Apple’s Platform Strategy

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Back in January, I mused that Apple’s insistence that publishers must use the in-app subscription functionality when they sell content to users might provide a boost for Android. Then, a patent troll reared its ugly head, demanding that developers cough up 0.575% of their US revenue from in-app purchases, and this week, just hours after the Financial Times released a web app that effectively bypasses Apple’s terms and conditions altogether, news emerged that Apple is backtracking on it’s in-app subscriptions policy.

Apple’s clearly on the back foot. It appears that they failed to anticipate that publishers would sell subscriptions out-of-band and now they look a little bit greedy (for trying to grab 30% of subscription revenue), incompetent (because the platform they sought to force developers to use turned out to be booby-trapped by the Lodsys patent – even if the patent turns out to be invalid or if it’s proven that Apple’s licence also cover app developers, a lot of damage has already been done) and foolish (because it turns out that, despite all Apple’s efforts, you can simply sidestep the App Store – and their 30% commission – by building your app in HTML5 instead of natively on iOS).

Platforms need to be stable (both in terms of the technology and the commercial terms and conditions the platform owner imposes) to attract and retain 3rd party developers and content providers. How can a publisher formulate a strategy for a platform if you don’t know what the rules of engagement are going to be in six months time? On top of that, those who scrambled to update their apps to incorporate Apple’s in-app purchase functionality by the June 30th deadline are likely seething about the wasted effort.

Because platforms rely on network effects, it’s important to get your strategy and your business model right. If you don’t, problems are magnified by the very same network effects you rely on to make your platform successful in the first place.

The more restrictive a platform, the less attractive it becomes. Had Microsoft imposed T&Cs as restrictive as Apple’s on Windows software developers, Windows would not have achieved the dominance it did during the 1990s. (Incidentally, there’s a certain irony in the fact that FT’s use of HTML5 to escape Apple’s restrictions is reminiscent of the threat that Microsoft perceived the Web as posing to Windows’ position as the dominant OS.)

Similarly, if the platform owner tries to impose too high a price on access to their platform, it makes it less attractive. If everyone who sold content in PDF format had to pay commission to Adobe, I doubt we’d all have Acrobat Reader installed on our desktops.

Network effects mean that a significant portion of a platform’s value is derived from its users. If the platform owner seeks to extract significantly more value than they contribute – through, for example, innovative design and functionality, or the creation of a user-base through marketing – it becomes economic rent.

Apple make money on each iPhone and iPad they sell. They make money each time someone signs up to become an app developer. They make a commission on every native iOS app sold. Was it wise to also demand 30% of the revenue from paid-for content accessed through those apps?

Written by jackgavigan

June 11, 2011 at 8:09 pm

Posted in Openness

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