Apple has rejected readability’s self-titled app for the iPhone and iPad, telling the developer that the app violates Apple’s newly-instituted policies on in-app subscriptions. As a result, Readability, whose technology is used by Apple itself in Safari, has abandoned its iOS app, releasing an Open Letter to Apple accusing the company of greed and bad faith.
Background
Readability is a service that strips out online advertising (without the permission of publishers like The Mac Observer) and serves up Web content in a clean, stark manner. The company charges a US$5-month subscription fee for the service, but unlike most ad-blocking services, Readability claims to pay 70% of this money to publishers and authors, keeping the same 30% Apple charges for apps (and now subscriptions) on the App Store.
When Apple unveiled an in-app subscription plan for iOS apps, the company included changes to developer agreements that required content providers offering any form of subscription service on an iOS app to include an in-app purchase option. The company also required that iOS app subscription pricing to be the same or cheaper than other subscription models in order to keep publishers from locking Apple out of the game by simply charging higher prices in-app than they did elsewhere.
This development has newspaper and magazine publishers hot and bothered for two reasons: Having to cut Apple in significantly reduces their own margins, and to add insult to injury, Apple protects consumer data (i.e. our personal data) by default, allowing users to voluntarily opt-in to hand over that data to publishers.
Same As It Ever Was
This topic has been all the rage for the last couple of weeks, but what’s new with Readability is that Apple has made it clear that it intends to go after services, and not just content providers.
Services like Readability charge a subscription that is managed through the company’s Web site. Users then log in from their iOS app to access whatever service they’re paying for, bypassing Apple’s in-app subscription system and the new rules.
Apple’s App Store Review Guidelines say, “Apps utilizing a system other than the In App Purchase API (IAP) to purchase content, functionality, or services in an app will be rejected,” and the company has now made it clear that it is serious about the “services” part of that verbiage.
“We’re obviously disappointed by this decision, and surprised by the broad language,” the Readability team wrote in its Open Letter. “By including ‘functionality, or services,’ it’s clear that you intend to pursue any subscription-based apps, not merely those of services serving up content.”
The company added:
Before we cool down and come to our senses, we might as well share how we’re feeling right now: we believe that your new policy smacks of greed. Subscription apps like ours represent a tiny sliver of app sales that represent a tiny sliver of your revenue. You’ve achieved much of your success in hardware sales by cultivating an incredibly impressive app ecosystem. Every iPad or iPhone TV ad puts the apps developed by companies like ours front and center. It was a healthy and mutually beneficial dynamic: apps like ours get exposure and you get to show the world how these apps make your hardware shine. That’s why we’re a bit baffled here.
Sweeping Implications
The reality is that Apple’s new stance is likely to be a massively disruptive force in its own ecosystem, and not disruptive in a good way. From Dropbox to Box.net to Pandora to Last.fm to Kindle to Nook to Readability to a host of other online services, these app and services combos add a lot of value to Apple’s iOS ecosystem. In the case of Dropbox and Box.net (and others), they fill a significant hole that Apple left open in its mobile platform
Furthermore, in businesses like Amazon’s Kindle or any of the various music streaming services, there simply isn’t any room for Apple to take 30% from a pie that’s already stretched thin by publishers, labels, IP holders, and the needs of the third party services that actually offer the service.
In fact, I think it’s likely that if Apple doesn’t change this policy, all of the music services and ebook competitors won’t be able to do business on Apple’s platform due to simple economics. There just isn’t any more blood in that turnip left for Apple to take such a huge cut.
As superior a platform as iPad/iPhone/iPod touch/iTunes/App Store is, the lack of these very popular third party services will leave Apple at a significant disadvantage should they choose or be forced to go away.
Back to Readability
Some of these points don’t fully apply to Readability. The firm has made it clear that while the economics of Apple’s position impose a heavy burden, the biggest part of its decision to pull out of Apple’s App Store comes down to making a stand on principle.
As a P.S. in its Open Letter, the team wrote, “P.S. We’d we be glad to deliver Readability for iOS – with in-app purchasing – if you’d carve out 70% from your 30% fee and share it with writers and publishers, just as we do.”
While I find the company claiming the moral high ground on Apple to be ironic, at best — remember that Readability’s business model is predicated on presenting my content in a format not of my choosing at a price they have determined with no permission from me, and I have long been on record about people (or companies) that steal my work — I honestly applaud Readability’s stance here.
Apple’s demand for 30% of everything crossing the App Store is obscene, and is no different from the record labels demanding a share of Apple’s hardware profits on sale of the iPod in the early part of the last decade.
Economically speaking, it’s also a little crazy in that denial kind of way, reminding me of the labels wanting more from Pandora and Internet radio stations in royalties than it was possible to generate in revenues. It’s just crazy.
Back to Reality
Apple should reexamine this policy and approach in-app subscriptions from a far more sensible stance. Taking 30% from publishers and developers who use its system is fine, after all it’s Apple’s infrastructure and resources making the subscription possible.
Indeed, as a consumer, I’d FAR rather subscribe to a newspaper or magazine via an in-app purchase where Apple was protecting my information, and Apple stands to make mountains of money from millions of other customers who feel the same way.
But, if I’m going to access a service like any of the above-mentioned services that I am likely to also use on my Mac or from my friend’s PC on occasion, I’d rather manage that subscription through their infrastructure.
Apple prohibiting third-party or self-maintained subscriptions crosses a nasty line. Worse the company’s demand ignores the economic reality of many of its most important high profile apps like Kindle, Pandora (which Apple CEO himself has touted in Apple media events), and other services.
Apple still benefits from those services offering free apps that then access online services or content by being the premier platform for doing so. The company makes significant profits from the sale of each iOS device, profits it does not then share with its developers.
If some developers are able to offer a service that users will pay for and they don’t need Apple’s resources or infrastructure to manage that relationship, that should be considered as part of the game.
In the end, I think Apple will have to make adjustments to this policy. I believe that the company is going to be under tremendous pressure from regulators in the U.S. and the European Union, and I believe that the market itself is going to put pressure on Apple as the economic realities of this policy force some key players from the platform.
Apple should not wait until then, however, and the company should make some adjustments now.