Apple's App Store Fee Examined
Technology analyst Ben Thompson made an appearance on The Talk Show with John Grubera week ago where he made the case that Apple’s App Store policy is unjust. Only, he really didn’t.
Thompson’s strongest argument against Apple stemmed from the fact that Apple had nothing to do with the creative production of content. Therefore, Apple had no right to extract a commission from the sale of other people’s creative work. I’m not sure how Ben could come to that conclusion.
I noticed that he steered clear of ever addressing the value of distribution. I’ve spent a significant portion of my career in logistics analysis, so perhaps I’m a little biased in the direction of overvaluing the function of distribution. Perhaps I’m just as biased in favor of distribution as Ben is biased towards the content producers.
But to me, Apple’s App Store is no different than eBay. Apple simply facilitates the matching of buyers and sellers, just like eBay does.
One of the nice things about buying Apple products is that they always command a high resale value a year later. This allows me to upgrade my iPhone, iPad, or Apple Watch in a much more economical way, because I’ll usually sell my lightly used device when I want to upgrade a year later. To accomplish this, I typically use eBay or Swappa.com.
Ben Thompson could make the same case against eBay that he does against Apple. Let’s say that I decide to sell my iPhone on eBay. eBay had nothing to do with the production or acquisition of that iPhone. eBay doesn’t “acquire” the merchandise the way that Target will purchase headphones from Sony. eBay simply provides a platform for me to sell my wares. They also provide point-of-sale services for credit cards and administrative record keeping, all of which Apple also provides for users of their App Store.
Sure, I could sell my iPhone on craigslist and meet up with some random stranger in a vacant parking lot. But I would never do that. eBay is by no means perfect, but I prefer the relative safety and security of selling online versus meeting in a parking lot or inviting strangers into my house.
The eBay platform also gives me access to a much larger customer pool than what I have access to on my local craigslist. This is a point that should not be taken too lightly. If you’re a small business, getting your name out there is the biggest battle. If you sell on eBay or Apple’s App Store, you can, in a sense, piggyback on eBay or Apple’s name recognition. And in the business world, that always comes at a cost.
In return for their administrative help and access to their potential customer pool, eBay will charge me an 11% commission. PayPal charges another 3% for facilitating the funds transfer. That’s a 14% cut on a sale in which eBay had “nothing to do with the acquisition of the merchandise” as Ben Thompson would say. I don’t have a problem with that. eBay and Apple both spend a great deal of money maintaining their respective platforms and advertising to new customers. In the world of software, my rule of thumb is that it takes $100 million per year to cover 1000 employees who support the venture.
If I’m willing to find my own customers and sell for cash, I could avoid any kind of commission. This would be analogous to Netflix pulling out from the App Store. Netflix has created their own storefront, so it doesn’t don’t need the App Store. In theory, anyone can do this. This is not indicative that Apple has a problem. This is a simple business principle that once you have sufficient scale, it may be cheaper to handle many functions on your own rather than paying a third-party premium. Any small business that is growing may find that at some point it’s cheaper to do certain functions on their own rather than paying an outside service fee.
A programmer who says that he can’t afford to sell his app on the App Store due to the 30% commission has a big problem. A pricing and value problem. That’s no different from someone who can build widgets in his back yard but can’t afford to sell them through Walmart. That’s not Walmart’s problem, the entrepreneur has a pricing problem. Or more succinctly, he has no pricing power.
So, don’t come crying to me just because you can’t afford Apple’s commission. Just like eBay, they own their own platform and have a moral and ethical standing to charge that commission. If you want to argue that the amount of that commission is too high, that’s an entirely different argument—one I may not disagree with you on. But I see no basis to say that Apple is not entitled to charge a commission.
I noticed that he steered clear of ever addressing the value of distribution. I’ve spent a significant portion of my career in logistics analysis, so perhaps I’m a little biased in the direction of overvaluing the function of distribution. Perhaps I’m just as biased in favor of distribution as Ben is biased towards the content producers.
But to me, Apple’s App Store is no different than eBay. Apple simply facilitates the matching of buyers and sellers, just like eBay does.
One of the nice things about buying Apple products is that they always command a high resale value a year later. This allows me to upgrade my iPhone, iPad, or Apple Watch in a much more economical way, because I’ll usually sell my lightly used device when I want to upgrade a year later. To accomplish this, I typically use eBay or Swappa.com.
Ben Thompson could make the same case against eBay that he does against Apple. Let’s say that I decide to sell my iPhone on eBay. eBay had nothing to do with the production or acquisition of that iPhone. eBay doesn’t “acquire” the merchandise the way that Target will purchase headphones from Sony. eBay simply provides a platform for me to sell my wares. They also provide point-of-sale services for credit cards and administrative record keeping, all of which Apple also provides for users of their App Store.
Sure, I could sell my iPhone on craigslist and meet up with some random stranger in a vacant parking lot. But I would never do that. eBay is by no means perfect, but I prefer the relative safety and security of selling online versus meeting in a parking lot or inviting strangers into my house.
The eBay platform also gives me access to a much larger customer pool than what I have access to on my local craigslist. This is a point that should not be taken too lightly. If you’re a small business, getting your name out there is the biggest battle. If you sell on eBay or Apple’s App Store, you can, in a sense, piggyback on eBay or Apple’s name recognition. And in the business world, that always comes at a cost.
In return for their administrative help and access to their potential customer pool, eBay will charge me an 11% commission. PayPal charges another 3% for facilitating the funds transfer. That’s a 14% cut on a sale in which eBay had “nothing to do with the acquisition of the merchandise” as Ben Thompson would say. I don’t have a problem with that. eBay and Apple both spend a great deal of money maintaining their respective platforms and advertising to new customers. In the world of software, my rule of thumb is that it takes $100 million per year to cover 1000 employees who support the venture.
If I’m willing to find my own customers and sell for cash, I could avoid any kind of commission. This would be analogous to Netflix pulling out from the App Store. Netflix has created their own storefront, so it doesn’t don’t need the App Store. In theory, anyone can do this. This is not indicative that Apple has a problem. This is a simple business principle that once you have sufficient scale, it may be cheaper to handle many functions on your own rather than paying a third-party premium. Any small business that is growing may find that at some point it’s cheaper to do certain functions on their own rather than paying an outside service fee.
A programmer who says that he can’t afford to sell his app on the App Store due to the 30% commission has a big problem. A pricing and value problem. That’s no different from someone who can build widgets in his back yard but can’t afford to sell them through Walmart. That’s not Walmart’s problem, the entrepreneur has a pricing problem. Or more succinctly, he has no pricing power.
So, don’t come crying to me just because you can’t afford Apple’s commission. Just like eBay, they own their own platform and have a moral and ethical standing to charge that commission. If you want to argue that the amount of that commission is too high, that’s an entirely different argument—one I may not disagree with you on. But I see no basis to say that Apple is not entitled to charge a commission.
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