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I think the problem is in how the question is framed. The App Store has always been revenue neutral [1]. It's not a profit center for Apple. It's not about "

I think the problem is in how the question is framed. The App Store has always been revenue neutral [1]. It's not a profit center for Apple. It's not about "getting their cut". It's about having one billing statement to look at. It's about eliminating shady billing tactics a la gym memberships. It's about keeping your address out of some developer's mailing list. You'd be surprised about the extent of this problem. I get e-mails all the time from people who are worried that they have a monthly payment for my app, for example. There are just an awful lot of people who don't "get" software at all and derive real value from simplified one-party billing. So if you start from the premise that billing for iOS apps has to be brain-dead simple, we arrive at the present rule: any payment that looks like it happens on an iPhone must [2] run through IAP at whatever rate Apple can break even. If your payment collection process consists of people using their fingers on the screen of an iPhone, then it is potentially confusable with IAP by Grandpa and he might get mad at Apple; this is unacceptable. But monetizing your pizza ordering app by handing money to a pizza delivery guy who shows up at your house is not confusable, so it's A-OK. Now, it's perfectly debatable whether or not consumer confusion is really that big of a problem, or a problem big enough to justify the negative externalities of solving it. But if it is, then the result follows: the solution is to run all the billing through a break-even single party. If you accept the premise, then the rule that is fairest and best and also solves the problem is the rule that we already have. It's unfortunate that we live in a world where the economics of Dropbox, Skydrive, Amazon et al seemingly don't allow enough profit margin to pay Apple's overhead to process payments. But I'm not really sure who is to blame for that: the consumers, for being confused about billing; Apple, for trying to fix it for them; Skydrive etc. for not creating a two-tiered pricing structure to charge IAP customers at 30% more; or consumers again for being unwilling to pay an extra 30% for single-party billing. [1] http://www.macobserver.com/tmo/article/apple_app_store_runs_just_above_break_even http://www.macobserver.com/tmo/article/apple_app_store_runs_... [2] there are some exceptions, I'm speaking broadly to make a point

ddlatham 14y ago
If it's merely a break-even proposition for Apple, then perhaps a flat fee per purchase (or at least a maximum) would make more sense and allow services like Dropbox, Skydrive, and Amazon to participate.
- drewcrawford 14y ago
  Okay, let's do some math. Apple has paid $6.5b to developers [1], which would make the App Store gross $9.3b. This means their operating budget is $2.8b. About 49% of app revenue comes from IAP [3] rather than paid downloads, so let's assume that's still the case in our flat-fee world. We still need to come up with 51% ($1.4b) of our budget from paid downloads. Users have downloaded 35 billion apps [1], but the free-paid ratio is somewhere between 11:1 to 15:1 [2]. This would put the number of paid downloads between 2.3b and 3b. Result: Apple charges a flat fee between $.47-$.61 per paid app to maintain their current operating budget. A developer who is trying to stay below the $1 magical price point (most developers) is now making 50c or so, whereas they were making 70c before. Does this still sound like a good idea to you? Just thinking it through logically, a flat fee is effectively a decrease on expensive purchases, and (if the books are to be balanced) must be matched by an increase on cheap purchases. [1] http://thenextweb.com/apple/2012/10/23/apple-announces-35-billion-app-store-downloads-6-5-billion-paid-to-developers/ http://thenextweb.com/apple/2012/10/23/apple-announces-35-bi... [2] http://www.insidemobileapps.com/2012/09/18/distimo-u-s-consumers-download-15-free-apps-for-every-paid-app-purchased-in-the-iphone-app-store/ http://www.insidemobileapps.com/2012/09/18/distimo-u-s-consu... [3] http://gigaom.com/2011/01/07/iphone-in-app-purchases-almost-equal-to-download-revenue/ http://gigaom.com/2011/01/07/iphone-in-app-purchases-almost-...
  - ddlatham 14y ago
    That reasoning assumes that the number of subscriptions is going to be the same regardless of the change in their policies. If including a more reasonable plan for higher priced purchases allowed a greater volume into the store, then that could help make up the difference. I also question the assumption that they continue to need this level of revenue. If the app store was a little more than breaking even two years ago, they should be able to take advantage of growth and better efficiencies since then.
    - drewcrawford 14y ago
      > If including a more reasonable plan for higher priced purchases allowed a greater volume into the store, then that could help make up the difference. As the old saying goes, if you lose money on each sale, you can't make it up in volume. If it is indeed true that Apple makes no or very little money from the App Store, it would require a huge, order-of-magnitude-shift, 10x, 100x, in purchase behavior to translate into raising $2b. > I also question the assumption that they continue to need this level of revenue. You and I can sit in our comfy chairs and question it, but unfortunately neither of us are in a position to run app stores, and the people who do don't provide a lot of transparency about how much it really costs. I do think if it was possible to do it for less, that Amazon or Google would undercut Apple (Amazon, in particular, has an incentive to run their store below cost). Seeing as how they don't, I'm inclined to believe 30% is very close to the actual cost. I also think that solving the multinational billing/legal problem is much more difficult than many developers realize. The iOS app store recently opened in Chad, which is consistently ranked as one of the most difficult countries to do business with according to several international organizations [1]. Forget "formalities" like it taking 63 days to start a business or an effective tax rate of 65% that takes 732 hours per year to calculate [2], and worry about "informalities" like the government officials openly soliciting bribes to get electricity turned on to your office. Or try operating in India, where it takes 1,420 days to enforce contracts [3] or in the Congo where it costs 7x what it does in a Western country to import a shipping container [4]. I have customers in all of these countries through the iOS app store. I bring up the cost of doing business in foreign countries, not only because it's expensive, but also because it's the factor to which Apple attributes its 2011 App Store growth. In a SEC-audited filing, the line item including the app store went up "primarily [due] to increased net sales from the iTunes Store, which was largely driven by App Store expansion into new countries that contributed to strong growth in all of the Company’s geographic segments." Basically, Apple's growth in the App Store is driven mostly by selling the product of first-world payment transactions to second and third-world countries. For this reason, the legal and accounting infrastructure behind Apple's various stores are probably among the most complex business processes that exist anywhere in the world. [1] http://rru.worldbank.org/BESnapshots/Chad/default.aspx http://rru.worldbank.org/BESnapshots/Chad/default.aspx [2] http://www.doingbusiness.org/Custom-Query/chad http://www.doingbusiness.org/Custom-Query/chad [3] http://www.doingbusiness.org/data/exploreeconomies/india/#enforcing-contracts http://www.doingbusiness.org/data/exploreeconomies/india/#en... [4] http://www.doingbusiness.org/data/exploreeconomies/congo-rep/#trading-across-borders http://www.doingbusiness.org/data/exploreeconomies/congo-rep... [5] http://files.shareholder.com/downloads/AAPL/2215124066x0x610219/112dd7d2-e33a-44ad-b4ea-8870c5dd9281/AAPL_10K_FY12_10.31.12.pdf http://files.shareholder.com/downloads/AAPL/2215124066x0x610...
rdw 14y ago
I'm pretty sure Apple's policies prevent developers from charging a different rate on iOS than they do on other platforms (specifically for subscriptions, but maybe also for one-time IAPs). This definitely protects their platform, but I'm sure there's a shady billing trick that this prevents as well.
- drewcrawford 14y ago
  There was once talk about this, but it's not the case now.
fauigerzigerk 14y ago
Potential consumer confusion has nothing to do with the size of Apple's cut or how it is structured. Clearly, a 30% cut is fair for the average $1.5 purchase because it includes fees for payment processing and fixed cost per app. But Apple will have to decide whether or not they want people to sell more expensive stuff on their platform. Taking a 30% cut on a $100 purchase is not economically viable and it is unnecessary if the goal is to avoid consumer confusion. They could just charge 50 cents + 5%
- jobenjo 14y ago
  That's a great solution, actually. Think of it more like a credit card processing fee.
  - easytiger 14y ago
    How have you been brainwashed into that being acceptable?
    - marcusf 14y ago
      I don't understand... elaborate?
      - easytiger 14y ago
        That taking a percentage of a transaction and giving it to a credit card company is OK.
        drakeandrews 14y ago
        They are providing the service of making your money available for payment without you having to think about the logistics of moving the money (plus credit facilities, chargebacks, fraud protection (If I have a wallet full of money and someone spends it I'm down that cash. If I have a wallet full of cards and someone spends with them, I'm covered.)). It only seems fair that they get paid for their work. Whether the amount they charge is worth the services they provide is another question entirely.
pooriaazimi 14y ago
As someone who's an Apple user and will soon be an iOS developer, I'm all for a curated App Store (I actually think Apple should reject more apps! Some apps have been rejected unfairly, and I think they should change their policies slightly to include them), and I'm 100% for this 1-party payment. My only gripe is the 30% cut. Why not make that 15%, or 10%? It would make things sooooo easier for everyone. That %20 is so negligible (for Apple) that I'm sure it falls within error margin... 30% is just too much for a lot of developers/companies.
- jamornh 14y ago
  I'm recalling this from memory, but if I remember correctly, Apple's argument for the 30% charge when they first launched the app store is that traditionally you'd have to publish through a telco, and telcos used to charge way more than 50% of the revenue in order to place your application through their portal. Not sure how true that is but now, because of Apple, 30% seems to be the new standard.
  - laumars 14y ago
    > " Apple's argument for the 30% charge when they first launched the app store is that traditionally you'd have to publish through a telco, and telcos used to charge way more than 50% of the revenue in order to place your application through their portal." That logic doesn't work though because phone and PDA apps have been available to download from 3rd party websites since even before 3G. You could set up a download portal for Windows Mobile or whatever OS the "dumb phones" from Sony Erricson's K-series featured using free hosting if you really wanted to. Granted it wouldn't be a centralised repository like Linux distro's feature (which are also free), but it certainly wouldn't have cost you >50% of your budget. Apple do this sort crap all the time, they deliberately merge vaguely related statistics to promote whatever prejudice they're trying to peddle at that time (eg classing their notebooks as tablets when talking about their dominance on the mobile space. Or including iPod figures when talking about the dominance of the iPhones). Smart phones, feature phones and PDAs have been around a long time before the iPhone; central software repositories have also been around a long time before the Apple App Store; and there's never been a precedence to take >50% (nor even a 30%) cut from transactions and nor has setting up independent 3rd party portals cost that much either. Plus lets not forget that Apple also charge developers for the privilege of developing software (even just for your own personal iOS device) via their developers subscription (note I said subscription; not a one off payment) and (if I'm not mistaken) again for just adding your application to the App Store.
Flenser 14y ago
I'm not sure that the App Store is still revenue neutral, the source you cited was over a year old so things may have changed. I agree on your point about billing having to be simple for the customer. I wonder about the reverse. If Apple were to release an iCloud app on android, would Google's Rules for Android Store mean that they have to take a cut on all iCloud purchases?
mdkess 14y ago
We've had low margin businesses forever, that's not going to change. I agree with what you said, single party billing is great, except Apple also sells software on their platform, and is exempt from the cut. So that means that Apple is the only one able to sell ebooks on their platform, because who would go to Amazon if they had to pay 30% than in Apple's bookstore both on the platform and off of it (note that Apple explicitly forbids charging more on the app store than elsewhere). Do you think that this is reasonable, considering that Apple has owned a major part of mobile devices over the past 5 years? If this was just Visa, it would be fine - the playing field would be level. But it's not, and Apple uses this to give themselves a massive competitive advantage. If Toyota bought a bunch of gas station chains and said that non-Toyota cars had to pay 30% more for gas, but made the billing system really straightforward, would you be okay with that?
brown9-2 14y ago
The fact that revenue for the App Store in Feb 2011 was "break-even" doesn't mean that Apple never wants it to be a source of profits.
bitcartel 14y ago
Let's dispel the myth that the App Store is not a profit center, that Apple are reluctantly taking a cut from developers in order to cover costs. If the App Store is a cost center than it should be treated like other cost centers. Would it make sense if Human Resources started charging job applicants a fee of 30% to handle resumes, interviews and contracts? If the App Store is treated as a business unit in its own right, then the profit'n'loss should take into account hardware sales (the App Store is touted as a selling point), perhaps by internal billing of other departments. Sure, developers benefit from the App Store, but they also benefit from other departments like Marketing and R&D, who grow the potential market for apps. Should developers help cover their costs too? The truth is Apple are taking a cut of 30% simply because they can.

ddlatham 14y ago

If it's merely a break-even proposition for Apple, then perhaps a flat fee per purchase (or at least a maximum) would make more sense and allow services like Dropbox, Skydrive, and Amazon to participate.

drewcrawford 14y ago
Okay, let's do some math. Apple has paid $6.5b to developers [1], which would make the App Store gross $9.3b. This means their operating budget is $2.8b. About 49% of app revenue comes from IAP [3] rather than paid downloads, so let's assume that's still the case in our flat-fee world. We still need to come up with 51% ($1.4b) of our budget from paid downloads. Users have downloaded 35 billion apps [1], but the free-paid ratio is somewhere between 11:1 to 15:1 [2]. This would put the number of paid downloads between 2.3b and 3b. Result: Apple charges a flat fee between $.47-$.61 per paid app to maintain their current operating budget. A developer who is trying to stay below the $1 magical price point (most developers) is now making 50c or so, whereas they were making 70c before. Does this still sound like a good idea to you? Just thinking it through logically, a flat fee is effectively a decrease on expensive purchases, and (if the books are to be balanced) must be matched by an increase on cheap purchases. [1] http://thenextweb.com/apple/2012/10/23/apple-announces-35-billion-app-store-downloads-6-5-billion-paid-to-developers/ http://thenextweb.com/apple/2012/10/23/apple-announces-35-bi... [2] http://www.insidemobileapps.com/2012/09/18/distimo-u-s-consumers-download-15-free-apps-for-every-paid-app-purchased-in-the-iphone-app-store/ http://www.insidemobileapps.com/2012/09/18/distimo-u-s-consu... [3] http://gigaom.com/2011/01/07/iphone-in-app-purchases-almost-equal-to-download-revenue/ http://gigaom.com/2011/01/07/iphone-in-app-purchases-almost-...
- ddlatham 14y ago
  That reasoning assumes that the number of subscriptions is going to be the same regardless of the change in their policies. If including a more reasonable plan for higher priced purchases allowed a greater volume into the store, then that could help make up the difference. I also question the assumption that they continue to need this level of revenue. If the app store was a little more than breaking even two years ago, they should be able to take advantage of growth and better efficiencies since then.
  - drewcrawford 14y ago
    > If including a more reasonable plan for higher priced purchases allowed a greater volume into the store, then that could help make up the difference. As the old saying goes, if you lose money on each sale, you can't make it up in volume. If it is indeed true that Apple makes no or very little money from the App Store, it would require a huge, order-of-magnitude-shift, 10x, 100x, in purchase behavior to translate into raising $2b. > I also question the assumption that they continue to need this level of revenue. You and I can sit in our comfy chairs and question it, but unfortunately neither of us are in a position to run app stores, and the people who do don't provide a lot of transparency about how much it really costs. I do think if it was possible to do it for less, that Amazon or Google would undercut Apple (Amazon, in particular, has an incentive to run their store below cost). Seeing as how they don't, I'm inclined to believe 30% is very close to the actual cost. I also think that solving the multinational billing/legal problem is much more difficult than many developers realize. The iOS app store recently opened in Chad, which is consistently ranked as one of the most difficult countries to do business with according to several international organizations [1]. Forget "formalities" like it taking 63 days to start a business or an effective tax rate of 65% that takes 732 hours per year to calculate [2], and worry about "informalities" like the government officials openly soliciting bribes to get electricity turned on to your office. Or try operating in India, where it takes 1,420 days to enforce contracts [3] or in the Congo where it costs 7x what it does in a Western country to import a shipping container [4]. I have customers in all of these countries through the iOS app store. I bring up the cost of doing business in foreign countries, not only because it's expensive, but also because it's the factor to which Apple attributes its 2011 App Store growth. In a SEC-audited filing, the line item including the app store went up "primarily [due] to increased net sales from the iTunes Store, which was largely driven by App Store expansion into new countries that contributed to strong growth in all of the Company’s geographic segments." Basically, Apple's growth in the App Store is driven mostly by selling the product of first-world payment transactions to second and third-world countries. For this reason, the legal and accounting infrastructure behind Apple's various stores are probably among the most complex business processes that exist anywhere in the world. [1] http://rru.worldbank.org/BESnapshots/Chad/default.aspx http://rru.worldbank.org/BESnapshots/Chad/default.aspx [2] http://www.doingbusiness.org/Custom-Query/chad http://www.doingbusiness.org/Custom-Query/chad [3] http://www.doingbusiness.org/data/exploreeconomies/india/#enforcing-contracts http://www.doingbusiness.org/data/exploreeconomies/india/#en... [4] http://www.doingbusiness.org/data/exploreeconomies/congo-rep/#trading-across-borders http://www.doingbusiness.org/data/exploreeconomies/congo-rep... [5] http://files.shareholder.com/downloads/AAPL/2215124066x0x610219/112dd7d2-e33a-44ad-b4ea-8870c5dd9281/AAPL_10K_FY12_10.31.12.pdf http://files.shareholder.com/downloads/AAPL/2215124066x0x610...

rdw 14y ago

I'm pretty sure Apple's policies prevent developers from charging a different rate on iOS than they do on other platforms (specifically for subscriptions, but maybe also for one-time IAPs). This definitely protects their platform, but I'm sure there's a shady billing trick that this prevents as well.

drewcrawford 14y ago
There was once talk about this, but it's not the case now.

fauigerzigerk 14y ago

Potential consumer confusion has nothing to do with the size of Apple's cut or how it is structured. Clearly, a 30% cut is fair for the average $1.5 purchase because it includes fees for payment processing and fixed cost per app. But Apple will have to decide whether or not they want people to sell more expensive stuff on their platform. Taking a 30% cut on a $100 purchase is not economically viable and it is unnecessary if the goal is to avoid consumer confusion. They could just charge 50 cents + 5%

jobenjo 14y ago
That's a great solution, actually. Think of it more like a credit card processing fee.
- easytiger 14y ago
  How have you been brainwashed into that being acceptable?
  - marcusf 14y ago
    I don't understand... elaborate?
    - easytiger 14y ago
      That taking a percentage of a transaction and giving it to a credit card company is OK.
      - drakeandrews 14y ago
        They are providing the service of making your money available for payment without you having to think about the logistics of moving the money (plus credit facilities, chargebacks, fraud protection (If I have a wallet full of money and someone spends it I'm down that cash. If I have a wallet full of cards and someone spends with them, I'm covered.)). It only seems fair that they get paid for their work. Whether the amount they charge is worth the services they provide is another question entirely.

pooriaazimi 14y ago

As someone who's an Apple user and will soon be an iOS developer, I'm all for a curated App Store (I actually think Apple should reject more apps! Some apps have been rejected unfairly, and I think they should change their policies slightly to include them), and I'm 100% for this 1-party payment. My only gripe is the 30% cut. Why not make that 15%, or 10%? It would make things sooooo easier for everyone. That %20 is so negligible (for Apple) that I'm sure it falls within error margin... 30% is just too much for a lot of developers/companies.

jamornh 14y ago
I'm recalling this from memory, but if I remember correctly, Apple's argument for the 30% charge when they first launched the app store is that traditionally you'd have to publish through a telco, and telcos used to charge way more than 50% of the revenue in order to place your application through their portal. Not sure how true that is but now, because of Apple, 30% seems to be the new standard.
- laumars 14y ago
  > " Apple's argument for the 30% charge when they first launched the app store is that traditionally you'd have to publish through a telco, and telcos used to charge way more than 50% of the revenue in order to place your application through their portal." That logic doesn't work though because phone and PDA apps have been available to download from 3rd party websites since even before 3G. You could set up a download portal for Windows Mobile or whatever OS the "dumb phones" from Sony Erricson's K-series featured using free hosting if you really wanted to. Granted it wouldn't be a centralised repository like Linux distro's feature (which are also free), but it certainly wouldn't have cost you >50% of your budget. Apple do this sort crap all the time, they deliberately merge vaguely related statistics to promote whatever prejudice they're trying to peddle at that time (eg classing their notebooks as tablets when talking about their dominance on the mobile space. Or including iPod figures when talking about the dominance of the iPhones). Smart phones, feature phones and PDAs have been around a long time before the iPhone; central software repositories have also been around a long time before the Apple App Store; and there's never been a precedence to take >50% (nor even a 30%) cut from transactions and nor has setting up independent 3rd party portals cost that much either. Plus lets not forget that Apple also charge developers for the privilege of developing software (even just for your own personal iOS device) via their developers subscription (note I said subscription; not a one off payment) and (if I'm not mistaken) again for just adding your application to the App Store.

Flenser 14y ago

I'm not sure that the App Store is still revenue neutral, the source you cited was over a year old so things may have changed. I agree on your point about billing having to be simple for the customer. I wonder about the reverse. If Apple were to release an iCloud app on android, would Google's Rules for Android Store mean that they have to take a cut on all iCloud purchases?

mdkess 14y ago

We've had low margin businesses forever, that's not going to change. I agree with what you said, single party billing is great, except Apple also sells software on their platform, and is exempt from the cut. So that means that Apple is the only one able to sell ebooks on their platform, because who would go to Amazon if they had to pay 30% than in Apple's bookstore both on the platform and off of it (note that Apple explicitly forbids charging more on the app store than elsewhere). Do you think that this is reasonable, considering that Apple has owned a major part of mobile devices over the past 5 years? If this was just Visa, it would be fine - the playing field would be level. But it's not, and Apple uses this to give themselves a massive competitive advantage. If Toyota bought a bunch of gas station chains and said that non-Toyota cars had to pay 30% more for gas, but made the billing system really straightforward, would you be okay with that?

brown9-2 14y ago

The fact that revenue for the App Store in Feb 2011 was "break-even" doesn't mean that Apple never wants it to be a source of profits.

bitcartel 14y ago

Let's dispel the myth that the App Store is not a profit center, that Apple are reluctantly taking a cut from developers in order to cover costs. If the App Store is a cost center than it should be treated like other cost centers. Would it make sense if Human Resources started charging job applicants a fee of 30% to handle resumes, interviews and contracts? If the App Store is treated as a business unit in its own right, then the profit'n'loss should take into account hardware sales (the App Store is touted as a selling point), perhaps by internal billing of other departments. Sure, developers benefit from the App Store, but they also benefit from other departments like Marketing and R&D, who grow the potential market for apps. Should developers help cover their costs too? The truth is Apple are taking a cut of 30% simply because they can.