There are two things in tech news this week which are related but that tech journalists don’t recognize as being so. First, Apple is getting relentlessly bashed for pursuing ad revenue in their iOS Appstore. Second, Elon Musk is laying off 50% of Twitter employees because Twitter is “losing $4 million a day”.
iOS Developers Are Oblivious
I’ve done my small part to combat the colossal financial ignorance that iOS developers spew on a daily basis. Basically, they want free access to Apple’s customer base and believe that Apple owes them. Their desire would shift their business expense onto the hardware customer. That is bad for the consumer. Furthermore, this would take away the iPhone customer’s ability to vote with their dollars on which apps are worthy of support.
I listen in amazement to the main shill for the iOS developers, Jason Snell, make statements about how Apple should just let the iPhone carry the costs of the Appstore and iOS development. Software is cheap he says over and over. There are no incremental material or distribution costs he states. He makes it sound like iOS and the Appstore run on fairy dust and happy thoughts.
But the thing that Jason and the iOS developers always leave it out is this. You can’t separate the Appstore costs from iOS. For better or worse, they are linked. So you can’t say that Apple’s costs to run the Appstore are X percent of iPhone revenue. Because the Appstore costs are much greater and are necessary to fund iOS development. Unlike Google or Microsoft, there are no revenue streams from the iOS operating system.
Software Is Expensive
My work with creating the financial plans for various Fortune 500 level companies has given me a healthy respect for how expensive creating and maintaining custom code can be.
Software isn’t cheap. And for most companies trying to swim in turbulent waters, an army of programmers is like a lead weight tied to your feet. In my early days of accounting, many companies employed their own custom IBM AS400 accounting systems. In fact, installing these AS400 based systems for new subsidiaries was my job for a while so I spent a lot of time in India and Venezuela with programmers getting the system up and running and training local personnel.
The accounting behemoth SAP saw how much money was being poured into programmers for custom accounting systems and saw a huge opportunity. They knew that they could undercut the cost of these systems by spreading their programmer costs over many companies. Why should 100 companies employ on average 50 coders? It would be much cheaper for SAP to keep a stable of a few thousand and spread their work over 100 companies. And they took the business world by storm.
Twitter Has No Material or Distribution Costs and Yet Is Losing Money
I have an informal budgeting rule of thumb that 100 programmers is going to cost roughly $150 million per year. And Musk’s recent statement that Twitter is losing $4 million per day and the level of his job cuts actually comes pretty close to my estimate.
And as Jason Snell loves to point out about Apple, Twitter has no material or distribution costs. And yet, they are drowning in people costs. All those people working on various coding projects is a huge expense.
This is relevant to Apple because it refutes the way iOS developers frame the situation. Creating and maintaining code is heavy burden in and of itself. Just because there is no manufacturing and shipments to deal with doesn’t mean that software maintenance is cheap. iOS developers try to portray Apple as a money grubbing monster when they are simply doing what all companies are doing. They are trying to make sure that all facets of the company are contributing and not bleeding the company dry, ala Twitter.
Apple’s iOS Operating System Has No Revenue
This shouldn’t come as a shock to iOS developers or Jason Snell but hardware and software are run like entirely independent businesses. They are like opposite ends of the manufacturing spectrum that live in separate universes. You need different vendors, different skill sets, different managers, different everything.
And even for a company like Apple which is tightly integrated. I’m sure that internally, they have to treat them as different business divisions. Why? Because you have different managerial heads with their own budgets. There’ s no way around it.
And unlike Google or Microsoft, Apple has never sold their operating system separately or sold advertising on it. Apple has to fund this cash incinerating endeavor by Appstore revenue. And now that iOS developers are pulling in foreign governments to reduce their Appstore fees, Apple has to look at alternative forms of revenue to fund their army of coders. Enter, the new advertising dollars.
Lo and behold, the same people who are responsible for the reduction in AppStore revenue, are now complaining about Apple using advertising to shore up their revenue. These loudmouth developers are the cause of the problem. Apple can’t win with these people.
Of course, if you ask the developers what Apple should do they will always say to raise iPhone prices. That is their solution to everything. They are anti-consumer and care about nothing more than their own business profitability. Don’t listen to iOS developers.
Apple Would Make More Money Running Android
But if you extend the logic of the iOS programmers that hardware is the be-all and end-all for Apple, you start to open up some unintended consequences.
Because from a financial standpoint, Apple would make a heck of a lot more money by changing their value proposition. If Apple said, “You know what, the developers are right. Our strength is in hardware, not software, so we are no longer going to put time and money into iOS. We are going to focus on making the highest quality and most reliable hardware devices possible but we will run the Android operating system from now on.”
If Apple did this, where would disgruntled iOS lovers go? The risk to Apple on losing a huge share of their customer base is mitigated by the fact that there is no credible alternative to Android.
Not only would Apple probably not lose a big part of their current market, they would likely gain a HUGE portion of the Android market. There are probably hundreds of millions of Android users who have always been envious of the iPhone hardware but were unwilling to switch because they were already in a committed relationship with Android. And globally, Apple has about 18% market share. Apple could literally double their current level of iPhone shipments if they appealed to the Android market.
And while increasing sales exponentially, Apple could simultaneously save billions upon billions of dollars every year by not employing an army of coders who build and maintain iOS. Margins would be way up.
But the Customer Experience Would Suffer
At this point iOS developers would start howling about all the things that Apple couldn’t do if the iPhone was Android based. Which I would agree with. Which brings me to my point.
ANY MONEY SPENT BY APPLE ON SUPERIOR SOFTWARE HAS TO HAVE A MEASUREABLE FINANCIAL BENEFIT.
There is no way around it. If hardware is the focus, Apple can make more money by ditching iOS. If Apple is going to spend money on iOS, there needs to a corresponding benefit. It needs to pay for itself to justify its existence. Otherwise, it’s a freebie that can be discontinued at any time.
Why should Apple spend billions of dollars on iOS if there is no financial return outside of hardware sales? They could sell more hardware without iOS and at a higher gross margin. If Elon Musk ever got control of Apple he would probably ditch iOS by the end of his first week.
Do iOS developers want to continue to characterize iOS as something like free coffee in the lobby at a car dealership? Or is iOS a worthy business in and of itself that adds value on its own?
Because if iOS and the AppStore add value on their own, then they are a business. And should be treated as such.
I’ve done my small part to combat the colossal financial ignorance that iOS developers spew on a daily basis. Basically, they want free access to Apple’s customer base and believe that Apple owes them. Their desire would shift their business expense onto the hardware customer. That is bad for the consumer. Furthermore, this would take away the iPhone customer’s ability to vote with their dollars on which apps are worthy of support.
I listen in amazement to the main shill for the iOS developers, Jason Snell, make statements about how Apple should just let the iPhone carry the costs of the Appstore and iOS development. Software is cheap he says over and over. There are no incremental material or distribution costs he states. He makes it sound like iOS and the Appstore run on fairy dust and happy thoughts.
But the thing that Jason and the iOS developers always leave it out is this. You can’t separate the Appstore costs from iOS. For better or worse, they are linked. So you can’t say that Apple’s costs to run the Appstore are X percent of iPhone revenue. Because the Appstore costs are much greater and are necessary to fund iOS development. Unlike Google or Microsoft, there are no revenue streams from the iOS operating system.
Software Is Expensive
My work with creating the financial plans for various Fortune 500 level companies has given me a healthy respect for how expensive creating and maintaining custom code can be.
Software isn’t cheap. And for most companies trying to swim in turbulent waters, an army of programmers is like a lead weight tied to your feet. In my early days of accounting, many companies employed their own custom IBM AS400 accounting systems. In fact, installing these AS400 based systems for new subsidiaries was my job for a while so I spent a lot of time in India and Venezuela with programmers getting the system up and running and training local personnel.
The accounting behemoth SAP saw how much money was being poured into programmers for custom accounting systems and saw a huge opportunity. They knew that they could undercut the cost of these systems by spreading their programmer costs over many companies. Why should 100 companies employ on average 50 coders? It would be much cheaper for SAP to keep a stable of a few thousand and spread their work over 100 companies. And they took the business world by storm.
Twitter Has No Material or Distribution Costs and Yet Is Losing Money
I have an informal budgeting rule of thumb that 100 programmers is going to cost roughly $150 million per year. And Musk’s recent statement that Twitter is losing $4 million per day and the level of his job cuts actually comes pretty close to my estimate.
And as Jason Snell loves to point out about Apple, Twitter has no material or distribution costs. And yet, they are drowning in people costs. All those people working on various coding projects is a huge expense.
This is relevant to Apple because it refutes the way iOS developers frame the situation. Creating and maintaining code is heavy burden in and of itself. Just because there is no manufacturing and shipments to deal with doesn’t mean that software maintenance is cheap. iOS developers try to portray Apple as a money grubbing monster when they are simply doing what all companies are doing. They are trying to make sure that all facets of the company are contributing and not bleeding the company dry, ala Twitter.
Apple’s iOS Operating System Has No Revenue
This shouldn’t come as a shock to iOS developers or Jason Snell but hardware and software are run like entirely independent businesses. They are like opposite ends of the manufacturing spectrum that live in separate universes. You need different vendors, different skill sets, different managers, different everything.
And even for a company like Apple which is tightly integrated. I’m sure that internally, they have to treat them as different business divisions. Why? Because you have different managerial heads with their own budgets. There’ s no way around it.
And unlike Google or Microsoft, Apple has never sold their operating system separately or sold advertising on it. Apple has to fund this cash incinerating endeavor by Appstore revenue. And now that iOS developers are pulling in foreign governments to reduce their Appstore fees, Apple has to look at alternative forms of revenue to fund their army of coders. Enter, the new advertising dollars.
Lo and behold, the same people who are responsible for the reduction in AppStore revenue, are now complaining about Apple using advertising to shore up their revenue. These loudmouth developers are the cause of the problem. Apple can’t win with these people.
Of course, if you ask the developers what Apple should do they will always say to raise iPhone prices. That is their solution to everything. They are anti-consumer and care about nothing more than their own business profitability. Don’t listen to iOS developers.
Apple Would Make More Money Running Android
But if you extend the logic of the iOS programmers that hardware is the be-all and end-all for Apple, you start to open up some unintended consequences.
Because from a financial standpoint, Apple would make a heck of a lot more money by changing their value proposition. If Apple said, “You know what, the developers are right. Our strength is in hardware, not software, so we are no longer going to put time and money into iOS. We are going to focus on making the highest quality and most reliable hardware devices possible but we will run the Android operating system from now on.”
If Apple did this, where would disgruntled iOS lovers go? The risk to Apple on losing a huge share of their customer base is mitigated by the fact that there is no credible alternative to Android.
Not only would Apple probably not lose a big part of their current market, they would likely gain a HUGE portion of the Android market. There are probably hundreds of millions of Android users who have always been envious of the iPhone hardware but were unwilling to switch because they were already in a committed relationship with Android. And globally, Apple has about 18% market share. Apple could literally double their current level of iPhone shipments if they appealed to the Android market.
And while increasing sales exponentially, Apple could simultaneously save billions upon billions of dollars every year by not employing an army of coders who build and maintain iOS. Margins would be way up.
But the Customer Experience Would Suffer
At this point iOS developers would start howling about all the things that Apple couldn’t do if the iPhone was Android based. Which I would agree with. Which brings me to my point.
ANY MONEY SPENT BY APPLE ON SUPERIOR SOFTWARE HAS TO HAVE A MEASUREABLE FINANCIAL BENEFIT.
There is no way around it. If hardware is the focus, Apple can make more money by ditching iOS. If Apple is going to spend money on iOS, there needs to a corresponding benefit. It needs to pay for itself to justify its existence. Otherwise, it’s a freebie that can be discontinued at any time.
Why should Apple spend billions of dollars on iOS if there is no financial return outside of hardware sales? They could sell more hardware without iOS and at a higher gross margin. If Elon Musk ever got control of Apple he would probably ditch iOS by the end of his first week.
Do iOS developers want to continue to characterize iOS as something like free coffee in the lobby at a car dealership? Or is iOS a worthy business in and of itself that adds value on its own?
Because if iOS and the AppStore add value on their own, then they are a business. And should be treated as such.
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