On App Store Payment Policies

Wed, 19 Jan 2011 13:30:00 +0200

We all know that Apple has some pretty fascist payment policies on the App Store:

Apple demands that all iOS content purchases be made using Apple’s In-App Purchase
Processing payments within the app by credit cards or other means is forbidden
Using existing subscriptions to unlock content will become verboten on April 1st.

Especially after that last item of news, one key question among iOS app publishers – including many of the ones we’re working with – is:

What’s with this greedy, overreaching, control-freak bullshit, Apple?

The most obvious theory is that Apple is simply a greedy and overreaching control-freak of a company – and one that would like 30% of all your content revenue, thank you very much. Apple’s take, in turn, goes like this (this is verbatim off the App Store Review Guidelines):

If it sounds like we’re control freaks, well, maybe it’s because we’re so committed to our users and making sure they have a quality experience with our products.

Let’s try taking Apple’s explanation at face value, accepting that the behaviors Apple is banning are less than user-friendly. It’s not a huge stretch: I for one wouldn’t want to be taking out the credit card whenever buying an iPhone app or content for one. I also don’t want to navigate and fill out web-based forms for subscribing to content if the alternative is a simple In-App Purchase.

Apple’s payment rules are primarily designed to make iOS a better platform. The 30% cut is icing on the cake – I don’t think it’s even a factor in Apple’s decisions here. Here’s why.

Since the launch of the App Store two and a half years ago, Apple’s 30% take has earned the company about $850 million in revenue. Meanwhile, iOS hardware sales earn Apple that much revenue every week. Percentage-wise, less of the hardware revenue is likely to be profit, but in follow-the-money terms Apple’s focus is still obvious. Above all else, their interest is in protecting and expanding the iOS hardware business.

iOS has two trump cards in the game against Android. The first is the App Store, with its 300 000 apps. The second is the fact that people prefer the overall user experience of iOS over that of Android. Now this “overall user experience” obviously encompasses third party apps as well. It’s crucial to Apple that people prefer iOS apps over apps on competing platforms.

It would be prohibitively hard and labor-intensive to try and affect the user experience of hundreds of thousands of third party apps directly. It’s much simpler to figure out a set of user-hostile behaviors and ban them. Importantly, Google is limited in their ability to do this on Android by their self-imposed commitment to “openness”. That, combined with the preference many publishers have for user-hostile behavior (profits first, user experience second), leads me to this conclusion:

If publishers prefer certain user-hostile behaviors, and Apple is the only one to ban them, then apps on Apple’s platforms will be more user-friendly than apps on competing platforms.

This helps Apple maintain their platform lead and pays off handsomely in hardware profits.

Marko Karppinen

On App Store Payment Policies