03 Feb

Yesterday’s Launch of “The Daily” and Apple’s Fear of “Russian Doll” Business Models

Yesterday’s launch of “The Daily”

Yesterday, The Daily was launched by Rupert Murdoch at the Guggenheim New York. Everybody talked about it. Some called it a second rate iPad magazine rather than a newspaper. Everyone praised the quality of the journalists, hired away from some prime publications like The Economist.

Today, The Daily is old news. Perfect for me. I took the time to search yesterday’s articles and blog entries for some hints about how much commission Apple is taking on the $39.99 annual The Daily subscription and other similar subscriptions.

TechCrunch reported on Apple Executive Eddy Cue’s statement about enabling subscriptions, but nowhere does it say how much Apple takes. It can’t be 30%… I am sure it can’t… this is why…

“Russian Doll” Business Models

Just a few months ago, Apple added In-App purchases which are essentially license sales within the App (Google has followed up with Android). It’s a purchase within a purchase. Granted, many Apps which feature In-App purchases are free. All in all, this is great for Apple, because it gets it’s 30% cut – inside and outside of the App.

http://commons.wikimedia.org/wiki/File:Russian-Matroshka_no_bg.jpg#file

Image of Russian matroshka doll (Permission to use under Creative Commons license)

These payment functions behave like “Russian Dolls;” it is possible to trigger a business model within a business model. And adding Matryoshka Dolls themselves is the best defense Apple has against someone else’s Matryoshkas. What Apple wants to hold onto by all means is its commission on all sales. Covert business models inside it’s own and an erosion of it’s control over sales… these are the things Apple really fears.

Covert Licence Stores within Licence Stores

If Apple can do the Matryoshka trick, so can others. Just a few days ago, on the 1st of February, The New York Times reported that Apple pulled the Sony Reader from its App Store. The conflict between Apple and Sony was about which shop gets to sell which licences. Licences are sold by Sony for books outside of the Apple platform, but they be read with Apple-enabled iOS Apps on Apple devices – without Apple getting a share.

In this example, the licence shop of alternative providers is wrapped inside a Matryoshka available in the Apple licence store. Amazon’s Kindle reader for iOS works in a similar way and directs consumers away from Apple to buy books over Amazon directly.

Subscriptions within Licence Stores

What about the Apple sales shop being (mis)used to sell subscriptions? In theory, publishers could offer Apps over the App Store for free or for a nominal fee, but use this App as a reader for a subscription sold elsewhere. This way, Apple loses out on continuous revenue streams enabled by its ecosystem. Effectively, a publisher’s subscription business model is embedded in software sold in Apple’s licence store.

Apple’s position is obvious – get into the game of offering subscriptions. But I believe publishers will really, really cringe at the prospect of giving Apple a share of continuous revenue streams generated by subscriptions. This would be far more painful than sharing 30% for enabling licence sale.

Why it just can’t be 30%

Subscriptions are a really hard sell, since customers are committing themselves to some type of contract over time. Nobody likes to be chained to a wall. To be successful, subscriptions have to be compelling and exclusive (like a club) or need to be perceived as a necessity one cannot do without. Best is both.

All this and also the sheer costs of providing a compelling continuous service mean that publishers are not too keen on providing Apple with a revenue share over time. In fact, they probably can’t even afford it. Surely, 30% is out of the question. In BuzzMachine, Jeff Jarvis estimates 25% (still very high) and provides some clear back-of-the-envelope calculations.

What type of deal Mr. Murdoch has is unclear. This is why I searched all day today to find some hints about the revenue share that Apple gets. Unfortunately, despite the fact that we are living in in a leaky, digital world, this specific piece of information seems to be tightly held.

Link to image source (Russian Matroshka doll used under Creative Commons Attribution-Share Alike 3.0 Unported License – Thanks, Creative Commons and GNU)