Is Apple Getting Too Greedy? Demands 30% Cut of In-App Subscriptions

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After a lot of confusion earlier this year, Apple today finally clarified its rules for in-app subscriptions for magazines, newspapers, video and music. The rules are very straightforward: Publishers can continue to sell digital subscriptions on their own websites and give free access to existing subscribers. Apple will not take a cut from these transactions. Publishers who offer out-of-app subscriptions, though, also have to offer in-app subscriptions and the price has to be the same or lower than for subscriptions processed outside of the app. Apple will take a 30% cut from these in-app transactions.

This is a rather hefty fee for processing a transaction given that most credit card processors just charge around 2.5% and a small transaction fee (generally around $0.25). It’s also worth noting that it looks as if Apple will take this same cut whenever a subscriber renews a subscription, though this isn’t 100% clear yet. This new subscription plan will become mandatory starting June 30.

Steve Jobs: “Our Philosophy is Simple”

Just in case developers think they can just provide a link to their regular web-based subscription service in their apps and circumvent Apple’s system, the rules explicitly state that “publishers may no longer provide links in their apps (to a website, for example) which allow the customer to purchase content or subscriptions outside of the app.”

In the words of Apple CEO Steve Jobs: “Our philosophy is simple—when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing.” That does sound fair, but in reality, chances are that the majority of new customers for subscription services will come from apps and given that developers aren’t allowed to route around the system, this 30% cut become a major issue for some publishers.

Can Publishers Afford This Without Raising Prices?

You can currently buy an annual subscription to Wired on Amazon for $10 and getting National Geographic for a year costs $15 per year. Will these magazines have to offer the same prices for the app-based versions of their products? (Or do these “promotional” prices not count?) If Hulu has to give Apple $2.40 of every $7.99 subscription it sells, can it still make a profit? Or will Apple’s move force them to raise their prices across the board?

It is, of course, a good thing that Apple is making it easier for consumers to buy subscriptions and helps publishers acquire new subscribers. Having to pay a 30% fee for these services does seem quite steep, though, especially given that Apple now owns the customer and not the publishers.

Frederic Lardinois founded SiliconFilter in 2011. Before starting this site, he wrote about 1,500 articles for ReadWriteWeb. His areas of interest are consumer web and mobile apps, as well as Internet-connected devices like cars, smart sensors and toasters. You can reach him at [email protected]

36 COMMENTS

  1. This is slightly less than the average brick and mortar mark-up (33%) and provides a better service (i.e. my subscription is delivered directly to my hands regardless of my location.

    • How is this a markup? If Apple marked up the prices by 30% compared to the price of buying directly from the publisher than yes this would be a markup. What this is going to do is raise prices for everyone including people who don’t own any Apple products. For the life of me I can’t understand why anyone wants to start paying more for a subscription because of this amazingly awesome value added service that Apple is providing.

  2. Doesn’t Apple already split 70/30 the profits on applications int he app store with developers? Also, Facebook already does a 70/30 split with their Facebook credits. I guess I’m not seeing the problem here. Apple is providing access to a medium, if it doesn’t fit in the economic constraints of the company then don’t sign up.

    • yeah, confused at the “news” part of this post unless i’m missing something. apple has always taken 30% from app developers, which is similar to other online storefronts.

    • This is different, they will take 30% of your monthly Netflix subcription fees from netflix.

      Example, if you subscribe through iDevices for netflix at $7.99 per month then apple gets $2.40 every month. Netflix has to (as per apples new rules) provide the same subscription plans (or cheaper) in their apps as they offer in their traditional means. So to compensate for additional fees netflix can’t say we will charge an additional 2.40 if you subscribe through iDevice. They will have to either keep it 7.99 or raise the fees across the board for every one (even those who don’t use any iDevice). No doubt that is just not sustainable and Netflix will have to transfer some of it to the consumers. So end of the day you keep paying to apple for buying an iDevice and using it.

  3. Lesseeeee, everyone is upset because Apple won’t let mean ol’ publications have FREE SPACE in their store??? Has anyone tried this at Macy’s? Or any other store? NO? Well have they been give FREE SPACE on Amazon??? Hmmmmm. Something doesn’t add up. Apple builds a store (ecosystem) using their own programmers, one their own computers, and hosts it on their own servers, takes care of all the updates and advertising… and everybody is made because they don’t give it away. Am I missing something???

    • So, Joe, lesseeeeee, you’re saying that if you purchase a magazine at a grocery store, and you subscribe to them, that grocery store should get 30% of the subscription? And that the magazine cannot direct you to another website where you could subscribe without the 30%? Yes, Joe, you are missing something! I know you might feel sorry for Apple because doggone it, they just aren’t making enough money. Poor guys – they’re not getting any return on their investment.

      • Everything is going to be all right. If publishers don’t like it, they will leave. This will lead to publishers making a with em or against em decision, and some other stuff will happen after that, probably android blah blah. Or Microsoft will say hey publishers we won’t charge you a penny. Regardless, life is excellent, apple like all corporations wants to make more money, other corporations don’t want them to, consumers will get the drift and start maybe talking to each other in real life again. One would hope. It’s either that or back to cable tv. Jobs shakes things up. Get used to it.

    • Right. When I sell a product at 7-11, or the local grocery store and they add 33% to my wholesale price is that a tax? That’s not how they teach it in business school.

      • Comparing 7/11 and Apple are literally apple’s and oranges.

        7-11′s total available market is hypothetically the world. But realistically, their total serviceable market is something like this:
        - (Daily car traffic on the street x % drivers that stop in weekly, averaged out across other 7-11′s with similar neighborhood demographic data) + (population of 5-mile radius x 7-11′s core user/demo x avg # of times that user visits a 7-11 each week, again compared to similar 7-11′s nationwide).
        - 7-11 is clearly limited by geography, something of all bricker and mortars. A lifeline of our local economies.

        Whereas the Apple’s (and Amazon’s) of the world have no geographic limitations, therefore should (in the eyes of the anti-trust guys eventually, IMHO) play by a different set of rules/margins.

        • Because Apple doesn’t have brick and mortar stores to distribute its suppliers’ products it should play be different rules? Who should set these rules/limits/margins? You? Doesn’t the market set limits on it’s own? Something about charging “what the market will bear” comes to mind.

          And I don’t buy the idea that Apple has significantly lower operating costs than a brick and mortar retailer. They have server costs, R&D, customer support, lots of smart folks that cost a lot more per hour than the riff-raff behind the register at my local convenience store. Their costs are probably similar… but I wouldn’t care if they were making 100% profit on that 30% so long as the experience was better and the cost to me (the consumer) was less.

          But I’m sure you have a better understanding of market forces and what rules Apple should follow. I defer to your wisdom.

  4. Interesting to see how this turns out. It will be bad for Apple if Sony, Amazon and Barnes/Noble left their devices, but can’t see how those companies can make money on these terms.
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  5. Apple has to start asking, “at what point does the desire for profit become pure immoral greed?” I believe one day, like so many other computer companies of the past, they will collapse on their own arrogance. It’s the developers that have made their products such hits. It almost seems as if Apple cannot stand to see anyone succeed but them. I can’t wait for the Motorola Xoom and my HTC Thunderbolt. Part of me supports them, simply because of a desire to fight against the monopoly. Apple has some good products and they have great marketing, but what they really have is a closed environment that will not allow competitors to flourish in that system. It’s a capitalist system and they have every right to do so, but, in my humble opinion, they have lost their original calling and have become just another immoral, controlling corporation. Sad to see, because they once were great for the computing world.

    • At what point does Apple have a right to make serious money off a decade’s worth of insightful innovation. Apple has building out an integration, easy to use, software/hardware eco-system that now attracts large numbers of users to Apple’s, oh so convenience, digital watering hole.

      When Google builds out a search based watering hole that attracts large numbers of users to such convenience and then resells those users eyeballs to advertisers to make billions and monopolize the online ad-network industry, no one sees this as unreasonable, just as good business.

      So why are Apple’s effort at delivering a large audience to App Developers and Publishers to be sold off at a discount. The App store is in fact a form of advertising for these sellers, advertising rolled up with a convenient delivery system. How much Google based advertising expense would yield the same profit results for these sellers?

      It is a straight up cost benefit analysis. Apple has spent many years, billions of dollars and much of it’s creative powder building out it’s competitive position.

      So tell me again why it is immoral for Apple share holders to expect to maximize their competitive advantage. Apple share holders have had the vision and taken the financial risks to building out this integrated eco-system amid all Apple’s visionless disparaging attack critics. Now that these efforts are about to pay off those Apple share holders suddenly owe you a free ride?

      If Apple’s App store charges are too high to deliver good value to sellers they can simple choose not to bother selling through the App Store. Go with the competition or sell direct. No one is forced to sell their goods through Apple. It is just an option. Let the market speak!

      • Developers pay a $99 per year subscription, under the premise that they can have their app in the app store and actually make money, not pay Apple 99$ a year and then lose profits on subscriptions to feed Apple’s greed.

  6. Is Apple getting too greedy? Getting? Apple was wrapped in a blanket made of greed and arrogance at birth for crying out loud. And suckled on concentrated arrogance. Maybe some don’t remember the days of the Apple 3 when Jobs charged 8-10K for that shoddy garbage while competitors were still under 3K for their own machines, and unabashedly I might add, but I remember well. For most of Apple’s existence, buying their products was like buying a brand new Ferrari and being blown past by the Toyota in the next lane. And it wasn’t until they replaced the Ferrari motor with a Toyota that they could even get close enough to see the taillights.

    And nothing much has changed. The perception of being “cooler than everybody” is still worth 25% more, according to Steve Jobs.

    • People are hilarious on YouTube for free. But, lots of people pay HBO to make themselves laugh. I gave up my tv last year, but many people like to pay big money to waste their time. I guess I once did too. Thanks for standing up for justice and all, but big celebrity rock star types charge a premium in this country

  7. You should also mention that Apple’s online store is international, providing sales across borders. In addition to credit card processing, Apple handles foreign currency exchanges for publishers. And they have a ready made audience of millions of credit card consumers ready to buy with a single click.

  8. Pigs get fat, hogs get slaughtered. As a long time Apple fan boy, I hope they get slaughtered. This is a monstrosity.

  9. Unbelievable how people that don’t have a clue how this works spewing the same stuff.

    So anyone want to guess what Publisher’s Clearing House got for the subscriptions they brought in? Anyone?

    Their cut of a subscription ranged from 74 to 90 percent!!!!!!!!

    Please…nothing to see here!

  10. That is just plain stupid for any one to think that it is even remotely fair. Just remember no company ever pays taxes (or fees) out of its own pocket. It eventually trickles down to consumers pockets, this can only mean that the prices have to go up.

    Microsoft windows has 90 % market penetration and it provides an easy way (via its browser) for users to subscribe to services. So now MS can start charging you for the subscriptions, of course they can if they wanted to but it is just simply not happening. It is not a very straight comparision but it is still valid.

    Apple can’t use the excuse of ease of payment or its popularity to reach into every ones pockets. They are charging for applications they sell for a price and it should end right there.

    Fanboys will obviously miss this point and talk about convenience and how great this is so please let it sink in before airing any defense for apple.

  11. Wait a minute. At many marketplaces where freelancers sell their work, they pay even more in a commission. Seems reasonable in the light that Constant-Content takes 1/3 of the price if they sell one of my articles!

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