Friday, February 4, 2011

Closed-System Thinking Strikes Apple Again

Once again, Apple is grasping for profits by closing the system. I'm sure it will work out about as well as their decision to make the Macintosh a closed architecture. The end result? The PC architecture took over 90% of the market.

Red Apple by Vera Kratochvil

Red Apple by Vera Kratochvil

This time, Apple is forcing developers of iOS apps who sell products through their applications to offer a purchase option through the Apple purchasing system. You can't sell anything through your app unless you also make it available through Apple so they can get their 30% cut. No more just sending them straight to your own Web site.

To be fair, Apple isn't changing the rules. This requirement has been part of their app development terms all along, but now they are enforcing it. The initial rejection of the Sony e-book app for failure to comply was a shot over the bow.

Sure, Apple has the right to set the rules for playing on their playground. If you want access to the users of their platform, you have to play by their rules. But if the rules become too onerous, the kids will just seek another playground that is less regulated.

History has shown that you have to keep the developers and the organizations who fund them happy with working in your environment. Forcing a 30% cut in margin may take the profit right out of the deal. They'll start looking for a more profitable option, which provides an excellent opportunity for Apple's competitors.

But unfortunately, Apple never learns. Their iBookStore is widely joked about for it's inconsistent availability of best selling titles. Why? Because they closed the pricing system with their insane "agency pricing model." Random House refused to play along, so the iBookStore (as of this writing) doesn't carry any titles from one of the largest of the "Big 6" publishers.

At least Apple was sneaky enough to let many developers release iOS apps that violated the terms for a while. Some of those apps have established a large user base, so Apple is effectively able to extort compliance out of the creators of those apps. It's either that or discontinue the app and lose the user base.

It will be interesting to see how Amazon reacts. According to the Codex Group, more iPad users buy their books from Amazon.com (40%) than from the iBookStore (29%), thanks to Amazon's Kindle app. To be fair to all players, Apple needs to apply the rules consistently, so they will have to reject the next Amazon.com Kindle app update unless it complies. Amazon is used to being the bully on the block, and hates being strong-armed itself, so the results of that battle will be fascinating.

It's possible Apple will get what they want this time and the proverbial shot will miss their foot. For consumer hand-held devices, they are the big kid on the block now. The odds of a competitor overcoming that advantage is realistically fairly low, regardless of how much Apple annoys app providers.