Sunday, February 20, 2011

Is Apple Asking for too Much?

An article from mashable.com takes a look at how Apple is making some it's app developers very angry. Recently Apple announced that developers will now be able to place a monthly subscription fee on the Apps that they produce. The developers were happy to hear that, but they were furious when they heard that they had to give Apple 30% of the revenue made from the subscription fees. Apple typically only charges a 2.5% credit card fee. This could have a serious impact on the amount of apps developed for the iPhone. Developers who planned to make apps that required a monthly fee to stay alive, now might not be able to afford to build the app since 30% of their profits will go to Apple. This could be especially hard on developers of music apps. Those developers already have to pay content fees to artists and record labels. They need to charge a monthly fee to draw a profit and update their software, but losing 30% of their revenue to Apple might be too much for some app developers to overcome. I also think that apps that require a monthly fee won't sell well to begin with. Most people buy apps because they are usually cheap and very simple to use. The thought of a subscription fee on some apps is definitely going to turn some consumers away. I know I could never get an app that required a subscription fee. Most teenagers probably wouldn't be able to either, since our parents would be the ones paying for it, and an app that requires a subscription fee seems a little extreme. If an existing apps decides to start charging a subscription fee there is no doubt that it's demand will go down. I don't think charging a subscription fees for apps is a good idea, since I don't think most people are willing to pay one for an iPhone app, but if developers are going to charge one, Apple does not deserve 30% of their revenue. That's just asking too much.

8 comments:

  1. With Apple raising prices, people will start looking for a substitution. With people not making as much money due to the recession, people will not be able to pay the price demanded. Just as Curt said, Apple is now asking too much with 30% revenue.

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  2. I've only downloaded apps that are free on my phone. Many of the apps don't seem to be worth much so I wouldn't be willing to pay money for them, certainly not anymore money than they're charged for already. Because so there are so many free apps available on iTunes, I don't even look at the ones that cost money. I'm sure the demand for apps will go down, and iTunes may get rid of the free apps to increase demand for the ones that must be paid for.

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  3. This isn't really a discussion on the cost of apps but on the cost of a subscription within an app. In other words the Netflix app is free but you pay them for a monthly service. Apple wants 30% of that subscription fee. This will become even more important when more newspapers and magazines go online.

    Here is an excerpt from a short article (http://www.google.com/buzz/timoreilly/1G68tKiTPQ8/Earlier-today-I-tweeted-a-link-to-http-blogs) worth reading, especially the part in quotes since it relates directly to the economics of the issue.

    FWIW, there's also something to the point that McQuivey makes, that

    "In an efficient market, fair prices land somewhere close to the cost of delivering services. This happens thanks to competition: As long as there is excess profit in the system, a rational competitor will lower prices to attract more customers until margins are thin enough to survive on but not amply so."

    The reason that tech publishers like O'Reilly pay the royalty rates that we do is that we have costs that we have to cover, and if we can't cover them, we can't do what we do.

    Of course, in the brave new world of electronic publishing, the cost structures are going to be different, and so different parts of the value chain will take a larger or smaller share. None of us know where that is going to land, but in the meantime, the smart money is on growing the market rather than on maximizing profit.

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  4. I agree with Kern that the smart money is on getting people addicted to using these products. Only after they can't live without it, should subscription costs be charged. That is the whole reason that companies like Netflix give free trial offers. They hope you will discover you have to have it, even if it costs more than you thought you were willing to spend. Some hope you get busy and forget to cancel and end up paying the subscription fee.

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  5. Let's face it if you're subscribing through an Apple application such as itunes they deserve some credit here. The only reason why they're asking for a 30% return is because if one were to subscribe to netflix through itunes, Apple is doing free advertisement for a company and not getting anything back. That's how they look at it. This really doesn't affect the consumer perse or rather the companies that are in league or put their product through an Apple medium.

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  6. I also completely agree with what Kern said. A lot of these companies are fantastic at drawing consumers in and then hitting them with a subsription fee once they become addicted to the product. I also agree that the smart money goes to increasing the market. If the companies can take control of the entire market, the profits will take care of themselves.

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  7. I think that Apple does dserve some of the credit, but 30% is really steep. I think it's really going to hurt the people wgo produce the apps. I think that most of the apps that need a subscription fee won't sell very well anyways, but if Apple is taking 30% of their profit, they're really going to have a hard time surviving. Apple deserves some of the profit, but definitely not that much.

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  8. I believe that the 30% fee from apple is a little over the edge. These high fees will affect app development, especially those that involve magazines and news. May of the app providers will be losing money with the 30% fee. As said in the BBC article "Taking a 30% toll amounts to a massive increase in the cost basis of a content business that will kill it," said James McQuivey, an analyst with Forrester Research.
    http://www.bbc.co.uk/news/mobile/technology-12491883

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