
Where Apple went wrong with free apps - shawndumas
http://www.manton.org/2011/03/where_apple.html
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ZeroGravitas
Strange to read analysis of Apple that's actually insightful and not a fawning
apologia or a wild eyed attack.

On the topic of free apps allowing in-app purchases, I noticed recently that I
felt trapped by in-app purchases in games I downloaded for my kid. The apps
control the screen and seem, at least on apps aimed at kids, to make it
intentionally easy to misclick and purchase something, having tiny, well
hidden controls to cancel back out or continue without purchasing or
upgrading. Since the only hardware button takes me right back to home I feel
trapped like I'm browsing the seedier parts of the web with a pre-popup
blocker IE. Not really an "Apple" experience.

~~~
dzohrob
I don't understand - all actual purchases go through mandatory, non-
customizable Apple UI. There's a "Confirm your In-App Purchase" AlertView,
which will also trigger the entry of your iTunes password if you haven't
purchased recently. It would be very difficult to misunderstand the purpose of
these dialogs. Am I missing something?

~~~
ZeroGravitas
You're missing the fact that if you install any app, even a free one, you will
be prompted to enter your password. Then for the next 15 minutes you wlll not
be prompted again as your child takes the phone to play their new game and
racks up thousands of dollars of in-app purchases.

This was a big story not that long ago and prompted an FTC investigation.
Apple fixed it in their latest iOS update by prompting for the password every
time.

Even for an adult, using the phone alone without a child's fingers prodding
randomly at the screen, a popup with an _instantly charge my credit card_
button and a _cancel_ button right next to each other is hardly a peaceful and
serene thing to deal with when it pops up unexpectedly as you try to hit the
tiny button that you hoped would allow you to avoid this very question. That's
why it reminds me of those "You are trying to leave this webpage! OK Cancel"
things.

~~~
jayfehr
They have fixed this in the most recent iOS update. In-app purchases will
always ask for passwords now.

~~~
ZeroGravitas
Yes, that's what I said in the second sentence of my second paragraph above.
But since you bring it up again I'll point out that this update is not
available for my iPhone 3G that I have retired and now use exclusively for
kids games. Instead I have to manually sign out after an install.

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tomkarlo
This is something I had been wondering during the previous arguing around in-
app purchase commissions.

Up-front app costs, in-app purchases, in-app subscriptions... they're really
all the same thing. You can't charge 30% for one and not for the other... and
if you allow folks to transact the purchase outside your ecosystem, you
basically get nothing.

With Apple not enforcing the ability to get in-app purchases, the only thing
preventing out-of-band sales is the convenience factor. What if someone just
set up a fiat currency site where you could go buy credits that would then be
accepted by iPhone apps? They could then be sold entirely free, but just
require that you sign in with that external account so they can take some of
the prepaid credit.

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statictype
If Apple is really losing money on the App Store, then maybe they ought to
change the model.

Make the yearly developer license cheaper - $50 or $20 or whatever. Then
charge another $20 or so every year for each app that you publish. Developers
who put out a lot of apps will pay more than those who have the license but
have not even released an app yet.

They could come up with a way to charge for every 'major revision' (ie, not a
bug-fix update) you push out so that developers who are constantly putting up
updates (and thus using more of the reviewer's time) end up paying more.

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kasperset
"If Amazon isn't happy with Apple's terms, users can install the Kindle app
outside the store" There is a jailbreak for that and it would defeat the
purpose of Appstore i.e. Walled Garden.

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bugsy
That's a very interesting analysis. Apple is breaking even on the App store,
and the idea is free apps cost a lot of money to host because of volume
distribution costs (as opposed to sunk one-time costs for having the store at
all). If we assume this is true, then pay apps are subsidizing the cost of
their free competitors.

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nod
If they've paid out 2 billion to developers, that's 850 million to Apple. Does
anyone think they're close to spending 850 million to run the App Store
system?

It IS a profit center.

~~~
danilocampos
They're losing perhaps $100 million to credit card transaction fees. Then,
salaries for god knows how many sysadmins, developers, designers,
sales/marketing people, app reviewers, accountants, on and on. Assuming that
just 5% of its ~30,000 non-retail employees work on the App Store, salaries
eat up another $150 million.

So now we're down to $600 million, or so.

Then you've got bandwidth, infrastructure maintenance, scaling costs, utility
costs. You've got to pay out cash to developers each month, so now there are
banking fees on top of the ones you see when you collect money from consumers.

Still, let's be extremely generous here and pretend that operating at this
scale costs nothing at all.

In such a case, operating the App Store made Apple a profit of $60 million a
quarter since it opened. Apple's Q4 2010 profits were _$4.31 billion_ , making
the App Store in such a scenario worth a whopping 1% of Apple's profits.

In reality, once you account for all the hairy stuff we skipped, it's probably
a lot closer to a rounding error than any kind of significant contributor
itself.

~~~
cageface
You have to keep in mind though that the app store drives hardware sales.
Looking at it in isolation obscures the point of its existence.

~~~
danilocampos
_Everything_ Apple does drives hardware sales. They're a hardware company. The
App Store creates a virtuous cycle that makes their platforms more useful. The
point, here, is that they aren't making money from the operation of the store
– they're just barely breaking even. Would they operate at a _loss_ to
continue improving their device sales? I doubt it. And the crux of this piece
is that Apple is doing what it can to keep this monster from turning into a
money pit.

~~~
cageface
Obviously they don't want it to become a money pit, but I still think it only
makes sense to consider app store revenues in the big picture of the entire
iOS business. I'm sure they'd rather it were profitable but even if the store
ran at a reasonable loss it would still be an essential and healthy pillar of
their business.

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kasperset
Free apps give you the taste of other paid apps. Everything looks free but
there is always some cost behind it. I think app store as a freemium business.
We cannot discount the hardware purchase and the halo effect of the Apple
products.

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joezydeco
_"Many of the hits in the App Store, like Angry Birds and Doodle Jump, have
never been free."_

My homescreen says differently. I don't get what he's trying to say here.

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J3L2404
At the end Manton says:

>Get rid of exclusive distribution, and Apple can be more creative about
charging developers who do want to participate in the App Store

I like Manton, but:

1) Exclusive distribution is the wall of the garden. As mobile ascends the
garden is richer and more concentrated, drawing more varmints. For most people
if their PC doesn't work it's annoying, if your phone doesn't work it's
unacceptable.

2)As for Apple being more creative with charges...They certainly can't charge
any developers more than 30%, but what about less. He himself points out, you
have to be consistent in your fees or everyone will move to the cheapest
option.

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racketeer
interested in mac programming and small business... whoo boy

seriously though, anyone who suggests excluding free apps would have to be
crazy. free users lead to paying users.

