It's show time...
- Mary M Brinkopf
- Mar 17, 2019
- 8 min read
"Ladies and gents, this is the moment you've waited for" proclaimed Hugh Jackman in the opening lines of The Greatest Showman. And if you are an Apple fan, you've probably been waiting with bated breath for the upcoming March 25 show.
For the past four years, you've sat through multiple faux-announcements from Apple in which they showcase "upgrades" to their current product suite of iPhones, iPads, iWatch and Mac computers. Sure, there are jazz hands, cool videos and Tim Cook, but there's been that itch…the itch of a new product that has yet to be scratched.
The upcoming show at the Steve Jobs theatre is being touted as the show to scratch that gnawing, ever aggravated itch. It's believed that Apple will make widespread announcements regarding:
Apple News
Devices (iPads)
Video
Apple credit card with Goldman-Sachs
Yes, that list is quite expansive. The reason for that, in my humble opinion, Apple is struggling. There, I said it.
Now the naysayers may hit me with multiple data points like -
Those are valid but I like to note that those are facts based upon the immediate past and not where the Apple ship is pointing.
Let's not forget that the stock took a tumble when their CEO, Tim Cook, came out in the first days of 2019 forecasting soften revenue due to the trade war with China, Americans holding onto their iPhones for longer and the new devices cost >$1,000. And there were still two and a half months left in that quarter.
From my perspective, there are rough seas ahead for the Apple ship and not just one storm ahead - I foresee several, some of which they themselves have created. Thus, for this week's blog, I will be focusing on Apple's tiffs with its tech neighbors….and the App Store.
If you own an Apple device, you've visited the App Store, the digital marketplace with over 1 million applications to download. Introduced in 2008, the App Store immediately had an impact. Suddenly, there was a place for developers to put their products that could be discovered by consumers (either through placement by Apple or consumers themselves). More importantly, users could rate the applications and leave comments in one place. And it was safe.
Per Apple, the word "safe" denotes:
"the App Store is a safe, secure platform where users can have faith in the apps they discover and the transactions they make. And developers, from first-time engineers to large companies, can rest assured that everyone is playing by the same set of rules."
That last part is important because Apple enforces strict rules and regulations on its storefront and is eager to point that out (the quote above will become relevant in just a few paragraphs). Per Tim Cook, Apple is vested in protecting the privacy of their users. In 2016, Apple went to battle against the FBI (recall the San Bernardino shooting and Apple's insistence it would not unlock the shooter's iPhone).
In late 2018, Tim Cook had choice words for his fellow Silicon Valley neighbors stating that Google and Facebook offer "surveillance" services whereas "We at Apple believe that privacy is a fundamental human right but also recognize that not everyone sees it that way."
So why is this a problem? Should not companies like Apple be advocating for me, the consumer? Absolutely. Privacy is not the issue - the app store and Apple's role in it are problematic.
Back in late 2000s and 2010s, people started going crazy over games. Yes, you heard me correctly - games. Think back to when you played games like "Farmville" on your iPhone. Well, that trend has perpetuated throughout the last decade (look no further than the success of Fortnite).
For parents out there, games on the App Store are the bane of your existence. Why? Typically, games in the App Store charge a fee to use them or access to "next levels." And with today's technology, it only takes a password, thumbprint or face ID to authorize that charge.
In fact, if you look at the Top 10 Paid Apps in the App Store today (March 2019), half are games:
Minecraft (Game)
Heads Up! (Game)
PlantSnap Plant (Education)
Plague Inc. (Game)
Human Anatomy (Medical)
Facetune (Photo & Video)
Bloons TD 6 (Game)
Sky Guide (Reference)
Dark Sky Weather (Weather)
Pocket City (Game)
Courtesy of the Paid Apps Store
It's important to point out that Apple is immensely successful with the App Store. However, keeping this type of platform running takes resources - in the form of people to review the apps (fun fact - every significant update has to be approved by Apple), money to run the platform, metrics to understand which apps are performing the highest and servers to store this data. It's not a small expense.
So, in 2011, Apple announced changes to their App Store given the explosion in the "app economy." For my readers, the slimmed down version had three important tenets:
1. Apple would no longer allow payment system choice for consumers (i.e. if you wish to buy an app or a subscription of an app, you have to use the payment method on file and your Apple ID was your username, you could not change it)
2. For apps that offer subscription services and a user signs-up in-app, Apple will retain 30% of the monthly revenue (i.e. you charge $9.99/month for your app, Apple will keep ~$3.00) for the first year and then the rate reduces to 15%
3. If a subscriber downloads the app and uses existing credentials (i.e. I signed up for the service on their website, download the app and input my credentials to sign-in), Apple takes nothing.
Today, this tactic is called "revenue-sharing." From Apple's perspective, the developer's app was discovered via their App Store, their platform, so they played a role in bringing you that customer. They want a cut of that pie.
Note - The Google Play Store also imposes similar IAP fees. You can read them here.
The problem was - developers had been using Apple's platform for free from 2008 to 2011. Even though this decision was made with the consumer in mind (I use one ID with one payment method on file), over the past five years, tensions have flared amongst big tech firms.
Some companies have opted to participate in IAP and pass the cost along to the consumer. The music service, Tidal, adopted this stance in 2015 where it charged $3.00 more (regular MRC of $9.99 on their website vs. $12.99 on App Store) for the exact same service.
The company even went as far to notify customers that they were paying more "the reason the in-app purchase subscription cost differs from the subscription price on TIDAL.com is due to the Apple service fee imposed for using their service."
Netflix initially allowed IAP for customers but in January 2019, it discontinued the practice claiming that it paid Apple $257M in 2018.
Other companies like Epic Games, who produced smash hits like Fortnite, have opted to skip participation in the OS App and Google Play stores altogether. A competing App Store went live in December 2018 and requires a 12% revenue sharing commitment.
Note - There are illegal App Stores that you can download that are growing in popularity.
Then we have Spotify…
The most vocal critic of Apple's IAP practices, Spotify has oscillated back and forth between participating in IAP since 2011. (They initially opted out in 2011, then reneged that decision in 2014 and then opted out again in 2016).
Although the argument with Apple initially started over IAP, in 2015, it mushroomed when Apple decided it wanted to plunge deeper into music and offer a streaming music service called Apple Music. One that is a direct competitor to Spotify and allegedly (per Spotify) does not pay the 30% IAP fees.
Over the next three and a half years, the companies trade blows in a variety of spaces - Spotify claims that Apple "starts an intensified pattern of app rejections - and threatens to remove [Spotify] from the App Store," rejects their app from the iWatch (but Apple Music is available there), and launches the Apple HomePod without Spotify. In July 2018, Spotify starts an anti-App Store advertisement campaign telling its customers not to sign up via Apple or providing step by step directions on how to flip their account from Apple to Spotify.
The companies fight over copy placement in the app - i.e. Spotify wants to advertise the word "Free" in their App Store screenshots or providing users the ability to punch out and upgrade their accounts from "ad supported" to "premium." Both requests are denied. In February 2019, Apple launches a promotion for Apple Music with the copy "Give a friend a free month of Apple Music."
Finally, this culminates on March 13 when Spotify files an antitrust complaint with the European Union that the IAP tax "seems designed to harm streaming services that compete with Apple's own." In the four days since the complaint was filed, Apple released a full press release essentially calling Spotify "greedy." As of this posting, Spotify had just fired back calling Apple "monopolistic."
Looking for the full debrief? Spotify has gone as far to create a separate website called "Time to Play Fair" detailing their history with Apple - check it out.
From this blogger's perspective, it's tough not to sympathize with Spotify. It would be one thing if Apple did not have a rival streaming service but that's not the case. Apple Music sells for the same price as Spotify (again, you can argue it's not intentional but a byproduct of the label agreements). Apple Music is available on every Apple product whereas Spotify is not.
Further, Apple has brandished their App Store stick heavily against other companies it deems have not lived up to their standards or there are disagreements over copy (as illustrated above).
Two recent examples include Uber and Facebook who felt the wrath of Apple.
Uber
'"So, I've heard you've been breaking some of our rules" Mr. Cook said in his calm, Southern tone. Stop the trickery, Mr. Cook then demanded, or Uber's app would be kicked out of Apple's App Store.' - The New York Times April 2017
(The rules Mr. Cook referred to was that Uber was still tracking customers location even after deleting the App)
In the wake of the Facebook Research App (in which Facebook was paying teenagers to use their app), Apple bans the app and revokes Facebook's developer certificates (aka - put them in jail).
There's no doubt that Apple should go after Uber and Facebook when they skirt the rules of App Store. However, at the end of the day, who holds Apple accountable when they misbehave? How can Apple be both the master holding the leash and the dog attached to it? How can you claim to be "safe" if the platform supposedly applies different rules to different developers?
It is incredibly problematic that Apple continues to expand into services (music, home devices and more recently, payments with ApplePay, credit cards with Goldman Sachs) on the App Store and not accept oversight from anyone but themselves?
Is it monopolistic to charge a 30% fee for IAP and prevent app developers from selling their apps on other marketplaces (this is exactly the question of a pending class action suit - Apple vs. Pepper)? Or is it truly a fee to participate in the store?
At this point, I have no answers, only this suggestion - Buckle in folks, the show's just getting started. It's going to be a wild ride.
Very interesting- we’ll wait and watch!!