Apple just dropped a nuclear bomb on all of us with their new App Store subscriptions announcement. Here’s the summary: “We’re going to take 30% of your web app revenue. Just because we can.”

This is nothing more than extortion by the second most valuable company in the world (only Exxon Mobil is worth more). They’re leveraging their power to dramatically increase their own profit.

Let me pull out a couple key points and then I’ll explain why this is such a raw deal.

“Subscriptions purchased from within the App Store will be sold using the same App Store billing system that has been used to buy billions of apps and In-App Purchases. Publishers set the price and length of subscription (weekly, monthly, bi-monthly, quarterly, bi-yearly or yearly). Then with one-click, customers pick the length of subscription and are automatically charged based on their chosen length of commitment (weekly, monthly, etc.). Customers can review and manage all of their subscriptions from their personal account page, including canceling the automatic renewal of a subscription. Apple processes all payments, keeping the same 30 percent share that it does today for other In-App Purchases.”

“Apple does require that if a publisher chooses to sell a digital subscription separately outside of the app, that same subscription offer must be made available, at the same price or less, to customers who wish to subscribe from within the app.”

And finally, the cherry on top …

“… publishers may no longer provide links in their apps (to a web site, for example) which allow the customer to purchase content or subscriptions outside of the app.”

Please read that one more time.

Apple will not allow you to encourage your iOS customers to pay for your subscription service outside the App Store fence.

If you design a great iOS app that complements your SaaS app, you are not allowed to link to your own signup page. The only way for someone to sign up to pay for your web app, once they’re inside the iOS app, is by giving Apple 30%.

[UPDATE]

I’d like to clarify something, as it’s come up in the comments. More and more web designers and developers are building recurring revenue web apps and Apple hasn’t been able to tap that revenue stream (besides Mobile Me).

Many of these web apps also build iOS apps to complement their free plans, aiming to wow their customers into upgrading to a paid subscription. Now Apple is going to tax those companies 30% for any users who upgrade in-app.

Here’s a theoretical example: A startup launches an invoicing web app called Super-Duper Invoices, which has a free plan which allows you to send five free invoices a month. They build a great iOS app to compliment this free plan, which allows you to see some useful stats on those invoices (like average days to collect payment, outstanding invoices, average monthly billing, etc). Inside the iOS app, they encourage you to upgrade to the paid plan, and when you click on the link, it takes you to your account page on the web, where you click ‘Upgrade’.

Now Apple won’t allow this. If you want your customers to upgrade in-app, Apple is going to tax you 30%.

This is a game-changer, and I am strongly opposed to it.

[end UPDATE]

But wait, isn’t the App Store and one-click buying a good thing?

The power of the App Store is in two things:

  1. Reaching the mass market. That’s awesome for people who are building games or non-niche products. They benefit hugely from this powerful distribution channel (Angry Birds anyone?).
  2. One-click buying. No more credit card forms or “Your card was declined” messages. Click-and-forget. This is definitely powerful, and I’d happily pay a slight premium to Apple for this, but NOT 30% of all my revenue going forward.

All of us folks who have built up a following in a small niche market (web design and development, for us) don’t need the mass-market distribution channel that the App Store provides. We’re not going to put up with Apple demanding we fork over 30% of our revenue just so our customers can have an iOS experience.

Does Apple deserve a large cut for the massive audience they bring to mass-market apps? You bet.

Do they deserve the same cut from companies who are simply augmenting their offering with iOS apps. Definitely not.

[UPDATE]

Let’s examine the massive negative financial impact of Apple’s new policy, using Think Vitamin Membership as an example.

Our average plan value is $31/mo and we currently have a churn rate of about 10%, so our average customer lifetime value is $310.

We budget $25 to acquire a new customer, plus 4% processing fees for each transaction. Over the lifetime of a customer, that would be a total of $25 + $12.40 = $37.40.

Now Apple is going to take 30% of all future revenue, not just a one-time fee of 30%. That’s $93.00 if someone signs up in-app.

You could argue that Apple would increase your revenue because of the powerful distribution network of the App Store, but this is only true if they feature your app. Otherwise it’s still down to us to market the app effectively.

A great example of this is Sparrow and Remember the Milk – two iOS apps that I discovered because of Twitter, not App Store promotion.

A lot of apps aimed at the web community will fall into this camp – not big enough to be featured by the App Store because the niche is too small. Therefore there is no extra marketing value from being in the App Store and forking over the extra 30% to Apple.

[end UPDATE]

Forget iOS and bring on the HTML5 mobile apps

This is the push we all need to go HTML5, CSS3, jQuery for our next ‘iOS’ app instead of native iOS apps. This is exactly what 37signals recently did with the mobile version of Basecamp.

Another advantage to going HTML5 instead of iOS native is that you have one code base. No need to launch a different version for every mobile platform.

I’m a huge Apple fan. I’ve spent $50,000+ over the years buying Apple products for our Team.

This is something different though. This is bullshit and I don’t think we should stand for it. Do your part by speaking out and letting Apple know this isn’t OK.

Would love to hear your thoughts.

Other reading …

  1. Hacker News
  2. Ars Technica
  3. TechCrunch