Why Apple Will Change its New Subscription Model

There’s been quite the brouhaha with Apple’s new subscription model. It began with general excitement and has ended with, “Hey, that’s not fair,” at least by some. The issue at hand is that Apple is requiring that they receive 30% of “purchased content” or subscriptions that originate in their app while also:

  1. Maintaining that if purchased content or subscriptions are offered outside the app, requiring that they be offered as IAP at equal or lower prices.
  2. Not allowing iOS apps to redirect customers to create subscriptions or make purchases elsewhere.

The uproar over these stipulations has also drawn the attention by the likes of the Justice Department.

June 30, 2011

As with the shift in stances in the ban on third-party development tools and analytics, it’s possible Apple may back down on the strictness of these requirements. My instinct, however, is that with their investment in iBooks, they’d likely be much more aggressive on this matter and even be willing to take the issue to court. Since the requirement does not come into effect until June 30, 2011 and with legal complications possible, I doubt we’ll see this policy actually go into effect anytime soon. But, what’s not clear is if Apple begins enacting it on new apps or worse, for app updates. For example, imagine Apple rejecting an update from Netflix submitted in early June, if the new functionality was not added.

Alienating Partners…and Consumers

Here’s where the story becomes more interesting though, which is with partners exactly like Netflix. They’ve been featured by Apple at press events in the past and it would be hard to imagine that there were not some sort of conversations between them and Apple about this policy. Applications like Netflix are a big draw for Apple, especially because there still isn’t even an Android version. Apple obviously wouldn’t want Netflix abandoning its platform because of this policy because the Netflix app helps sell iOS devices.

Of course, not all content providers and developers are upset with subscriptions. Clearly, The Daily benefits from it and its unveiling is likely a major reason why it got pushed forward. Generally, it’s an option that many developers, including me, are excited to try, especially when it comes to using it in new applications. For these scenarios, however, the difference is planning for this ongoing 30% cut for a new revenue source versus established apps from Amazon, Netflix, Hulu, and others having to turn over 30% of what’s existing. As Jim Dovey so articulately describes in these cases,

Apple is requesting that competitors to their own services hand over more money than they make in profit. 100% or more of revenue, before deducting costs.

That’s simply an untenable situation for these players.

Technical Complications

Even in the cases where a developer is willing to hand over the 30% to Apple, using the subscription model is not straightforward and can present awkward customer experiences. For example, if a subscription originates in an app for a service that exists both within the app and on a website, then the business has to verify with Apple that the customer is in good standing relationship to continue to allow access via the website. If the customer did not open the app for some time but then logged in through the website, he could be forced to open the app and authorize a payment before proceeding. This type of situation, which is a very basic scenario, outweighs the supposed benefits of easy billing with In-App Purchases.

A Policy Change?

With all these considerations, it’s very likely that Apple’s policies are going to need to change or at least by loosely interpreted. On a business level, Apple has every right to do whatever it pleases but if they maintain what’s been drafted, the big content providers simply won’t play in the iOS ecosystem. Legally, their policies may or may not hold up, but eyebrows have been raised. And finally, there are still many unanswered technical questions about the workflow of subscriptions and if they really do present a better experience to consumers.

So, Apple is facing issues on a number of fronts but it’s definitely not their first rodeo. Simple changes that could alleviate some concerns, while still giving Apple what it wants, would be allowing higher prices for In-App Purchases, to overcome Apple’s cut, as well as continuing to allow iOS apps to redirect customers outside the app to purchase content and set up subscriptions. The latter could even be an option, that is, offering a choice for customers to use In-App Purchase or proceed to a website.