Another analogy/story? Okay, why not…

Earlier today Mike Cane pointed me to an article comparing the hullabaloo upon Apple’s 30% cut to the lack of anger at Amazon’s former 70% cut.

I commented on that article (largely aiming at the other comments rather than the article itself), although I got rather entwined in the story I was writing and forgot to mention that there’s an apples vs. oranges thing there– on one side, a vendor is taking a percentage from a content owner, while on the other, a third party is charging a vendor who is already taking a lower percentage from a content owner.

That said, when I found out about Amazon’s enforced 70% commission I thought that was ridiculous too. Having only learned this when they dropped it to 30% however, I felt no compunction to weigh in. Now that Apple is demanding that the whole 30% Amazon now gets be handed over to Apple, well, that’s a little different, and one would expect Apple to at least give some indication that they were open to the idea of changing that percentage, or would make it 30% of revenue, not retail, etc.

But to those as yet uncertain of how the math works out, what follows is the same hypothetical story from my comment on the article above.

The new (or newly-clarified) rules in effect say this: If I have an app for iOS, and that app is able to work with some form of data which I sell, then I must make that content available via In-App Purchase, giving Apple 30% of retail revenue. It doesn’t matter if the app offered it for sale before, whether it was a dumb consumer of this content, or what. The fact that I sell content and have an iOS app which uses that means I must now sell it through IAP, and only through IAP. I am also forbidden from mentioning in my app that there is any other means of obtaining said content. I can’t link to my homepage from the app either, because that links to an online store.

I am not a publisher. If I were a publisher (i.e. the producer or the creator of this content) then I would be happy to let Apple take a 30% cut, because I would take home 70%, and would set prices such that I could operate. However, in the eBooks and music industries, the provider of the app is a vendor, and the vendor usually takes less than 30% of retail price (with the exception of Amazon, originally). The most common percentage is around 20% of retail. Yet Apple’s new rules state absolutely that I must pay them 30% of retail. So 80% of retail I pay to the publisher, 30% to Apple, leaving me with -10% upon which to build my business.

Oh wait, did I say build my business? Silly me. I’ve already built my business. I’ve put millions of dollars into it over the past two years. Apple created a fantastic and innovative new mobile platform, and when they offered to let me create apps for it and build a business around that platform I took them up on their offer. When I inquired about alternatives to in-app purchasing (indeed, when in-app purchasing didn’t yet exist), Apple freely told me that I couldn’t perform transactions inside the app, but that they were happy — nay, they recommended — that I bounce the user to a website in the Safari browser to perform that transaction. If I remember correctly, they actually suggested this.

So, based upon Apple’s recommendations, I’ve built my business around iOS. I pay about $40’000 per month in bills for offices, telecommunications, internet, content hosting, content bandwidth, and personnel. I do all my own advertising (because who else is going to advertise for me?). I employ the best programmers and staff I can find. This outlay is offset against business revenue of perhaps $55’000 per month. That’s fine— it works out to a profit of about $15’000 per month. Great.

After one year in the business, Apple decides they will open a competing bookstore, and develop a competing app. They make use of all sorts of private APIs in doing so, any one of which would get my own app rejected from the store. But that’s fine– I increase my expenditure a little and strive to make my app better than theirs, and I attempt to market mine more so it doesn’t get eclipsed by all the iBooks-related marketing. I’m now paying out $60’000/month on revenue of $80’000. My profit has gone up in number, although it’s dropped a little as a percentage of revenue.

After another year, Apple decides that, since my application can display content purchased from my store (which isn’t even implemented in my app, it’s just a website), I must now implement in-app purchase of all my content. I hire more people to sort and input my 1 million items into the IAP database, and find that it tops out at 3’500 items, leaving some 996’500 items available only through the website. Maybe I hire a consultant with IAP experience to get an in-app store up & running extra-fast, before the June deadline. Then I publish the next version of the app, and my revenues drop by 27% (I was paying 3% to my payment processor before).

Aside from the fact that my users are now complaining that my new in-app store “sucks ass” because it lists barely a fraction of what they could find online, but I “force [them] to use it because the app doesn’t mention any other way to buy stuff any more”, how am I doing?

Let’s pretend that my sales numbers stay exactly the same. I sell the same amount of content now:

Revenue has dropped by 27% from $80’000 to $58’400. My outgoings, previously $60’000, have since gone up, since I have new staff to manage the IAP side of things. I’m now paying out about $65’000 per month.

So in this bright new world, I’m making a loss of $6’600 per month. And yet the costs of doing business for me haven’t lessened one iota. They’ve gone up, because I now have to manage my IAP store-front in addition to the original one. And if I switched to IAP-only, I’d still have to manage everything about my old store except for the web interface to it, since Apple only provides transaction processing, nothing else.

Is this worth getting upset over now? Or should I just fire my 200 staff and tell my wife & daughter that I’ve got to look for a new job?

You tell me.

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