7 ms·

Zach said it best yesterday: http://news.ycombinator.com/item?id=2224469 http://news.ycombinator.com/item?id=2224469 Of course Rhapsody can't sell their stuff

by lotusleaf1987 16y ago

Zach said it best yesterday: http://news.ycombinator.com/item?id=2224469 http://news.ycombinator.com/item?id=2224469 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.

imichael 16y ago
So ideally they publish music from the artists directly, eliminating the other intermediaries and effectively making them the... the... the record label.
- danik 16y ago
  Another Apple Records? Isn't that a trademark issue? hehe...
  - wtn 16y ago
    Sosumi
- cmoscoso 16y ago
  For iDevices, yes.
statictype 16y ago
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.
- Pooter 16y ago
  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.
  - statictype 16y ago
    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 I think part of the reason they rescinded on that is because people freaked out about it :)
    - Pooter 16y ago
      And because they realized that it ruled out large swaths of application classes that they don't have an issue with (games, for example). Mostly, it was about keeping crappy flash apps of iOS. And from a platform perspective, that did actually make a lot of sense.
      - deleted 16y ago
        [deleted]
- stcredzero 16y ago
  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.
- mechanical_fish 16y ago
  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: http://www.jeremyrossmedia.com/2010/02/21/word-kindle-70-30-deal-for-self-publishers/ http://www.jeremyrossmedia.com/2010/02/21/word-kindle-70-30-... 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.
potatolicious 16y ago
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.
- loewenskind 16y ago
  If last.fm, etc. are providing so much value why are their margins so thin? Are they providing value less than 30% of the cost of the base product?
  - yungchin 16y ago
    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.
    - alanfalcon 16y ago
      iTunes competes with the Pirate Bay with 30% margins and does reasonably well from a revenue perspective.
  - potatolicious 16y ago
    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.
akashs 16y ago
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=ANIAC#link_Ann.%20Net%20Income 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)
- sethg 16y ago
  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.
  - 16y ago
JamieEi 16y ago
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.

imichael 16y ago

So ideally they publish music from the artists directly, eliminating the other intermediaries and effectively making them the... the... the record label.

danik 16y ago
Another Apple Records? Isn't that a trademark issue? hehe...
- wtn 16y ago
  Sosumi
cmoscoso 16y ago
For iDevices, yes.

statictype 16y ago

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.

Pooter 16y ago
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.
- statictype 16y ago
  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 part of the reason they rescinded on that is because people freaked out about it :)
  - Pooter 16y ago
    And because they realized that it ruled out large swaths of application classes that they don't have an issue with (games, for example). Mostly, it was about keeping crappy flash apps of iOS. And from a platform perspective, that did actually make a lot of sense.
    - deleted 16y ago
      [deleted]
stcredzero 16y ago
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.
mechanical_fish 16y ago
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: http://www.jeremyrossmedia.com/2010/02/21/word-kindle-70-30-deal-for-self-publishers/ http://www.jeremyrossmedia.com/2010/02/21/word-kindle-70-30-... 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.

potatolicious 16y ago

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.

loewenskind 16y ago
If last.fm, etc. are providing so much value why are their margins so thin? Are they providing value less than 30% of the cost of the base product?
- yungchin 16y ago
  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.
  - alanfalcon 16y ago
    iTunes competes with the Pirate Bay with 30% margins and does reasonably well from a revenue perspective.
- potatolicious 16y ago
  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.

akashs 16y ago

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=ANIAC#link_Ann.%20Net%20Income 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)

sethg 16y ago
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.
- 16y ago

JamieEi 16y ago

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.