Apple Tightening iOS In-app Purchase Rules

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Apple plans to start strictly enforcing a policy starting on March 31 that requires iPhone, iPod touch and iPad apps that offer out-of-app content purchasing to include an in-app option as well. The new policy came to light earlier this week when Sony publicly complained about its ebook reader app rejection.

iOS app developers have begun receiving email notification of the enforcement change, according to the Wall Street Journal.

The change will have the biggest impact on companies that sell books and magazines, like Amazon and its Kindle ebook reader app. Amazon routes customers out of the Kindle app on their iPhone or iPad and into Mobile Safari where they access a custom ebook store. The purchases they make there automatically appear in the Kindle app.

By requiring companies to include the option to make purchases without leaving the app, Apple will be able to take its usual 30 percent cut — but only for purchases made within the app. Customers will still have the choice to use company’s Web interfaces for purchases just as they always have.

Apple will have to roll out its in-app subscription service for magazine publishers soon, too, if it expects companies to comply with the new rules. The subscription feature was introduced on Wednesday during News Corp’s The Daily iPad magazine launch.

So far, the feature is available only in News Corp’s app, but Apple said it would have more news about subscription support for other publishers soon.

Apple’s new enforcement policy could potentially push some companies to abandon the iPad and iPhone. Although with the popularity of iOS devices, there’s a good chance most publishers will sign on instead of risking loss of a large customer base.

Comments

brett_x

Here’s a situation where Apple’s interests are in line with the consumer’s… as long as they still allow external purchases. Giving a choice to buy through Apple benefits them, of course, but it also simplifies things for me.
Keep in mind that this business model is unique to Apple, and only because of their approval process.

My only question is- will Apple have (or try to have) any say in what pricing is offered in-app vs. externally. It would be pretty easy for Amazon to increase the in-app price by say.. 30%, right? But I don’t see any legal way that Apple could dictate in-app pricing (nor do I think they should) compared to an external source.

dhp

I don’t see how they couldn’t raise prices, unless they enjoy losing money on every sale. A book is not the same as another level of a game. I can’t imagine Amazon is making much - if any - more than 30% profit in the first place.

Paul S.

Thank the Heavens for Android - a viable alternative to the ‘walled garden’. Keep on burnin’ your devs lord job… so what if You’re making money… karma will hit. BTW, why do you still sit on your money instead of rewarding your investors properly ???

Bosco (Brad Hutchings)

That is a 42.8% Apple Tax. 30/70. If Apple doesn’t already have a “best price” term in their developer contract, that will come next. This has nothing to do with making things easy for people. They could make it easier and less expensive by allowing in-app purchases using other payment mechanisms. This has everything to do with kicking the other big content providers off of the device, unless they negotiate deals with Apple where Apple still extracts profit for doing nothing but keeping up a fence.

At least with this Apple move, if you support it and defend it, you have to wear the “I am happy to pay the 42.8% Apple tax” button on your shirt. I know, I know, it’s technically, a “tithe”.

Nemo

No, Apple can’t tell a content provider what price to charge, because that would be a patent per se violation of U.S. antitrust law, the Sherman and Clayton Acts.  But Apple can, and I believe it has, require that any vendor on the App Store offer the best price in-app that it offers on its external website or get off the App Store.  The antitrust laws don’t require that Apple carry and app in its App Store, especially where a vendor won’t forces Apple to sell at a higher price or for worst terms.  Precedent supports a vendor saying that, if we can’t sell at the best price that you offer, we won’t offer your goods in our stores.

There may have been some concern that the DOJ and/or the FTC would object, if Apple was the only game in town, but Android’s rough parity with iOS in market share and the existence of other competitors with their online stores, removes from Apple—I think, though I haven’t done the economic analysis—the kind of market power that the DOJ or FTC would need to show that a threat of removal from the App Store is de facto price fixing.

Nemo

And, as I discussed yesterday, there is no Apple tax any more than there is on any online store.  All websites’ prices for their goods and services include the costs of hosting the goods on their website.  Apple uses an agency model, where its costs are explicit, but, because of the App Store’s efficient operation and vast economies of scale, its explicit costs of hosting and running its website of 30% is among the lowest to be found for any online store.  The internal costs on other online stores are most likely at least 30% of price on average, and the price of goods and/or services on any external website will include that cost of hosting on the website and maintaining the website that is at least on average approximately 30% but that is reflected in the implicit retail mark-up that is included in the price.

By selling in-app on the App Store a vendor needn’t incur the costs of operating its own online store, which would be implicitly include in the price of the goods and/or services that it sells on its own online store.  Since the costs of operating an online store exist for all online stores, it is only reasonable and fair that Apple take that 30% of the price for online sales conducted elsewhere that reflect and cover the costs of running its App Store.  If a vendor doesn’t like the arrangement for selling on the App Store, it is free to leave the App Store, set up its own store and sell its goods and services on its own store at a price that, inter alia, reflects the costs of operating its online store or sell on the Android Market Place or some other third-party onlie store

So no, there is no App Store tax.  There is only an explicit 30% commission that is equivalent to the implicit retail market up that Amazon, Sony, and others include in the price of the goods and services that they sell on their proprietary online stores.  Nor is there any hindrance of competition, because any vendor has the competitive options of either setting up its own store or selling in the Android Market Place or some other third-party online store.

Tom

Something that seems lost in this - where is the content stored and served from (for 100’s of magazines & ‘newspapers’, across dozens of issues each, across millions of users accessing)? The cost of building out servers, related facilities, maintaining these, ... is what actually delivers this content. So Apple should have reader apps like zinio, ... be free, but then they bear all of the expense of actually serving the content? Obviously there needs to be a cut per issue to cover this. Otherwise, the argument would be that the amazon’s, nytimes, Daily, ... should get free backend hosting, and Apple should just provide this?

The fair discussion is how much is the cost of the above, and how much is the resulting profit margin apple sees w/in its 30%, and is that reasonable relative to comparable measures of profit margin.

Tom

Oops, race condition on the same comment smile

Bosco (Brad Hutchings)

Horseshit, Nemo. If I already have payment processing and electronic distribution infrastructure, I can process an in-app payment directly for a cost much less than 30% of purchase price. Apple disallows this by rule, and is now disallowing out-of-app purchases if in-app are not implemented through Apple, so we in effect have a content tax. It raises the cost of these goods, especially for large firms like Amazon and Sony.

I think I will start referring to Apple fanboys as “taxpayers”.

Nemo

Bosco:  Not bullshit.  If you, for example, don’t like Apple’s 30% retail mark-up for sales on the App Store, then you won’t be allowed to market on the App Store but sell elsewhere online.  This is no different than WalMart or Target saying that they will only carry your goods in their store at their respective retail mark-ups and only if you offer them the best terms that you offer to others, which WalMart, Target, and others do all of the time.

But under your rule Apple must be patsy, a chump.  Come on everyone; market your wares in the App Store and then sell them elsewhere on line and give me nothing, or market your wares elsewhere online and on the App Store but make sure that we don’t get any sales by offering a much higher price on the App Store.

If, as you maintain, a vendor can do much better with the infrastructure of its own website, then that vendor must sell on and market on its own website, because Apple won’t play the fool and let you use the App Store, the best and most successful online application store, to market your goods for free or on terms that will drive all sales from the App Store and to your proprietary online app store.  So if a vendor believes that Apple isn’t offering sufficient value for its regulation that what is marketed on the App Store must be sold non-exclusively in the App Store at 30% and at no higher than the best online price elsewhere, then Apple will take your app down, and Messrs. Jobs and Cook will say Via Con Dios to you.  But Mr. and Mrs. Jobs didn’t raise a patsy in Steve, so, after you have used Apple’s App Store to market your wares, either give Apple a fair opportunity to compete for its commission with non-exclusive in-app sales on its App Store, or Via Con Dios.

John Dingler, Artist

Just imagine, Steve Jobs of Apple and Rupert Murdock of Fox News holding hands, looking optimistically toward a limitless horizon of superior devices but fake news. I have little reason to pay for content to be misinformed which is a disincentive for the purchase of any hardware offering it.

I am calling out Bosco, Nemo, et alii, for scrutinizing the methods used to provide content instead of the content’s quality and reliability. Remember, this form of examination based on tactics used by the participants, instead, for example, of examining the veracity of the justification for the invasion, was in large part what got Rightwingers and Rightwing Democrats to support that stupid invasion and endless occupation of Iraq and Afgh.

Therefore, I am waiting for originally produced content from reputable publishers such as Democracy Now and Pacifica for true news, one that does not give fair and equal voice to the lying, bad guys.

EB

The internal costs on other online stores are most likely at least 30% of price on average, and the price of goods and/or services on any external website will include that cost of hosting on the website and maintaining the website that is at least on average approximately 30% but that is reflected in the implicit retail mark-up that is included in the price.

Only problem is in app content like this is NOT hosted on Apple’s Server’s, so the company has to pay Apple a tax without Apple actually having a cost…

Peter

Apple won?t play the fool and let you use the App Store, the best, only, and most successful online application store, to market your goods for free or on terms that will drive all sales from the App Store and to your proprietary online app store.

Fixed that for you.

“The App Store is the most successful…”  Yes, that can happen when you’re the only way to get Apps.

By the way, since this is about books, could this also have to do with the fact that Amazon is spanking Apple’s Book Store?  So if Apple can’t compete and get all the money, they’ll slap a tax on anybody who wants to compete with them and at least get 30%.

Nemo

Peter:  You didn’t fix anything.  You just transformed, in your mind, Apple’s iOS business model into Google’s business model for its Android devices, a model which neither Microsoft, RIM, or, I think, Nokia elects to follow.  But rather than imagine Apple being Google, if you don’t like Apple’s approach to providing apps, there is a company in Mountain View, CA, that has got some devices, including smartphones, for you.  It is called Google, Inc., and its the platform for the mobile devices made by its licensees is called Android.

EB:  Whether or not your content was hosted on the App Store, as it now must be for many types of wares, Sony, Amazon, and others were exploiting the App Store to market their wares in the App Store for free.  That is like Target setting up a marketing/sales robot for a product in WalMart’s stores, exposing that product to WalMart’s customers as they shop in WalMart’s stores, and then having the robot fulfill the orders for the product, which will be shipped to WalMartps customers but pay WalMart nothing.  Whether products are actually on WalMart’s shelves or, in this case, hosted on the App Store’s servers, as you should be able to see from the foregoing example, doesn’t matter.  What makes it fair for Apple to impose the instant regulation is that Sony, Amazon, et al would otherwise get to market in the App Store for free.  Now, do you get it?

Dear Mr. Dingler:  Your concerns are irrelevant to the instant discussion.  However, somebody had to be first to build a newspaper from scratch for tablets.  That person is Rupert Murdoch.  I hope and expect that other news organizations, perhaps even some that you approve of, will quickly follow suit and build outstanding newspapers, or should I say newstablets, for the iPad and other tablets.

EB

Nemo: The app Store was not being exploited to market their wares. They provided a reader to give one more reason to use an iPad/iPhone/iPod Touch instead of one of their dedicated hardware devices, still netting Apple money (Apple is a HARDWARE company and they have stated many times they make nothing off the online sales they talk about). Therefore, if Apple were true to their word they would have no issue with sending a Kindle customer to a web site, where a book is bought from Amazon, that is hosted at Amazon, and is downloaded to their phone like it is now. This is no different than if I went to my desktop Mac to purchase the book. Or opened Safari on the phone myself, after copying and pasting a link into it, and bought it there myself.
So no, YOU don’t get it. They are making things difficult for their CORE constituent, the customer, over something that they SUPPOSEDLY made no money on (this puts those statements in question now), all to be greedy assholes. If I were Amazon/Sony/et., all I would do is remove the link to the store from my app and tell people “Sorry, you have an iPhone, you must manually go to our website at ____ from your mobile browser” and give them a nice Springboard shortcut icon, making it very little different but making it a pain in the ass for their customers, all so as they would go buy content from iBooks instead of from Amazon, again for something that they claim they make no money off of.
Look, I am an ARDENT Apple supporter. Most of my friends would call me a fanboi, but this is just plain ridiculous….

Bosco (Brad Hutchings)

Well, EB, welcome to Apple’s new business model. Build high walls, lock everyone in, charge for every interaction, a 42.8% tax on paid content to be precise. Their ability to do this stems completely from disallowing side-loaded apps. They sold that to you as a “security measure” and now use it to rape everyone coming and going from their precious garden.

Your best recourse is to look around and see if there isn’t some amazing technology from other players, even dreaded enemies like Microsoft, that isn’t so obviously prone to abuse by its creators. Perhaps, like me, you’ll conclude that while Apple stuff is great, it’s not *that* great, and other vendors are offering some damned great things too these days. If you think back just 5 years, even crappiest Android phone or Win7 netbook from today is downright amazing. The good stuff is wonderful. And you’re a lot freer in what you can purchase, which means vendors are less free to gouge you.

Nemo

EB:  If it was ever true—and it never was, and I doubt that you can find any official citation for such a statement from Apple—that Apple was solely a hardware company, that hasn’t been true for nearly a decade.  To state the truth of that and to so notify the world, Apple a few years ago changed its name from Apple Computer, Inc. to Apple Inc.

Not that we’ve dealt with that misstatement of fact, let’s deal with your false statement that Amazon doesn’t market its books for sale in Apple’s App Store.  To Market means:  “advertise or promote (something):  the product was marketed under the name “aspirin.”  American Oxford English Dictionary (full citation omitted).  By that definition, Amazon’s Kindle app clearly offered books for selection and sale, that is, marketed them, in the App Store that then could only be purchased on Amazon’s website.  So Amazon clearly marketed in the App Store, while restricting sales to its online Amazon store.  Therefore, we’ve corrected your second misstatement of fact and dispositively shown that Amazon marketed in the App Store but sold elsewhere online, and the same is true of Sony.

So Apple is, among other things, a major online retailer that makes a profit from retailing, as do Sony, Amazon, and others, and the App Store is an online store.  And what you have with Amazon, Sony, et al is the case of vendors, many of whom are also online retailers (Sony and Amazon), complaining because Apple won’t let them market their wares in its App Store for free, while selling those wares elsewhere online, which is something that neither Sony or Amazon permit others to do in their respective online stores.

As for your suggestion that Sony, Amazon, or any one else could simply remove the link to their competing online store and tell customers in their respective apps to link manually to their respective websites, Apple shouldn’t allow that either, because, as you can see from the definition, supra, that too would be marketing their ware in the App Store for sell elsewhere.  So any advertising or promotion of a product in-app in the App Store is marketing wares in the App Store, and Apple would, as is customary, be able to set some rule so that it receives payment for that marketing, though the amount and form of the payment/consideration may differ for different products.

And you are also patently wrong when it comes to convenience of the App Store’s customers.  Those customers will now be able to make in-app purchases using their iTunes account at the best price available anywhere on the Web, rather than having to exit the app; establish, if they don’t have one, an account on the vendor’s website; and then whip out their credit cards, all to complete a purchase that could have been done far more quickly in-app. 

And you’re the one who is being ridiculous in proposing that Apple provide for free the ability to market in the App Store, something which neither Sony or Amazon or the vast majority of others permit.  Or do you think Apple would get far with Sony in being able to offer Macs on Sony’ online store for free?  Patent nonsense.

Nemo

And Bosco:  You will have to look further than Microsoft, for I am pretty sure that you can only purchase apps for Windows Phone 7 from Microsoft’s online store.  And you’ll have to go even further, because Google is the only one committed to side-loading, which it does not out of some commitment to free or open but because it is pure advertising play, whose business model isn’t much affected by side-loading, and Google isn’t affected by side-loading because it forces you to get a Google account to use any orthodox Android devices, and once you consent to a Google account, you’ve consent to Google collecting your personal data and using it pretty much as it sees fit in order to make a profit, no matter whether you get your apps from the Android Market Place or elsewhere.

So platforms aren’t following Apple’s policy of requiring that goods marketed on its App Store be sold non-exclusively in-app, Apple is merely adopting the customary practice of nearly everyone that either forbids marketing competing goods in their respective online stores or requires some substantial consideration for doing so.

Bosco (Brad Hutchings)

And you are also patently wrong when it comes to convenience of the App Store?s customers.? Those customers will now be able to make in-app purchases using their iTunes account at the best price available anywhere on the Web, rather than having to exit the app; establish, if they don?t have one, an account on the vendor?s website; and then whip out their credit cards, all to complete a purchase that could have been done far more quickly in-app.

Nemo, you are making a big assumption here which, at this point, is unfounded. The question at hand is whether the content providers will agree to Apple’s terms and thus be forced to offer in-app purchases, or whether they will do various things to skirt the policy. And then, whether Apple will further respond by tightening the policy to make it less skirtable. At 30%, we’re talking billions of dollars here should this market mature and should Apple still be an important player in it.

A possible response by vendors might very well be to handle purchasing off-device, or use an email campaign to drive purchase traffic, perhaps tied to consumption data collected in real time by the apps. Of the big players, I might expect a distribution of responses. A few might capitulate. More might negotiate the percentage. Many might try to find alternate means to communicate with users. Some might abandon the platform. Perhaps a few might seek legal or regulatory redress. This won’t play well at all with the EU if some vendor wants to stick out the process for 4-6 months.

Also Nemo… My examples… Android Phone. Windows 7 desktop. Win Phone 7 is still an open question on how prone to vendor abuse it might become.

Bosco (Brad Hutchings)

Nemo, question for you… If this whole in-app purchasing arrangement that Apple is moving to is the right arrangement, what do you think the effects of announcing it and having it in place a year ago would have been? The technology is not rocket science any more than iAds was rocket science. Do you think it would have helped or hindered iPad adoption?

dhp

Nemo, as you go back and forth with Bosco - defending Apple’s decision to enforce this policy in both legal and business terms - do you ever pause to consider whether, regardless of all that, it’s a crappy thing for Apple to do to its customers?

brett_x

do you ever pause to consider whether, regardless of all that, it?s a crappy thing for Apple to do to its customers?

How is it a crappy thing for Apple to do for it’s customers, dhp? I don’t get it. I love being able to buy things through Apple instead of having to set up external accounts. One account, one bill. I’m done.
As long as Apple still allows external purchases, there is an option, and it is left up to the consumer. I see this as a good thing for Apple do to for it’s customers.

Bosco (Brad Hutchings)

@brett_x: How is this not going to end up costing Apple customers an amount equivalent to the Apple tax (42.8%) minus the actual costs of processing a transaction and delivering egoods? Or cost them in terms of large vendor choice when a large vendor can’t chip off 30% of an in-app purchase to Apple and maintain the same competitive price point?

The money to pay Apple has to come from somewhere. Ultimately it comes from customers. The elaborate way in which Apple has erected its new monopoly on in-app purchases makes real competition that drives down price impractical.

brett_x

@ Bosco The whole 42.8% argument is based on if Apple demands “best price” terms. I’m not willing accept that argument unless Apple has already established that position.

In fact, I’m not even certain that Apple gets 30% of periodicals / books. Has that been established? Maybe I missed that.

That aside, Apple takes a cut of the music sold on iTunes, and the pricing seems pretty darn competitive to me. Am I paying an Apple tax on that too? If so, I guess we could just go back to buying CD’s for $17 each.

Bosco (Brad Hutchings)

Actually, all the signals coming out of the periodical people, including Murdoch, is that Apple is taking 30% on subscriptions, invoking the in-app purchase language.

As for music, do you ever comparison shop at Amazon MP3? You’ll probably find that for non-exclusive items, you are typically paying a premium at the iTunes Store. Can you get alternative music stores like Amazon MP3 on your iPhone? I’m not sure, quick search indicates no.

One effect of Apple’s in-app purchase policies might very well be to favor content purchased from Apple for use on Apple devices in much the same way they do with music. I’m not in favor of government interference in such an arrangement, but I’m most definitely in favor of end-users learning about such arrangements and deciding whether to cede such power over their purchases to one company. You will most certainly pay a premium (or tax) for doing that.

dhp

Music on the iTunes store is a completely different issue, because Apple is getting the product directly from the distributor - wholesale, if you will. But Amazon is a retailer, so they are paying a distributor already. If Apple expects a 30% cut, it probably mean no profit for Amazon unless they charge extra for purchases through an iOS app.

brett_x

Actually, all the signals coming out of the periodical people..

Signals?  Maybe I should take my tin hat off and I’ll get better reception. But until I get those signals, or someone can point to it in a developer agreement, I’m still not willing to accept that argument.

So you’re saying that Amazon has better MP3 prices? Hmm.. sounds like I am paying an Apple tax.  I really do not shop Amazon for mp3’s.  Why? Because it’s too easy to buy in-App (iTunes). One account, one bill. I’m done.

@dhp… I if Amazon wants to be a middleman by selling licensed eBooks through Apple instead of being the end-retailer selling them directly to their customers with Kindles, that’s fine.
But why would Apple do that in a way that Apple has no opportunity to make money as a the end-retailer? That’s the whole point of this article- Apple is requiring the option to purchase directly in-app. Apple already has a way for books to be sold on the iPad from the distributer to iPad consumer without that extra (Amazon) middleman. Amazon has chosen to make their books and their distribution deals available on iPad. They agreed to terms in doing so.

With that in mind, I think that this is the best question posed here:

what do you think the effects of announcing it and having it in place a year ago would have been? ..... Do you think it would have helped or hindered iPad adoption?

I agree, Bosco. If Apple had rejected the Apps because they didn’t have in-app purchasing as they agreed in the developer terms, things may be different. But this is business. It’s their responsibility to know what they are agreeing to.

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