Of course Rhapsody can't sell their stuff for a 30% margin. It's not their own stuff!
They're trying to be the last link in a chain of 90/10 (or more) splits. They repackage record labels' repackaging of artists' content. Do you think the artists would find 30% economically untenable?
The App Store is 70/30 because Apple can take things straight from content producer to customer. When the Apple takes the place of publishing, distribution, inventory, sales, payments and shipping, there's real value for that 30%.
When all someone wants out of Apple is merely to process the payment and send things down the pipe, gee, who do they think they are? But that's not what Apple is actually holding themselves out as. Apple doesn't want to be in that kind of commodity market anyway. Seems reasonable to me.
Your argument only works in the context of someone like Rhapsody, who is a pretty bare-bones wrapper on top of content.
But consider services like last.fm, Netflix, or Pandora - where there is a significant value-add on top of merely distributing content. They are providing consumers a valuable service but yet also cannot afford the steep cut that Apple is now demanding.
The "they're distributors and deserve to get cut out" argument is a fallacy, because some distributors actually do provide consumer value - and they're all getting taken to the cleaners with Apple's new move.
Besides, a diverse crop of distributors competing with each other is a far better situation to be in than exchanging all of that for a monolithic monopoly of another distributor. Make no mistake, this isn't some populist uprising where the producers make their work available to the consumer and bypass the middleman - the middleman still exists, it's now Apple, and now Apple has all the cards.
What yungchin said, but also because last.fm and Pandora's source supplier has a stranglehold over the market (aka the traditional labels). Like Netflix, their entire business revolves around having the right to play their content, so the content producer can take them to the cleaners easy peasy.
And now they're being squeezed from the other side. Life sucks right now for services that make content discovery and recommendations better.
The real problem there is that there are already two sets of distributors in the music market.
The songwriters/artists/producers create the songs.
The record companies distribute it.
The "distribution plus" companies like last.fm distribute it.
Now they want Apple to distribute it too (quite reasonably).
Well, one of those distributors is going to have to drop their rates. I'd suggest the one that already takes most of the pie, rather than the poor "distribution plus" innovator squeezed in the middle. But, as we know, the record companies are insane and will not accept this suggestion.
Could they afford to do this if people weren't paying for music? No. Solution: stop paying for music in any form that ends up in the pocket of the big recording labels.
I don't think discovery and recommendation are worth much. I pay for Spotify for the access, I would not pay for recommendations, which can be built on any addressable technology via social networks anyway.
Spotify already have negative margins though so 30% wont work.
Their margins are so thin because in reality they all compete with The Pirate Bay. It's only when you take that competition into account that the 30% starts to sound unreasonable.
The App Store is 70/30 because Apple can take things straight from content producer to customer. When the Apple takes the place of publishing, distribution, inventory, sales, payments and shipping, there's real value for that 30%.
This was already addressed in the article. iBooks has a significantly smaller variety of books than Amazon. By becoming the sole gatekeeper for content, Apple is ruling out larger distributers. Users don't gain from this. Only Apple.
iBooks has a significantly smaller variety of books than Amazon.
But will this be true for long, now that this particular shoe has dropped?
Apple's primary target here is probably Amazon. A company which, incidentally, is no stranger to the art of using a powerful distribution network, an existing customer base, and a DRM-locked e-reader platform as a lever to demand big shares of revenue:
According to this article, and the Stross piece linked therein, Amazon's standard deal is that they take seventy percent. Their "generous" deal for self-publishers is that they take a mere 30%... but the publisher must give Amazon the right to set the price as Amazon sees fit.
Makes Apple's 30% cut look pretty good, actually. But, of course, if you're a print publisher you pretty much have to have a deal with Amazon, so I expect there are a lot of negotiations going on right now.
To be clear, I don't actually care about how much Amazon actually makes on each copy sold. What bothers me is that Apple has seemingly made it economically unviable for distributers to exist in the AppStore at all. This means we have to rely on Apple for content on our iOS devices, and until Apple scales up its content sources, the users are losers in this deal.
In what sense? Many (like me) already own iOS devices and are invested in it with all the apps/games/songs/books that we already bought. I probably won't switch platforms based on the absence of a newspaper/music subscription service, but I sure would like the option of having those.
Wasn't it obvious when you bought the non-transferable music, books and apps that this was the sort of company you were dealing with?
It strikes me that this is a pretty unreasonable complaint. If it looks like a duck, walks like a duck and quacks like a duck, I don't think it's fair to moan when it turns out it's a duck.
I'm not knocking Apple, I like Apple but we as consumers need to be aware of what we're buying into and I don't think we can moan that it was in anyway unclear the way they behave, particularly to the sort of person who frequents Hacker News and really can't feign ignorance.
I think you missed my point:
I'm not feigning outrage at the fact that I can't transfer everything I bought for phone A onto phone B.
I'm saying that shutting out apps because they don't cough up Apple's ransom only hurts the customer and that customers won't necessarily vote with their wallet and move somewhere else because they have already invested in their current platform/device.
It depends on what you consider the injury to be. If they didn't have a smartphone before they purchased an iPhone, then having a phone that lacks the features of other smartphones doesn't really injure them, it just makes them jealous, which is possibly bad for business. But if they don't switch, then the lack of that feature isn't as important to them as the other apps they have purchased, etc. Are you injured? Well, you got a bad deal, and in a way Apple changed the terms of your contract without notifying you, but it's hard to say that you've really lost anything. More, you just made the wrong purchase due to asymmetric information.
Still, in this case, I think Apple is engaging in a weird sort of brinkmanship with distributors, and I'm not sure they're in a position to dictate such terms.
So it's ok to hurt customers a little bit. Just as long as it's not enough to force them to move platforms. Ok, Got it. Just as long as you're honest with it.
In the sense that if you are unhappy with your iPad, your next tablet will be something else. New customers won't buy an iPad if it doesn't do what they want.
True, some users might have some switching pain, but that's true for most things. Windows to Mac, Xbox to PS3, Kindle to Nook. Lock in is real, but rarely determinative.
Consumers vote with their wallets. The free market is a powerful thing.
People who own an iPhone or iPad bought it because they perceived it as their best option. Whether they buy something else, or just grit their teeth and bear it because there's still nothing better, they're being hurt when their best option gets worse.
Eventually, but many are locked in by 2 year contracts. Apple probably figures it can force them to switch from Kindle to iBooks and then once their cell phone contract is up they will have even more incentive to by an iPhone 6 because all of their content is inside Apple's walled garden.
Amazon has made a substantial investment in digitizing backlist titles. Is Apple going to do the same? If not, Amazon will always have the edge on books.
We'll see. Your logic was impeccable a year ago, before any iPads were sold; that's probably why iBooks is such an also-ran today. (Contracts take time to run out, the iPad isn't even a year old, and its success has taken even the optimists by surprise.)
But ignoring the iOS market gets harder by the day. There's a lot of tasty, tasty customers out there.
We'll see what happens. Note that Apple's new, um, clarification of its policy doesn't take effect for several months. I expect there will be weeks of furious behind-the-scenes jockeying for position among Apple, Amazon, and various publishers, after which there might be more announcements.
The thing is, publishers and distributors can make better deals with Amazon, because Amazon will carry a wider array of stuff including physical books, including books that don't make sense as ebooks such as pop-up books, or the books that come with accessories like tree seedlings to plant or meditation beads or whatnot.
Of course Android allows competing app stores--indeed Amazon's is one. So both developers and users have a choice on Android that's not available on iOS.
By becoming the sole gatekeeper for content, Apple is ruling out larger distributers. Users don't gain from this. Only Apple.
You mean users lose out on the larger distributers. I know I'm going to get voted down for this, but I think an ecosystem of small and independent players producing content might actually be beneficial to users in the long run.
Apple is doing the distribution, so what purpose do the large distributors have? The only things that the customer needs are discovery and tastemakers. Distribution isn't so much a problem in the age of the internet.
Or, you know, it's a way to get content providers to sell through Apple. If there's a 30% premium to get on iOS through Amazon, a way around that is to just sell through iBooks.
We'll see how it shakes out. Maybe it'll be like the "nothing but objective-c" thing. People freak out too much about this kind of stuff.
I think you're grossly underestimating how much 30% of revenues means. Let's look at how this could actually affect you. Lets forget for a second that Amazon is even part of this issue. Let's stick to straight software development, what HN knows best. Let's look at the profit margins of some of the best software companies:
http://www.google.com/finance?catid=us-54399928&sort=ANI...
Look at what percentage of revenue that net income is, and count how many are above 30%. Now, isn't it a bit more difficult to make money on a product if your 30% margin is gone? Sure, Apple deserves some money for payment processing and distribution, maybe something for acquiring a new customer but certainly not 30% of all revenue.
Yes, you may say you can just raise price, right? Well, to compensate you would have to raise price over 40%. Meanwhile, the customers have already demonstrated the prices they are willing to bear, so that doesn't quite work.
So now, if you've started a business of developing iOS apps, you're severely hampered by this 30% revenue cut you're giving to Apple. The small guys will probably deal with it because they won't know better, but think of it this way: Apple has just taxed 30% of the value you have created for your users. That's 30% of your income.
You can argue this is a retail model and they should get a margin the same way you do if you sell something through Best Buy, but it becomes anticompetitive when they've blocked off any option you have to sell directly to a customer or through any other channel. The companies on that list do very little business through retail, and they would suffer if they had to give up 30%. Moreover, Apple's own margins would take a hit if they had to sell everything through a retail partner.
(Also don't get why it matters that Rhapsody, Netflix, Amazon don't create content. Apple doesn't create most of the stuff that goes into an iPhone, but that doesn't mean they don't add value and shouldn't be able to make money)
But most of those companies are not dependent on direct-to-consumer sales for their revenue. You’re never going to see “Oracle Database, Standard Edition One—$6,000” on the App Store directory. I suspect that even Microsoft gets most of its software revenue from either OEM deals or big-business hundred-seat license packs, rather than from over-the-counter sales.
Who says iOS devices are consumer only? There's plenty of business apps in the app store and plenty of large enterprises who are using the iPad and plenty of people who would love to handle their ERP through the iPad.
Even then, not all of those businesses are enterprise focused like Oracle. I'm pretty sure there's a bunch of people (myself included) who would love to have MS Office on the iPad instead of what's out there.
So ideally they publish music from the artists directly, eliminating the other intermediaries and effectively making them the... the... the record label.
I disagree with the last part. Apple desperately wants to be in the commodity payment processing business. They want a cut of every transaction that takes place on a cell phone, which someday soon may be almost every transaction in the consumer economy. Normally the transaction processing business is a small slice of a huge pie. Apple's plan is to take a huge slice of a huge pie. Obviously it's in no one else's interest to give them all this extra pie, so Apple figures it will abuse it's market position to force everyone to go along.
It's pure evil, but that really shouldn't surprise anyone at this point.
Of course Rhapsody can't sell their stuff for a 30% margin. It's not their own stuff!
They're trying to be the last link in a chain of 90/10 (or more) splits. They repackage record labels' repackaging of artists' content. Do you think the artists would find 30% economically untenable?
The App Store is 70/30 because Apple can take things straight from content producer to customer. When the Apple takes the place of publishing, distribution, inventory, sales, payments and shipping, there's real value for that 30%.
When all someone wants out of Apple is merely to process the payment and send things down the pipe, gee, who do they think they are? But that's not what Apple is actually holding themselves out as. Apple doesn't want to be in that kind of commodity market anyway. Seems reasonable to me.