From The Verge on the Epic vs. Apple suit:

[Cook] was also, however, a little blunter about Apple’s own interests. “IAP helps Apple efficiently collect a commission” — for payment processing, but also customer service and the use of Apple’s intellectual property. Without in-app purchases, “we would have to come up with another system to invoice developers, which I think would be a mess.” If Apple let developers tell users about other payment methods, Cook said later, “we would in essence give up our total return on our IP.”

That's... interesting. It suggests free app authors are freeloaders, and that high revenue apps are paying a disproportionate amount of the "total return on our IP" -- which, again, includes "customer service and the use of [iOS]". That without the largesse of Clash of Clans, freeware apps would need to pay more than their annual $100 developer fee to keep iOS, well, if not afloat, then profitable.

Though you can't sell the hardware without iOS either, can you? Is the IP all of iOS or just the App Store? Do you have iOS without the Store? Do you have the same success selling your phones with these apps? Of course not. It cuts both ways, doesn't it? Whose IP is driving revenue for whom?

Is the insinuation, then, that Apple Hardware, Inc needs Apple Software, Inc's^* IAP to be profitable? I doubt it. iPhone would be profitable without the IAP revenue. Cook's statement is within the specific context of growing services revenue to, in turn, grow the stock price. That is, losing the revenue from IAP doesn't make Apple unprofitable. They'd still get a return on their IP. It's reduced growth, aka missed growth targets, a relative loss, not an absolute one, that keeps Cook working at night -- and preparing like mad (as he should) for his court appearences.

Which makes this another example of how Apple is no longer leaving the money on the table to allow it to concentrate on its strengths. It is now primarily motivated by company growth, not producing the "best" products. Sure, it's long-term, sustained growth, which is a much more mature approach than, to hyperbolize, Enron's, but its motivation is still growth. That's a change from "the Jobs years" (or at least Steve managed to fool me into thinking so).

^* I've got a drafted post somewhere about the distinction between Apple Software, Inc and Apple Hardware, Inc. In a nutshell, I'm worried Apple Software, Inc needs to split off from Hardware, Inc if we don't want to keep seeing complaints like Epic's.

Because Epic's complaint should have some weight with Apple Arcade competing with it. Spotify has an even better case. Netflix too, thanks to Apple TV. Amazon has several, not least the Kindle vs. Apple Books' store arena.

In all four, Apple's own options for games and music and TV shows and books have the obvious benefit that they get to avoid the 15-30% surcharge everyone else has to pay. Apple's products can be that much worse than the competition and still "win" simply because they avoid their own "IP" tax.

It's not wholly unlike Amazon Basics Limp Bizkiting a number of products others sell on the site.

A store abuses its power when it also becomes the seller. These are not simple generic brands; these are competitors, equals.

If Hardware Inc. kept the payment processing and IAP profits, but Music, TV, Arcade, and Books had to compete as Software Inc., a favorite third party, but a third party nonetheless, what would the market look like?

Labels: app store econ, apple, hats o' money