Apple’s Powerful Position

It seems as though the blogosphere is only now waking up as to how extraordinarily powerful Apple’s position with the iTunes/iOS/iPhone/iPad stack is. Apple’s critic’s (and in this case the most effective critics are significantly long-time supporters) are concerned that Apple is over-reaching: the objections are focusing not on the level of Apple’s commission (though plenty of people think that 30% is too high) but on the way that Apple’s rules appear to reach through to ‘regulate’ the way in which its partners can price services outside the iOS platform. Marco Ament,

A broad, vague, inconsistently applied, greedy, and unjustifiable rule doesn’t make developers want to embrace the platform. Subscriptions and the new in-app purchase requirement Marco Ament.

And another shrewd critic

If I am interpreting this correctly, I can’t bring myself to see it as reasonable. Not only do businesses have every right to price their products on the open market as they see fit, ………
I also don’t see how it’s even remotely enforceable. Are Apple staffers seriously going to check every vendor website for sale prices on a regular basis?

I think a great deal of this drama could go away if Apple dropped section 11.13 ……. (about pricing away from iTunes)…. Your prices on your store are your business; just don’t be a jerk and advertise the difference all over ours. About This Whole Subscription Hubbub Matt Drance

John Gruber, usually very loyal and positive about Apple, notes at Daring Fireball that he agrees entirely with Drance.

It is unlikely that Apple will do much about this hullaballoo, except perhaps to clarify that the rules are not going to be enforced in an aggressive and over-reaching way. The trouble is that it is not obvious how they can be enforced in a clear and unarbitrary way and if there is too much fog and vagueness that could be a real bane for Apple developers. It is almost inconceivable that Apple will back off the 30% commission (the music publishers have been griping about it for years), so we had better get used to it.

There is another feature of the Apple infrastructure that needs to get some critical attention. The available prices. The App Store Pricing Matrix has 85 levels (99c to $999.99) and ranges across currency bands ($, Can$, Aus$, UK£, Yen etc). The matrix could be host to a few problems which someone in Apple needs to think about:

  1. Will this pricing matrix become the default pricing regime for all cultural services and software? If the rules say that a publisher has to price stuff outside iTunes at a price equivalent to or higher than the Apple pricing matrix, is that not going to appear in a very poor light when the regulators come and investigate?
  2. Are Apple sure that there is not scope for a price level beneath 99c or 115¥? Is it ‘offside’ for a developer to offer 49c or 99¥ specials? The 99¥ price ‘looks’ pretty good to me. No restraint of trade investigation will like the Apple rule which says that virtual stuff is either sold at 99c or given away. Apple may not want to sell apps at less than 99c, but if Disney want to do 49c apps off its own e-commerce system, why not?
  3. Then there are prices at the high end, off the Apple scale. There are B2B magazines with extraordinarily high personal subscription rates. There are excellent, technical, specialist and very influential magazines (finance and law) sold on subscription that cost as much as a safari holiday, many of these will work well as iPad applications. At the moment the Apple matrix does not stretch to those subscription levels (for the annual sub). I suppose that the publisher can at least comply with the rules by offering a monthly sub at $299 (weekend in Paris), but should it not be feasible to offer an annual sub at $2,999 (7 days in Kruger National Park)? There may be few takers at the high end, but Apple is not averse to ‘high ends’ that will attract a 30% commission.
  4. The really devilish problem is that currencies move. I don’t think that the Apple app pricing matrix has yet been revised, but at some stage it will need to be. The Australian dollar will shoot through the roof, or the British pound will sink like a stone. When that happens and the prices in the Tesco downloads store start jumping as a direct result of a new Apple Matrix that will be a political hot potato.
  5. Worse still, when currencies move (they do) and the matrix has to be rearranged, there will be enormous disruption to the ‘self renewing’ subscriptions in the iTunes ecology which Apple has now introduced. Prices will not self-renew if they change. This circuit-breaker is very correctly a rule in the Apple pricing system to protect consumers. At some point the matrix will become very misaligned with the real world of fluctuating currencies and Apple will push through some revisions. Revisions which may be mildly annoying to consumers but hugely damaging to developers who have come to rely on renewals.

Some of Apple’s critics write as though the company had room to duck and dive. Such criticisms are misguided, Apple’s project is so well integrated and so interdependent that it can not turn on a sixpence. Whilst many consumer magazine experts are complaining about Apple’s rather meticulous oversight of app developers and some big companies are hanging back, reluctant to sell their magazines through a system that gives them little consumer data, there is every sign that iTunes and the next generation iPad will continue to excite the market. If the Apple critic wants to look for a silver lining in this situation, she can rely on the fact that an extraordinarily successful marketplace with huge momentum and profit margins approaching the 30% commission, will attract ferocious competition. Somebody is working, in a garage, on a scheme that pulls the rug from under the 30%. The inflexibilities and rigidities in the rather large pricing matrix may be one point of attack.

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