iOS Subscriptions Aren’t a Fair Deal

February 15th, 2011

Today, Apple announced a subscription service for iOS that will allow users to subscribe to publications or other content, like video or music. Publishers can set the subscription price and length, and can sell subscriptions outside of their application and retain 100 percent of their revenue, but any subscriptions sold from within their application are subject to Apple’s 30 percent share.

Apple’s reasoning on this is quite simple; they are providing a platform for other companies to not only make money, but make a business, and unless they take a percentage from subscriptions (or in-app purchases) made from within applications, they will be providing the platform without a way to make money from it.1 They would be paying substantial costs to allow others to make money from their platform but will not share in it.

So it’s not hard to understand Apple’s position, and I think it is certainly valid they want to take a cut from each subscription or in-app purchase made from within an application.

While that is true, there are two objectionable elements. The first is the 30 percent rate. Apple is not only taking 30 percent on the initial subscription payment, but all subsequent payments; that is, simply, too much. Publishers are already under tremendous pressure to keep their prices as low as possible, and this will cut deeply into their margin. From this perspective, Apple shouldn’t just be concerned for publishers out of some kind of empathy; a prohibitively-large cut will discourage publications from using iOS as a platform (even if the large user base provides them a reason to overlook it), and could provide a competitive advantage to other platforms. Google and HP could provide much less stringent terms and gain exclusive content partners.

Second, Apple prohibits publishers from placing links in their applications that will allow customers to purchase subscriptions or content outside the application. Amazon’s Kindle application, for example, does this; you must purchase Kindle ebooks from their online store. This move effectively forces publishers to sell content in their applications using Apple’s in-app purchase mechanism, because most regular users will be unaware they can purchase content outside the application, let alone understand how to do so.

Publishers might bite their tongue in the short-term, because iOS has so many users and so many of them are willing to purchase content, but this isn’t a smart move for the long-term. Just like Apple needs third-party developers for iOS to be a success, Apple needs content-providers, too. Pissing them off for some short-term economic gain isn’t a smart move. Apple should be courting them as much as possible, not trying to generate a bit more income. Sometimes, it’s worth it to trade a small income stream for a much larger one—the success of the iOS platform.

Apple certainly has a right to set the terms for their platform. I am not contesting that; Apple is providing the platform, the SDK, the users, and an easy payment mechanism. But that doesn’t mean that onerous terms are justified. Reducing the rate to 10-15 percent of revenue would likely be acceptable to publishers and seems fair, considering what Apple’s providing. But as it stands, this is an unfair deal for publishers.

  1. Yes, they would still make money from hardware sales in this case, but that’s cold comfort when there’s companies making, potentially, tens of millions of dollars using their platform and they aren’t seeing a cent of it. []