Apple faces challenges monetizing App Store
By Chantal Tode
July 26, 2011
Rules covering how digital content is sold within apps for iOS have some publishers agreeing to pay Apple a cut of subscription sales, while others are dropping sales options from their apps.
Apple recently began enforcing rules that require publishers to make subscriptions available for sale inside apps – as opposed to via a link to a Web site – and pay Apple 30 percent of each sale. The fact that Apple is taking a cut from possible competitors in ebook sales could pose a problem for the company.
“Apple is making it inherently harder for someone else to compete in ebooks with their own margins and putting everyone else at a competitive disadvantage,” said Josh Martin, senior analyst for WMS at Strategy Analytics, Newton, MA.
“This will almost certainly garner some sort of review – and that’s what makes Apple’s decision particularly interesting,” he said.
“I expect in several months, probably sooner, we’ll see some sort of alternative solution to this problem - it will be more hassle than it’s worth to enforce.”
Publishers take issue
Originally, Apple said that App Store prices would have to be the same price or lower than the price offered anywhere else, but it later changed this to allow publishers to set their own prices.
The moves have some content publishers balking.
Amazon recently removed the “shop” button from its Kindle apps, which sent users to a Web site to buy ebooks.
Ebook seller Kobo, as well as Barnes and Noble have also removed purchasing options from their apps and Google Books is no longer available via the App Store.
Additionally, the Wall Street Journal said that it would remove all purchasing options in response to the new rules.
Consumers who download its app and want to subscribe will have to call customer service or visit the Wall Street Journal Web site.
The result is that users of iOS devices will have a harder time accessing content from within apps developed for iOS.
Apple is taking these moves to support the investment it has made in the App Store and which publishers are benefitting from.
“The user experience you get through apps with smartphones and iPads is unique,” said Mark Beccue, Mark Beccue, senior analyst at ABI Research, New York.
“It allows you to have a much rich experience then on the Web,” he said. “Therefore, it makes sense that this is a subscribed piece of content.
There are other benefits to Apple, including the ability to collect more consumer data.
“By routing consumers through Apple's purchasing system, Apple gets some visibility into the kinds of content consumers are purchasing,” said Dmitriy Molchanov, a senior analyst with Yankee Group, Boston. “This kind of consumer data is extremely valuable if Apple wants to offer up special promotions for its own content.”
There are consumer benefits as well.
“Apple ensures a consistent customer experience across its platform,” Mr. Molchanov said. “Now, whenever an iOS user makes a purchase from any application, they'll go through the same purchase process.”
For content publishers, one possible way around Apple’s rules for digital content may be the mobile Web.
For example, The Financial Times recently introduced a browser-based application instead of making the content available via Apple's App Store.
A browser-based app enables The Financial Times to avoid paying the charges associated with having an app downloaded from one of the app stores.
However, it may be difficult for many publishers to make similar moves because they rely on an app store to help distribute their content and make users aware of it.
“There aren’t a ton of people that can do [a mobile Web app] – most don’t have the brand,” Strategy Analytics’ Mr. Martin said.
Also, HTML5 is not entirely ready for prime time yet.
While there are not enough features currently available in HTML5 for publishers to rely exclusively on it, this could change as more features start to become available.
“Many other content providers like the NY Times have also promoted their web-based HTML5 apps,” Mr. Molchanov said. “For the moment however, the number of HTML5 apps and developers remains low, and we don't expect that number to climb until well into 2012-2013.”
Some publishers are playing ball with Apple.
Both the NY Times and Hulu apps now use Apple's payment system.
Additionally, Hearst and Conde Nast have both signed agreements with Apple to offer subscriptions via their applications and pay the 30 percent.
Other publishers may follow suit.
“I don’t think you will see a lot of people bail because of this, it is too good of an opportunity to get new subscribers,” ABI’s Mr. Beccue said.
Certainly, newspaper and magazine publishers have something to gain by distributing their content via Apple devices.
“These people are on the Titanic, they are going down,” Mr. Beccue said.
“Here’s a company that is bringing them new subscribers and helping them keep subscribers and they are complaining – I think that is crazy. The iPhone and iPad are uniquely positioned to help them survive.”
Chantal Tode is associate editor at Mobile Marketer
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