The Tablet Wars are on.

Yes, the long-anticipated deluge of tablets is finally upon us. The iPad had the market to itself from its launch in April 2010 up until now – almost an entire year. And what a year it was for iPad sales. According to KPCB industry analyst Mary Meeker, Apple sold nearly 15 million iPads in the 3 quarters after its launch. This dwarfs the introduction of the iPhone, considered a phenomenon at the time. There is no doubt that Apple has found (or created) a market for a new form factor. Its imitators, while slow in coming, are finally here to cash in.

On the operating system front, Apple faces competition to its iOS platform in the form of Google (Android), HP (Web OS), Microsoft (Windows 7),  and RIM (Blackberry Tablet OS). In terms of device manufacturers, new tablets have just been introduced or are on the way from Samsung (Galaxy), Motorola (Xoon), HP (Slate), RIM (Playbook), and Dell (Streak) among others.

This onslaught arrives just in time as Apple is behaving badly. Or maybe they are behaving badly because of the new influx of competition. Either way they are really mucking things up for publishers.

In case you haven’t been following the various pronouncements from One Infinite Loop, here is the recap:

On February 1, the New York Times reported that Apple rejected a new app from Sony that was designed to allow purchases on the Sony Reader Bookstore. In other words, Sony submitted an app that was more or less the same as the Kindle app that has been available on the iPad since launch. For those not familiar with the Kindle app, it works like this: When you want to buy a book from within the app, you click on the “Kindle Store” button which opens a web page where you can buy the book. After buying it, Amazon whisks the digital file back to your iPad, returns you to the app, and voila— you can start reading a few seconds later.

It is a fairly seamless user experience and has the advantage from the user’s perspective of being device agnostic. That same digital file that is sent to my iPad is also available on any other device that I want to read on, including non-Apple devices. So y0u can read the same book on your Kindle reader, your Android phone, your Dell desktop, etc. And what is more the app will keep track of where you are in the book. This is what Kent Anderson referred to as the “Me at the Center” orientation of information whereby your stuff follows you around and knows where you are. From Apple’s perspective, however, all of these transactions happening elsewhere (e.g. in the Kindle Store or the Sony Reader Store) are transactions that it does not have a piece of.

And by a “piece” it means a whopping 30%.

Apple’s notion is that it will now receive 30% of all in-app purchases. And while it will allow purchase to be made elsewhere (e.g. via the publisher’s web site), no longer can publishers link out from within the app to make such purchases. Moreover, Apple additionally requires that if a publisher does allow purchases outside of the app, the same offer be made inside the app. Think about that for a moment: If Apple requires a 30% fee for all Kindle books sold via the iTunes store, where does that 30% come from? Does that come out of Amazon’s share or the publisher’s? Or do we have to raise prices across the board and force consumers to take the hit?

Just as the shock waves from Apple’s rejection of the Sony app were reverberating, Apple reinforced the point in their announcement of support for subscriptions within iTunes. It has long been a source of frustration for publishers that iTunes does not support subscriptions – forcing users to either purchase each issue of a periodical separately (e.g. the New Yorker or the BMJ apps) or to subscribe outside the app at the publisher’s web site (e.g. the Wall Street Journal or the Economist apps). Unfortunately, the solution that Apple has come up with only makes matters worse.

To pull out a few of the highlights:

  • Publishers can no longer sell digital subscriptions on their websites unless they also make an in-app subscription option available (in other words, the Economist/WSJ model is no longer permitted).
  • Publisher will forfeit 30% of in-app purchases to Apple.
  • Publishers can’t link out to their own websites for transactions.
  • Publishers will not receive any information regarding who their subscribers are except on an opt-in basis and will then receive only the sparest of data.

It is of course fair for Apple to exact a fee for purchases made in its store, just as all retailers have a markup on the goods they sell. Newsstands have markups of well over 30%, for example. What crosses the line, however, is Apple’s attempt to control sales taking place outside its store. If a publisher wants to avail itself of Apple’s installed base of one-click app store users, great. Apple can charge whatever it wishes for that service. The notion that publishers must use Apple’s store, however, is a case of Apple taking its closed-system mindset a step too far.

Moreover, the last bullet point about about user data is also particularly troublesome. While Apple portrays its policy as protective of user privacy it is, in fact, deleterious to user experience. If Netflix or Amazon or the Economist does not know who I am, they cannot provide the “Me at the Center” experience that I have come to expect.

While Apple’s announcement no doubt made many publishers lose their appetite, it made Eric Schmidt’s day. Twenty four hours after Apple’s press release the Google chairman paused during a trip to Berlin to announce One Pass, a new service from Google that provides a mechanism for publishers to sell digital subscriptions using a variety of business models. One Pass ties into both Web sites and mobile apps “in instances where the mobile OS terms permit transactions to take place outside of the app market” (meaning everyone but Apple). While Google also intends to a levy a substantive (but not outrageous) fee of 10% for One Pass, they will in turn provide far more customer data than Apple. Moreover, the Android platform in no way requires One Pass – publishers are free to use their own ecommerce and authentication services in their Android apps, bypassing One Pass entirely.

What does it all mean for STM and scholarly publishers? Apple’s new policies hit our community particularly hard for those publishers looking to the iPad as an additional source of incremental revenue. The Economist model of outside-of-app purchasing is well suited to our content as it is high-value and often must-have information that professionals will seek out and pay for. The impulse-buy enabled by the one-click in-app purchase is just not going to drive sales the way it will for a consumer magazine. Moreover, renewal rates for STM and scholarly periodicals are high — often topping 90%. So while it is one thing to pay 30% for new business it is quite another to pay that rate for renewals. Again, for consumer magazines with higher subscription churn this is not as big an issue.

On the other hand, STM and scholarly publishers have some options that are not open to other types of content providers. Many publishers are membership organizations that can bundle online access (and app access) with membership, thereby side-stepping Apple’s rules. Moreover, enabling institutional access via paired devices or institutional sub accounts provides another mechanism for publishers to add value without providing the 30% tariff to Apple and while retaining user data. A prudent strategy for many STM and scholarly publishers may be to focus on adding value (and raising prices) on membership and institutional subscription access and bundling mobile delivery into that price.

For those publishers that wish to provide a smartphone experience, a mobile-optimized view may be the best approach. Web delivery bypasses any onerous platform restrictions, delivering content in a mobile browser with an optimized reading experience. Users can be authenticated to a mobile optimized edition using the same protocols employed for desktop reading, thus maintaining the delivery of user data and ensuring a “Me at the Center” user experience.

For those publishers that wish to provide apps native to mobile devices (and especially tablets), it may be time to start looking beyond Apple. While the iPad has by far the largest installed base, if the smartphone market is any indication it will not take Android et al. long to catch up. Especially with Apple doing everything possible to encourage publishers and other content providers to focus their energies on competitive platforms.

Michael Clarke

Michael Clarke

Michael Clarke is the Managing Partner at Clarke & Esposito, a boutique consulting firm focused on strategic issues related to professional and academic publishing and information services.


12 Thoughts on "The Tablet Wars Are On, With Big Stakes for Publishers"

As per Michael’s “prudent strategy” OS up-charges may translate to across the board pay more for mobile models. Yes, this would be a viable mechanism for price increases levied by STM publishers wanting to add mobile services for “me at the center” patrons, some of which will be passed through to OS providers. This will also have a deleterious impact on library budgets, where accepted, and on publishers further down the down the disciplinary stream who may not have just-in-time content. Mobile works for some and not for others. Q: Will libraries also pay premiums in order to provide mobile delivery of content from non STM aggregations, from SAGE, JSTOR, and ProQuest?

First, it should be noted that until the other tablets actually ship, the only war that has begun is the hype war, or perhaps the vaporware war. RIM has already announced three different models of their PlayBook and has yet to produce any of them. The few tablets that have come out have been met with scathing reviews and customer dissatisfaction. So far, this is a one horse race, more of a slaughter than a war.

And I’ll ask you the same question I asked Kent, is Apple’s behavior here any different from Amazon’s or B&N’s or Kobo’s or that of brick and mortar stores? Correct me if I’m wrong, but if I want to sell my book on Amazon’s platform, whether electronic or in print, I’m still paying at least that same 30% rate. Ditto brick and mortar bookstores, B&N/Nook, Kobo (has Google yet announced what cut they want for their e-bookstore)? How much of a revenue cut do aggregators of scholarly journal subscriptions claim? Even worse, if I want to sell my subscription on Amazon’s platform, I pay that same 30%, plus “delivery costs” plus I’m not allowed to set the price of my own product, Amazon claims the right to do that. And doesn’t Amazon’s Kindle agreement require “most favored nation status” as well, influencing your ability to sell outside of the Kindle environment? So in some ways, this isn’t Apple being particularly evil, it’s Apple being just as evil as everyone else.

As noted in my comment on Kent’s post, this strikes me as more of an attack on third party middleman resellers than content creators and publishers themselves. If we’re already used to paying a 30% premium to a reseller, then why not just pay that directly to Apple instead of paying it to Amazon and having them re-sell your product through Apple? Will this drive more content companies to sell direct rather than through aggregators? Will Apple replace Amazon and the like as the main aggregator for content?

I’m also not sure Apple’s policy affects the “me at the center” paradigm as much as you think it does. If I subscribe to Netflix via the Apple app, then I want to view content on my computer, I’m just going to have to log in and create an account that recognizes that same subscription. That may be a way for companies to get that subscriber info that Apple denies them, require it for web access, television access, etc. I don’t see Apple trying to set up a situation where I’d have to buy separate subscriptions for different devices. Also, how much purchaser information do magazines get from newstand sales?

I do fully agree that more effort will (and should) be given to mobile sites for scholarly journals. I’ve yet to see a scholarly journal app that does anything that a well designed website couldn’t offer at a lower production cost.

The issue here is not that Apple is changing a 30% for sales through iTunes or the App store. You are correct that this is entirely consistent with pricing from resellers and other third parties. Apple can charge whatever fees it would like on its retail store. The problem is that Apple is mandating that software written for the iPad (a computer) cannot receive content updates (subscriptions) except via its store. That would be the equivalent of going to Best Buy to buy a DVD and then inserting it into your DVD player or your computer and having a notice come up that says “Sorry, you cannot play this DVD without first paying Apple [or Sony or whomever] 30% of the purchase price of the DVD.” What they charge for in-app purchases is beside the point. The issue is that they are blocking purchases outside their store.

No, that’s not what Apple is mandating. They’re saying that if you sell subscription material for the app outside of the app itself, you also must make it available for sale from within the app. You can sell content from outside of the app and pay Apple nothing.

You can also continue to bring in the paid content you already own to the apps that already exist.

Purchasing outside of the store is just as allowed as it always was. The issue is though, that it’s likely more convenient for your users to purchase it in-app. And if they do that, then Apple takes a cut. And that’s hard for a reseller to handle when they’re already implementing that same business model, as Apple’s cut would have to come out of the reseller’s cut, or the price of the item would have to be increased.

Personally, I think the market will take care of it. If it makes things untenable, or a competitor offers similar service and better terms, Apple will cave (as they did on DRM and the 99 cent price limit in iTunes).

I agree that for book publishers largely selling through intermediaries, these rule changes may be neither here nor there. Whether one sells via Amazon or Apple may not substantively matter so long as one’s remit stays the same.

Subscriptions are another matter. While a publisher might technically offer a subscription outside the app, practically speaking no one will buy it outside the app. If a user has to go to the App Store to download a (free) app, they are not going to then open up a browser, navigate to the publisher’s website, and sign-in or set up an account, and purchase content, and then then go back to the app to read it. Especially if the same content can be bought inside the app they just downloaded for the same price. Apple is effectively saying the only practical way for paid content to be downloaded to the iPad is via its own app store.

This notion – that all paid content that enters the computer must, for all intents and purposes, be purchased via the device maker – strikes me as a rather fundamental shift in how software (and content) has heretofore been sold. Yes, Amazon has done this with the Kindle, but that is a dedicated reader and not a multipurpose computer tablet.

I agree that the market will sort it out and that the best thing for publishers is a competitive marketplace.

It’s really a question of practicality for the user–Apple won’t outlaw your making them jump through hoops, but they’ve set up a system where it’s vastly easier for them to buy directly and give Apple a cut of the deal. Buying outside of Apple is not in any way forbidden, it just becomes a less attractive path for the customer.

This shouldn’t come as a surprise as Apple has long made it their policy to focus on giving the user the best and most seamless experience possible and at the same time, doing what’s best for Apple rather than trying to support the profits of other companies (see the Adobe Flash controversy).

Given the difficulties of creating apps for the fragmented Android market (and the apparent unwillingness of Android customers to pay for apps or content) this may stall out the entire app market and put a swift end to it as a path to the future.

Likely those resellers will instead put their efforts into cloud-based and web-based delivery much like Google is proposing.

If that happens, Apple is either going to have to figure out how to charge someone for accessing a website, or more likely, they’ll back down and charge a more reasonable vig for their position in the sales chain.

And what are the implications for OA publishing? Presumably, tablet users can access fully OA journals directly just as they do anything else on the Web. But what about hybrid OA journals? Won’t their OA advantage be partially lost because of the Apple tax on TA journals? Or will the OA portion not be affected at all?

“You don’t need to see our ID” is actually pretty much what Apple is saying. Now, if the new iPad2 comes with the Force I’ll take all my unkind words about Mr. Jobs et al. back.

It’s worth understanding that Apple store offering can only cope with about 3,500 items per app. Also, it would seem that you can’t have a subscription last for less than a week. Think about that for a moment.

Plain and simple this is a play aimed at removing apps that compete in areas where Apple wishes to go. Books, Magazines (and similar types of stuff), Streaming music services, Content Rental businesses of any kind. All roads to go through Apple. This is nothing less than a cleansing of the App Store ecosystem. The % charged is actually beside the point here, it’s the applications of the (ever changing) rules/guidelines that are the concerning factor. They’ve actually turned their back on the whole app store concept. One has to wonder what the reasons for that actually are.

Comments are closed.