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There’s Nothing Wrong with Apple’s 30 Percent

Readability Open Letter

Much electronic ink has already been spilled over Apple’s decision to make in-app subscription purchasing available — at a 30% fee. I’m about to spill some more.

Today’s open letter from Readability re-stokes the controversy as it claims that Software-as-a-Service providers are now ensnared in the new policy, not just media publishers and content providers. MG Siegler at TechCrunch raises the prospect of Salesforce and other major SaaS companies getting caught by the 30% fee.

There’s a lot getting overlooked here.

The 30% applies only to new sales, not to all users of iOS apps — at least as I understand it. If someone has already paid outside of the app, Apple gets nothing. So Apple is effectively looking not for a “processing fee” as some allege, but effectively a “commission.” By that standard, 30% isn’t quite as outlandish.

The in-app subscription process does not exclude other payment options. SaaS providers are free to sell their products from their web sites and then grant access to the iOS app, as long as someone can subscribe in the iOS app also.

High-end enterprise subscriptions won’t be sold inside the iOS app. Do you really think a Salesforce prospect is going to go into an iOS app and signup from in there? Not likely. That’s a big purchase and isn’t usually an impulse decision — which is where in-app subscriptions should excel.

New subscribers are valuable — and worth paying for. Even if Apple’s approach isn’t perfect, there’s something to be said for bringing new paying subscribers to the table — whether you are a content creator or a SaaS provider. Think about what you pay to get new customers through traditional means and ask yourself how those costs stack up over time.

You can incentivize people to give up personal information. If you’re a SaaS provider, chances are someone may want to access your app via the web in addition to the iOS tool. They will likely willingly give up email address info to you to create that login. Publishers can offer similar benefits or even contests and such to build up the email list of subscribers.

Improved customer renewal efforts could curb in-app costs. I have not done a deep dive on the rules, but if companies mount aggressive renewal campaigns outside of iOS, they can even get out of the 30% for customers who originally signed up in-app. As long as the pricing is the same as in-app, why not send emails with “click to renew” links that go straight into a web purchase option.

Bottom line: let’s stop spend so much time fretting over Apple’s new in-app subscription policies until we see how they work out in reality. In the meantime, let’s inject some reason into the discussion and start thinking about creative ways to benefit from the new approach rather than trying to bury it — efforts that aren’t likely to be successful anyway.

UPDATE: A reported email from Steve Jobs suggests that SaaS applications may not be subject to Apple’s new policies. If that means these applications can’t use the in-app subscription option, the SaaS providers may be leaving money on the table, however.

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  1. The problem with waiting to see how the new policies work out is that it discourages innovation; developers won’t want to bet the bank on an app if they can’t tell how much revenue they’ll make. We’re once again on the same playing field we found ourselves on when the App Store first launched; companies were hesitant to build for iOS (then-iPhone OS) because Apple’s vague guidelines didn’t sufficiently spell out what was allowed and what was not. If you’re going to spend $10,000 (or $100,000, or $1M) developing an application, you’d want to know that your app wouldn’t just be rejected before it even hit the market.

    Salesforce really is a good example. True, I’d assume most purchasing of the app would be done from the site. But Salesforce as a company has to decide how to proceed; a business model in which they receive, say, $125/user/month is drastically different than a model in which they only receive $87.50/user/month. In Readability’s case, they’re already paying 70% of revenues to content providers. Apple’s 30% cut destroys their model for profitability completely.

    It’s valuable to let the dust settle a bit. But with Google, Microsoft, and HP doing everything they can to woo developers to their platforms, and with a number of tried-and-true devotee Apple developers unhappy with the rules, I think this could turn out to be a serious checkpoint in the mobile app market. We’ll see.

  2. Justin- I hear what you are saying, but I suspect many SaaS providers don’t mind paying as much as 30% as long as it is bringing a new customer to the table or putting new money in the bank. As someone who has (and does) own SaaS businesses, I know that we pay a substantial commission or referral fee for new business that is brought to us already — and the business we win ourselves comes at a significant cost as far as marketing and sales related expenses. If the iOS in-app platform brings in new customers, it may end up being worth the toll.

    Could it turn out wrong? You bet. But based on what I know now, I’m optimistic.

  3. I’m wondering about subscription services like Pandora which, because of the copyright fees they pay, are already operating at razor-thin margins. I can imagine 30% (for the premium account) could be enough to put them out of business should enough subscriptions come through the app (and Apple is REQUIRING that subscription functionality be built into the app).

  4. Shel- They would get 70% of revenue they might not have otherwise gotten. Given the choice between 100% of $0 and 70% of something, most businesses would take the latter. Also Apple is requiring in-app subscription functionality, but not requiring it be exclusive.

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