Apple's 'iPay' - will Apple move beyond the AppStore?

Apple's 'iPay' - will Apple move beyond the AppStore?

Summary: Will Apple break out from its online stores and onto the web? That's where its payment technology seems to be heading...

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There has been much written lately about Apple's rules for apps, that they must provide an in-app purchase function.

For example, Jason Kincaid wrote: Why Are You People Defending Apple?, MG Siegler wrote: Apple’s Big Subscription Bet: Brilliant, Brazen, Or Batsh*t Crazy? and Frédéric Filloux wrote Apple’s bet on publishing | Monday Note - among many posts on the subject.

Much of the focus on Apple's move has been on the 30 per cent cut it takes on purchases made through its online stores. That's a big chunk for providing a payment service, and for many companies, such as media organizations that re trying to transition their business models to a digital economy -- it's probably too much to pay.

And that's what the posts about Apple mostly focus on -- the 30 per cent cut.

But that's a red herring.

Apple's strategy need not be constrained by the 30% share it takes. The 30% number is not carved in stone, it will become a variable number. Apple's trajectory is moving it towards becoming a PayPal competitor.

What if Apple launched a type of "iPay" button that appeared as an alternative payment option to buying goods and services online, in a similar way that PayPal is offered in addition to credit cards?

Would you use it? I would and I bet many others would too.

One of the reasons Apple takes 30% is because the credit card charges on small transactions are very high. If it can reduce those charges it can reduce that 30% share and still make money.

There are a variety of strategies that could reduce those costs, I'll get into those in a future post.

Apple has a key advantage in the online payments space because it already has relationships with tens of millions of customers. It has a historical record of what they do and buy and these become part of a measured, trusted relationship.

Apple knows who to trust in online payments -- and that's a big advantage in reducing fraud -- which is your largest cost as an online payment processor.

A key reason that Apple has been very successful with its AppStore because it offers developers an easy way for customers to make a purchase. It's one-click and you just give your Apple ID and password.

In comparison, paying by credit card is a pain, it takes several screens worth of boxes to fill out. And for small purchases of just a couple of dollars, forget about it, paying by credit card will cost as much as using Apple with its 30% share, plus having to fill out tons of information -- most won't do it.

- Apps are easy one-click purchases that can be bought for a dollar or two, they can be impulse buys -- I do it all the time.

- Apps also offer companies an additional business model -- people are used to paying for apps but not for web content.

Therefore, if you can encapsulate web content within an app -- you suddenly have a new business model -- and you escape the torture of trying to make money on an advertising supported business model.

- Giving Apple 30% of something is a whole lot better than keeping 95% of nothing.

But apps are not the future, even though some key thought leaders such as WPP's Sir Martin Sorrell (WPP's Sir Martin Sorrell Calls Mobile Apps A 'Holy Grail' For Marketers); and Forrester's George Colony (Forrester’s George Colony: Hello, App Internet. Goodbye, Web - Eric Savitz - Forbes) have become huge evangelists for the "app internet".

The future lies in a hybrid Internet where apps have a place but it's not a large place. And here's why:

- Studies have shown that users only interact with 2 or 3 mobile apps per day but yet carry dozens on their phones. How many web sites do Internet users interact with daily? It's dozens of web sites...

- How many companies can afford to develop and maintain multiple apps for multiple platforms? Very few.

We need something that takes the best of the app business model but applied to the general web.

The Internet, and its basket of technologies, has already figured out how to produce content for multiple platforms ... and have the delivery mechanism update in real time.

- You don't need to download a new version of an app to access a new version of a web site.

- If a company chooses the app strategy to monetize its services or content -- it embarks on a world of pain -- it has to support many different platforms, with many different displays, different service providers, different rules. Developers will have jobs for life.

If a company sticks to a web strategy many of those issues go away -- except one: how do you get people to pay for web content in the same way they will pay for apps?

Here's one way:

You can use Internet technologies to create a web app that looks and feels like an app but is built on common Internet technologies, HTML5, etc. But you need a simple one-click payment option, and this it what Apple will provide because it can.

- Apple would only approve those customers it trusts, the client gets their payment, Apple gets its cut, and the customer gets in and out in a click or two -- everyone wins.

Today, Apple is offering in-app purchase options through Apple. But tomorrow, the inverse: you'll be able to buy goods and services not offered through Apple but enabled by Apple's payment system.

By enabling payments for online content and services Apple will help fuel an innovation golden age and help create a massive new economy, imho.


Topics: Browser, Apple, Banking, CXO, Enterprise Software

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24 comments
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  • So what does Apple do with the other 27%

    since a corporation the size of Apple gets a rate likely close to that of 3% per transaction to the bank card service.

    We deal with credit cards, and we don't float the numbers that Apple does in terms of usage, and we get a rate of approximately 4.75 - 5%

    So 30% isn't to cover credit card costs, as the cost for a .99 cent app would be about 3 cents to their bank service, letting Apple keep 27 cents.

    Not bad.
    John Zern
    • RE: Apple's 'iPay' - will Apple move beyond the AppStore?

      @John Zern
      Not to be a pain, but Apple also is paying to host these $0.99 apps, and I am willing to bet that isn?t free. Servers are not free, Electricity is not free. Sure they could lower the charge based on price of the app, but who would set the limit?
      Rick_K
      • RE: Apple's 'iPay' - will Apple move beyond the AppStore?

        @Rick_K
        Its still a high margin to pay and I hope companies think twice about putting their apps on the Apple platform. I have to say music streaming companies don't have 30% to give and still be viable. that creates a problem in my mind and is stiffling innovation and choice. Everyone knows Apple wants you to buy from them, its not that hard to figure out. I feel bad for all those companies that jumped on the iPhone bandwagon just to be kicked in the face by Apple once they got on. Where is all the people that love to talk about greed? This one is ripe with it.
        OhTheHumanity
      • Is 30% high?

        @OhTheHumanity

        People keep saying that like it's actually true. Based upon what? What percentage does Amazon take to list sellers wares or ebook publishers? How about Walmart? How about Borders? What kind of cut did they take to put a book on its shelves?
        oncall
      • RE: Apple's 'iPay' - will Apple move beyond the AppStore?

        @oncall
        Look 30% for a company that streams music is not good and is much different than a company making a product and placing on shelves. First they have to pay copyright holders and that adds up quick and not to mention the infrastructure they must maintain, all while trying to be competitive with others like Apple that aren't having 30% cut from their revenue and potential profits. You obviously only care about Apple and not the realities of business.
        OhTheHumanity
      • Excuse me?

        @OhTheHumanity

        You accuse me of not caring about the realities of business? It's pretty clear you don't. Well, Apple is a business, and like any business they are in business to MAKE MONEY, not cater to a bunch of free-riding app vendors who want to plaster the app store with their apps that links to outside stores. The reality of business is a business can take take their business elsewhere which these app vendors are totally free to do and should if they find the terms onerous. That's "real" business my friend, not this pathetic sniveling about the unfairness of Apple.
        oncall
      • RE: Apple's 'iPay' - will Apple move beyond the AppStore?

        @oncall
        That funny you say that because as I stated I hope companies take their business elsewhere and think twice before they go with iTunes. I am not saying it is antitrust and they have no right to do it. I just believe it is a steep price to pay and it will hurt those streaming services trying to get more business at the fair market value. Why isn't it just enough to sell the app and make the money there, instead they choose to take ongoing profits for doing nothing. Once the app is on the phone it is costing Apple nothing in costs. The servers aren't housed at Apple that run the streamng service for say Last.fm, so where is it that Apple deserves the right to take this ongoing 30% cut? See I am not a business man by day, but I think I have a better grasp on it than you do.
        OhTheHumanity
      • I guess I can understand the app makers moves

        @OhTheHumanity

        I mean we use the same tactic, in my business anyway. When faced with a costly or unpopular change in the rules it is usually better to put it off as long as you can realistically get away with it even if you know you will ultimately lose the fight. So these app vendors are going to cry foul and bankruptcy up until and beyond the June 30th deadline if it makes them money to do so. If they are smart they already have plan B ready to go. Which for a low margin distributor of streaming content is obvious...Web apps. Smart businesses know this, web app writers probably broke out the champagne the moment Apple's announcement came out.

        I personally think Apple is being very realistic and reasonable here, they are saying "if we bring you new business, that you wouldn't have otherwise, we want a cut". Any sane business would do exactly the same. Now all these app vendors have to decide is if staying in the app store is really worth the cost, if there margins are such that they cannot afford to stay maybe they shouldn't have been there in the first place.
        oncall
      • RE: Apple's 'iPay' - will Apple move beyond the AppStore?

        @Oncall
        Yeah thats sad to defend someone for a business tactic like that. Like I said a cut up front would be in my mind a good trade-off, but no you find it ok to take profits ongoing for nothing. Yes there are finders fees in this world, but not ongoing finders fees that never end. Just because they built the platform doesn't mean they should rule over it with an iron fist. They are reversing the course of openness and competitivness in the computer world and though you may not see it now, it is not good business to attract developers to their platform that have real applications that people want to use. Sure those games are fun, but people want more choice and usefulness than that. I just find it very hard for a company that has say $50+ billion in the bank to really be going after something like this that amounts to very little in their profit scheme. They really do think they are going to take over the world someday and they want to be prepared, too bad that won't happen because they are dicatating the way others are viewing them and their platform at this point and its not a good one.
        OhTheHumanity
    • The AppStore is just above break even.

      @John Zern

      You can look in Apple's financials. This is not a money maker for them and only represents about 2-3% of their net revenue.

      As anyone that deals with credit cards will tell you, the transaction fees can eat your lunch as these are between $.10 -> $.25 per transaction even for <b>very</b> large retailers. This is why Apple will not charge your card for 1-2 weeks waiting for some more purchases to come in.

      At $0.99, the transaction fee can really hurt. Even if you are Apple and that is why the 30% cut is not too bad for many types of distribution. For software, newspapers, magazines the 30% is reasonable. For music/movie subscription. it is painful.

      To me, it is if you are the content creator, then 30% is reasonable. If you are a content distributor, 30% is a killer.
      Bruizer
      • RE: Apple's 'iPay' - will Apple move beyond the AppStore?

        @Bruizer

        "To me, it is if you are the content creator, then 30% is reasonable. If you are a content distributor, 30% is a killer."

        Exactly.
        smulji
      • @ smulji

        @Bruizer

        I hope Apple gets this right. If Amazon had to simply cover the transaction fee + 3% (or transaction fee +2% or 4% whichever is higher or something like that), then the in App purchase would be a sweet deal for Amazon. Slightly lower revenue with, potentially, much higher volume.

        But as a small developer, the App Store model is as sweet as it comes. Pays for the electric, cell phone bill and eating into the mortgage. Not bad for a part time hobby.
        Bruizer
      • But with subscriptions Apple is distributor, not only formal &quot;distributors&quot;

        @Bruizer:
        DDERSSS
    • RE: Apple's 'iPay' - will Apple move beyond the AppStore?

      @John Zern <br><br>Credit card fees are actually around 1.3-1.7% for a company the size of Apple (the variance is due to different processing rates offered by Visa and MasterCard in different regions).<br><br>The fixed fee that some have mentioned is anywhere between 0.03$ to 0.25$. Given Apple's size, it is at most 0.05$ for them. <br><br>Like most major payment providers, Apples costs for a 1$ transaction are likely around 0.07$. They could rates similar to PayPal's micro-payment model (5% + 0.05$) and still keep it profitable.
      Mohammad Hashemi
    • RE: Apple's 'iPay' - will Apple move beyond the AppStore?

      @John Zern

      I suppose some of that extra money would go toward paying people like you to sit in an air-conditioned office and do their job...

      ...what's that, you don't work for free?
      alsobannedfromzdnet
    • RE: Apple's 'iPay' - will Apple move beyond the AppStore?

      @oncall
      That funny you say that because as I stated I hope companies take their business elsewhere and think twice before they go with iTunes. I am not saying it is antitrust and they have no right to do it. I just believe it is a steep price to pay and it will hurt those streaming services trying to get more business at the fair market value. Why isn't it just enough to sell the app and make the money there, instead they choose to take ongoing profits for doing nothing. Once the app is on the phone it is costing Apple nothing in costs. The servers aren't housed at Apple that run the streamng service for say Last.fm, so where is it that Apple deserves the right to take this ongoing 30% cut? See I am not a business man by day, but I think I have a better grasp on it than you do.
      OhTheHumanity
      • Most of the Apps are free.

        @OhTheHumanity

        And Apple makes 100% of $0.00 on those. For the in-app purchases, Apple is doing all of the billing through your iTunes account and they charge 30% for that.

        For content distributors (books, movies, music) this is pretty steep. For content creators (programmers, new-papers, magazines) this is very reasonable.

        To me, Apple could split these up to 2 different models. On one, Apple hosts and serves the content and since you are a content creator you could give Apple the right. Content distributors could never do that and would serve the content them selfs. In the first model, Apple gets 30%. On the second it is more like 10%.

        This is how it works for programmers already. They host the App and serve it down and charge 30%. Sweet deal if you ask me.
        Bruizer
  • RE: Apple's 'iPay' - will Apple move beyond the AppStore?

    You would use it? That's pretty silly. I'll stick to traditional credit cards, and not a buggy bloatware iTunes account for payments.
    Droid101
    • RE: Apple's 'iPay' - will Apple move beyond the AppStore?

      @Droid101 <br>Why not, if you trust paypal and google checkout and keep your credit card numbers/bank account #, why not use iPay? I really don't see big difference there.
      Ram U
      • With a Moniker of Droid101, do you think he would ever use Apple?

        @Rama.NET

        Just sayin.
        Bruizer