Posted by Tom Foremski - February 18, 2011
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 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.