Apple's Newish In-App Purchase Policy

A follow up to my Apple vs. Sony post. Apple has specifically stated that if you link to a website store in your app, anything digital you offer for sale on that website store has to be made available to app users via an in-app purchase. Apple charges developers 30% of the in-app purchase price.

John Gruber at Daring Fireball wrote an article covering these topics as well, I pretty much agree with everything he wrote and reinterate some of his points below.

Again the big question here for consumers is how does this affect Amazon Kindle app. Apple just accepted an update from Amazon last week that still includes a button that has a link to the Kindle Store on each page. So to date Apple appears to be OK with Amazon. They may be waiting for iOS 4.3 to ship before enforcing the policy with Amazon, or they may be in dicscussions with Amazon, or they may just be ignoring Amazon. It's Apple, all three are likely.

Even if Apple rejects the Amazon Kindle app from the store it's doubtful they'll delete the app from everyone's devices. Although they have the capability, Apple has never done this (which puts them ahead of Amazon, who has deleted several books from Kindles.)

A bigger question is why is Apple doing this? And many seem to be saying "Oh my god Apple is so unfair" or "30% is too much money!" I'll take a shot at answering these.

Why is Apple doing this? I see two reasons behind this. One is about books and magazines. Apple doesn't want iBooks to become irrelevent in the ebook market. Currently a book publisher that wants to make ebooks available can go to Amazon and have the book available on way more devices, including Apple's, than if they negotiate with each ebook reader individually. If Apple can reduce the use of the Amazon Kindle app on iOS devices it will force those publishers to either create their own apps and sell the books with in-app purchases, or to make books available via iBooks. Either way the publisher gets 70% of the price, Apple gets 30%, Amazon gets circumvented. Win-win for Apple, and no loss to the publisher (Amazon's cut is 30% or worse on Kindle books, so the publisher doesn't lose money this way.)

The second reason is this: Does Wal-mart allow Costco to setup little stores inside of their stores? Hell no. Apple feels the same way. They went to all the trouble of creating this awesome device, and awesome market, and now they're getting circumvented? That would piss them off a great deal. So they're putting an end to it. By the way, Amazon does allow other companies to sell stuff via Amazon's web site. I'm curious to what cut Amazon takes from those companies. Would be an interesting perspective to the "30% is too much money" argument.

Does it hurt the customer? Not immediately. Customer's probably won't lose access to any current applications. If Amazon's app gets pulled I believe it will be Amazon's decision to pull out, not Apple kicking them out. There is the potential that some developers may decide to opt out of developing for iOS because the costs, but I don't see that happening anytime soon while the iOS has so many more people actually buying apps (with real money) than other platforms.

"Apple is being unfair." Apple is only being unfair to resellers. If you want to setup a web store and cater to iOS users with a custom app, Apple wants a cut. If you're a publisher you're already used to giving a cut to various retail outlets. Apple's deal may actually be better for them. But if you're an aggregator of content and you already negotiated taking a cut from publisher, Apple's 30% is probably coming from your cut. And you may be screwed. Apple doesn't really care, they want to bring publishers direct to the customers, not through multiple layers of middle men.

Is 30% too much money? I honestly don't know. Amazon wanted more, when they were the only game in town, then Apple undercut them and they dropped their own pricing pretty quickly, suggesting 30% cut is more than generous. Press releases announcing price cuts are greeted much more enthusiastically than announcements of price increases. If Apple determines 30% is keeping away too many publishers or developers, they can lower later. As a consumer I don't really care what the deal is between the publisher and Apple. Just as I don't really care what the deal is between Costco and the various manufacturers. I'm looking at my total cost. If Apple reduces the 30% cut will app prices drop? Some may, but I actually think most developers would keep the extra money (and there is nothing wrong with that!)

I think publishers are currently using to paying way more the 30% to get their books on shelves of bookstores. They have to pay the author, editor, the printer, advertising, the middle men, etc... If they negotiate directly with Apple or Amazon or Sony or Barnes & Noble they know they'll get 70% of the price. They'll still need to cover the author, editor, and advertising but other costs are eliminated, Apple is now the middle-man for all the other stuff (bandwidth, storage, store front development costs, etc...) and it comes out of the 30%. Currently publishers are most likely avoiding ebooks because they don't want to risk their paper book sales, which are probably still larger than their ebook sales. So they'll keep the prices artificially high while they transistion. I expect prices of ebooks to start dropping in 4 or 5 years as paper book sales tank.