The recent private message sent by Apple to several European newspapers that it wants all access to paywalled content channelled through its own upcoming subscription service instead of going through free apps and an access code sold via the newspapers websites might primarily be motivated by giving its planned Appstore subscription service as much scope as possible. But it also serves as a first step in ending the concept of free apps.
While free apps are likely to remain available for the foreseeable future this marks the first step by Apple to start cashing in on the profits generated by free apps. While selling a service by channels other than the Appstore and then allowing users to access this service via free iOS apps might seem as an illegitimate way of bypassing Apple’s store and thus undermining its financial foundation, attempts by Apple to prevent this will come with a number of serious challenges.
For once, the notion that a company has to pay to the OS or device manufacturer to run an application on them seems out of touch with free and highly competitive markets other infrastructure devices like desktop computers, telephones, or transportation sectors have seen. Only in areas with little or no competition, eg, mobile devices with closed operation systems or cable television, do companies have to pay custom prices just to be present. No company has to pay a special price to be reachable by phone, no company is paying Microsoft to be able to install applications on its OS, at least not beyond standardized, non-discriminatory prices.
Determining what price a company should pay to be present on an iOS device, moreover, is a tricky business. Apple’s standard rate of 30% of income generated from selling an application seems like a simple enough formula. It however becomes close to impossible to apply when services are bundled, eg, combining online access to a newspaper’s (paywalled) website and to the same content via an iOS app. Of course, unbundling solves that issue but it mostly is not something that is attractive for customers, paying once to read a Kindle book on an actual Kindle and then pay again to read it on an iOS device.
In other areas it might be easier to determine the revenue associated with an iOS app (and apply Apple’s 30% take on it), eg, advertising inside an app. But even here, any bundling (eg, selling ads inside an iOS and Android app as a package) would conflict with it. Where it truly becomes impossible to gauge on what to apply a 30% cut on is for apps which serve as advertising or promotion themselves, eg, an airline’s app.
In the short term, Apple’s change of tack might only result in a set of forced unbundling, ie, selling newspaper iPad access separately from its online access. But that will only work for a limited number of services and it would be a very messy affair if applied on any larger scale (bidding through Ebay’s iOS app would direct some kickback fees to Apple but just watching auctions would not?).
Apart from some very limited and unpopular unbundling or likely illegal attempts to force all advertising in iOS apps to go through them, Apple will have little success in getting its share of the profits from free iOS apps. The company would be much better off to simply charge for the hosting and vetting of free applications (while exempting not-for-profit organisations and low volume apps). Applying additional fees to successful companies will be a very complicated affair and would likely be counterproductive.
Apart from the hosting and vetting costs, Apple should thus rather refrain from further attempts to monetize the Appstore as the availability of apps is something that in itself provides huge promotional support to its iOS devices.