Apple Clamps Down On Paid Content Delivered To iPhones And iPads

Today The New York Times is reporting that Apple is changing its policy for allowing apps to deliver content that was paid for somewhere other than in the app where Apple would get a cut. This came to light when Sony was forced to explain why its iPhone and iPad apps were not being released as promised. This is important to illustrate clearly because this is not just about Sony. In fact, it is expected that Apple will apply this same policy to existing apps over the coming months. The most obvious target is Amazon.com's Kindle store, but we have no reason to believe it will stop with eBook retailers; instead, this policy should also affect magazines, newspapers, even videos and games. 

This represents a shift for Apple. Going back to the iPod days, Apple only sold music because it helped sell iPods. When Apple added the iPhone app store, it allowed Amazon to add a Kindle app because it would only make iPhones more valuable to potential buyers. The same held true for the iPad. But now that the company has built such a powerful ecosystem of devices, content, and consumers, it appears Apple is eager to ensure it can collect any and all tolls along its proprietary highways. I note this with some irony because it was just three weeks ago that I praised Apple's surprising openness in a report explaining the iPad's rapid growth:

"Even notoriously closed players like Apple can be surprisingly open. To create demand for the iPad, Apple had to act in a way very contrary to how people typically think of the company: It had to allow competitors access to Apple's customers. Kindle, Netflix, Pandora, and Spotify are the most obvious examples of brands/companies that Apple had every right to deny entry to the iPad because they conflict with the iTunes store. But Apple could not do so: To deny those companies would be to deny Apple's customers experiences that they clearly value."

Clearly Apple has changed its mind. Though I haven't seen the specifics -- and Apple may choose to change them once it realizes how angry the content industries are going to be about this -- it appears that if you buy a Kindle book from Amazon and want to read it on your iPad, Amazon will have to report your reading to Apple so Apple can charge Amazon for delivering the book to your iPad. In other words, Apple gets the money and the customer data. Alternatively, Amazon can develop an HTML 5 web experience that allows you to read Kindle books in the Web browser on the Apple device. A substandard experience, to be certain, but better than cutting customers off at the knees, from Amazon's perspective. And better than giving Apple an extra revenue stream.

At Forrester, our call is clear: this is a mistake. It is fundamentally at odds with the pro-consumer revolution Apple started and it is opposed to the new rules of competition I have written about in which companies both partner and compete on equal footing. That said, this move is not unexpected. Certainly, this new power of charging people for access to exclusive tollways is intoxicating. Facebook has recently revealed its intention to channel developers to arrange payments through its systems as well for the same reason. And we hear from companies developing content for every exclusive platform -- videogame consoles, connected TVs, you name it -- that these platform owners are all hungry to charge the same 30% that Apple has been able to set as the norm.

I underscore that the details have not been made public, and they could still change between now and when Apple ultimately makes its intentions public. But based on what we know so far, it's clear that Apple has decided that it can get away with this move with very little consumer backlash. Here's why: consumers buy iPads, not developer ecosystems. The 10+ million iPad owners in the US didn't buy it for a specific app; they bought it because it was beautiful, elegant, and yes, somewhat magical. When the Kindle reading experience either goes away, gets more expensive, or shifts to the web browser (one of those three things is inevitable), people will blame Amazon, not Apple.

The impact of this decision will be large. I'll mention four specific things in brief, all of which could merit their own post. 1) Other tablet makers will work very hard to seize on this opportunity, though it will largely not work during 2011, but in 2012, the message that Apple's walled garden is a bit too much like AOL circa 1995 will start to catch on; 2) cable companies, telcos, and wireless providers -- the people whose networks everyone depends on to deliver these apps and enable Apple's 30% surcharge -- are going to furiously inquire why they can't charge a per-experience tax if Apple can -- after all, network neutrality doesn't do anyone any good if the content experience is ultimately gated at the level of the OS;  3) the media business is going to flog itself for being so seduced into believing that Apple was going to be the savior of paid content -- not that they have any way around it, mind you, but as a remedy, they will call Google and ask what they can all do together to build the Android ecosystem; and 4) the FTC is going to get quite a few phone calls on this one -- any company that has either a natural or contrived monopoly eventually comes under scrutiny for how it inhibits competition and innovation. 

Comments

An idiotic move

We are all going to end up with Androids -- and have to suffer through the "lowest common denominator" pain that we've felt for the last 20 years of having to use DOS/Windows. This is always the undoing of the despot -- he gets so powerful that he believes he can make any request and demand any tax from his people. And we all know how that ends up. App Internet is the right architecture. But in the wrong hands (Apple's in this case) it can end up being closed, expensive, and restrictive. Tim Cook should make an immediate about face on this decision.

Forced Hand

Regarding Amazon being forced to develop a web app and this phrase, "A substandard experience, to be certain, but better than cutting customers off at the knees" I think you're looking at only the short-term.

Recent trends have been about putting more and more content on the web, the oft-referred to "cloud." The latest music distribution models do not ape the download model that iTunes helped to mainstream, they are instead built upon renting access. Hulu and Netflix are quickly pushing customers into a position where they're comfortable offloading their video browsing to the net. Forcing eBooks out of the download space in the iTunes ecosystem is likely going to provide a short-term gain for Apple, but in the long-term will likely end up crippling the iTunes model.

After all, why should I pay per use to download my content - music, video or writing - when I can access it all for a lump sum?

As more users migrate to cloud-based delivery systems, the UI and UX improves, the grasp over the bleeding-edge technology becomes better understood and the behind-the-scenes stack matures. In the end, Apple seems to be hastening the decline of the ecosystem that has, so far, been exceptionally resilient.

I don't disagree with you, Bradley

In saying that it was a substandard experience, I was specifically referring to the fact that at least half of the iPads sold are wifi only (or are 3G but haven't activated a plan), which means that unless you're close to a wifi network, you can't access the cloud experience on many of these iPads. Again, Apple has made decisions that tend to preserve their hold on their customers.

Ultimately, I'm with you, most of what we do over apps today will eventually be delivered over 4G connected devices without local storage. Apple is only accelerating that day's arrival with its recent moves.

Potentially missing the point here.

The motive here may be just to ensure that book/readable content is also available for iBooks, a relatively recent entry into the "reader" world. For the most part, a NYT bestseller will likely be available on both Amazon's Kindle/Whispersync and iTunes anyway, so Amazon should be ok. Similarly, a blockbuster movie will be available on Netflix (at some point) for streaming, as well as through iTunes to rent.

So, I think Apple's just trying to leverage the fact that "hey, if I let you download the app for free, etc, the least you can let me do is let me sell that book too". I don't know that this is too unfair. And no, Apple's not going to undermine Amazon or Netflix. Finally, Apple seems (in general) to not be interested in variable pricing or clever content/combo offers anyway, so others can provide better bundles, compete on price, and do other merchandising via the browser payment and avoid the Apple Tax anyway...so long as your "book" can also be sold for iBooks for $20.

I haven't seen how the subscription model is going to work (at the API call level) nor I have not gotten Sony's reader on the Android (I should put it on my Galaxy Tab) but I suspect Sony was trying to do something else and not "mimic" Amazon's model of switching to the Safari app altogether, which is OK by Apple.

So, is this *such* a big deal?

There's more to it

Thanks, Luis, if what you are describing were true, it wouldn't be a big deal, certainly. It turns out, however, that there's a big iceberg underneath the surface on this one. Apple's private conversations with publishers and app developers have suggested even more dramatic intentions than I have been able to point to. Apple's being mum on those conversations and pretending they're not happening, but as a recent gathering of publishers in Europe showed (there's a paidcontent.org article on this from a week ago or so), these conversations are happening and publishers are not happy about what Apple is saying behind closed doors.
Apple has signaled that it intends not just to be able to get a cut of some transactions, but to get a cut of all transactions that end up with content being delivered to an iPad/iPhone app. That would preclude newspapers and magazines, for example, from selling a subscription on the website that includes an iOS app without giving Apple a cut of the subscription. But taking 30% out of a content model that doesn't really pay for the newsgathering in the first place is simply not feasible. That's what has publishers upset.
Anyway, we have yet to see where Apple will choose to land on its policy. It can ratchet this up and down as it wishes in response to public and industry outcry (or the lack thereof).

How very splinternet of Apple

You can see how this came to roost today with the subscription news about Apple.

The market will adapt anyway...

I can think of a couple of things I've seen some publishers looking into: a) Like Playboy, doing browser-based transactions and delivery avoids the AppStore altogether, plus if they all make it WebKit-friendly, you cover iPad, Gingerbread, Playbook, and HP WebOS. b) Using PDF for "content" like some use mp3s. There are still plenty of mp3 stores (Beatport, Trackitdown) and users happily move those files into their iPods - expect to see the same with PDF files viewed in iBooks. c) Go with cloud storage anyway - how many of us want to keep 10 issues at 700MB each anyway?
The market will adapt...it always does. :)