Apple Hires Economists To Help Prove Its App Store Commissions Aren't Anti-Competitive (cnet.com) 59
Ahead of an antitrust hearing on Capitol Hill next week, Apple is fighting back against the perception that its App Store charges onerous commission rates to developer by hiring economists from the firm Analysis Group, who said the tech giant's fees were similar to competitors. From a report: The research, published Wednesday, collected commission rates reported on or disclosed by app stores from Amazon, Google, Microsoft, Samsung and others. The company's economists also studied ticket resale marketplaces, game stores and ride-hailing apps. Overall, the economists said the commissions charged were similar, though stores generally offered different features for consumers and developers. "The commission rates charged by digital marketplaces most similar to the App Store, such as other app stores and video game digital marketplaces, are generally around 30%," the economists wrote in study [PDF]. The economists also broadly defended these commission rates, saying this system "lower the barriers to entry for small sellers and developers by minimizing upfront payments, and reinforce the marketplace's incentive to promote matches that generate high long-term value." The economists didn't look into whether the fees stifle innovation or are fair, concerns developers have raised.
Seen this before (Score:1)
Kind of like how the tobacco companies hired doctors to prove cigarettes were good for you.
Re:Seen this before (Score:4, Informative)
Kind of like how the tobacco companies hired doctors to prove cigarettes were good for you.
They didn't do that. They hired lawyers who told them to lobby for warning labels to be put on cigarette packs because that way they were protected from class action law suits from people claiming they didn't know they'd get cancer from smoking. Some tobacco execs worried this would turn customers off but as it turned out it was a pretty good idea since there are still people smoking that crap despite the labels. All those things have ever done is protect tobacco companies from lawsuits.
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It doesn't matter what you put on the package [tobaccolabels.ca] if its an addictive substance. Anything is bad for your in high enough doses and I don't see many lawsuits against Herseys or Nestle even though their packaging bears no warning labels about the horrible effects of consuming all of that glucose.
It doesn't matter what you put on the package? It's kind of hard to claim you didn't know cigarettes cause cancer if you've been buying packets with a cancer warning label on them every day for 30 years.
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Kind of like how the tobacco companies hired doctors to prove cigarettes were good for you.
They didn't do that. They hired lawyers who told them to lobby for warning labels to be put on cigarette packs
What they actually did long before the warning labels was to hire doctors to claim that cigarettes were safe [history.com] and/or more healthy than those made by the competition.
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Kind of like how the tobacco companies hired doctors to prove cigarettes were good for you.
They didn't do that. They hired lawyers who told them to lobby for warning labels to be put on cigarette packs because that way they were protected from class action law suits from people claiming they didn't know they'd get cancer from smoking. Some tobacco execs worried this would turn customers off but as it turned out it was a pretty good idea since there are still people smoking that crap despite the labels. All those things have ever done is protect tobacco companies from lawsuits.
Those events a several decades apart. They started by hiring doctors to lie.
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this answers where the trained seals at sea world are working now
Amazon, Google, Microsoft, Samsung are not locked (Score:2)
Amazon, Google, Microsoft, Samsung are not locked in and
google dev fee is $25 one time vs $99/year on apple + apple hardware cost.
Re:Amazon, Google, Microsoft, Samsung are not lock (Score:5, Informative)
The $99 annual fee isn't important to anyone in the business of making apps.
The bigger issue is the 30% commission. That can add up to tens of thousands of dollars for a successful developer.
But is it unreasonable? I don't think so. Apple provides an effective marketing and distribution channel that would be very expensive for an independent developer to create and maintain.
Google also charges 30%, but for a much crappier and less effective app store.
Disclaimer: My spouse has a successful app business.
Re:Amazon, Google, Microsoft, Samsung are not lock (Score:5, Interesting)
The bigger issue is the 30% commission. That can add up to tens of thousands of dollars for a successful developer.
But is it unreasonable? I don't think so. Apple provides an effective marketing and distribution channel that would be very expensive for an independent developer to create and maintain.
What's unreasonable is the inability to opt out of that marketing and distribution channel, and the fact that first-party apps don't have to pay those commissions.
Yes, for small companies, the commission probably is reasonable. The cost of setting up distribution, advertising, etc. would probably be higher than the cost of using the service as-is. But for larger companies, that commission is extortionate.
For example, consider a company like Amazon. It likely costs them somewhere around 2% to handle credit card transactions. The difference between 2% and 30% is the difference between being able to sell movies on iOS competitively and not being able to do so. That's why until Apple granted a special exception to allow Amazon to charge customers through their existing subscription, Amazon could not viably compete with Apple's movie sales on iOS. And new competitors still can't compete; Amazon was just big enough to finally pressure Apple into granting them an exception, though it took almost eight years for that to happen, during which time Apple earned significant profits illegitimately.
And even for companies that don't compete against Apple, the fact that other platforms allow side-loading and allow third-party billing for content that isn't tied to the app, whereas Apple does not, means that Apple users end up paying a premium for content or having their options limited artificially. That is, in itself, an anticompetitive practice, IMO, in that it is effectively a form of price fixing.
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And even for companies that don't compete against Apple, the fact that other platforms allow side-loading and allow third-party billing for content that isn't tied to the app, whereas Apple does not, means that Apple users end up paying a premium for content or having their options limited artificially. That is, in itself, an anticompetitive practice, IMO, in that it is effectively a form of price fixing.
First of all, consumers have choices beyond Apple so Apple is not limiting competition; they are one player in a broader marketplace for apps. The ultimate question is: Are consumers hurt?
You claim they are but what is the evidence? To answer that yo need to look at marketplaces that offer app store and non-app store purchase and compare prices.
If I look at apps offered on the Mac App store the prices are generally the same for APP Store and non-app store purchases; which supports the argument that th
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First of all, that's not the way antitrust laws work. You're falling for the commonly held misbelief that antitrust laws only apply to monopolies. That's not true. A company with 1% of a market can violate antitrust laws if the effect of that violation results in a significantly unfair adverse effect on its competitors in a different market.
Second, there is no broa
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If I look at apps offered on the Mac App store the prices are generally the same for APP Store and non-app store purchases; which supports the argument that the App Store does not harm consumers. Developers do not lower prices for non-App Store purchases and would likely simply pocket any additional revenue.
I've never been an Apple user and it is possible I'm remembering wrong but I recall reading early on that Apple doesn't allow App makers to sell the same App outside the store for less than it is sold in the Apple store. This apparently would apply to Android versions of the software for example. If this is so then Apple is in fact driving up the price of non Appstore programs.
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That is not true (it may have been in the past). They will allow an increased price, so long as it is not unreasonable. What is deemed unreasonable is of course left to their discretion.
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If I look at apps offered on the Mac App store the prices are generally the same for APP Store and non-app store purchases; which supports the argument that the App Store does not harm consumers. Developers do not lower prices for non-App Store purchases and would likely simply pocket any additional revenue.
I've never been an Apple user and it is possible I'm remembering wrong but I recall reading early on that Apple doesn't allow App makers to sell the same App outside the store for less than it is sold in the Apple store. This apparently would apply to Android versions of the software for example. If this is so then Apple is in fact driving up the price of non Appstore programs.
I think you're thinking of the "most favored nation" rules for the iBooks store. AFAIK, Apple has never forbidden charging different prices for stuff from the App Store. In fact, Spotify always has, AFAIK.
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First of all, that's not the way antitrust laws work. You're falling for the commonly held misbelief that antitrust laws only apply to monopolies. That's not true. A company with 1% of a market can violate antitrust laws if the effect of that violation results in a significantly unfair adverse effect on its competitors in a different market.
Actually, in the US, anti-trust laws look at harm to the consumer, not competitors. You can harm competitors all you want as long as the consumer is not hurt.
Second, there is no broader marketplace for apps. I cannot download an Android app and use it on my iPhone.
Now your falling for the misconception that are marketplace is limited only to a specific device, and not a category. The broader market is phone apps, and that is what needs to be looked at to determine if Apple's policies resulot in consumer harm.
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Lol, have you ever opened a business? Did you insult one out of every three potential customers so that they would never come back? That's what it's like for a small developer that only supports Android.
Actually, I do run a business. The fallacy in your argument is that a developer needs the other 1/3 to be successful. The may want that market because it is lucrative; but the decision is up to them. And yes, I do turn down work that is not sufficiently lucrative; just because someone wants to be a customer does not mean they are worth enough to me to have them as a customer. Of course, the hardest thing in business is learning to say no to potential customers, or firing one that is more trouble than the a
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Maybe I'm old, I remember a time when you paid for software and most of it was not very cheap. Most apps are pretty affordable in comparison. I have really mixed feelings about the walled garden but I'm not sure that I'm noticing Apple's profit in most apps. The garden wall certainly has some holes but Apple does a reasonable job of keeping out nefarious apps, if they are adding value here then maybe that 30% goes somewhere useful.
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Software looks cheap, but only because you aren't paying the cost; advertisers are.
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If advertising costs more than your income then you have a problem. Usually, advertising costs are baked into the cost of the product. You can only operate at a loss for so long. The app store isn't failing, apps are still there with more coming everyday. Someone is making money or the whole thing would collapse.
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Exactly. And it used to be way worse until Apple forced the market to respond. Microsoft used to take 70% or more of Xbox titles whether sold on disc or online AND required you to buy some outlandish developers kit that ran into the thousands even to attempt it.
Book publishers and music publishers used to do much the same until Apple came along and gave writer and artists a platform where they can keep 70% of their sales rather than giving up 90% or more.
And it's not just the transaction fees as well. It
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The $99 annual fee isn't important to anyone in the business of making apps.
The bigger issue is the 30% commission. That can add up to tens of thousands of dollars for a successful developer.
But is it unreasonable? I don't think so. Apple provides an effective marketing and distribution channel that would be very expensive for an independent developer to create and maintain.
Google also charges 30%, but for a much crappier and less effective app store.
Disclaimer: My spouse has a successful app business.
Good points. I'd argue developers are even better off since the old system extracted far more than 30% across the distribution channel. Developers were lucky to see 30$ and had to upfront all the costs of duplication, documentation, shipping, etc. without knowing if an app is successful.
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Apple provides an effective marketing and distribution channel that would be very expensive for an independent developer to create and maintain.
Maybe since I don't use Apple products I am a bit out of the loop but how exactly does Apple provide a marketing channel? If the marketing channel is the Apple App store then I would question if they are really doing all that much marketing there. Aren't all of the recommendations for apps just a software algorithm that selects top apps or new apps based on a user's purchase/use history? Personally I wouldn't really consider that marketing.
I will concede that Apple provide a distribution channel but they ki
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But is it unreasonable? I don't think so. Apple provides an effective marketing and distribution channel that would be very expensive for an independent developer to create and maintain
What is unreasonable is charging the dev fee + commission, and then Apple selling ads that your competitors buy ads against your keywords/trademark so that you too have to buy ads to counteract those.
And Apple's 'needle in a haystack' system isn't exactly "effective marketing and distribution"
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Key difference is that paying Google 30% is optional. You can distribute your Android app via other app stores, or via your own website if you want. You only have to pay Google 30% if you choose to distribute via their Play Store.
Not so with Apple. If you want to distribute apps for iOS, it's Apple's way (and pay them 30%) or the highway.
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Amazon, Google, Microsoft, Samsung are not locked in and
google dev fee is $25 one time vs $99/year on apple + apple hardware cost.
Where did you get that from? Google charges me $25 every year, no one reviews my updates or checks that they comply with the rules.
Recently I got kicked off Google Play for a "violation" of the rules. I appealed, asking why, and was re-instated without explanation.
I asked again, what had done to have my account terminated - so I wouldn't do it again, and the Google rep replied "I can't tell you, just read the rules"
Verify my claims by Google searching for "This is a notification that your Google Play Publis
how about this compromise (Score:1)
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Exactly.
The issue isn't whether 30% is too much or too little. It's that Apple pays 0% while it's competitors pay more than 0%.
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This is like saying that is unfair that the owner of a mall doesn't have to pay rent to put a store on its own mall, unlike the rest of the shop owners who pay him a rent for their store spaces.
Or, surprise, Nintendo doesn't have to negociate or pay anything to Nintendo to develop a game for their own game system!
Please ignore the elephant in the room. (Score:2, Troll)
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Yeah, this is a complete epic fail on Apple's part. Let's see:
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Tying: If you buy an Nintendo product, all future app purchases must come from Nintendo.
Tying: If you buy an Nintendo product, all future in-app purchases must come from Nintendo.
Tying: It is not possible to opt out of the marketing portion of the commission and distribute the game yourself.
Unfair competition: Nintendo's own products in the store do not pay a 30% commission; they pay probably one or two percent to their merchant account provider, and that's it.
Also: Nintendo decides who can or can't develop
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The fact that Nintendo has thus far gotten away with it doesn't mean that it isn't anticompetitive. It just means that nobody got angry enough to sue, and not enough consumers cared enough to get their congresspeople involved.
Also, there's a fairly large difference between Nintendo, who makes games and game platforms, and Apple, who makes general-purpose tools. Most of Nintendo's competitors at least historically did not release their top titles on Nintendo's platform; they had their own platforms. Lots
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Most of Nintendo's competitors at least historically did not release their top titles on Nintendo's platform; they had their own platforms.
That depends on how you define competitor. Most game publishers didn't have their own platforms. It's true that console manufacturers were competitors to Nintendo in both that sense and the sense that they sold competing consoles, but they're far outnumbered by non-console-producing competitors.
Lots of serious gamers own a Nintendo, a Sega, and an Xbox. This is a radically different universe from the cell phone market, where almost nobody has more than one (except for employer-owned phones) because the monthly fees for owning a second one are exorbitant.
But lots of people have a phone and a tablet, and even lots of people who have Apple phones have some other kind of tablet. I presume there's less people who have Android phones and Apple tablets, but I haven't check
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Unfair competition: Rates for subscriptions drop after twelve months of service, creating a fundamentally anticompetitive environment that penalizes newcomers.
This.
There are a bunch of third-party app stores? (Score:2)
I see people say that on Slashdot, and I also see articles in ZDnet or whatever "top five best third-party app stores for iPhone". The articles talk about this app store has XX million users, this new app store has Y million.
I don't buy iOS devices, so I'm not really familiar with how that works for Apple mobile devices. I do get Apple laptops from employers, but that's a very different operating system.
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Do the third-party stores you're talking about require one to jailbreak the phone? Probably.
Can I jailbreak the version of phone and OS that I have? Maybe.
Is it worth it? Dubious.
Economists (Score:1)
...Analysis Group, who said the tech giant's fees were similar to competitors.
Considering "similarity" wasn't the case Apple's hired guns are off to a pretty flimsy start in the social perception game. Cook should have got some Nazgûls from IBM.
Their argument is a nonsense... (Score:4, Insightful)
If everyone is charging the same amount, it's because you started charging that much, Apple.
If you had made the rate 25%, every one of your competitors would be doing the same thing.
*sigh*
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Yeah, I got a kick out of that approach as well.
But, reality still holds that on average you need about 30% commission or 40% markup to cover the costs for smaller transactions.
It is the larger transactions where the math starts to break down. Is it worth $30 to process a $100 transaction for an ongoing subscription? $300 for $1,000?
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No, you don't have to. You just have to aggregate the micropayments, and tell everybody that they will be billed only when the total bill comes to at least $5.
I'm assuming that Apple has negotiated to get the swiped card rate, rather than the typical 3.5% base rate for user-entered transactions, simply because their size would allow them to do so. So their rate probably consists of a cut-rate interchange fee (paid to the merchant account provider) of 1.15% plus 5 cents per transaction, plus somewhere in
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Credit card transaction processing fees are a minimal part of the equation, but still for a recurring charge the direct cost plus overhead would be at least 5%.
Do you think you should be able to go into anstore and buy something for cash at their cost? They have a profit motivation, so for your $1 app ($0.70 wholesale), there is a $0.05 transaction cost, plus a -$0.08 administrative overhead, leaving about $0.17 in profit. You could argue if it should be 17 or 15 or 10% of the retail transaction, but that
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Exactly.
30% of a free app is still free. (Developers often use ads to pay for the app, and developers keep all the money from that).
A good majority of apps are free - just over 50% for Apple, over 80% for Google. After that,
Why Apple charges only 30%? (Score:2)
They should negotiate their fees, per app. A small app that is struggling, sure 30% is fine. But a successful app, why not charge 60%?
Apple's stated goal is to maximize profit. People sign up and by the things. They are not a charity.
Re: Their argument is a nonsense... (Score:2)
The talk about 30% being fair is a strawman, drawing your attention away from the anti competitive rules like not being able to tell the user to sign up/subscribe thru a web browser.
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The amount really doesn’t matter. 30% got its starts because it was a standard physical retail fee. It could have just as easily been 50% or 10%. If it’s too high, people won’t develop for the platform because there’s no money to be made there. If it’s too low, Apple is leaving money on the table. Either way, it’s a business issue and it shouldn’t be a regulatory issue.
What should be a regulatory issue is how they lock people into using their payment system for in-a
http://unbiasedreviews.apple says all is fair (Score:1)
Who's going to be convinced at ALL by this? (Score:2)
I mean, the legions of eZealots that wait 18 hours in the rain to spend 2x the value for the latest driblet from Apples design team don't NEED convincing.
The people who believe that Apple is the fruit of Satan's loins and is out to become the first Galactic Megacorp won't be convinced.
And most normal people will shrug, recognizing that *anyone* can find a tame economist to say anything, they're almost as malleable in context as Federal judges.
So the point of the exercise again, is what?
If there is no other distribution for iPhone Apps (Score:2)
...how can Apple's store not be noncompetitive?. It a designed monopoly.
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"I assure you there are no anti-competitive practices here."
Tim Apple - Minister of Information
Developers cannot avoid Apple (Score:2)
It's how the world works (Score:2)
Apple Hires Economists To Help Prove Its App Store Commissions Aren't Anti-Competitive
"Maybe we should hire economists to help prove congressmen aren't taking 'commissions' to stop hassling companies."
Nah.
Rates and percentages are a red herring (Score:2)
Once you get into a discussion of if Apple's percentage is fair, the argument has already been lost. The anti-trust question is not really "How much is Apple entitled to?", the question is "Should Apple be able to force transactions between the people who buy their products and developers to go through the App Store at all?"
It used to be clear if a person bought a product from a company, the company no longer had any say over how the product was used. What's changed is with a lot of hand-wavey tech "innovat
owox (Score:1)