How Apple will crush its competition with iTunes Online

How Apple will crush its competition with iTunes Online

Summary: Under Apple’s new rules, music subscription services will soon be forced to start paying 30% of the revenue they collect for in-app purchases on an Apple device. In short, they've been torpedoed by Apple. And they're about to take a second direct hit. Here's how I expect iTunes Online to sing the competition.

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TOPICS: Hardware, Apple, Mobility
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Rhapsody. Napster. MOG. Rdio.

What do these four music subscription services have in common? Each company survives on monthly subscription revenues. Each one has an iPhone/iPad app that is prominently featured on its home page. Each one offers a free trial that they hope you’ll love and that you’ll convert to a paid subscription when the trial runs out.

And under Apple’s new subscription rules, each one will soon be forced to start paying 30% of its revenue for each of those easy, one-click subscriptions it gets through an app on an Apple device.

In short, each of those four services has just been torpedoed by Apple. Each one is taking on water. The question now is deciding in what order they go under.

Where do people listen to music? On the go. Even if you initially sign up for a free trial on the web, you’re likely to use the subscription on your phone. As a Rhapsody spokesperson told me last December, “Mobile is everything, and people are increasingly using their mobile devices like Swiss army knives—buying an expensive new (closed) device limits the addressable market.  In fact, it was being tied to certain devices that posed challenges to Rhapsody in the past."

This is a completely new challenge. Yes, Apple says it won't take a cut if you place your order elsewhere. But they've made it inevitable that most of those subscriptions will come from the app.

If you decide to convert a trial to a paid subscription, where are you going to do the transaction? Will you use the easy one-click button on your iPhone? Or will you open your web browser, navigate to the sign-up page, and pay the exact same price after you enter a page full of details including your credit card number, CVV code, and billing information, and then go back to your iPhone to complete the process?

Don’t be silly.

Update: Some commenters seem unwilling to go read Apple's terms, so let me excerpt the relevant portion here:

[I]f a publisher chooses to sell a digital subscription separately outside of the app, that same subscription offer must be made available, at the same price or less, to customers who wish to subscribe from within the app. In addition, publishers may no longer provide links in their apps (to a web site, for example) which allow the customer to purchase content or subscriptions outside of the app. [emphasis added]

Profit margins in the music business are awful. Even if one of these companies can figure out a way to make a decent profit after paying its 30% Apple tax, they'll never survive the second direct hit they will take when Apple brings out its own service, integrated with iTunes.

You know it’s coming. When I read about Apple’s announcement of its new subscription terms this week, the first thing I thought of was Lala, the innovative music service that Apple bought and then buried.

It’s been more than a year since Apple announced it was buying Lala, which was on the verge of releasing an iPhone app. That app never reached the public. On April 30, 2010, Lala announced that it was shutting down. One month later, the pioneering cloud-based music service was officially off the air.

As I speculated last December, “Maybe Steve Jobs has decided that unfettered access to music isn’t a product but rather a feature of something larger—like a premium iTunes subscription that includes season passes to some popular programs currently only available on cable or as a la carte purchases.”

On the next page, I'll share my speculation of how Apple will combine those new subscription rules with its own cherry-picked set of Lala-inspired features.

Page 2: What I expect in iTunes Online -->

Topics: Hardware, Apple, Mobility

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234 comments
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  • RE: How Apple will crush its competition with iTunes Online

    In the words of Admrial Ackbar: It's a trap!
    The one and only, Cylon Centurion
    • haha.... true! AOL found out what Hell was like!!!

      @Cylon Centurion 0005 I remember when AOL and Compuserve aspired to rule the World with their closed Garden Walled Networks. They declared that people were looking for the Safety, Speed and Convenience of a closed protected system.

      But when a few started venturing beyond these restrictive Garden Walls, they found out that it wasn't quite so scary after all out there and they actually were surfing faster even on dial up. Most of all the discovered the real information highway that these companies had been working to keep them blinded of. Also they weren't being inundated with ad supported front pages, spammed to death email inbox's in AOL Hell and Compuserve's World Away (out of whack) controlled Garden Walls!

      It all came down to neither company having the resources to manage these prison like conditions of their Networks efficiently. Greed for power and wealth has it's price and that's something CrAppleholics can't see coming. Rome was not built in a day and this instant success of CrApple's won't last and when the walls finally come tumbling down, their walls will not be able to contain the rebellion from within!!!
      i2fun
      • RE: How Apple will crush its competition with iTunes Online

        @i2fun@...
        Time for you to wake up, go out of your mother's basement and go to school.

        The people who think like you are likely to be at the bottom of the rubble as Apple leaves your icons in the dust.
        Barloe
      • RE: How Apple will crush its competition with iTunes Online

        @i2fun@... Apple's garden is going to catch on fire, and the large walls are going to keep all those inside from getting out of the fire. Those of us in other camps are going to watch the smoke and laugh.
        Jimster480
      • RE: How Apple will crush its competition with iTunes Online

        @Barloe<br>I'm afraid you're wrong.... buddy. It's all these iCrAppleholic wantabees who sell drugs, hock their kids, mortgage the outhouse and go in debt just to say they bought an iPwned4 that Apple has sold them on for keeping up with the Jones.<br><br>In the real world people without being drunk on CrApple's RDF (Reality Distortion Field) spiked Apple Juice know exactly what's going on, as CrApple tries to vainly lure them into their slaughter house kill for the fun of it! .....the smart ones are staying outside of earshot of Steve Jobs the Master of Bogus Infomercial Marketing!<br><br>btw... though you may not hear it advertised on iCrAppleholic Television..... Android is the fastest growing OS in history. With rates of growth near breaking 1000% year on year. Try that CrApple? :P haha..... and best of all, they're on an Open Free OS and Network, with superior hardware and software features that in the real World are only available in the Cloud! ....like FLASH.... baby! lol...<br><br>Designing websites can be fun for us who accept the fact that FLASH has already won the cloud App battle years ago with content providers and developers (100,000 iOS developers and 3,000,000 Flash developers)!

        Especially now, when whether you're on WP7, RIM, Nokia's devices, HP WebOS or Android you can view and play with it all. Everyone except fools on iHitler's iCrApple devices. So who's missing out on all the fun? Certainly not the rest of the World!!! :D
        i2fun
      • RE: How Apple will crush its competition with iTunes Online

        @i2fun@...
        The amazing thing in all of this is how the cattle till flock to Apple........
        Vmaxfer
      • RE: How Apple will crush its competition with iTunes Online

        @i2fun@... who said anything of instant success? if i recall apples success started with the ipod, which was what year? 2001. thats TEN years ago thats pretty long. not really instant.
        rocketboy5114
    • I thought I seen somebody mention the driod...

      @Cylon Centurion 0005 driod crashes more than some other operating system I remember, I think it was shudders... or panes... WINDOWS!. Have you forgotten that Linux tried to be OPEN and they dissolved. Just ask BlueHat...uhhh RedHAT!.
      vduggins1
  • Yep

    "But they?ve made it inevitable that most of those subscriptions will come from the app."

    Glossed over by so many is the fact that consumers are probably wary of having to sign up a new account, with someone who may or may not act responsibly with your information, with every new app they purchase. I know I am tired of it "Please sign up with Fly-By-Night data mining service to get the wonderful added features of your app including worrying about your account being hacked and your credit card information stolen! But it's OK cause you probably won't even remember us when the tech journals announce it :)"
    oncall
    • RE: How Apple will crush its competition with iTunes Online

      @oncall Not old schooled consumers..... 30%... OMG.
      eleaders
    • RE: How Apple will crush its competition with iTunes Online

      Apple users don't care. They will still sign up. The first and only fraud alerts and fraudulent activity on my personal finance accounts was after registering an apple device. My wife actually asked about it. I stood up for Apple and later found it is a very high occurrence. So I wouldn't trust them. Still occurring and they are still buying.<br>You can download library books for free on Android and the player works fine. No jumping through hoops and having it take an hour to download, convert, and mingle into you music directory. Of course you can pay $15 a month just to have audible and then buy the same book for $30 and not have this problem. There is an Apple lover downstairs that listens to 3 books a year and pays like $210 to do it and that because she buys the $6.99 book they give you once in awhile. I often listen to a book or two a week. Apple users I know don't care. They like to pay $50 for something that is free. Makes them feel cool or something. I personally wouldn't pay any vendor $15 a month to have the right to download.<br>So I think this won't hurt many. Most people on Apple devices think its normal to pay $18 for a tube of Crest toothpaste. If you charge them $24 they will smile and take it and be glad you did it to them.
      reed2
      • no idea what you are talking about

        @reed@...

        You lost me. Plenty of free content on my iPhone. In fact most of my iPhone content was free (books especially) or from my CD collection.

        Besides I never EVER said or implied that Apple accounts are immune to fraud. I do think it's a lot easier to keep track of, one account rather than several or dozens, I get an email confirmation that yahoo delivers to special folder and Apple's charges are easily identified on my bills. Since I am actually using my iTunes account on a regular basis it is far easier for me to keep track of one source rather than several, some of which I will use once and never again.

        I don't know where you folks get the idea that people who like Apple products like throwing their money away. Is it some kind of mystique you have built up? I don't like expensive cars but I have friends who do and I have others that are into expensive wines and such, I figure it's none of my business what they spend their money on. You going to tell us you NEVER spend a little extra on yourself for something you like, just a little?
        oncall
      • What a clueless post

        @reed@...

        I have no idea what you are babbling about.
        Bruizer
      • How do you come up with your prejudiced...

        @reed@... theories about us Apple customers?

        Here's an, hardly original, axiom for you to consider: the customers is always right.

        Only geeks or persons with poor business knowledge criticize Apple's customers.
        godsfault
      • RE: How Apple will crush its competition with iTunes Online

        @reed@... What in the world was all that rambling? From the little I understood you seem to think audio books for iOS devices are very expensive yet my wife listens to on average 8 a month yet only spends from $0-$5 a month on them.
        non-biased
    • i2fun@.. I object. I've never...

      mortgaged my outhouse.
      godsfault
  • Your best guess is probally pretty accurate

    Watching Apple this last year you can see the pieces falling into place for the inevitable.
    Apple can't have missed the fact that there [i]are[/i] a few subscription serviced based music stores, that have a great deal of users: users that Apple doesn't have.

    Why Should Apple want to pass up that other 30 percent of music users?
    AllKnowingAllSeeing
    • RE: How Apple will crush its competition with iTunes Online

      @AllKnowingAllSeeing
      Do you have any hard numbers on subscription based users? Last I read, Rhapsody only had 750,000 subscribers which is kind of pitiful when you consider that Apple has over 150 million iTunes users with credit card data. Or the fact that iTunes is downloading or renting over 500,000 TV shows and movies PER DAY.
      I'm not sure Apple cares about the subscriptions as much as it wants to remove the squatters in its upscale mall, which are pointing people to the budget retail chain across the street instead of paying the mall warehousing, utility, stocking and delivery fees.
      Synthmeister
      • Synthmeister, I disagree. Apple wants that other 30%

        or whatever it is.
        And your squatter thing leaves one thing out: Apple sold the phones on the backs of developers. without them it's just a simple cell phone.

        Now that Apple has the saturation they like, they're going to turn around and cry fowl looking for 30% from Rhapsody and whoever?

        How many peolple purchased the iPhone because they could use services like Rhapsody, now maybe put out of business or forced to remove their Apps as they can't afford to fork over 30% of their revenue?
        AllKnowingAllSeeing
      • RE: How Apple will crush its competition with iTunes Online

        @AllKnowingAllSeeing
        Hmm, the first iPhone was a blockbuster without apps or developers and the second generation iPhone came online with the app store and didn't have a lot of apps, but was still a blockbuster.
        And developers have paid the 30% from the beginning, this isn't a 'new' thing for them. The 30% deal was a much better deal than anybody else had offered developers before Apple set up the app store.
        Since the iPhone now sells in the tens of millions of units per year (around 60 million units projected for 2011) and Rhapsody only has 750K subscribers, not many people bought an iPhone to use the Rhapsody app.

        This is about publishing and the publishers old fashioned way of making money isn't working anymore. Developers make money by selling a product. Publishers have always made the real money by selling advertising and data, the selling of the subscriptions is actually secondary in the revenue stream. Unfortunately for the publishers, the internet--not Apple--turned their cash cow into an old hag ready for the glue factory.

        Now Apple has figured out a way to open up a premium internet store, the kind of place where people enjoy browsing, hanging out and spending money, something which has escaped the publishers for well over a decade, despite multiple attempts. They can use it--and pay--or not. They can also set up shop in the Google strip mall across the street. After all, some people like the Dollar Store and the 7-11 and Smoky Big Bites better than Macy's and Panera.

        If I were the publishers, I'd pursue both sides. I'd make the greatest iApp ever, but I'd still be putting a lot of energy in an interactive, mobile-opimized web-site as well.
        Synthmeister