Apple's new subscription service: the good, the bad, and the ugly

Apple, the most audaciously disruptive company in the history of technology, has once again raised the ire of old industry incumbents, the hopes of independent players, the fears of passions of developers and consumers, and the post counts of bloggers by announcing their new in-app subscription service for iPhone and iPad. And make no mistake, their press release yesterday was as strategic as any Open Letter ever penned and posted by Steve Jobs.

But is it a greedy money grab, a noble defense of consumer privacy, an arrogant power play, a savvy business move, or a bold if risky gamble by Apple to once again, for the umpteenth time, redefine how an industry works? All of the above?

Let's take a look at the good, the bad, and the ugly of Apple's new App Store subscription service and the policies that surround it... after the break.

The good: Huge consumer win

The first, best thing about Apple's new subscription service is that it will be drop dead simple for consumers. Pretty much every iPhone, iPod touch, and iPad user on the planet knows how to use the App Store and most know how to use in-app purchases. Being able to buy a subscription to a newspaper or magazine as easily as you buy smurfberries is a huge plus. If you don't understand how truly revolutionary that is, go try to subscribe to a real world magazine today. I dare you. There's paperwork, billing info, delivery info, offer after up-sell offer -- and that's not even counting the pain of trying to fix things later when you get over-charged or your copy of People keeps arriving at the dry cleaners down the street. If you think I'm exaggerating or trying to be funny I'm not. It's a terrible user experience.

Second, media companies don't really sell newspapers or magazines, they sell you (more specifically your eyeballs). Think Google invented selling ads for you to look at, and then selling the data about you looking at those ads back to the advertisers? Think again. Those billions of dollars of business existed in the paper world for decades before Google took it high tech. This was one of the largest areas of contention between Apple (who sells products) and media companies (who sell us) -- they wanted our demographic data and Apple didn't want to give it to them. Yes, evil Apple. Say what you want about them but Apple's business is straightforward -- you give them tons of money and they give you pretty things to use. Media is different -- you give them tons of money, they give you something pretty (or ugly, depends), chock full of adds, and then sell all your information back to the advertisers and marketers. Most of us don't realize it so it hasn't been a big deal. Apple does realize it and wants media companies to ask us before they take our data. This displeases the media companies. As Kontra points out, that should make us very, very happy.

Third, Apple is once again disintermediating an industry and that ultimately offers consumers more choice. Just like iTunes has helped get around old world record labels and their indentured service contracts, iPhone helped get carriers to stop mutilating our smartphone experience, and the App Store helped smart indie developers make millions, in-app subscriptions will let small and medium size publishers produce periodicals in a way only giant megacorps can today. It gives them access to 150 million potential devices, the massive iTunes credit card pool, the App Store's simple payment processing system, and all the hosting, transaction, and marketing Apple provides. That's right, they get a shot at being promoted on the App Store and everything that goes with it -- just ask a developer like Glass House Apps what being featured by iTunes means to their business. All included in a simple 30% fee. So just like consumers now get tons of media (like podcasts) and apps that might not have been possible outside Apple's distribution system and platform, we may now get publications as well.

That's a lot of win.

The bad: Huge big media loss

Steve Jobs:

“Our philosophy is simple—when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing,” said Steve Jobs, Apple’s CEO. “All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app. We believe that this innovative subscription service will provide publishers with a brand new opportunity to expand digital access to their content onto the iPad, iPod touch and iPhone, delighting both new and existing subscribers.”

So if you already subscribe to a newspaper, and you download their app, they get to keep all your money. If you download the app first, then subscribe, they have to give 30% to Apple. And they can't make the in-app version 30% more expensive than an out-of-app version, nor can they provide a link for you to go outside the app to subscribe on the web and cut Apple out of their 30%. In other words: if your customer comes in via iOS, Apple is going to get PAID.

Our local movie chain sells soft drinks for $5 (yeah, ouch) and the Burger King inside the movie theater also sells soft drinks for $5. Down the street, outside the movie theater, Burger King sells them for much less. Imagine they weren't allowed to? Sure the movie theater delivers an expanded, captive client base but it's a bitter, begrudging, why-$5-for-a-coke client base. John Gruber equates it to Disneyland, where if you want to do business inside the Magic Kingdom, Mickey gets his cut.

As mentioned above, for the App Store that 30% cut gets you hosting, bandwidth, credit card transaction processing, delivery, reporting, and several incredibly valuable assets -- the App Store's ease of use, it's consumer confidence, and its huge visibility.

But that doesn't mean as much to big media as it does to smaller companies. Big media is used to distributing its own content, handling its own transactions, doing its own marketing, and most importantly -- enjoying and monetizing its own direct relationship with customers. Their whole business is predicated on that old-world model (even newer media enterprises) and it's not a model that supports giving Apple 30%. (It's also a model that's often needlessly consumer hostile, but that's a choice not a requirement.)

Take Netflix for example. Existing subscribers in the US and Canada are exempt but Netflix plans to expand internationally and given the popularity of iPhone and iPad around the world it's not hard to imagine many of their new customers might come by way of the App Store. Netflix already has to pay huge licensing fees to Hollywood (and may have to pay much, much more soon). Their $8 price tag probably can't handle giving $2.40 to Apple. They can't charge $11 in-app and $8 on the web, so do they raise the price to $11 for everyone or just leave the App Store and iOS? Would Hulu? Would DropBox or any other company that up-sells expanded services and provides access to them via the App Store?

Sure record companies probably didn't like the idea of $0.99 iTunes singles, decried the breaking of the album and the power of Apple, but at least record companies sold something -- music. Not ad-supported music. Not music supported by selling info on who was listening to the ads in the music. They sold the actual music. Newspaper and magazines are a very different business from music and movies or apps. Since subscriber data is opt-in, and my subscribers -- finally given the choice -- will likely decide not to opt in, the price can't be subsidized by aggregating and selling viewing data augmented by subscriber demographics either.

That's a tough, bitter pill for large, existing media companies to swallow.

The Ugly: What happens next

When cross-compilers were banned from the App Store, Adobe -- every bit the proprietary, controlling, developer-locking scoundrel Apple was -- went running to the government in hopes the threat of anti-trust action would cause Apple to back down. And Apple backed down (though one look at Epic Unreal 3 may have done more than Adobe's whining). No doubt media companies may employ the same strategy when it comes to fighting the twin provisions of "having to offer the same content via in-app purchase" and "having to offer the same or better pricing in-app". Since Apple is a high-profile, headline grabbing target, the US and EU might choose to "investigate" and Apple might well back down again.

None of that will intentionally be for the benefit of the consumer. (We may benefit from the results but don't assume the media companies or government prosectors care one bit about us in that process.) Say what you want about Apple but they sell user experience, media companies and governments don't. At the risk of repeating myself far too often -- in the battle between King Kong and Godzilla we're not the popcorn munching audience enjoying the show, we're the citizens of Tokyo trying not to get crushed beneath giant ape and lizard feet.

Theories are also being batted around that media companies like Amazon could simply sell read-only versions of their apps but that likely violates App Store policy just the same. The only other viable option is web apps, accessible from iPhone, iPad, and Android, webOS, Windows Phone, and BlackBerry alike. So far web apps haven't provided the speed, convenience, and overall user experience that native apps can but with huge media companies, especially web-savvy ones, behind them, Seth Weintraub believes they could become a viable alternative.

Worst case we see Netflix, Amazon, Hulu, and other massive and massively popular properties leave iOS as a platform. Perhaps they offer a web app instead, perhaps not.

Best case Apple offers tiered service -- simple transactional processing for existing media giants at a much lower cut, full on agency for small and independent publishers who need the services the App Store provides. Big media will still have to change and evolve their business models, learn to sell products rather than selling their customers, but just like the App Store it could lead to phenomenal, platform defining success for those that best and most strategically embrace it.

Likely case we see a lot of grumbling in the media, so headlines about government oversight, a lot of finger pointing, an announcement from Google for publishers (that's not opt-in), and a bunch more editorials like this (though hopefully much shorter and better written). Then we'll really find out what works and what doesn't with Apple's new in-app subscriptions, and both Apple and publishers will adapt and improve the system the same way the App Store and developers have been improving it for the last 2.5 years.

They're unified in wanting our money, after all.