DIGITAL GREED “Our philosophy is simple,” said Steve Jobs, CEO of Apple, when announcing that publishers, starting from June 30th this year, will have to pay 30% of their revenue from in-app subscriptions for magazines, newspapers, video and music to Apple. As a long time fan I’ve seen similar moves in the past by Apple, their philosophy is indeed ‘$imple.’ Apple once again tries to exploit its leading position by aggressively fencing in an area of digital media, which can only be accessed through its own products.
tent: the iTunes store.
It’s because Apple has such a good nose for creating cutting edge devices and hyping them to insane heights, that they have a very strong negotiation position when it comes to filling the online stores connected to these devices. “So you want to sell your digital book/music/movie in our online store so millions of people can access it on their latest iDevice?” Apple basically asks, “That’s ok, but only if it complies with these rules and if we get this percentage of the total revThe first sign of this became clear back in enue.” 2001, when Apple released its first iPod and, more importantly, the software that became Apple seems to be keen on creating dependcentral to Apple’s business model: iTunes ent relationships between their software and the iTunes store. When buying an Apple and their products and tries to extend that in product like the iPod, they make sure that every way they can. Beyond the App store, iTunes is the only channel through which no other application store is allowed to opcustomers can upload digital media to their erate on iPhone’s and iPad’s, so that Apple devices, hereby creating a mutually depend- controls which applications can be installed. ent relationship between software and de- Pornographic apps, for example, are not alvice. lowed. Apple’s competitors have a hard time getting their applications in the App store This type of business model has similarities as well. A telling example is that of Sony’s to that of a Gilette razor and the razor blade iPhone application, which would have let itself: every time a blade goes blunt you have people buy and read e-books from the comto buy the Gilette razorblades or else they peting Sony Reader Store, but instead got won’t fit. The difference in this case is that rejected because it wouldn’t let transactions with Apple you are not confined to one type go through Apple’s system. of digital content, but rather to one store through which you can buy your digital con- Recently Apple announced their iAd, a sys-
tem which enables advertising on smart mobile devices. This system would again enable Apple to control all data transferred between Apple and applications running on their devices. Apple makes sure that only iAd is used to advertise inside iPhone- and iPad apps, thereby effectively kneecapping Google’s Admob. Furthermore, iPhone- and iPad apps may only share user-interaction data with Apple. This means that only iAds knows when and where users interact with embedded ads. Since Google’s AdMob and other ad-broker systems are not able to tap into this data, their ads will be much less valuable. However, Apple doesn’t always succeed in creating mutual dependent relations. The European deal with T-mobile, which entailed that T-mobile could sell iPhones (in return for a percentage of the subscription fees), failed because T-mobile couldn’t cope with all the extra data traffic on their networks. Furthermore, the deal encouraged hackers to develop software with which iPhones could be unlocked and used with different carriers. In the end, Apple keeps having first-move advantages over competitors because of their future driven product development and excellent marketing. In most cases they move into areas where competition is nonexistent, enabling Apple to gain large market share and make the rules themselves. If you think this is unfair, that’s just too bad: Apple indeed wants to make as much money as possible off the things it develops. The company created a business model that not only provides the customer with a product, but also makes sure that those same customers have no other option than to buy affiliate digital products and services through Apple software. Because of this dependency, Apple is able to ask for a part of the revenue
of the digital content which is sold through their system. What has to be said is that alternative systems, which promise more openness, are gaining market share quickly. I for one wouldn’t mind seeing Android taking over some time soon. You can decide for yourself if what Apple is doing is either greedy, or simply a brilliant way of conducting business. Like it or not; pigs get fat, hogs get slaughtered.
By Bendert Katier
Published on May 8, 2011