Apple revolutionizes the subscription model (and ticks off publishers)


image courtesy of AppleOne of the many strokes of brilliance that Apple has brought to market in the past few years is the App Store. It’s the central shopping mall for the applications that power the most popular devices on the planet, namely: the iPhone, the iPod Touch and the iPad. They key to its genius is the same thing that makes almost all of Apple’s products immensely popular – its simplicity. Browse, tap, confirm, you’re done.

It’s so simple and easy to use that developers have fallen all over themselves creating new apps for the Store to the tune of over 350,000 apps last time I checked. 60,000 of these are specifically for the iPad – a device that hasn’t been on the market a full year yet.

Today, Apple took what many perceived as the next logical step and rolled out a new subscription platform that runs on the same account system as iTunes/App Store, enabling users for the first time to subscribe to content directly within an app. And just like the App Store itself, the process is simple. According to the press release that Apple issued “customers can easily subscribe with once-click right in the app.”

For i-device users this means that subscription content which once required the download of an app, and then a sometimes long and frustrating sign-up process on a third-part website can now be bought and paid for without ever leaving the app itself. Better yet – at least for customers – the decision to share your personal info with the publisher is entirely yours.

Clearly the vast majority of apps that have pursued an advertising-driven model so far will continue to do so, but many – especially big publications – will want to leverage this new revenue stream. That is if they can stomach Apple’s rules.

See, Apple hasn’t just created a new subscription service, they are obligating their publishers to use it. Here’s how it breaks down:

– If you are a publisher seeking to charge a subscription for any content that you deliver to an i-device via a downloaded app, you must use the Subscription service

– You can charge whatever you like for the content, on whatever basis you like e.g. daily, weekly, monthly etc.

– If your customers signs up inside your app (and let’s face it, why wouldn’t they?), Apple gets 30% of the revenue, whatever amount that happens to be.

– If your customer signs up outside of the app (something Apple allows) you can keep 100% of the revenue

– But, in case you were thinking that you could offer people a discount for signing up outside the app (say $10 in-app, $7 outside the app), Apple saw you coming a mile away. Under the rules, you must ensure that the in-app offer is at least as cheap as any out-of-app offer or cheaper. ¬†You didn’t think Apple was going to give up their cut that easily did you?

These rules push the glass half-empty/half-full analogy to the breaking point. On the one hand, having a subscription service as easy to use as this should prompt many more people to pay for content in the same way that iTunes facilitated the transition from CD sales to legitimate digital downloads of music. When something is easy, people tend to like it and use it. Content creators should be excited by the idea that Apple is not only taking the headache out of managing a subscription billing system, but giving them easy access to millions of potential customers. Customers should be thrilled that they can not only subscribe with a click, er, tap, but manage those subscriptions as easily as they manage any other aspect of their account with Apple.

On the other hand, a company like Netflix, which has built their entire business model around the $8/month subscription fee, will have to give some serious thought to the viability of an app-based delivery model now that $2.40 of that fee will be going to Apple. Come to think of it, Apple ships their popular Apple TV product with Netflix embedded… ah well that’s probably a whole other kettle of fish.

Add to that the fact that customers will effectively be “invisible” to publishers because of the optional submission of personal info in the subscription process and suddenly the decision to get on-board with Apple’s game plan is far from simple.

My guess is that smaller publishers will happily latch on to this system: it’s easy, it’s turn-key for them and it represents a way to get paid for their content in a way that ad-revenue might never be capable of doing. Big publishers however, might decide to abandon the app model altogether in favour of developing robust and mobile-friendly HTML5 sites where they can maintain complete control over the subscription process and keep all of the revenue. If they can make their sign-up process as easy as Apple’s, people might just ante up. The up-side of this strategy is that their content is automatically compatible with Android devices, an increasingly large share of the mobile market.

What is perhaps even more interesting about this announcement is the bigger picture for Apple. You may know that they are likely going to include NFC (near-field communications) in the next iPhone and that this represents the start of a brand new mobile payments system that could make credit and debit cards obsolete. Perhaps this subscription service is merely the opening volley in a long-term and massive payments strategy on Apple’s part. PayPal, Visa and big financial institutions: it’s time to get nervous.

Time for comments. If you’re an i-device user, do you think this new system will make you more likely to pay for content on your device? If you’re a publisher, what do you think of Apple’s my-way-or-the-highway policy?

Update, Feb 16, 12:12 p.m. Google is stepping up with a competing subscription system which may well prove to be the Android to Apple’s iOS in the pay-for-content space. Dubbed “One Pass”, their model is web-based, built on the Google Checkout architecture and promises to be easy for both customer and publisher. I smell a battle-royal brewing!

Update, Feb 16, 4:59 p.m.: Reactions to Apple’s plans are beginning to materialize. The TechCrunch team are so far the most vocal: MG Siegler seems comfortable with it. Jason Kincaid is decidedly uneasy, while Michael Arrington claims Apple is going to put all music streaming apps out of business.

Update, Feb 21, 2:48 p.m.: In what may turn out to be the first of many official reactions to Apple’s announcement from companies that now find themselves in an awkward position, Readability has written an Open Letter to Apple. In the blog post, the company accuses Apple of being greedy – a sentiment echoed by MG Siegler over at TechCrunch. For our part, we’ve been reaching out to Apple for several days now, trying to get some clarification on exactly how this new system will be applied to new and existing apps. So far, no response, but that could be because the company is shifting into high gear for an anticipated product announcement, or they are being guarded in what they say to the press now that U.S. and E.U. regulators have taken an interest in Apple’s plans. We’ll update this post once we hear more.

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3 comments

  1. Eric

    Wow, Apple is becoming as good as government at money grabs. This may actually cause publishers to increase thier fees so they don’t loose revenue. Sure it’s a fee for convenience for some, but over 25% of downloaded apps aren’t even used more than once.

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  2. Pingback: Netflix could be exempt from new Apple in-app subscription policy – Gotta Be Mobile • Apple TV Australia
  3. headshots Los Angeles

    30% sounds like a lot. But apple has them over a bag. I’m sure Google will come back at apple strong. The Battle between Apple and Google continues. Who will win? Tech is moving forward and will continue to move forward. The strange thing, Where is Microsoft?

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