Apple to world: put up or shut up

Apple drew the line in the sand officially today.  If you are a merchant who makes money selling anything in the App Store either through subscription or in-app purchases, Apple will be taking a 30% cut.  And if you sell anything for use on an app, you now have to sell it for the same price or less in App.   You can argue for or against this policy but Apple is going to do this starting at the end of June.  There is no arguing that.

Unless the government gets involved that is.  The question that likely will be asked: Would you be OK if Microsoft made a mandatory 30% on every purchase made through Windows applications?

I honestly believe a lot of vendors will be exiting.  I also don’t think it is a coincidence that Apple owns properties that compete against these vendors either.  Netflix and Hulu? Don’t let the door hit you on the way out, welcome to iTunes everyone!  Amazon Kindle and Barnes and Noble exit?  Welcome to iBookstore.  Spotify and Rhapsody? Back to iTunes folks.

The reality is that companies like Netflix and to a lesser extent Amazon can’t afford to give 30% of their revenues to Apple.  They just don’t have the cost structure — they would have to raise their prices dramatically just to break even.  Apple knows this too.  Apple doesn’t want people watching Netflix or buying eBooks from Amazon.  It’s Apple’s platform and Apple can take what it wants, right?  If Apple wants to raise the rate to 40%, it will do that too.  This is Apple’s DisneyWorld and it controls the concessions.

I believe what Apple is saying here is that they’ve created such a good subscription and payments ecosystem coupled with such amazing devices that these companies are privileged to sell things to Apple’s 100 million highly-valued customers and their highly valued credit cards, which they conveniently have on file.

On the flip side, I think Apple is absolutely sure that these companies aren’t going to be able to match their offering in an HTML5 web store either.

Sometimes it is easy to forget that you can buy and watch media right in the browser.  Amazon already has a Kindle web store/reader.  Netflix movies could be streamed via Quicktime.  Spotify could be a web player.  Why don’t these companies just set up shop on the HTML5-browsing web?  The technical hurdles could be overcome with the right amount of investment.

Perhaps some will.  In fact, I’m willing to bet this move by Apple will spark the biggest move to HTML5 web stores that’s ever existed.

[youtube=http://www.youtube.com/watch?v=U3j7mM_JBNw&w=640&h=390]

If you are Time, Inc for instance, why even mess around with Apple?  You built an amazing Sports Illustrated HTML 5 magazine over a year ago which does almost everything an App does.  Why not just create a tablet friendly web portal with payment collection.  Besides being a stupidly obvious way to keep 30% of your revenues, you also get to work on any 1024×768 pixel pad device.  That means you build once and you work on iPad, HP’s Touch Pad, Blackberry PlayBook and on Android devices as well.

Besides saving money, you also have direct control over your subscriber lists and your content.  You want to make an late breaking update to your magazine?  Upload a file through SFTP, you don’t have to submit to the App Store, or 3 app stores.  Want to have a quick sale? push a few buttons.  No middle man in the way.

To put it another way, do you think Apple, if the situation was reversed, would ever put itself in a store where it had no control over the content and had to give up 30% of its revenues?  Hayle, no.

But not just any company can build this type of experience.  That is what Apple is banking on.  That’s why iTunes is such a success.  You can usually find music cheaper at Amazon or somewhere else that will play in a wider variety of players, but Apple’s ecosystem and experience keep most people coming back.  They still own the music market and there is nothing the other players can do, no matter how much they hate Apple.

Apple has thrown down the gauntlet.  It will be interesting to see if the industry stands up to Apple and can build a better experience on the web or if they pay their dues to their master and suck it up.  Like what’s left of the Music industry.