Apple found guilty of conspiring to fix ebook prices, Karma smiles

While there are a lot of ‘I Love Apple’ and ‘I Dislike Apple’ based opinions, it’s quite easy to see, if we step back from our personal perspectives, that –

  1. The Agency Model would not have happened without Apple’s help.
  2. Apple, and in particular Steve Jobs, was quite happy to go around telling people how it has ‘ensured prices will be the same everywhere’. It takes a special type of hubris to say it on tape.
  3. The Agency Model led to a LOT of readers feeling the pain of either paying $13.99 or more for new releases, or having to wait 6 to 12 months for prices to reach below $9.99.

With that in mind, it is refreshing to see Apple found guilty of conspiring to fix ebook prices. Apparently, Apple’s ‘If we didn’t do illegal price collusion, then Amazon would have done it’ and ‘People at Amazon screamed and shouted, and were very un-gentleman-like’ defences didn’t work.

Paid Content points out that there’s a lot of HARD EVIDENCE the Judge used to make her ruling –

Cote also pointed to what she said was clear evidence that the conspiracy led ebook prices to go up:  ”two weeks of moving to agency [pricing led to an] increase of 14.2% for their New Releases, 42.7% for their NYT Bestsellers, and 18.6% across all of the Publisher Defendants’ e-books.”

Apple will, quite predictably, appeal. However, I really don’t see how it can win an appeal given there is an inordinate amount of evidence that Apple’s actions did, in fact, lead to higher book prices for customers.

A Blow in the Perception Wars?

Apple perhaps doesn’t care about ‘damages’. It does care about the perception. For Apple it’s ALL about the Perception Wars. Like the most popular girl in high school, it doesn’t really matter if she’s suspended. She just wants to make sure she was suspended for doing something ‘cool and rebellious’ that ‘stuck it to the man’ and not something tacky that hurt fellow students.

The new ‘Special Divisions’ VP at Apple, the former head of YSL, now has to work just a little bit harder to make sure the poor little rich girl still wins the Prom Queen crown.

Karma is calling

Remember how Steve Jobs (he still seems to figure rather prominently, doesn’t he) promised to wage thermonuclear war on Android.

Perhaps he should have shown the other cheek.

It seems Samsung won against Apple on some patent (probably for holding a device vertically with one hand (actually, it’s wireless related)) and on June 4th ITC banned the Apple iPhone 4 and the Apple iPad 2. The ban goes into effect in 30 days, unless the President overrules it (doesn’t he use a Blackberry? There goes that option).

Apple has asked for a stay, claiming it would do massive irreparable harm to Apple and to its wireless provider partners. Well, they should have thought of that before selling phones that could be held with one hand.

After all the drama and all the patents on things like rubber banding (yes, you can get patents for how scrolling a list ends, for the visual effect no less) it is poetic justice that it is Apple that might be forced to stop selling iPhone 4 and iPad 2.

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.

Breaking down the new FaceTime ads – marketing value Vs feature value

Apple Insider has a post showing 4 new FaceTime ads – Do take a look. They are directed by Sam Mendes who directed American Beauty.

TechCrunch has a post which talks about how it seems as if Apple has hired Don Draper – Do give it a read. Here’s a key snippet –

Draper fires back,

Technology is a glittering lure. But there’s the rare occasion when the public can be engaged on a level beyond flash. If they have a sentimental bond with the product.

In the iPhone 4 FaceTime commercial, that’s exactly what Apple is playing up. As we’re all well aware, video chat, even on phones, is nothing new.

The FaceTime feature and the way it’s being advertised gives us a great chance to analyze and break-down Apple. These 4 ads are a really great way to understand everything that’s great and everything that’s not so great about Apple.

Marketing-created Perceived Value vs Actual Feature Value – Apple has both

We could break down a product’s perceived value to users into two components –

  1. The actual value of the product to users.
  2. How the value of the product is portrayed to users. 

Apple is very good at both. It helps better understand this if you consider Aristotle’s Rhetoric and Ethos, Pathos, and Logos –

  1. Ethos is your character – what people think of you.  
  2. Pathos is the emotional state of your audience – what they’re feeling.  
  3. Logos is the actual message – how strong and impactful it is.

With the FaceTime ads Apple is conveying a pretty strong message i.e. you get to share and experience some pretty strong moments via FaceTime. They make it a point to create moments that will have a very strong emotional impact on you and they link those moments to an Apple product. The ads reveal just how well Apple understands human nature.

It’s all about emotion and linking good, strong emotions with Apple.

They’re taking the single most important experiences of our lives and linking buying an iPhone 4 with being able to experience them better. Watching the 4 ads back to back breaks the effect to an extent because you realize exactly what Apple is doing. It also makes you wonder why people would not share those experiences in person – especially the birth of their grandchild and news of a pregnancy. 

Apple’s marketing works both ways

I’m obviously biased against Apple. As would be almost anyone who doesn’t like marketers and manipulation.

Let’s consider a few broad groups of reactions –

  1. People who get turned off by all the over the top marketing and therefore discount Apple products – Consider them worse than they really are (this group includes me). 
  2. People who love Apple and love the advertising and assume Apple products are better than they are.  
  3. People who fall for the marketing and assume Apple products are better than they actually are. 
  4. People unaffected either way by the advertising.
  5. People who try out one or two Apple products and then realize that Apple isn’t as good as it pretends.

If you fall under the category of person who thinks Apple products are magical and they couldn’t be better unless Apple themselves created something new then perhaps the advertising is working a little too well.

No matter how you feel about Apple you have to admit they are marketing geniuses and masters at understanding and influencing people.

Take the FaceTime ads.

FaceTime Ads are masterpieces in marketing and influence

Here are some things are left out – it only works on WiFi, both people have to have iPhones, that there are lots of products that can already do this. Skype has hundreds of millions of users using Video Chat and Apple are still going to claim to revolutionize things with FaceTime. It’s absurd.

Here are the things being conveyed at the subconscious level – you need FaceTime to better experience the most important experiences of your life, you need Apple’s iPhone 4, iPhone 4 is linked to the best experiences in your life.

The fact that it’s better to experience these important experiences in person and not over the phone is entirely left out. The fact that most people don’t need voice calling most of the time is completely left out.

Is Apple justified in all the claims it makes?

No, obviously not. The iPad TV ad states that you can experience every website in the world even though Flash isn’t supported. It talks about 200,000 apps even though there are only 7,000 or so iPad apps and the rest are iPhone Apps that have to be blown up and don’t scale well.

So it’s obviously marketing half-truth. It creates a strange situation –

  1. If you love Apple you give them the benefit of the doubt.
  2. If you dislike Apple you point it out as obvious misdirection.
  3. If you are unaware you tend to believe it.  

With FaceTime Apple are going to pretend that this is the first time video calling has been done even though lots of phones and Skype have been around for ages. If people point this out Apple will claim it’s the first time it’s been done right.

You have to stand back and look at the elements –

  1. Doing an important feature. There’s no doubt the feature is important.
  2. Doing it well. Again, it seems the feature has been done well.
  3. Selling it extraordinarily well. This is where Apple really shines – No company could come even close with its advertising.

Apple is doing all three things. However, let’s be honest here – It’s the marketing that’s the magical part.

Apple is 40% quality product and 60% marketing genius

In my opinion Apple are better at marketing than they are at making great products.

Are their products great? Perhaps.  

Are Apple great at making people believe their products are great? Absolutely. 

Human nature has a fail-safe where we never want to admit that we’ve fallen for trickery. In fact, we do everything to convince ourselves that we made the right decision. This is probably why Apple creates such fanatical users.

There’s no doubt the iPhone is a very good phone. However, Apple’s marketing and people who’ve bought into the hype want us to believe it’s a revolution and it’s changing humanity. Well, it’s just a phone and it doesn’t have particularly good reception.

The marketing genius – Steve Job’s ability to see people’s nature and play on that – is the core of Apple.

Can we detach and look at things without emotion?

You either think Apple makes the best products in the world or you feel that Apple sells and markets products better than anyone else.

In either case the emotions get in the way of seeing things correctly – If you dislike Apple then how could you ever know if their products are magnificent. You couldn’t – unless you detached yourself from their use of over the top advertising that seems tailored to work on gullible people.

If you are madly in love with Apple it’s the same problem – You wouldn’t really know whether their products are magical or not unless you stepped back from your emotions.

Taking on Apple is only possible if you use the emotional level or use Reality

Most of Apple’s competitors are competing on the logical level. Whether its Droid Ads or Kindle Ads they are ads that either ignore emotions completely or barely scratch the surface.

Apple however digs in deep – iPod ads with cool dancing, the ‘I’m a PC’ ads that associate Apple Macs with being cool, the new FaceTime ads that tug at the heart-strings. Apple are playing at the real level at which we function – emotions and irrational subconscious desires.

They are also getting better and better at it – iPhone 4 ads are much more impactful than any previous Apple ads.  

It’s a rather unfair fight.

Apple’s competitors need to start operating on one of two levels –

  1. A super emotional level. The same level as Apple except with added punch. An Android ad that shows a person talking on his Android phone and getting home to have one of these ‘special moment’ conversations in real life instead of on the phone.
  2. Via Reality. An ad that shows the user can’t find WiFi or loses it at an important moment. Then switches to Skype on the PC or an Android phone that works over 3G (don’t know if the latter’s possible).

Amazon are being too passive in their advertising. It’s time to show a really despicable annoying person with an iPad on the beach sitting down to read and realizing it’s not readable and then having all the people he/she bothered laughing at him and pulling out Kindles. Enough of the singing, dancing Mary Poppins nonsense.

You can’t just let a company weave illusions around your potential customers and get away with it. Everyone who’s used both a Kindle and an iPad and isn’t LCD compatible knows which one is a much better reader – It makes no sense to let the iPad keep fooling readers into thinking it’s a better eReader.