, don't buy
an Apple product! Get something open or whatever.

~~~
lukifer
It's not about customers, who don't necessarily care to whom they pay
$9/month, NetFlix or Apple.

It's about platform vendors who are being strong-armed into providing a huge
chunk of their revenue to a company who is doing relatively little to earn it,
proportional to the amounts involved.

Apple is no better or worse than any other corporation for pursuing this
policy. They have the installed userbase to call the shots, and they know it,
and they'd be foolish to not take advantage of it.

But they're also putting publishers in a tough spot, especially when they're
already struggling with a new business model and a market of unknown size.
Apple does run the risk of killing the golden goose, or alienating publishers
to the point where they pull their wares from iOS entirely, which is bad for
both users and the platform.

In short: of course Apple _can_ do this. It doesn't mean they should.

~~~
ghshephard
One of the best comments so far on this whole strategy of Apple, bears
repeating:

"Apple does run the risk of killing the golden goose, or alienating publishers
to the point where they pull their wares from iOS entirely, which is bad for
both users and the platform."

~~~
Synaesthesia
I'm sure I'll get downvoted for this again but - Apple are the only player who
have bothered to implement a subscription model. No competition! Once Android
do it (and the others) and they become popular enough to compete, Apple may
feel the pressure and drop the 30% rate.

30% sounds like a lot but if I would take it if I were a publisher - there's
still room to make much more profit than a print operation - no need for
presses, ink, paper etc. I mean the 70% you get is pure profit basically.

~~~
Kylekramer
Except they aren't the only player. Netflix, Amazon, NYT, the list goes on and
on. Any major subscription service has a way to get users to subscribe via the
web today. And Apple didn't just introduce a subscription model today, they
introduced a subscription model that directly attacks any other model if they
want to be on iOS.

