Apple changes the in-app purchase game

Is Apple's approach to how goods are bought and sold on iOS devices changing? That seemed to be the case Tuesday, as a developer accused Apple of rejecting its app in a money grab.

The frustrated developer in question is Sony, which went public (an act Apple warns developers against) over the rejection of its Reader for iPhone app, a front-end to Sony’s e-book store.

According to a story published on Tuesday by the New York Times, Apple rejected Sony’s app and requested that it be modified to take advantage of Apple’s in-app purchase system. Sony also published a statement saying it has “reached an impasse” with Apple and is now “exploring other avenues to bring the Reader experience to Apple mobile devices.” (Presumably this means a web-based reading system.)

What makes Sony's case different from that of other e-book apps like Amazon's Kindle app, which has long been on the iOS? From the New York Times report it seemed that Sony may have offered an interface for purchasing books right within its app, which has always been a no-no—Apple’s guidelines make it clear that buying stuff inside an app must be accomplished using Apple’s in-app purchase system, which uses your Apple ID and linked credit card. This is why, when you try to buy a book from the Amazon Kindle app, you are instead sent to Amazon.com via the Safari web browser.

But it turns out that Sony may have been a canary in the proverbial coal mine. Numerous media organizations, including Macworld, contacted Apple and received a comment from Apple spokesperson Trudy Muller. Here’s Muller’s statement:

We have not changed our developer terms or guidelines. We are now requiring that if an app offers customers the ability to purchase books outside of the app, that the same option is also available to customers from within the app with in-app purchase.

The statement seems a bit contradictory, but what it seems to be saying is that although terms and guidelines haven’t changed, Apple is now enforcing them differently. Basically, Apple is mandating that any book app that offers the ability to buy stuff outside the app should also offer the ability to buy stuff inside the app, using Apple’s system. (It’s an interesting change, since previously Apple’s policy on the matter has been to preclude app developers from using Apple’s commerce system to provide any sort of product outside the app experience.)

This is irrefutably a change in policy for Apple, and the ramifications are staggering even if you limit the scope to books. It means that Amazon, Barnes and Noble, and other booksellers will need to offer an in-app purchase option for all their books, and give Apple a cut of the proceeds.

If this were implemented today, it would be a disaster—there’s not even room in Apple’s system for all the books in Amazon’s catalog. And while a 30 percent cut on all sales in the App Store seems reasonable, that same 30 percent cut for content that’s neither tracked nor served by Apple seems high. It would be impossible for Amazon or Barnes and Noble to maintain existing book prices while also cutting Apple in for 30 percent.

It’s unclear if Apple would also mandate that prices remain consistent inside and outside of the in-app purchase system; if that mandate existed, it’s hard to see how Amazon could maintain its presence on iOS. If it didn’t exist, you’d start to see all those in-app purchase prices be much higher than the ones available on the outside. And given the existence of Apple’s own iBooks product, the possibility of government investigations for anti-competitive behavior seems large even before you toss the possibility of mandated pricing policies on the heap.

Then there’s the larger question: what about products other than books? Macworld’s digital-replica edition is available on the free Zinio app, which follows Amazon’s take-it-to-the-web approach; will Zinio be required to offer in-app purchases for all its magazines? Will Netflix be required to offer subscriptions in its own iOS apps, in addition to via its Website? Will the eBay app be required to offer a Buy It Now button via in-app purchase? (Fair point: some apps, such as most of the comic-book reading apps, have been using in-app purchase all along, and wouldn’t be affected. In fact, Apple’s new policy might make content bought in those apps more portable than it is today.)

Another shoe to drop?

Deep breath. Let’s not get too hysterical just yet. Given that Sony has forced this issue into public view, it’s entirely possible that there’s more to this story that Apple just isn’t willing to reveal yet. It could come as soon as tomorrow at the launch of Rupert Murdoch’s The Daily iPad newspaper, in fact.

What would make this entire policy go down smoother with app developers is if Apple separated its famous 30 percent cut on app sales from its less-known 30 percent cut on in-app content sales. When Apple announced the App store in 2008, the company suggested the 30 percent cut was intended to “pay for running the store.” But app downloads—which are served by Apple and require an approval process—are much more resource intensive than in-app purchases. If Apple were to change the terms of in-app content purchases to be more akin to a credit-card processing fee, publishers would have less to squawk about.

Money aside, this decision by Apple has the potential to be quite consumer friendly. In-app purchases are easy and familiar. Entering your Apple password before making a purchase has become second nature to iPhone, iPad, and iTunes users. Having to go to a Website to enter in your credit card or log in using a different user ID takes longer and is less convenient. Presumably content vendors would sell more stuff if they were able to standardize on Apple’s in-app system—the question is, would it be enough to make up for the cut Apple takes?

For a couple of years now, Apple has been boasting about how many millions of iTunes IDs are linked to credit cards. Recent rumblings suggest that the company is seeking to expand the footprint of its financial services, too. It’s clear that Apple is tired of seeing companies make money on content served to iOS devices without using its system or cutting it in for a piece of the action. The current 30-percent cut of all content purchases would seem to be an impediment to getting partners to embrace Apple’s system; on the other hand, Apple’s the gatekeeper to its platform and if other companies don’t want to play ball with Apple, they’ll be on the outside looking in.

What happens next depends on Apple’s calculation about how much leverage it has with those who want to be players on the App Store platform. Change is undoubtedly coming in terms of how users buy stuff in iOS apps. Exactly how much change will have a lot to do with whether Apple is in the process of changing its terms, or if the company is content to keep things as they are and see what happens next.

[Jason Snell is editorial director of Macworld. Disclosure: Snell worked on the Macworld Daily Reader project, the approval of which by Apple touched on some of these same issues.]

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