The 30% Tax

Apple and Google’s duopoly on mobile operating systems give those two companies incredible power in the market and one of the most obvious places to see that power is the 30% tax they take on transactions that happen in their app stores. For subscriptions the tax is 30% in year one and 15% on the renewal.

Typically transaction fees on payments are 5% or lower with the credit card networks being the obvious comparison at roughly 3%.

But Apple and Google are able to charge 5-10x what a typical payment system charges because of their dominant market position and because the economics of acquiring a customer and renewing that customer in their ecosystem is so strong.

While it is hard to stomach the 30% number, it is the case that many companies have done the work to look at their acquisition and retention numbers in and out of these environments and often it is the case that paying the 30% tax is rational behavior.

So I was interested to see that Netflix is currently testing a bypass strategy. Certainly the biggest brands like Netflix and Spotify have the market power to at least consider this approach.

If the biggest brands can condition users to bypass the app stores maybe we are seeing the beginning of a crack in the armor. It may also be possible for these big brands to bundle subscription offerings and take a piece of the action themselves.

Imagine if Netflix let you subscribe to a bunch of other services via your Netflix account which you pay for directly on the web outside of the app stores. Or imagine if Amazon offered something similar.

The economics of that relationship for a smaller company could be more attractive than the economics of the current Apple and Google channels. And most companies would likely participate in multiple channels, including the app stores, as well as sell direct.

It seems inevitable that subscription bundling is going to happen. It already does via the Apple and Google app stores but that’s a crude version of what I’m thinking is on the horizon.

Consumers have demonstrated a willingness to pay for the apps and the content they value most. The subscription business model is a terrific one that aligns the interests of a company and it’s customers. But managing dozens of subscriptions via multiple payment systems is annoying. And there should be attractive economics for both bundlers and bundled apps.

So while I’m not predicting the end of the 30% tax anytime soon, I do think we will see Apple and Google’s largest competitors build significant bypass user bases and potentially start competing with Apple and Google in the subscription bundling business. There is a lot of money up for grabs and I think at least some of it is available for companies other than Apple and Google.

#mobile

Comments (Archived):

  1. LIAD

    I’m not sure it’s about conditioning users to bypass the appstore. More to do with having the size, gravitas and power to withstand the inevitable apple backlash.Many small devs circumvent the app store in ways which don’t contravene the letter of apple’s terms, but invariably find their apps suspended or worse.Can you imagine shareholder outcry if Netflix’s own app got taken down because of this “bypass test”. I’m sure they either received a no backlash assurance from apple or have pre-prepared a monster pr response if that does happen.

    1. fredwilson

      i think Netflix has enough market power to force Apple and Google to carry it

      1. OurielOhayon

        honestly i doubt they can alone. Apple has shown with Spotify they can’t play that game. I think only 2 things may impact: a coalition of very large players (eg Netflix + Spotify + Pandora + Amazon + Epic games). Or a class action.

        1. jason wright

          a class action based on what?

          1. OurielOhayon

            Hard to say. It’s just an hypothesis. But could be in the angle that a store would abuse its dominant position. Which would have to be proven of course

          2. jason wright

            perhaps i need to buy an iphone to get a sense of whether i would feel abused?

          3. OurielOhayon

            You could also feel It on Android.

          4. obarthelemy

            Android allows sideloading and other stores, so I’m not sure what publishers can complain about. The PlayStore not allowing ads for /redirects to other stores ?

          5. OurielOhayon

            Yes. But there are other ways to lock competition. Eg restrict lock screen rules

  2. jason wright

    one duopoly (Apple Google) is replaced by another (Netflix Spotify)? will i be buying a Flixfone in five years?what we need is the flourishing of the decentralised ‘flatform’ model, and not a no change change. hierarchies are inherently regressive, be they church, government, corporation (in that sequence of evolution). we know this to be true – i thought we didn’t like bundling and its concentrating of market power?and while i’m on the subject of hierarchies, do check the Cathars for a philosophy that ought to question the ‘pendulum effect’ of ‘positive discrimination’. we are all human. we each of us have at our core the same wants and needs and emotions. the rise of certain politicians (no names needed) comes as a direct result of this effect. be careful what you wish for.positive discrimination is just another form of…discrimination. all forms are bad.

    1. obarthelemy

      Google is only about 50% of the spend on Android apps, the other 50% is Chinese/OEM app stores. And Google’s position is a lot weaker than Apple’s: sideloading is allowed, and not going away.

      1. jason wright

        do you do much sideloading? doesn’t it come with potential security issues? i’m not a huge consumer of apps, and i’ve never paid for one directly.

        1. obarthelemy

          Depends on what you call sideloading. OEMs usually insist on having their own store pre-installed alongside Google’s PlayStore.I tried to avoid them so I can switch OEMs, and don’t sideload apps from other sources. But Google’s PlayForSure also scans sideloads for malware, so even though the risk of malware is higher, it’s not a terminally flawed source of apps. And invaluable for sophisticated users and the poitically opressed.

  3. William Mougayar

    This is definitely an area where cryptocurrency and creativity around token-based models will help to crack this centralized duopoly.I’ve used the Apple store example specifically in my book 2 years ago, to describe what it might look like if it was re-invented with more evenly shared benefits to the ecosystem, with a lot less going to the centers.For example, new users can be incentivized with a usage-based token reward that has an exchange right inside a mini economy of ecosystem players.

    1. obarthelemy

      I’m sure Apple would plug any revenue leak faster than you can say “walled garden !”, regardless of whether it’s crypto-based.

    2. Richard

      Location, location, location. Apple is the 5th Avenue , the Rodeo drive of app retail.

      1. obarthelemy

        the Mobile version of that is: lock-in, lock-in, lock-in.

    3. DegenerateCoder

      Your app simply won’t make it to iOS app store without using their in app purchase system. Small players simply cannot win the fight. crypto or not.No reasonable amount of users are able to download the app out side of the app store

  4. obarthelemy

    I’m wondering why there are no AppStore-wide apps&media bundle subscriptions. This is basically about making the renting and buying processes more frictionless: have the customer allocate say $5/month to content spend (that’s way above average) once and for all, the remaining decision is the way less painful choice about *what* to spend that on (rent or buy, and what) not *whether* to spend it.I’m assuming there’d be different price levels (bronze, silver, gold…) and rent or buy options (I hate renting stuff), and the possibility to convert tokens from one category (5 bronze = 1 silver), save them up, and insta-buy more at a premium.Such a plan could bundle 1st-party cloud services too: make 1TB of Google Drive cost a gold slot, you still have silver and bronze slots left over for some apps and content. And it discourages out-of-plan (thus out-of-store) purchases.

  5. Wouter

    Is WeChat also already doing this with their own app store?

  6. William Mougayar

    The Netflix test is described in this article. They are testing outside of the US, – in Canada, Australia, Mexico and Japan.https://www.google.ca/amp/s

  7. John Pepper

    Years ago, one of my complaints to a good friend working at Amazon was that I could not purchase an audio book via the Audible app. So I have a shortcut saved on my iPhone screen to the Audible website where I purchase, then back to the app to listen. I think Kindle same thing. “Pep, would you want to pay 30% of each sale to Apple?” was always the response. Ironically 30% is what Grubhub and so many others are charging for access to delivery customers too. And the debate rages as to whether it will be worth it in the long run for restaurant clients to tap those services.

  8. DJL

    If app companies split the benefit and lower the cost to the consumer – then the consumer would have more incentive to support it. If the tax savings goes to more profit – then less so.The other problem is that the app store is play store are the only real “marketplaces” that people look. Hard to believe someone won’t come up with a third.

  9. falicon

    Amazon already has an android app store (for years) and a payment system that can be used for one-offs, in-game, and subscriptions.The adoption has not been massive…but it’s not zero either (and alexa has helped bring some of it new life).But we are still a massive way from it, or anything else really, bringing any real power back to the indy dev or small startup (aside from the rare lottery winner or two).

    1. obarthelemy

      The first rule of buying a Fire HD tablet (which are excellent devices, and cheap) is: sideload the Google PlayStore and other services+apps onto it.That’s 4 .apk downloads and 10 clicks, 10 minutes total. Now, if only you could also get rid of Amazon’s dreadful Launcher, and Amazon’s Android weren’t 5.0…

  10. Adam Parish

    We are seeing the emergence of subscription as a service. Just look at how T-Mobile is including more and more for their customers.

  11. Emad Mostaque

    The largest game in the world, Fortnite, is bypassing the Google play store: https://www.epicgames.com/f

    1. fredwilson

      yupppppppp. market power!!!!

      1. LE

        Market power by way of an addictive product. Same with the porn industry. Which will be around longer than Fortnite.It would be interesting if it were possible to track Fortnite revenues once September back to school rolls around. My stepson is on it constantly. Once school starts it will be weekends only. (If it were my decision I’d cut him back now)

    2. obarthelemy

      They’re also bypassing most devices ^^Assuming cost of sales is 10%, I’m really wondering if lost sales won’t make up for the remaining 20%. No using PlayStore gift cards, ill-advised security risk, large risk of fake downloads and MITM attacks… We’ll see if more apps go the sideload way.

  12. paulhelmick

    Great point Fred. I recently wanted to watch Silicon Valley, on HBO, somehow I just stumbled into clicking into my Amazon account for the free HBO month trial, it was just effortless… Three months later, I guess I’m now a monthly paid HBO customer, via Amazon’s bundling… I even commented to a friend that buying HBO via Amazon was easier than buying HBO from HBO – lol – not having to setup another account, etc. Great point.

  13. Rene Paula

    Audible is an extremely successful app (owned by Amazon) that doesn’t pay the 30% tax. You have to buy/subscribe on the web and then open the iOS/Android app to consume the content. It works but it creates a lot of friction each time you see content you want and have to exit to transact on the web. They could easily bundle several other utilities in their transaction and their users are already used to switching back and forth.

  14. Paulo Trezentos

    App Stores add value (curation, app vetting, payment processing,…) and make sense to charge a fee.But, in our own experience as an app store, we realized that the standard cut it is not sustainable. Netflix, Spotify and Fortnite are there to prove it.Agreed with William M. that this is an area where cryptocurrency can add value (and that’s why we are backing an open crypto protocol with other app stores). Not so sure about bundling. Looks to me more like a niche. Probably I’m not getting the big picture.

  15. Mark Gavagan

    Subscribing to Showtime via Hulu* is an example of a brand bundling subscription offerings and taking a piece of the action”*https://www.hulu.com/showtime

    1. fredwilson

      yupppppp

  16. Mark Donovan

    Fred, you’re falling into the “30%” trap – it’s a lie told so often that it’s become true. The Apple tax is not 30% anywhere other than the USA. In EU countries it can be as high as 50% on IAP transactions. Apple provides a schedule of fees that shows just how much they are gouging their app developers and it’s pretty sickening.

    1. kidmercury

      the 30% “tax” is not merely a transaction fee capture. google and apple bring the device, the OS, the APIs vital for most of these apps to work, and the user’s trust and bank account. tally it all up, and 30%+ might not seem so bad.a truly competitive market will probably push prices down, but i’m not sure there is a clear path to achieving that, aside from some embryonic intuition that it may involve blockchain technology.

      1. OurielOhayon

        it s 30% anywhere in the world

        1. Lawrence Brass

          It is, with a catch. Apple app store collects the VAT for you so the real cut for them is = 30% app price – %VATHow they realize the collected sales taxes in every country I don’t really know, but it is really valuable from a small developer shop’s point of view not to worry about that. I think it is fair.But this have been changing lately, with Apple optimizing the final price to adjust for VAT differences in some countries.

          1. OurielOhayon

            Vat gets paid back. Zero impact

    2. LE

      just how much they are gouging their app developersI reject any use of the word ‘gouging’ in this context. Nobody is forced to use Apple as a distribution channel and nobody is forced to make a living writing an app.Back in the day the ‘distribution’ channel for many businesses was advertising either in a daily newspaper or the Yellow Pages. Many thought the prices charged there were ‘gouging’. They weren’t. You could run a business w/o those expenditures (we are not talking about a public utility). It is not a human right to be able to have a business and to be able to pay reasonable rates for advertising. It is something you choose. It’s the right of that business to pretty much charge what they want and there are people that pay and make money (and are actually sad that that system doesn’t even exist anymore replace by online advertising which is just a version of the same).Bottom line: Nobody is being ‘gouged’ or even close.

      1. Mark Donovan

        I don’t think that’s a reasonable comparison – do you think by posting your app with >2 million others in the App Store will negate your need to advertise? I assure you, it will not. I agree, businesses need to advertise their services, but let’s look at the example you provided… What happened to all those newspaper companies and the YellowPages that were charging high rents to reach consumers? That’s right – Google came along and completely decimated them by providing a competitive market for direct access to the consumer. Linear TV is seeing the same exodus.I actually think you’re proving my point for me. Apple charges huge currency conversion fees (20% in Brazil as of today for instance), on top of fees higher than 30% in most international markets and I’m sorry – that’s more than the service they provide is worth. They’ve gotten away with it up to now because of the duopoly they have with Google, but the point of the article is that smart companies are waking up to the fact they’re overpaying and will find ways to avoid the tax. The marketplace will work and Apple should take notice and not sit on rest on their dominant position. Simple as that.

        1. LE

          that smart companies are waking up to the fact they’re overpaying and will find ways to avoid the taxIt’s not smart companies it’s company that can afford (they think) to do so. It’s simply taking advantage of an opportunity. And they would do the same probably if the cost was 10% is my guess (at some point; maybe later).That’s right – Google came along and completely decimated them by providing a competitive market for direct access to the consumer.This began to happen before Google bought Applied Semantics [1] it was the Internet that put those people out of business. And if Google hadn’t done it someone else would have (Applied Semantics). And the Internet didn’t happen because ‘it’ spotted an opportunity (like Uber with Taxi Cabs). Ditto for shopping malls. Shopping malls charging high rents (some would say I would not) did not cause the Internet to happen and eCommerce (which put them out of business).Fwiw I built a business on Yellow Page advertising (high priced btw). Much better results for the cost than salesman on the streets. I can also guarantee that for certain businesses much better than what they can do with online advertising for one thing there is a barrier to others competing with you which is good not bad (for a business person I mean).Once again I don’t see the 30% as a gouge or a tax. I see it as a cost of doing business.[1] https://en.wikipedia.org/wi

          1. obarthelemy

            We can’t know really, not without knowing the profit margin on that 30%. If it’s above 66%, and since other stores are banned (in the Apple ecosystem, not in Android), I’d say gouging would be appropriate.

          2. LE

            Profit margin is not a consideration at all with respect to the concept of gouging here for this case. Gouging is a particular behavior and the quintessential example is jacking up prices during a disaster of needed goods. In that case the profit margin would be relevant.So for example if you are selling watches for a high profit margin at Burning Man that would not be price gouging.Honestly the fact that Google or Apple controls the eco system is not really relevant. This is a business transaction. If someone had a retail store (say a department store) and charged cosmetic companies for counters in that store (they do or at least they did) and that price is high that is not price gouging. That is business. No laws are broken doing so. It’s not even unethical. It’s business. There is no right to sell in the store period. Even if it’s the only store in town or the only store on a street or if the other guy is there because it’s his brother in law. Many distributors will determine by a host of factors what goods or services they want to offer to their customers. This is no different. Internet does not make it different.The fact that google and apple are in a position to do this is not really relevant although for whatever reason people think it is.I am sure there are many people who would like to sell goods in a supermarket and don’t want to pay what is known as ‘slotting’ fees. To bad unfortunately.There seems to be this idea that because Apple and Google have gotten to the point (within the existing laws) of being able to do this (as a profit making business) they should be allowed to and that the court of public opinion should determine what a ‘fair’ price is. That isn’t the way business works.At the root this all stems from things on the Internet being free or low cost as well as so many companies operating and not making any money.

          3. obarthelemy

            The dictionary says a synonym for “to gouge” is “to overcharge”. You’re describing “to profiteer”.

          4. LE

            Oh come on now. In order to define it in terms of overcharge it would have to be obvious what the ‘right’ charge is. Overcharge is not based on a transparent pricing such as the 30% clearly stated. It would be more bespoke such as in the case where the price was $X and you took advantage of a particular customer by ‘overcharging’ them and hence were ‘gouging’ them. In this case everyone is charged the same rate and it is clearly stated as the rate for everyone (subject to perhaps volume discounts).There is actually a decent way to counter what I am saying and if you do some work you will find it (but I am prepared to counter that already so you might not want to waste your time).

          5. obarthelemy

            Nope, you can just generally gouge everyone if you’re overcharging on all sales because you can (maybe thanks to a monopoly, which is what Apple has on the sale of apps and content on iOS unless you make customers jump through hoops).I’m not saying Apple is gouging, to do that as I say we must know Apple’s effective margin, and/or compare terms or margins to other similar businesses operating in free markets. The “right” charge as you call it. The issue here is that there aren’t a lot of those, I couldn’t find relevant info. Obviously the lazy appstores that came after Apple and simply copied the fees don’t really count: Google’s PlayStore, Steam… MS’s app store is only taking 5 or 15% depending on where the buyer came from,… but MS is desperate ;-p

          6. obarthelemy

            I don’t think the issue stems from people being used to things on the Internet being free. I think it stems from understanding that Mobile ecosystemsa) are computer systems, with the same “power of the defaults” and “network effects” that got MS not only in trouble but condemned a couple of decades ago (those who don’t know history, yada yada)b) even worse, one is a fully closed ecosystem and the other does a convincing imitation of it outside of China, so that “power of the defaults” thing is actually absolute power with no non-default for appstores. Same issue for apps in general, not just the appstore, though the appstore as the ultimate gatekeeper for all apps, content and services is the most important app.c) there are only 2 such ecosystems, and high switching costs, and insurmountable barriers to entry, so the market can’t be considered competitive ie free.So, the store that serves each ecosystem can be considered a monopoly which is suspicious. On top of that, Mobile ecosystems have become so important and ubiquitous they can (should ?) be considered public infrastructures just like phone lines. Hey, speaking about phone lines, those are a natural monopoly and a utility too… what the EU did to foster a free market there is regulate prices and conditions for use of the last mile, trunk lines, and technical facilities, so that the incumbent didn’t have an overwhelming advantage. Which they did initially and abused wantonly. Compare EU to the US: I pay $25/mo for unlimited ADSL or fiber, w/ basic TV, unlimited calls to France and 100 countries for landline (60 countries for Mobile); on the Mobile side I pay $20/mo for unlimited everything incl calls to 100 countries (fixed or mobile), tethering, generous-not-unlimited free roaming in 60 countries plus the EU…. That’s why looking into abuse of monopolies makes sense.

          7. PhilipSugar

            Apple’s profit margin is 20% So I guess it is a third of your gouging number. I find that almost all people that complain about gouging, fair, or “my right” to be losers. There are cases that is for sure. But this not one.

          8. obarthelemy

            How do you get that 20% ?I find most people who call other losers to be losers, so… remain civil, thank you.

          9. PhilipSugar

            Ummmm. Their SOX audited public numbers.

          10. obarthelemy

            I’m not seeing that number at all, I’m not sure you even got what we’re talking about.Others seem to agree: “We estimate current Services gross margin is 73%, expanding to 79% in FY2021 as higher margin App Store revenue contributes more to the mix” from https://www.barrons.com/art… . This implies App Store margin is >79%

          11. PhilipSugar

            I’ll slow it down for you. It is a thing called a 10-K you should look it up.Now sure the gross margin on the car you are driving is something like 90%. But you know what???? There are other things like SGA, R&D and other expenses. Do you get paid or do you work for free?If you don’t like the fee simply don’t pay it, don’t make an iOS app you have to charge for.

          12. obarthelemy

            Well, I have the habit of linking source data when I quote it, but obviously some haven’t learned good habits nor good manners, and would rather insult than support their argument.I’ll keep engaging only if you get a very fast and very necessary attitude adjustment. Jerks and trolls don’t deserve my time.

          13. PhilipSugar

            No issue blocked you have no need to respond, I’ll never see one of your comments again. Mind over matter, I don’t mind you anon don’t matter.

          14. obarthelemy

            That’s sad, we’ll never know how Apple only makes 20% margins on appstore sales ;-pOther than that, good for you !

          15. PhilipSugar

            I agree with your disagreement with the term gouging. Gouging is when you are in distress and somebody really sticks it to you. For instance I years ago had a clay sewer line break due to the fact they can’t detect it thought it was in the wrong place and broke it. I had three of my son’s friends over that Saturday. Now I couldn’t send them home because the parents I am sure made plans like we do. I went to a hotel. The astute hotel owner knew I was close to home, had four boys with me. He asked what was up? Told him said my wife was coming after dropping off my daughter who wanted no part of this and he gave me a 30% discount over the online rate I had bought. Gouging is saying I am charging you 30% more.Now as whether or not it is sustainable that I will debate…I have come to believe that high margins are really tough to sustain. You can do it in a run off mode where you just “milk the cash cow” But it is so tough because generally you have non ownership management that is not interested, or ownership that just wants to grow.It is brutal to say how cheaply can I do this and make a profit. But somebody will. That is the paradigm shift.

          16. LE

            The astute hotel owner knew I was close to home, had four boys with meI think when you tell that story during a Tedx lecture you need to alter it a bit. You need to say you were traveling through South Carolina on the way to Florida in your expensive car (just go with it) and it broke down and the roadside motel owner did the same thing. Charged you the rack rate.Reason is there are a host of reasons why the hotel owner close to you would cut you a break. He knows you are in the community and you could refer business to him and word of mouth and all that jazz.It would have been really poor business to ‘gouge’ you in that circumstance. And I think (in the Tedx lecture) it has to be clear that when people gouge they do it with no expectation of any future business. I think that is actually a key component. Plus no other viable options ‘in a vise’.Back in the day the restaurants on the NJ Turnpike had lousy food. My dad used to say ‘eh they don’t care because they know they will never see you again probably and even more importantly you have no other options’. That ‘no other options’ is a key component to gouging’. So isn’t providing a poor product or service at a cheap price gouging? What about all the shit you buy that breaks that you can’t return? I bought an expensive GE microwave way overkill and it came with a 1 year warranty and now it broke and I am stuck. Would be better if they built in a higher charge and a longer warranty. Gouging in price is what everyone focuses on.But there is another factor in business which is ‘make hay when the sun shines’. Sometimes vendors loose money on a host of customers only to remain in business by charging more to those who either need or can pay more. There are valid examples of this. (Airlines? Aren’t they gouging when they do that ‘yield management’ thing?) Ok then try to run an airline yourself, right?I guess the thing is the peanut gallery (and in particular anyone who has never operated a business and had to make payroll) is not privy to the thinking of a business person. Or a host of things they have to do to stay in business.One thing also missing is that that 30% fee (not tax) that Apple charges (or whatever the fee is) goes to pay for salaries and vendors and all sorts of things that are a benefit to many people. It’s kind of a Robin Hood deal. They aren’t hoarding all that money for themselves or their stockholders. They are paying it out and I am sure the cleaning person at Apple (if not a subcontractor) probably gets great health insurance and benefits vs. the honest local diner that has a person clean there.

          17. PhilipSugar

            Just because you charge a high price and give shitty service that isn’t gouging. I’ll give you the ultimate example: Buy a beer at a stadium: $10. Cost maybe 20 cents.But that’s not gouging. Everybody pays $10. Airline seat, you have a choice.Hey the Apple “tax” is what it is. You can like it or lump it.

          18. obarthelemy

            What’s that crazy notion that gouging has to be on an individual basis ? Gouging is overcharging, which can happen to groups, especially when there’s a monopoly, which both beer sellers in stadiums and Apple on its appstore have.The other notion is profiteering, a special case of gouging/overcharging which requires abuse of transient circumstances (accident, disaster, war, illness, emergency…).But yep, $10 for a beer is gouging, even if all pay that price. Sorry you’re being taken for a ride.

          19. PhilipSugar

            Ok…..who is gouging? The Yankees charge an eight figure number to respond to the RFP. Yup just to respond. Then you give them 50% of revenues. Oh, and you need to find employees that just work 81 games at three hours a game, but they have to get there an two hours early and not work. Now you as the fan want the Yankees to be good right? Well they have to get the money to pay the players some way. Is it “gouging” that McDonald’s charges $1.50 for 5 cents of fries? Well they have a shitload more costs than that.Apple doesn’t have a monopoly. Don’t like their shit? Go elsewhere. If they use that as the recurring revenue to support their hardware? Their choice.Not your right.

          20. obarthelemy

            Apple does have a monopoly for app sales on iOS, and a strong “default” advantage for media sales. Whether that’s relevant bears at last investigation, same as when AT&T only allowed their own phones on their landlines.In the wider Mobile ecosystem, we have (outside of China, and with the very small caveat that Android does allow sideloads, but nobody use that), a duopoly for app sales. A duopoly merits about as much suspicion as a monopoly (both already had delinquent “no poach” deals, have several business deals…)Reciprocally, we also have lock-in, since your apps and some of your iOS content usable only on iOS or iOS+MacOS devices (also, some skills, most peripherals)…I’m not saying the situation is illegal or condemnable. I’m saying it very well could be, and we are definitely not in a free market, not for app stores in particular, not for mobile ecosystems in general. It’s fair that Google is getting the most scrutiny because market share, but Apple’s practices are rather worse.

          21. PhilipSugar

            Nope. Totally wrong analogy. AT&T did have a monopoly because only they were able to use the public right of ways to string line. Same for cable companies.You want to use an Apple phone? Use it. Somebody else use it.I am not arguing for a second Microsoft could come in and say here is why to use our phone.

          22. LE

            Buy a beer at a stadium: $10. Cost maybe 20 cents.Agree. And exactly why the ‘profit margin’ does not matter. In a capitalistic society the peanut gallery and for that matter the government or social media and the press (my favorite) doesn’t get to determine what you can charge. There are of course clearly defined exceptions to that idea (usury laws or actual laws against what is called price gouging under specific circumstances).Jeff (like Walmart in the past) would say ‘your margin is my opportunity’ but in that case he is just taking the money from someone else (vendors and employees) in order to make the equation work.Ever see what wedding vendors make for an ‘affair’. It sounds like a great deal of money until you realize they can typically only work X days a year (nobody is hiring them on Tuesday night).

        2. jason wright

          power law of distribution is a killer effect.

  17. JLM

    .We are on the verge of what I call the Schwab Moment, the instant when an industry is about to get rocked to its core and the pricing is going to be turned on its ear.To refresh y’all’s memory: Stock brokers used to command a percentage sales/buy commission. If you bought 1,000 shares at $10 you paid the same percentage as buying 1,000 shares at $5. Of course, you paid twice as much for the $10 trade because it was a percentage.Stock brokerage commissions were enormous. Being a stock broker prior to the May 1975 deregulation of brokerage commissions was a very good gig.Comes Charlie Schwab, who was a back of the house genius and said, “Those electrons running down those lines don’t know whether the stock cost $10 or $5. Why should an investor pay more for the same amount of work?”He formed Charles Schwab, introduced discounted, fixed commissions at flat rates ($4.95/trade today) and created the entire notion of discount brokerage. The entire notion of a percentage pricing mechanism died.Later, everybody in the business converted to fixed commissions and began to sell the “other services” which brokers claimed they were providing as part of their commission.The above is a grossly condensed version of the reality. Look here for the real story:https://aboutschwab.com/abo…The point is this – pricing has to devolve to some function of what it actually costs to provide the service. The stock brokerage business had certain regulatory moats which do not exist in the instant example.Having said that, one of the big benefits of Apple/Google is their vetting of the cleanliness of the apps in their stores. This is a huge consideration.Look for Amazon to be the spoiler. “Your margin is my opportunity.”JLMwww.themusingsofthebigredca…

    1. JamesHRH

      Of course, the good ones them just shifted the %age model to assets under management.I think this will be tougher, the Apple puzzle has a lot of pieces.

      1. JLM

        .I think the Apple issue is infinitely easier because of how widespread the user base is. In investing, it was the investor class who had to be drawn into the mix.Apple is not dumb, they will defend the castle, but not until it is genuinely under attack.At the end of the day, this is a fairly simple eCommerce application by folks who own huge server farms (talking to you, Amazon).JLMwww.themusingsofthebigredca…

        1. JamesHRH

          There are a ton of mental barriers.How is it that all cars aren’t just made with a universal toll tag?

      2. Andrew Cashion

        Manufacturing

      3. Lawrence Brass

        Oh man, I would love to be Apple’s CFO Luca Maestri for 15 minutes, to shuffle the puzzle a bit… 🙂

  18. JamesHRH

    Conversely, having driven from TX to Maine to ND to TX this summmer, only to find limited compatibility between the various toll systems…..subscription aggregation can be tough.Something about having one company holding all your payments is a hurdle. Which is weird, because that is what CC companies do.

  19. Frank W. Miller

    I take this back to Apple. When they started this mobile app store thing, it was ostensibly about control. The telcos were nervous about allowing anybody to put any random code on their phones for security reasons, valid ones I might add. It was the control piece that appealed to the telcos and gave Apple this nice little side benefit as well. Google realized what was going on and emulated it. While there may be ways to get around it (add another layer!!), it ultimately comes down to platform control and its a basic conflict.Ultimately, the real solution would be for a competitor to develop an OS for mobile devices that does not have the app store model tied to it, i.e. one that allows you to write and distribute software freely for the phone. Unfortunately, because of this basic need to control which apps can run on the phone, this side effect will be difficult to defeat over the long run. This yin and yang means that some regulation, aka price control, will probably be necessary.

    1. obarthelemy

      I don’t think average Joes want that (though hackers and nerds certainly do). Having a safe and convenient single source for non-malevolent, smooth-running apps (and in the PlayStore’s case, refunds) beats freedom.And Android doesn’t really have the AppStore model tied to it: users can install any other store, or sideload apps and content at will. There doesn’t seem to be much demand for that beyond marginal cases (state censorship, stealing apps, geeks…).

    2. LE

      the real solution would be for a competitor to develop an OS for mobile devices that does not have the app store model tied to it, i.e. one that allows you to write and distribute software freely for the phoneExcept that end users don’t care about any of that jazz. They simply look at the cost of the app and don’t care who is getting the money. As such the chance that someone else can gain a market foothold (based on the point you are making) is not great and simply will not happen.No you could argue that if app makers were charged less (in fees) they will build that into the final cost of the product and sell more but first I don’t think that would happen (they would just pocket the profit I say) and second it’s a bit of a chicken and egg anyway.And who would control the OS and exactly what is their motivation to offer it in their mobile phone store (to further confuse customers and have something to explain)? How many users are even going to want to use it? The majority of the market uses ‘football’ as a password (well not anymore) this is not where their head is at. [1] Obviously Apple is not part of the discussion at all since you can’t do that and why would you want to? The OS is the reason you buy an iphone.[1] Case in point in the Tmobile store the clerk begins to tell me as I am looking at accessories that I can pay for those monthly with my tmobile bill instead of the $40 charge ‘all at once’. Seriously.

  20. OurielOhayon

    and convenient ways to pay in crypto via the web may be an accelerator to that pattern

    1. obarthelemy

      Why would anyone want to pay in crypto ? The transaction costs are sky-high, the currency risk is off the charts, the theft risks are Middle-Ages-y. Drug dealers and corrupt pols maybe, but beyond that ?

      1. OurielOhayon

        right now no one. in a couple of years those problems will be largely solved. see for eg what lightning networks will enable

  21. Chad Wittman

    It’s odd because companies like Slack should in theory be paying this “tax” as well. It feels like a fairly arbitrary line in the sand. I’d love to see a list of companies that are paying this & for which products/services?

  22. LE

    Or what they could do is simply cut deals based on volume (when pushed) that would allow a lower charge than 30% (to those volume customers) in order not to have issues charging others the 30% fee. At a certain price Netflix would decide it makes sense to remain on the App Store.This is a bit similar to selling on Amazon. Many brands don’t want to have to pay Amazon they want you to deal directly. However they do see a value to using Amazon as a distribution channel. Just not paying the same as someone else that can pretty much only sell through Amazon.

  23. bill_michels

    Don’t forget the telcos. Like Prime, any service we already basically have to pay a month fee to is well positioned to bundle in others. I actually pay for my Netflix via a bundling that Tmobile put together – and I get a discount bc of it. They are also doing this with MLB.

    1. JLM

      .Astute comment.Once they get the pipe into our homes, they have almost no additional cost to push content our way. I have suggested to the water company to start piping beer, but they told me I was ahead of myself.You are absolutely correct.JLMwww.themusingsofthebigredca…

      1. LE

        Well in theory there is no reason that the water companies couldn’t put fiber optic cables in the water pipes as a way into your home. Water pipes already run everywhere. The digging would be nowhere near what it would be to lay new cable.You are a civil engineer. Water pipes (outside the house) are large. Right? So you run the internet to an area and then run the fiber optic cables in the water pipes and the final 50 feet you handle by way of a dig if you have to. But you don’t have to dig the streets all over to get in front of the house. Sewer pipes maybe as well.Related: There are/were devices that allow you to run Ethernet over the power lines in your house. (Instead of fishing Ethernet cables). There are other devices that allow you to control light switches over the same power lines as long as your neighbors are on the same transformer. This was a viable solution to not running ethernet cables prior to wifi being ubiquitous. I remember this even from growing up vaguely (prior to the internet). Oh yeah now I remember it was an intercom system and if your neighbor was on the same transformer they could hear what you said.

        1. Lawrence Brass

          This is a strong opinion weakly held: I think 5G+ wireless networks will dominate the last mile, eventually.The weak part is that fiber already installed when 5G deploys widely will take a long time to go away.

          1. obarthelemy

            I’m really unsure the issues of congestion, interference and obstruction can be solved ?I’m already having issues using my own wifi to a router 5m away because 25 other networks are in range. Imagine the 25 of us, x10 other buildings, bombarding a poor 5G tower for hour nightly Netflix (no chilling !) binge, across foliage, other carriers and radio stuff…

          2. Lawrence Brass

            Those are tough problems but they are working on them with very sophisticated approaches. MIMO for instance, that we already use in modern WiFi routers is incredibly sophisticated and they are evolving it to tackle those problems.Perhaps smaller antenna cells for denser coverage? I think it will be solved.If you haven’t done it already and if you are having WiFi network congestion problems, check if your router or endpoint is configured to use the 5 GHz band, there are also channels within the band that you can change and experiment. Telcos usually install very cheap routers and they leave them with the default configuration which use the 2.4 GHz band, so the first step is to try and optimize the configuration.Buying and installing your own is the second step. ASUS has some decent ones.

          3. obarthelemy

            I actually got a midrange Netgear router, WNDR8300 or 8400, off the top of my head. I’m still running a cable across my living room when I’m alone.This thing supports 2.4 and 5GHz, but alas my PC doesn’t, only my 2 phones and 2 tablets. 5GHz has a major penetration issue though, I must switch back to 2.4 to watch HD movies off my NAS across 3 walls.All of that is on “auto-pick the best band”, I double-checked with an Android app and it seems to be picking a sensible band.The router and PC are due for an upgrade (neither supports ac). It’s just hard to replace something that still works, and I’d like to wait until they release Spectre-proof silicon. Plus I’m guessing that when ax is widely released, ac will get realllly cheap.Sidenote: One of my HDD just died, but the Synology just kept chugging along (while beeping furiously though), I don’t seem to have lost any data, the replacement is in the express mail. I do have recent-ish backups of the irreplaceable stuff. Hooray for SHR ^^

          4. Lawrence Brass

            Well, that is what the “If you haven’t done it already” was for, for the case you were a geek, that you are. Only a geek can be waiting for spectre-proof stuff. :)I had the same problem at home at a dark spot. Finally solve it chaining a new WiFi router which transmits with a stronger signal and a USB antenna for the computer. Works quite well.Sorry for your HDD.

          5. obarthelemy

            I’ve got a powerline extender, but the tablets keep getting confused and auto-switching between 2.4 and 5 on the Netgear, and the powerline. I unplugged it.I should probably use a mesh setup, but that feels like overkill for a 3-bedroom, and I’m moving soon. We’ll see then.

          6. Michael Elling

            Per this and your comment below. Everything abides by the Law of Wireless Gravity: http://bit.ly/ZRqwrGThe higher you go up in the spectrum the propagation falls off exponentially. That’s why Sprint and T-mobile really fell behind, because they needed 3x as many cellsites to cover what AT&T and Verizon had with their lower band spectrum. Remember, “Can you hear me now?” It gets much much much worse as you go to millimeter wave (mmW) frequencies for 5G.The future will be shared heterogeneous access. Not siloed business models as in the past.

          7. Lawrence Brass

            Yes, even the most enthusiastic optimist can’t break the laws of physics. Maybe we should be talking about the last 50 feet instead of the last mile.Thanks for the advice.

          8. obarthelemy

            I found a report on 5G for the last 100m (=330 ft) and it concluded “disappointing”, but was funded by cable companies, so I didn’t quote it. https://www.fiercewireless….Most of the rest of the Google search was fairly nonsensical, viewing 5G not as a last-100m solution but as a full replacement for wifi, which is silly unless they let us nano-5G within our homes.

          9. Lawrence Brass

            Yes, it depends on who is writing, even in technical papers.There is a some confusion between 5G the technology and 5GHz the spectrum band, both intersecting in the unlicensed band spectrum space.Qualcomm has good papers on both.

          10. Michael Elling

            I’m working on the last 50′ (ubiquitous, secure, IoT) and 1000′ (ubiquitous gig; 90% cheaper).

          11. Lawrence Brass

            Very interesting! I’ve dreamed of a router that could be part of a mesh network at the same time, a smart router or smart gotenna base station kind of thing if you wish. There is a space there.The advantage of being outside the silos is that you can do what they won’t, which is integration.

          12. Vasudev Ram

            Is 5G already deployed anywhere?

        2. sigmaalgebra

          I have a water well, but typically in city water systems there are valves in various places, and closing a valve would cut the fiber optic cable.There is also the issue of “back flow prevention” and special valves for this, e.g., athttps://en.wikipedia.org/wi…A fiber optic cable might not be able to get through such a valve or at times might get pinched or cut.Still, there might be some circumstances where from just after the last valve in the tree of pipes in the public water system to just before the first valve in a house, could run on fiber optic cable.Putting a fiber optic cable in a street is not so expensive: There is a special cutter that will cut a grove in pavement wide enough for the cable and deep enough to protect the cable. Then can lay in the cable and fill the rest of the grove with some appropriate material.I have to expect that by now the easy way to install Internet access over the last foot to the last 100′ in new construction is wireless.But buildings DO need connections to the electric power grid (solar panels, Tesla batteries, and Obama dream of having our electric rates “necessarily skyrocket” are over for now), and generally running optical fibers should be easier than running electric power cables.

    2. Chimpwithcans

      Tidal acquisition by Sprint is along those lines no?

  24. LE

    Imagine if Netflix let you subscribe to a bunch of other services via your Netflix account which you pay for directly on the web outside of the app stores. Or imagine if Amazon offered something similar.What do you mean by ‘other services’ exactly? Do you mean foot massages and yoga classes? Order a pizza? Or ‘buy this app by way of Netfix?’.I can see Amazon doing this but I don’t see it for Netflix. For one thing you don’t want the credit card charge for a service to be so large that one day someone decides to ‘cancel everything’ rather than simply cut back. This is what endangered the cable companies. All that bundling which brings costs up to $200 per month.This is probably already happening with Amazon. You can spend so much money there that at a certain point you are almost motivated to consider whether you are spending to much ‘on Amazon things that I don’t really need’.

  25. Chimpwithcans

    Cue Soundcloud bundling with Netflix?? If not, why not?

  26. Joe

    Apple’s take is not a tax. It is the normal percentage the retailer would get for reselling your product. In fact, in the music business, the standard percentage the retailer gets is usually 40%, so Apple’s 30% isn’t so bad.Apple is just another distribution channel. If you want to capture that 30% for yourself, then figure out a way to directly connect with buyers and sell to them directly.

    1. obarthelemy

      Traditional retail must pay for physical distribution, shops, stocks, spoilage/theft… I’m sure appstores have costs, but, well… none of those.Amazon charge $3.59 to ship out a T-shirt (and $0.69/cubic foot/month to store it). Assuming that’s a $10 T-shirt, that’s the same cost as the AppStore, for a whole other level of costs.

      1. Joe

        That’s if you’re using Amazon’s fulfillment service. What about if Amazon is reselling your product – then you’ll see them take a traditional 30-40% cut of sales price. Apple is not offering a fulfillment service. If you are the content creator (e.g. a band) then Apple iTunes store is a pretty good deal: No record company taking their bite, just the retailer. You’re left with 70% instead of 5%.For software and apps, Apple does a *lot* of verifying that the app is not hostile. When’s the last time you heard of an app on the iTunes store beingvirus infected? Never. What about Android? All the time!

        1. obarthelemy

          That’s right Apple is not even doing the fulfillment, but charging as much as Amazon does for actually doing the fulfillment, or fully reselling the product.As for viruses on Apple’s AppStore “never” ??? Erm, you might want to get informed… “iOS malware, XcodeGhost, infects millions of Apple Store customers” https://us.norton.com/inter…And Google’s PlayStore “all the time” ?? same remark: “the annual probability of downloading a potentially harmful application (PHA) was cut 50 percent to .02 percent in 2017 https://www.zdnet.com/artic… (note that Apple doesn’t provide similar info)I’m not saying the 30% is extortionate, I don’t have enough info to say that. I’m saying it may be extortionate, and is worth investigating. That investigation should be facts-based, so…you’re out of it it seems.

  27. Michael Elling

    This tax exists because there was no settlement model for the internet providing both incentives and disincentives to actors via price signals. These settlements need to be structured as well to counter the enormous disparity between value capture at the core and costs borne at the edge. The answer lies in equilibrism: http://bit.ly/2iLAHlG

  28. Greg Matthews

    Two thoughts:1. Agree that it’s a value add to be able to manage multiple subscriptions through a central platform I regularly use and trust (e.g. Amazon Prime). It makes subscription management easy, the info is aggregated, and it helps the recurring services/ payments to stay top of mind.However you want to classify the take rate/ tax/ retail markup – 30% leaves a lot of room to be chipped away over time and/or attract competition. Evolving landscapes can dramatically change the value of distribution networks (e.g. internet + social media allowed direct to consumer companies to recapture a portion of the a) wholesale-to-retail price markups and b) address the lack of attention their brands were getting from the traditional department store distribution channels. As consumer shopping methods changed (and acquisition channels partially migrated online), the department store/ big-box distribution channel saw its value slowly erode.) Farfetch is another example of a different distribution model trying competing for the entire retail markup – helping brands migrate online under a common distribution channel that focuses on a well-defined niche (luxury fashion). In this case, Farfetch’s niche focus should make its channel and customer base more appealing to brands helping to justify the markup and making the decision easier to bypass/ decrease their reliance on the department store model. Fred, I think you are right that we will see more and more companies seek to monetize their distribution channels, especially those at scale and with core offerings.2. Re: bundling subscriptions. Right now it is valuable to be able to subscribe to services I want through a common platform, but I wonder if the increasing competition to get customers onto the distribution platforms (increasing CAC) and the need to recoup these larger acquisition expenses would cause companies to decrease customer choices with their bundled offerings and raise prices by adding additional non-core services. It would be a bit ironic if the disrupters of the bloated TV bundle slowly turned into another bloated offering.I have always thought that credit card companies could present a compelling subscription management platform.a. They are already involved in the process via routine payments.b. The CC model is facing lower take-rate margins and less bargaining power with merchants, so they need ways to boost revenue and maintain margins.c. CC companies can cover a large spectrum of subscription services (online and offline).d. They could custom bundle deals for each customer based on preferences/ payment histories (costly to do, but locks in recurring payment streams and most CC companies are already spending to market with discounts on varies retailers and services, so this could be a trade-off for better targeted deals).e. They can leverage the platform to raise awareness for new services/ curating new options for customers.f. Along with d) customized bundles, CC companies could better use point systems to allow customers greater incentives on services they value (ancillary items from subscription providers or discounted renewals, etc.) locking in more future payment streams.To me, this has seemed like a clear value-add path for Amex. It has a defined brand, solid customer service, and needs a strong rationale for merchants and customers to remain in its ecosystem now that so many options have eroded its prestige.

  29. Pointsandfigures

    If you are into economic theory, this is what Fred is posting about. The fight between consumer and producer surplus: http://ingrimayne.com/econ/… In this case, consumer might be Apple/Google and Producer might be the App Developers. If there were more surplus for developers, it stands to reason end users would see more apps not less because the economic incentives to build apps would be higher.

  30. WA

    “And you may ask yourself What is that beautiful house?And you may ask yourself Where does that highway go to?And you may ask yourself Am I right? Am I wrong?And you may say yourself, “My God! What have I done?”Same as it ever was…same as it ever was…Same Master Switch; Different masters…

  31. Marcosardi

    The 30% is not a tax, because no developer has an obligation to pay. A developer refusing to go through the AppStore can create a Web app, and can even place the icon by the side of others apps. If a developer wants to use the frameworks and the tools provided by Apple or Google, wants to benefit from the collection system (and management of fraud, refunding, etc), and be available on some of the largest stores in the world, with clients confident in the quality of the apps (at least on iOS) then there is a 30% fee. That’s the deal.

  32. Abhijit Athavale

    You can already download all Android apps via apkmirror.com so it’s not difficult, but it would be challenging to change user behavior given the ease of use of the current model.

  33. Kara Swisher

    Great point Fred. I recently wanted to watch tknws, on the INTERNET, somehow I just stumbled into clicking into my xdrcft account for the free tknws month trial, it was just effortless… Three months later, I guess I’m now a monthly paid tknws customer, via xdrcft’s bundling… I even commented to a friend that buying tknws via xdrcft was easier than buying tknws from tknws – LOL (uppercase) – not having to setup another account, etc. Great point.Also FAANG is toast and all my favorite apps are outside of the play store. And my only desire is to root because google is a terrible bloatware op.

  34. george

    Apple doesn’t just provide a gateway (App Store) for 30%, they created an exceptional delivery vehicle, which simplifies consumption and focuses on maintaining consistent and superior experiences.You need more than a bypass channel(s), you need a true ecosystem that provides customers with content mobility – what they purchase needs to be distributed and consumed naturally across multiple devices (phones, tablets, computers,TV’s, and watches).Apple maintains their ecosystem with precision and continuity – imagine upgrading the device iOS, the app, and the digital content simultaneously – this is very complex!I love Netflix – but I love it more because I can enjoy it across my appleTV, iPhone, iPad and iMac.This is not a tax, they are your personal concierge in the digital world!

  35. Greg Matthews

    Two thoughts: 1. Agree that it’s a value add to be able to manage multiple subscriptions through a central platform I regularly use and trust (e.g. Amazon Prime). It makes subscription management easy, the info is aggregated, and it helps the recurring services/ payments to stay top of mind. However you want to classify the take rate/ tax/ retail markup – 30% leaves a lot of room to be chipped away over time and/or attract competition. Evolving landscapes can dramatically change the value of distribution networks (e.g. internet + social media allowed direct to consumer companies to recapture a portion of the a) wholesale-to-retail price markups and b) address the lack of attention their brands were getting from the traditional department store distribution channels. As consumer shopping methods changed (and acquisition channels partially migrated online), the department store/ big-box distribution channel saw its value slowly erode. Farfetch is another example of a different distribution model trying competing for the entire retail markup – helping brands migrate online under a common distribution channel that focuses on a well-defined niche (luxury fashion). In this case, Farfetch’s niche focus should make its channel and customer base more appealing to brands helping to justify the markup and making the decision easier to bypass/ decrease their reliance on the department store model. Fred, I think you are right that we will see more and more companies seek to monetize their distribution channels, especially those at scale and with core offerings. 2. Re: bundling subscriptions. Right now it is valuable to be able to subscribe to services I want through a common platform, but I wonder if the increasing competition to get customers onto the distribution platforms (increasing CAC) and the need to recoup these larger acquisition expenses would cause companies to decrease customer choices with their bundled offerings and raise prices by adding additional non-core services. It would be a bit ironic if the disrupters of the bloated TV bundle slowly turned into another bloated offering.I have always thought that credit card companies could present a compelling subscription management platform. a) They are already involved in the process via routine payments. b) The CC model is facing lower take-rate margins and less bargaining power with merchants, so they need ways to boost revenue and maintain margins. c) CC companies can cover a large spectrum of subscription services (online and offline). d) They could custom bundle deals for each customer based on preferences/ payment histories (costly to do, but locks in recurring payment streams and most CC companies are already spending to market with discounts on varies retailers and services, so this could be a trade-off for better targeted deals). e) They can leverage the platform to raise awareness for new services/ curating new options for customers. f) Along with d) customized bundles, CC companies could better use point systems to allow customers greater incentives on services they value (ancillary items from subscription providers or discounted renewals, etc.) locking in more future payment streams. To me, this has seemed like a clear value-add path for Amex. It has a defined brand, solid customer service, and needs a strong rationale for merchants and customers to remain in its ecosystem now that so many options have eroded its prestige.

  36. Anish Kumar

    Loved this post. Great topic and exciting to think about the duopoly being broken. Made a video about it for my audience as well: https://youtu.be/bvi5xMs-QAwThanks Fred!