It seems that Apple is killing the goose

The Kindle is the main concern of this blog so we’ve discussed Apple’s 30% tax decision mostly in terms of the possible impact to Kindle for iPhone.

There was also a post on The Dangers of Building on Someone Else’s Platform aimed mostly at developers though it’s doubtful any read this blog.

However, the most beautiful thing to come out of all of this might be how Apple, in the midst of an appalling lack of competition in both cellphones and Tablets, might be sowing the seeds of its ruin.

First, we’ll look at a principle called ‘I’m the movie star and everyone else is an extra’. This seems to afflict almost everyone who becomes successful but Apple has taken this to high art.

Second, we’ll consider what Apple is really doing at a very high level. The 10,000 foot view which really brings Aesop’s fable of The Goose that Laid the Golden Eggs to mind.

Third, we’ll wonder about what this might lead to. In particular, the consequences of Apple telling developers directly, and customers indirectly, that they ought to stick to their role of nameless extras livening up the scenery.

Apple is the Movie Star and Everyone Else is an Extra

In a sense we decide who are the stars in the stories of our lives.

We might not realize that it’s our decision to make, or that we are making the decision without realizing it – but we are. Some people hold up others as the stars. Some people only see themselves as stars. Some see both themselves and others as stars.

When a person or a company becomes successful there is a very strong tendency to start assuming that everyone else is just an extra meant to cater to the star’s whims and fancies -

  1. Apple had a bit of the ‘Everyone else is an Extra’ attitude even when it was doing nothing except selling glorified mp3 players.
  2. With the success of the iPhone and the iPad that attitude has begun to spin out of control.
  3. Apple has begun to go from ‘We make beautiful devices that make people feel happy and sexy and cool’ to ‘We make beautiful devices so we have the right to assimilate all possible profit’.

Regardless of how you feel about Apple or their products, it should be clear that Apple has begun to diverge a lot from the developer-Apple-customer win-win-win scenario.

Apple is forgetting that everyone wants to be a star. No developer wakes up in the morning and says – Let me work really hard today so that Apple can take all the profit.

Yet, that’s the direction Apple is pushing developers in. It’s just a platform that has let success gone to its head and has begun to believe that the successs of different apps is due to Apple, and not due to the developer and customers.

It affects customers too – As more and more self-respecting companies and developers ditch Apple’s platform for other platforms, and for the open web, we will see the quality of apps and the value customers get go down.

If Kindle for iPhone and Kobo and Sony Reader and Nook for iPhone all leave, that hurts the customer. The customer goes from the superstar who gets whatever store she wants to an extra whose only job is to buy books from iBooks and make Apple money.

Apple is missing the Big Picture

There are so many flaws in the way Apple is looking at this, it’s ridiculous. It’s like Steve Ballmer and Sergey Brin hypnotized Steve Jobs into blowing up the App Store.

  1. Firstly, the apps are the magic lure that sells iPhones and iPads. Companies and developers are taking a huge risk – 90% of them are going to fail. However, 100% of them help make the iPhone and iPad more attractive. That, in itself, is enough of a payment to Apple.
  2. Secondly, Apple makes a ton of profit from selling devices. All developers get is the chance of making a killing from apps, and most of them don’t. Apple isn’t sharing any of its device profits with developers, but it’s taking a 30% cut from app developers, whether or not they succeed.
  3. Thirdly, most subscription services and most apps selling content can’t possibly afford to give Apple a 30% cut. Most of them are making either a loss or a very small gain and there just isn’t room. They are already adding value by providing options. They are already spending money on developing apps. A 30% cut on top of all that is madness.
  4. Fourthly, only the top few companies in each niche actually succeed. For everyone else, it’s life and death and they can’t really afford a 30% tax. Apple is reducing the probability of success of developers by adding on this 30% tax.
  5. Fifthly, the App Store isn’t the only option. You have the PC, the web, and lots of other platforms. Apple is behaving as if it’s the only option.

The 30% tax isn’t ‘Apple getting its fair share’. It’s Apple tilting the app store model even more in its favor.

Apple gets – the right to refuse an app, 30% on the take, 30% on the subscription revenue, more device sales, a defence against rivals, free development resources, and a lot of other benefits. Apple makes money whether or not an app succeeds – it makes money on every sale. More importantly, it makes a ton of money from device sales.

Developers get – Well, it’s becoming less and less. All developers get is a chance to be amongst the 3% of apps that are winners. Already, they are likely to fail 97% of the time. Now Apple is adding on more and more barriers to success, and more and more taxes if they do succeed.

Basically, the app store model is already hugely tilted in favor of the platform. The Platform gets a cut on every sale – whether or not developers make back their investment. The Platform gets all the power – it can kick out any app or reject any app. The Platform has access to customers.

Just when you might think it couldn’t be any more one-sided, Apple makes a move to assimilate even more of the profit and power – to the point that developers will be forced to quit.

Will developers and companies keep meeting Apple’s demands?

Not really.

Even before this latest madness Apple had angered a lot of developers with its opaque review process. Quite a few high-profile developers had left the Apple App Store.

In fact, a lot of the people going to Android are people who don’t like Apple’s attitude – You’re just an extra. Don’t get too big for your boots. Do what we tell you. Think what we tell you to think.

The Apple 1984 advertisement couldn’t be more relevant. Apple has become Big Brother.

We have the App Store which is the golden goose. Device sales due to the strength and richness of the App Store are the golden eggs. Apple is forgetting how things work. It’s saying – Perhaps we can get more than just the golden eggs. Perhaps making billions of dollars in profit per quarter isn’t enough. Perhaps we can squeeze out another few hundred million by putting the goose on a diet.

At the very core of it – Apple is forgetting that it is developers and customers that have made the App Store what it is. Apple’s tendency to assume everyone else is an extra means it has begun to think that its devices are so perfect that apps would write themselves. That developers are just extras who can be kicked around and taxed like serfs.

Apple has always had some amount of disdain towards developers. This is why lots of the star and superstar developers stopped making apps for the iPhone and iPad. It’s a major reason why Android has become successful. As Apple has grown more and more successful, it’s becoming delusional to the point that it thinks it can gather up all possible profit from the app store – That developers will work just for the pleasure of making apps for Apple’s magnificent platform.

It couldn’t be more wrong.

If Apple doesn’t roll back this 30% tax it would have killed the goose that lays the golden eggs. It would take 3-4 years for this to become evident but the death could be traced back to this 30% tax. The funniest thing is that Apple has deluded itself into rationalizing this. It takes an astonishing level of detachment from reality to start believing that developers owe Apple almost every cent of profit. Yet, Apple has managed it.

15 Responses

  1. not really a BSG fan, but this quote seems particularly apt:

    “all this has happened before, and all this will happen again.”

  2. “…might be how Apple, in the midst of an appalling lack of competition in both cellphones…”
    Are you kidding? Apple has heavy competition in cellphones. Android phones are outselling Apple in many markets. They may own the tablet market for now, but in three months the competition will be out in force.
    Get the facts, then type.

    • In three months the competition will be out in full force. That’s what everyone said in April 2010.

      It’s all opinion anyways. What you write is just as much of an opinion as what I write.

    • yes, more android phones are sold, but half of cellphone profits are from iPhones which I think is just fine with Apple.

      I would expect Apple to try and do the same sort of thing with tablets, sell at high price/profit and let others fight for market share.

  3. I have claimed for a long time that the “killer app” for the iPhone/iPod Touch (and the iPad as well) was the app store itself. That Apple can’t use this opportunity to display a little altruism is beyond comprehension. They’re simply using this as a way to punish Amazon (and others). Obviously Amazon doesn’t represent necesarily developers, but rather a group of companies that Apple feels is using the App Store to an unfair advantage. Never mind that Amazon (and others) had to develop for Apple iOS platform at a specific cost, whether they get a dime from the software or not. Click-through sales were what they were after, but now that may go away, or be crippled to teh point where it’s worthless vis-a-vis the development costs.

    I’ve been limping along on a 1G iPod Touch for the last three years. Though I’ve wanted to upgrade, Apples latest Draconian antics make me less inclined to oblige them with my dollars.

    The draw of purchasing Apple products was the mirage of a Company that had a heart for the “little” people, that produced a great, good-looking product(s) that “just worked”. Now they’ve become tarnished, just another megalithic corporate dinosaur: Microsoft South.

    Al teh more reason to hope that Amazon can produce a really great, readable-in-any-light tablet device.

    • “Al teh more reason to hope that Amazon can produce a really great, readable-in-any-light tablet device”

      Do that with 30hz video and the device would bowl over the IPad. If Amazon wants even a tiny fraction of kids books, it will have to be touch-screen.

      I also think Amazon needs to put out an Android/Kindle phone with eink. The extended battery life alone would push sales. The best part is that cell phone companies will subsidize the cost (as part of the contract).

      Imagine the sales of a Kindle phone for $0 (zero)!

      Combined with the new Amazon Android store…

      Neil

  4. Switch,

    Apple is playing the spoiled rock star.

    It isn’t even Amazon that matters. Right now the services that will make or break the iOS are the various streaming services (Netflix, Rhapsody, etc.).

    Content made OS7 one step from irrelevant (vs. Windows 3.11) and content will determine the cell phone wars. I agree with Phil in that Android is already here in phones. 4Q2010 2:1 sales (in favor of Android).

    Tablets with Android have been a frustrating case of ‘just wait.’ It is why we own an IPad. But I look at it this way, sometime in 2011 there will be an Android tablet worth buying. It doesn’t matter which company sells it: Samsung, Motorola, HTC, Sony, NEC, LG, Amazon? (the app store for Android indicates they’re taking a ‘big step’), Viewsonic, Dell, etc. (I’m sure I missed six or seven…)

    It is also on the processor front. Can Samsung out do Nvidia, Qualcomm, Freescale, and TI in every niche? If anyone offers something special *and* content…

    Lest we forget Apple refused to support one game and that did in the Mac: DOOM! What happens when iOS is lacking one ‘killer’ app? It only takes one…

    This is going to be a huge boost for Android and possibly Windows 7 phones. AT&T did a survey of Kindle readers and found the median Kindle reader utilized 3 devices to read their books!

    This could kill the golden goose faster than a kill in DOOM. Don’t forget AOL and their stupid marketplace; insisting in 1995 that all retailers sell through them andgive a 7% cut… We no longer consider AOL synonymous with internet…

    Neil

  5. “It takes an astonishing level of detachment from reality to start believing that developers owe Apple almost every cent of profit.”

    Self-induced paranoia from rarefied life atop silicon towers.

  6. You’ve stated the facts clearly and everyone I know is talking about Apple’s poor business decision. No one is happy, even die-hard Apple users.

    I no longer purchase from iTunes, and I no longer desire an iPad. Apple is trying to strong-arm businesses and customers as evidenced by their recent demands. I love my Kindle and my Android phone so I don’t need or want Apple. In fact, I’m waiting to purchase another company’s table when it comes out this spring.

  7. I have a Kindle 2 (well, the wife has that now) and a Kindle DX but I do most of my reading with the Kindle app on the iPad — I do a lot of other things with the iPad so it is always with me.

    That being said, if Apple really does block the Kindle app then my next tablet will most certainly *not* be an iPad. They’ve already lost me 80% on my next phone (I said I won’t buy another device that requires AT&T)

    I’ve always loved the products and hated the company but the products were good enough to overcome that. I don’t really feel that way anymore. I’m really hoping that Android morphs into a decent laptop OS…

  8. As so often, you’ve hit the nail on the head. I love my iPod touch – I believe it’s my fifth iteration of iPod – but for me the main selling point of any phone/organizer gadget has become the apps. If Apple doesn’t offer all of the apps I need (and the Kindle reader for without-my-Kindle windfall reading opportunities is one of them), I’ll take my business elsewhere.

  9. Fabulous analysis, Switch. As for @phil – what is relevant to THIS argument is APPLE’s perception of their market position, not the real position of threat they are now, or may–in 3 months, or 6 months–be under in future. Apple ACTS as though they *deserve* to be idolized, nay worshipped, with profit from their minions. While the android customer throngs may be consuming their clay feet, Apple is very much caught in their ‘reality distortion field’ of One Endless Loop.

    Interestingly to me, I watched another ‘rock star’ fall similarly a few years ago when handheld app megastore Handango.com — at the time exacting up to **60%** from developers’ sales — found themselves at the losing end of carriers’ building their own walled garden on-deck app sales engines.

    Karma is a bitch sometimes.

  10. The iPhone has been on its 4th generation, going on 5th, without Flash. Do you have any idea how many sites I visit and cannot navigate b/c of that? It has been years and while I still gripe about it, I have my iPhone. I LOVE my iPhone. Do I have a Kindle app? Yes. Would I stop using my iPhone b/c I can’t access my Kindle content? NO. That’s why I have a Kindle. Would not having the Kindle app on my iPhone be inconvenient. You betcha. But it will not determine whether or not I buy Apple products. Have I seen a phone that isn’t Apple, and that can currently do for me what my iPhone is doing (replacing SO much junk in purse)? NO. I have co-workers salivating over my phone- and now that the iPhone just went to Verizon, they’re getting an iPhone too. Would I miss my Kindle app? Yes. But seeing as how I have my Kindle, I’ll not miss the app that much. And those that have the Kindle app on their phone but no Kindle can always access their content via any tablet PC with wifi.

    • I just have to snicker a bit at iPhone lovers who were smartphone virgins before they were smitten.

      Those in this camp are invariably likely to say ‘there’s nothing else that can do what my iPhone can do’ but have no real idea of what’s available, so fall prey to a fallacious argument at best.

      “Yes Virginia, there is a world beyond your iPhone” and it’s a big, wide, wonderful world. I will absolutely acknowledge that Apple changed the rules of the game with the iOS introduction on the original iPhone–that the user interface revolutionized how we thought about interacting with these devices. AND, it makes sense that if someone has purchased a phone, they probably won’t switch–once bought–simply due to the non-availability of a reading app on that platform. But that’s not what was discussed here.

      Again, the salivation for these apples is simply because no one cared about touchscreen devices until Apple changed what it looked like to BE a touchscreen phone, and how that screen worked. The same diversity of app types existed long before the App Store sprang into existence, on other, older platforms. (The ability to choose from among 50 varieties of the same type To Do List has marginal value, if the quality of 85% of those is mediocre at best, since developers see only pennies per sale…) And at least five different eReader apps existed on multiple platforms long before the iPhone burst on the scene.

      Alas, the point is that though there are many consumers who feel that their discovery of the iPhone, like the discovery of canned cheese in the supermarket, has provided them with an entirely inimitable experience, the fact remains that it never was then, nor is it (increasingly) the only choice for a fully satisfying experience. And, as the article points out, Apple is bumblingly continuing on a path that may catch many satisfied, “I stopped shopping” consumers off guard as the Karma comes back around.

      • Hmm. It seems I need to provide a little background to those that postulate. I am a tech FREAK. I’ve had everything from the Palm with the little wifi antennae (remember those?), had an early eReader, also an HP iPaq, LOADS of smartphones, and yes, iPods. My first was a mini, then the touch, and to replace my touch and smartphone- YEP, I got an iPhone. I am NOT a smartphone virgin nor will I pretend to be one. I LOVE my gadgets and always keep tabs on newer toys. I’m the poster-girl for: Once you go Mac, you NEVER go back. Find me a solid phone that will make me choose to switch, and I’ll accept your argument. In the meantime: if the Kindle app should leave the App Store, I’ll miss it, yes. But I won’t switch my phone because of it.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 9,767 other followers