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.


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