Aha! A New Way To Screw Apple

2015.05.09   prev     next

MICAH Singleton’s The Verge article of May 6 is provocatively titled, “Rival music services say Apple’s App Store pricing is anticompetitive — 30 percent fees mean iTunes is always cheaper,” but oddly there is no mention in the entire article about antitrust or anticompetitive, just a couple unnamed sources complaining that they don’t like Apple’s cut:

“I get that there’s some administrative burden so they should get some kind of fee, but 30 percent is fucking bullshit,” one music industry source said. “They control iOS to give themselves a price advantage,” said another industry source. “Thirty percent doesn’t go to any artist, it doesn’t go to us, it goes to Apple.”

Four years ago, Apple shared the information that its 30% cut really does pay for running the App Store, meaning that if they took significantly less, they would be operating the store at a loss:

Another issues raised was Apple’s 30 percent cut of publisher subscriptions, compared to Google’s reported 10 percent cut. [Phil] Schiller noted that “there’s a lot of misinformation” about the subject, adding that according to Google’s public information, it plans to take a 10 percent cut only of web sites that use its subscription fulfillment system, and will charge the same 30 percent cut within apps, just like Amazon and just like other software app stores do. [Peter] Oppenheimer added that Apple continues to run the App Store at “just a little over break even.”

But never mind that: Singleton’s trying to spin the story into some kind of unfair, anticompetitive thing; i.e. if other music services have to pay 30% of revenues to Apple, but Apple’s music service doesn’t, that gives Apple an unfair advantage, doesn’t it?

With Apple just doing better and better every year, and the Apple-haters’ rhetoric coming on as thick and fast as ever, I fear we may see a lot more use of Singleton’s logic in the near future, including some attempt to use it against Apple in another antitrust action. (If Apple could get Coted/Bromwiched for the crime of competing with Kindle, who the hell knows what’s next?) So allow me to lay out, here, precisely what’s wrong with Singleton’s line of thinking.

Paying Your Own Way

The only reason Apple doesn’t have to pay the 30% cut for its own services is because paying money to yourself is meaningless. That’s not an anticompetitive decision by Apple; it’s just an unavoidable fact: Paying money to yourself is meaningless. It can’t be done.

But — if that 30% cut pays for the cost of running the App Store? And Apple runs the App Store? Then Apple still has to pay the cost of running the App Store, for everybody’s apps/services, including its own! The authors of Monument Valley have to let Apple keep 30% of revenue to reimburse Apple for the cost of running the App Store — so who reimburses Apple for the cost of hosting its own apps (e.g. Pages)? No one! Apple just has to pay that cost and not get reimbursed for it at all.

Got that? Now, here’s where it gets even more obvious that something’s seriously wrong with Singleton’s suggestion: What about headphones sold in Apple’s retail stores? Does Apple keep a cut of the revenue when it sells a pair of Bowers & Wilkins headphones? Of course it does. But when it sells a pair of Beats headphones (which it now owns), it makes no sense for Apple to pay a cut of the sale to itself; that’s meaningless! So does Apple have an unfair, anticompetitive advantage against B&W?

If 30% is anticompetitive, what about 10%? Or 5%? Or 1%? How small of a cut would not be giving Apple an unfair advantage? Singleton doesn’t say (nor quote anyone else saying), but his reasoning suggests an answer: 0%.

And does this argument apply only to Apple, or to any company with stores (online or brick-and-mortar) that sell its own products alongside similar products made by other companies? This practice has been going on for many decades, at least — is it suddenly (and exclusively) wrong because Apple’s doing it?

Update 2015.08.11 — Here, Bryan Chaffin (TMO Daily Observations 7-24) is talking about music, not apps, but the message is similar:

Are you seriously gonna argue with me that Apple not having to pay that 30% off the top is not a competitive advantage?

In theory, no, it isn’t. Unless Apple is actually lying about the 30% barely covering the cost of running the store, then this is the way it shakes out:

End result:
Third party left with 70%,
Apple left with about 0%.

And here’s what happens when the content provider is Apple:

End result:
Apple left with about 70%.

Both Apple and its third-party content suppliers keep about 70% of what the end-user pays. There’s no “competitive advantage” at all.

Update 2015.10.03 — Bryan Chaffin talking up this same point on Apple Context Machine #326:

All of the competitors in the streaming music space were on the same page, on the same playing field. But now, Apple Music is on the scene, and it is not on the same playing field, because either Apple doesn’t charge itself the 30%, or it doesn’t matter because the 30% goes back to it [Apple].

Right, it’s impossible/meaningless to pay yourself money. What’s Apple supposed to do about that — magically alter the laws of logic?

It is unfair. What Apple is doing may or may not be illegal. ... If it was outright illegal, we would have already had a lawsuit. So I don’t know that it’s illegal yet.

“Yet?” You mean it should be?

But it’s incredibly unfair. And because it is so unfair, I think that Apple’s gonna need to change it.

Change it to what? The strong implication of Chaffin’s argument is that Apple should be required by law to host competitors’ services on its own App Store for free. Or I suppose Apple could just disallow competitors’ services from existing on its platform at all — but how much legal trouble would it get in for that? A lot, I’m betting.

Update 2018.04.26 — EU mulling regulation of app platforms, some of it apparently intended to remedy the so-called unfair advantage of, e.g., Apple Music which doesn’t have to pay 30% like, e.g., Spotify does (on Apple’s App Store, an­y­way):

The terms and conditions documents platforms publish would have to explain any preferential treatment given to first-party services over others. That might be particularly relevant in the case of Apple, which typically claims a 30 percent cut from in-app transactions but gets to keep all of the revenue from services like Apple Music. Spotify has been particularly vocal about this discrepancy, complaining to the E.U. alongside several other companies that Apple Music has an inherent advantage over rival streaming services.

Commenter/moderator “ra­dar­the­kat” delivers a particularly salient reply:

Another way of saying this is that Apple Music remits 100% of its revenues to Apple, whereas Spotify remits only 30%, and only for subs signed up through the App Store/in-app purchases. Seems Spotify has the better deal.

Update 2019.03.09 — U.S. Senator from Massachusetts and presidential candidate Elizabeth Warren says that big tech companies, Ap­ple included, should be forced to spin-off either their platform or the content they sell within that platform, apparently because that content has an unfair advantage — and because it somehow wouldn’t have that advantage if it was spun-off.

Update 2020.06.16 — EU investigating Apple’s App Store and Apple Pay services, on the grounds that “Apple appears to have created a ‘gatekeeper’ role for itself regarding ‘the distribution of apps and content to users of Apple’s popular devices.’” Kobo (Rakuten) joins Spotify in complaining to the EU that “Apple’s charging of a 30% in-app purchase commission on e-books sold via apps available from the App Store was anti-competitive, as the company also promotes its own Apple Books service at the same time. The crux of the complaint is that Apple can charge the fee to rivals, yet its own e-books are not subjected to the same financial penalty, making it unfair to competitors.”

Update 2020.10.11 — Microsoft releases 10 principles for the Microsoft Store on Windows, in which they hope that Apple will be compelled by the government to abandon its 30% iOS app markup, but that the same will not happen to Microsoft Xbox.

See also:
Judos vs. Pin Place

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