But all this takes the view of businesses. Takes the view of Apple ready to realise a maximised commercial value for the opportunity of the market place it has built; allowed to evolve and yet entirely controls. Takes the view of commercial enterprises who seek to enjoy the benefit and potential consolidated there. A feeding frenzy.

There is another side to this coin. The consumer. Apple hardware users have a reasonable expectation that the considerable benefit offered by the previously liberal policy enjoyed by third-party application sellers would continue. One of the reasons they purchase and use the devices is that, despite this quasi intra-net that iStore & iTunes effectively comprise, what is on offer is as good as if they were roaming free on the internet – it is just these items have been put together and organised as a service to the Apple hardware users – part of the user interface included with the phone/tablet. This illusion is about to be broken down.

If and when iPhone and iPad users realise they have been duped with this offer of plenty, seduced into growing in populous with this false promise, and have actually been corralled into a killing field, I think they will react very badly. I did not buy into this kit with the expectation Apple would turn and be gorging themselves of every buck I spend to use the kit I paid a premium to own in the first place (if the hardware was free/discounted that would be a different matter). The door was so wide open we did not see it till we were all inside and now they would slam it shut and lock it tight.

So as a consumer I feel Apple have duped me. Nobody else is going to pay Apple’s cut other than the consumer, it is not going to come from reduced 3rd party seller’s margins – generally they do not have it to give. And if Apple’s dream that all applications would have to be the same price within the iTunes/iStore and everywhere else comparable they are defiantly suffering from a serious case of big-head-itis (or head-up-own-backside-isum). Stuff them that’s what I say.

That said, I think a better “comp” for an appropriate rate structure is what eBay and Amazon charge their 3rd party sellers. Unlike the merchant banks, which provide a commodity service enabling transactions, both of these sites are well-known aggregators who’ve spent years investing in brand equity, and offer a variety of services and value adds to both buyers and sellers. Very similar to Apple’s App Store. Except Amazon charges its Marketplace vendors around 15% for most goods sold and eBay charges around 12% for most types of auctions plus a $.99 listing fee. I’m assuming the latter is negotiated for volume sellers.

Matt presents two business models as examples; content creators and a sports brand. I submit that with a sports brand the exercise of developing material for Apple iPad and iPhone will be more about building the brand and any revenue they can win from such an exercise will be a bonus. Perhaps they would take a dim view if they had to pay 30% of the retail value of every pair of running shoes they took an order for resulting from brand awareness that an Apple app helped deliver. It sounds to me like they are just selling an app, and happy to split that revenue – why not? It is better than free advertising – but are not splitting the profit on physical sporting goods sold as a result of the market awareness developed via the Apple environment. They now will have to give away a little bit of jam but will still kept all the the bread and butter. Little wonder Apple want a 30% of that.

But will eBay be paying 30% of their auction fees if their free app is being used; will the vendor have to cough too? I don’t think so.

Content providers are not so greatly concerned with Apple apps building brand as a primary objective, they just want to sell their goods (which happen to be digital). Building the ‘brand’ of the publisher, author, editor, director, actor, studio, etc. is a secondary objective. Indeed it is often the strength of the brand independent to its app availability via Apple that counts for the success for media providers the likes of Warner Bros, WSJ, Times, BBC etc etc.

The question of just how much value Apple add is one the consumers will answer – with their feet – if value is eroded. If Apple want to win a cut of the action occurring with their ‘captive audience’ and if they can bring so much to the party, to help develop great relevant applications, they should be working in contractual collaboration, with brands and content providers, developing great joint projects that win the greatest market share; rather than attempt to impose their ‘tax’ just because they currently have a monopoly of access to their hardware’s users.

Actually, you’re right that they’re not relevant, but for the opposite reason that you put forth.

Physical media has overhead costs far, far higher than digital media (presses, shipping, etc). Yet, you’re willing to tolerate (for lack of a better term) a 70% cut there, but in digital media (where you’re only paying for minimal infrastructure, and most of the cost is to the writers), you assert that 30% is too much… because everyone is equally tight on their profit margins in physical distribution, so therefore they should bear equal burden in digital!? I’m not really certain as to what part of this makes sense.

With most of the overhead *gone* in the digital realm, and the publisher getting 70% of the price (which is, like you said, an absolute godsend)? In the digital realm, the middlemen largely disappear – cutting it down to publisher+Apple. This means that the sub price leaves a relative ton of profit to go around (at least in comparison to physical media).

I also notice that you leave out one bit: 30% of…what? It denotes a variable, but you’re arguing over things that have fixed costs. 30% of $10.00 is a lot higher than 30% of $1.00, yet most of the costs for distribution don’t expand or contract accordingly. CC processing fees, audit fees, infrastructure costs, bandwidth costs… these are things that won’t change accordingly on the distribution side just because the subscription price drops. I’m thinking that Apple has already calculated their costs, assumed a wide range of subscription costs based on typical fees charged, and came up with a percentage that accounts for the variable pricing (while making a tidy profit).

Following your logic, are we to assume that the distributor’s take is to be just as lean/fat as the publisher’s? If that’s the case, then a 50% take would be rather equitable, considering that there are only two real moving parts in digital distribution: The publisher, and the distributor. Anything else would be on the publisher to provide (e.g. app programming and the like, which to be honest is pretty minimal, and would require roughly one or two FTE programmers on staff at most).

Yes, I know I simplified things more than a little, but note that I didn’t remove anything important here.

BTW, it was not Google that “jumped the gun” with One Pass. The timing of Google’s announcement was well-known in the industry. Apple pushed in a day before to make Google look like the organization doing the catchup.

Enabled by advances in three complementary technologies – mobile/pad computing devices, social networking platforms, and content curation/aggregation technologies – corporate marketing budgets for “ads” are slowly migrating into budgets to stimulate “product recommendations”, to provide “valuable information”, to sponsor “addictive games”, and to build “problem solving apps”.

Which is to say that the old “advertising” model that has fueled the publishing industry for so long is being slowly replaced by marketers and suppliers offering their experience, wisdom, advice and content directly to consumers… instead of paying agencies to wow consumers with emotional ads. This is the real issue that publishers need to come to grips with: their definition of “valuable content” has changed almost overnight, due to technology. So has the definition of “ads”.

I am not saying that emotional connection is losing importance… but the way that brand loyalty and emotional connection is *being created* is changing, due to technology. This is the real “app revolution”, and it directly and fundamentally threatens advertising revenue for publishers who do not adjust their “content” to fit into this new paradigm.

In other words, “ads” and “apps” and “content” are beginning to merge/overlap, whether you like it or not. Because consumers prefer it this way.

So… debating how subscriptions should be split while ignoring the gorilla in the room (apps & other forms of value-added content replacing ads) reminds me of the difference between the new health insurance law and true, meaningful health care *system reform*. One just changes who pays, while the other actually improves quality and reduces cost for the consumer.

While we will have to wait a bit longer for better health care, new technologies in the publishing/advertising industry make it possible for consumer goods providers, service providers & talented journalists to provide consumers with better quality “content” – which actually helps them solve problems – at a much lower cost. So far, it appears that consumers are lapping this stuff up. They seem more than happy to pay for an app that solves a problem for them or entertains them for hours, but not so much for content they can cruise through in 30 minutes or less.

Tech companies like Facebook, Apple and Google have known about, and fed, the gorilla for many years now. Contrary to the author’s claim that device companies have fixed costs with zero variable costs, these companies have spent tens of billions of capital to get all of us to this tipping point, where consumers literally “love technology”. And, importantly, they will have to continue to spend tens of billions on the next wave of advancements. Zero variable cost? Only if you ignore CapEx.

In response to what I would call this “consumer-led revolution”, publishers can respond by arguing over subscription splits… or adapt their business models and learn new skills to feed the gorilla. But we/you won’t beat this gorilla in a fight. That battle was lost when iTunes crossed a million users…