Apple's subscription policy is not unfair

Apple Inc. took a risk, and invested in the design and development of an integrated platform — including innovative devices, an operating system, a distribution system, and a payment system. They offer this platform in the free market, under a set of terms and conditions to which those who choose to participate must agree. Those terms explicitly allow Apple to change the game anytime they wish.

Recently, Apple have introduced a subscription policy, requiring that any subscribed service to which an app provides access, must also be available for purchase through the platform as well, compensating Apple with 30% of the subscription revenue. Furthermore, the app may not promote the subscription option that is available outside the app.

One can see how this benefits Apple, its shareholders, and many of its customers. One can also see how this will prove detrimental to many business exploiting the iOS platform; particularly those providing access to a low margin product, through a free iOS app.

A lot of people around the internet have responded in an uproar, speaking of Apple as a tyrant and extortionist, claiming that the new policy is “inequitable”. They go on about how much margin Apple is making, and claim that to be “unfair”. These seems like knee-jerk reactions, motivated by a misplaced sense of entitlement.

Apple have done nothing wrong. What they’ve done is within the scope of the terms we’ve agreed to, it makes financial sense for Apple, their shareholders, and will prove attractive to many of their customers. They are acting in their own self-interest — which is a fundamental freedom of participants in a free market.

With a bit more thought, I believe most of these people would acknowledge the logic behind Apple’s policy, would recognize that the principle of “fairness” has no place in this discussion, and would admit that what they are really upset about is the specific amount — 30% — that Apple are charging.

Which reminds me of past discussions about product pricing and ratings.

Ironically, many of these same people would (and have) argued that their own app and service offerings should be rated on their objective merits, and not on the subjective basis of price. They would argue that a Porsche is no less of a car, because most people can’t afford one. If they’ve chosen to price their app at $19.99, instead $0.99 like most in the App Store, don’t give it a 1-star rating because of that. Rate the app, not the price, and don’t call it “unfair”.

By the same token, these people would also not consider it “unfair” to change the rules of their own game, as long as its within the terms to which their customers have agreed. They wouldn’t consider it unfair to the original purchasers of their app, if they later decided it commercially made sense to drop the price to $9.99 (as long as there was no previous promises made to those purchasers), nor unfair to future purchasers to raise the price to $29.99.

To be clear, I have no issue with speaking out. I’m personally not happy about the situation. Apple’s new policy has caused me to deeply reconsider the roadmap of a product we’re going to develop. So I hope to read people writing more about how it no longer makes economic sense to bring their compelling product/service to the iOS platform, and hope to read less statements of “this is bullshit” and “this isn’t fair”. The former is what is relevant, and, ultimately, what has the power to influence Apple.

14 thoughts on “Apple's subscription policy is not unfair”

  1. I am also working on a project that just took a fairly dramatic turn in response to this news and, for which, the iOS platform is now financially unviable. I’m glad it happened early enough in our project that we could change course without too much difficulty, and that we had always had iOS as just one of several pillars to the business plan.

    I think you’re right that whinging and moaning about the change won’t achieve anything, but I do think we’re justified to feel sad that Apple is wiping themselves out as a viable platform for what must be a large number of businesses who were hoping to use their platform (and I’m sure were willing to pay their fair share). I’ve got no problem paying Apple their dues, I’m just not sure that 30% is a reasonable ask. You need to be making a big margin if you’re able to give away that proportion – which is probably fine if you’re making apps, but if you’re selling products/services/content then it gets tough fast.

    Anyway – time will tell I guess. Watching with interest.

  2. @Todd, the alternative would be a title saying Apple’s policy is “fair,” which is contrary to my point. I don’t want to state that the policy is fair or unfair; it’s not a question of fairness. But what the policy is not, is what people are saying: “unfair”.

  3. Surely one aspect of this which many have overlooked is that if Apple allowed developers to sell there app outside of the in-app purchase and allowed the dev. to set it at whatever price they liked, then the dev. would simply make the in-app purchase 30% more expensive than the outside the app price.

    They’d do this to cover Apple’s ‘cut’, which is perfectly ‘fair’, but then nobody would buy anything from Apple.

    Apple’s current position isn’t ‘fair’ but I don’t really see what else they could do.

    Apple have to cover their costs, and I think the true discussion here, is what everyone thinks Apple’s costs ought to be.

    The only people qualified to make that judgement is Apple, not everyone else.

  4. Sorry, I don’t agree with your logic. Will you also defend banks or businesses who weasel out of tax obligations through legal loopholes simply because they “have done nothing wrong”. Your definition of business ethics is sadly lacking.

    Actually, principles of “fairness” have a place in every discussion, and you have no right to remove it from this discussion. You pretend that the only framework for assessing business decisions is economic

  5. …regardless. This is a poor decision from Apple even in the economic sense, simply because the market won’t tolerate it. Why, because 30% takes pretty much all of the margin of profit from content producers.

  6. @Ross,

    What on earth are you talking about? What does evading taxes remotely have to do with Apple defining a policy that’s within their terms and conditions?

    Illegally evading taxes is wrong, because it’s…breaking the law. Avoiding taxes, however, by taking advantage of what’s legally provided in the law should be expected by any sensible organization. That’s what tax planning is all about — studying what is specifically not defined in the tax code. Perfectly legal. Perfectly ethical.

    The only thing you’ve said that I could remotely agree with is this: “This is a poor decision from Apple even in the economic sense, simply because the market won’t tolerate it.” You’re correct in the fact that the market will decide whether Apple’s policy is tolerable or not.

    I have a question for you: My neighbor offers me $1,000 to paint his house. I then go ask you how much you’d charge me to paint my neighbor’s house, and you make an offer of $100. I then accept the $1,000 from my neighbor, pay you $100 to paint the house, and keep $900 in profit. My guess is that you’d consider that an “unfair” situation.

    Well, it’s not an “unfair” situation; it’s a situation of market inefficiency.

  7. Bravo. I made a similar point on my own blog the other day (http://actionatadistance.net/post/3345200808/on-apples-subscription-payments); that emotional terms like “unfair” or “greedy” aren’t helpful in this discussion.

    However… if, now, bad things happen (like popular apps being withdrawn), then it is the perception of the “fairness” of these charges in the minds of the users that will determine if those users blame Apple or the app publisher. In turn, this will affect future purchasing decisions. So the debate around fairness isn’t just semantics.

  8. I agree with your points — except of course, the whole Readability situation has made stuff much murkier. Readability had a non-hyperlink informative link in its app.

    You can argue that the iPad/iPhone is the primary consumption device (or sole consumption device) for some types of subscription content, but what about web apps? Where do we draw the line?

    I’m all for Rhapsody, Netflix, Vogue, Esquire and the New York Times getting charged 30% for subscriptions that originate in the iPhone or iPad app. I’m not that keen on web apps or software as a service apps getting forced into offering in-app subscriptions just because they want to create a native client as an add-on to their customers.

  9. I think you’re conflating “has a right to” with “is right to”.

    No one (sane) is saying that Apple doesn’t have a right to charge whatever it wants. But being fair in a transaction doesn’t simply mean “doing exactly what the rules allow you to”. It means “conducting a transaction with a mind to fairness, to recognition of the value that the other party brings to the table, and recognition of what you’re bringing to the deal.”

    For developers, 30% represents a reasonably fair deal. Most devs, especially smaller ones, aren’t set up to take credit cards and don’t want the hassle of handling transactions. For 30%, Apple does all that for them, and also acts as a marketing channel for the app (through search on the App Store). They also act as a line of quality assurance, through the acceptance procedure – and I’m sure you and I both know devs who have been grateful for Apple finding an otherwise-undetected showstopper bug.

    For their 30%, though publishers of content get less. A lot, lot less. There’s no promotion of in-app purchases by Apple. Most publishers are set up to handle credit cards (at rates of a tiny fraction of 30%) and transactions are bread and butter to them. Apple doesn’t host the content, and it certainly doesn’t check it – I certainly suspect that Apple won’t be proof reading newspapers and rejecting ones with typos.

    In other words, while developers are getting a lot for their 30%, by comparison publishers are getting next to nothing. That’s an unfair deal. 10% would be closer to the mark, and even that would represent a significant profit for Apple.

  10. The unfairness comes in that Apple has chosen to enter a market which was developed by other businesses (eBooks) and that they are making absolutely no concessions to those other businesses. They helped publishers and content creators negotiate new deals with their competitors, under which every reseller gets 30% or less of retail price. Knowing that, they are now demanding no less than 30% from the rest of us.

    Sure, it’s the 30% in large part which is seen as unfair. Apple has given absolutely no indication that they believe it should be negotiable however.

    The really unfair part is that they require anyone taking money anywhere in their business to immediately make their iOS apps sell that content, giving money to Apple in the process. They are using the fact that just about everyone has an iOS app to make anyone who doesn’t have one send money to Apple. Right now there are so many iOS apps that if a company like Readability doesn’t have one, their users will likely get upset and refuse to use the service. Apple is using that as leverage to extract money from the Readability folks: “Your company makes money. Your company has an iOS app. Your company must therefore sell through the iOS app and pay us some money.”

    What if my app never offered to sell content in the first place?

    Doesn’t matter. The company sells electronic goods. Those goods must be sold through their iOS app, or their right to sell that app will be revoked. Want to create a pure playback app for audio? Tough, it’s got to include a store or it will be rejected. Anyone who sells content cannot attempt to make a consumption-only iOS app, regardless of their motive. Their app can use content from any of 50 stores, of which their is one? Can’t do it— they can now only make apps built around the sale of content, which therefore suffers from different consumer perception, thus different app sales (oh, did I say the app was free? It’s not, it costs $4.99, or $9.99, or $.99).

    That’s what’s unfair.

Agree? Disagree? What do you think?

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