Apple has built an incredibly valuable distribution platform. It’s perfectly reasonable for them to say “if you make money using our platform, we want a piece of it.”
Distribution costs money. Facebook charges developers on its platform 30% for using Facebook Credits. It’s not uncommon for distributors to take significantly more than Apple is taking. I’ve done deals where the other company does all of the heavy lifting and my company received more than half the revenue for bringing in customers. Google pays AdSense distributors 68% of the revenue it earns off content network ads. And that’s for no-name distributors. That number can be much higher for branded players.
Groupon has local businesses (which have hard costs for each person served) discount their product or service 50%, then takes 50% of that and sticks the business with 3% for processing. Merchants net 22% of what they would normally charge.
Retail gross margins are generally much higher than 30%. Would anyone argue that Apple should sell Microsoft Office in Apple stores at cost?
A seamless experience can benefit all parties. As a consumer, a key appeal of the App Store is that it’s seamless. I recently purchased two wonderful coffee table books on Vincent Van Gogh and Monet. These were quick and easy purchases. But I’ve resisted buying other products because I’ve just never been motivated enough to fill out all of my information again.
Game publishers such as Rovio (of Angry Birds) fame have been paying 30% for a long time. Apple is essentially closing a loophole that allowed some publishers to free ride on its platform.
We are still very early in the tablet content race. As popular as the iPad is, only a small portion of the population has one. If publishers believe that their content is so valuable and object to Apple’s terms, they should shun the iPad and develop for platforms with lower distribution costs. Heck, a brand name publisher like The New York Times could offer a platform provider an exclusive partnership in exchange for lower fees or even upfront payments or marketing support.
If their content is really that valuable, fewer people will buy iPads and Apple will be forced to lower its distribution fee. That’s how the free market works.
The sad reality is that publishers don’t have that kind of market power. If they opt out of iPad, it’s more likely that they’ll lose. That’s not Apple’s fault.
Filed under: apple, ipad, journalism, newspapers, publishing
