Three Lessons Steve Jobs Has Forgotten

Apple’s 30% vig greed grab still upsets me. I still can’t understand why Apple — and Steve Jobs — can’t see how blatantly unfair it is and how it will hurt Apple.

It’s particularly puzzling given the words that have come out of Steve Jobs’ own mouth. At one time, he knew better and stated so.

The 30% vig greed grab will lead to the exclusion of eBook services that people have come to depend on and which they chose well before the iPhone itself even existed. What Apple and Jobs are practicing here is a zero sum game.

Steve Jobs once understood that no one benefits from a zero sum game:

It was clear that you didn’t have to play that game. Because it was clear that Apple wasn’t going to beat Microsoft.

Steve Jobs once understood that Apple has strengths and weaknesses and that it’s better to let others handle certain things because they have that expertise:

We don’t think one company can do everything. So you’ve got to partner with people who are really good at stuff.

Apple isn’t going to beat Amazon, Sony, Kobo, and Barnes & Noble in eBooks. So why should Apple even try?

Anyone who truly values eBooks would never trust Apple with them. They have a history of ridiculous and outright embarrassing bannings. They are inept at eBooks, they have no respect for publishing, and they have evinced a disdain for freedom of expression that is astonishing from a 21st-century company. They are unlikely ever to develop the expertise that’s necessary to properly handle publishing and should therefore stay out of it and leave it to those who do it well: Amazon, Sony, Kobo, Barnes & Noble, and all other future entrants.

Apple’s strength is software. Jobs acknowledges this:

It’s worth highlighting this very important bit:

Because an iPod’s really just software. It’s software in the iPod itself, it’s software on the PC or the Mac, it’s software in the cloud for the store.

Boldfaced emphasis added by me.

And that is what Apple should be concentrating on: the software.

The iTunes Store, as I’ve stated before, should become a platform.

Jobs makes the case for it himself in those three videos:

1) Zero sum is a game no one can win
2) It’s foolish for Apple to try to do everything
3) Apple understands software

The iTunes desktop software — which needs a total rewrite anyway — should become a store browser and content management/sync software.

Store Browser: It doesn’t link only to Apple’s stores. It links to whatever stores have licensed the backend iTunes server software. The music companies always complain about how they should be in charge of pricing. So has at least one television network. Let them license the iTunes server software and sell for themselves. They’ll learn firsthand what things must be priced at to avoid being bled by pirates. This solution also lets Apple get out of content banning. Let the Big Six publishers set up their own iTunes-compatible stores for their eBooks. Let the magazine publishers do this too. The one area that Apple can still exercise some control is over app compatibility. Developers would still have to clear their software through Apple to ensure it’s free of malware and privacy violations. But if those apps aren’t going to be sold by Apple, they can’t ban them for things such as “lacking lasting entertainment value” and the like. In other words, they can no longer make that kind of value judgment. Let the market do that, as it should.

Content Management/Sync: Apple still handles the DRM, just as Adobe — outside of the iOS system — today handles DRM for eBooks. The iTunes software is still the digital hub for downloaded goods and the way to sync them to iOS devices and to stream to other devices (such as Apple TV). Apple can concentrate on making it a better experience for everyone.

I’ve already pointed out that even app developers giving Apple 30% are getting a raw deal because it’s impossible for Apple to live up to its marketing commitments for that 30% cut. The objective math is against them. By decoupling the iTunes Store from Apple, each new store can concentrate on the marketing it needs to do to its customers. Better X-number of iTunes-compatible stores marketing Z-number of apps than Apple insisting it can devote marketing resources through one store as the number of apps climbs to 400,000, then half a million, then over a million. The numbers eventually become unsustainable. Just ask writers how hard it is to attract attention for their book against the over 800,000 in the Kindle Store.

By doing this, Apple makes its money by licensing the iTunes store software and by being the transaction processing entity. There is far more money in that than the structure currently used by Apple. The way things are now, Apple is its own bottleneck, detrimentally restricting its possible income, and delaying the future that it knows it must embrace.

Apple still has enough of a head start that it can again change the game by doing this. Doing so is the best thing to do for Apple, its customers, its partners, and its partners’ customers. Everyone would win.

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21 Comments

Filed under Apple: The Company, eBooks: General, Video

21 responses to “Three Lessons Steve Jobs Has Forgotten

  1. James

    I thought you were done with Apple?

  2. althegeo

    iTunes users are Apple’s customers. A free App gives resellers and publishers access to all of Apple’s customers.

    The publishers and resellers you are trying to defend sell their customer lists to ad spammers. They think their customer base belongs to them to use for their monetary gain.

    I don’t think they should be surprised if Apple wants a fee for access to Apple’s customer list. Apple built the ecosystem. Apple created the iPod, iPad, iPhone e-market. Apple expects a return on that market just like Amazon does for Amazon’s market.

    Apple can’t make itself the only book, magazine, newspaper source for the Apple iApp universe but it sure as hell can charge others for access to the Apple iApp universe.

    Apple’s customers are an Apple Inc. asset. If Apple product users depart en mass Apple will change their tactics. Until then, they will copy the other publishers/resellers of this world.

    • Ravi

      If Apple has decided to treat their customers as an asset rather than as customers, then there’s only one real difference left between Apple and Google:

      Google entices you to become their asset with free software and services, Apple entices you to become their asset by charging you money for their hardware. Users who think that they’re avoiding being a product by embracing Apple instead of Google need to think again.

  3. Shock Me

    Why should Apple partner with Amazon for eBooks when they can partner with Random House?

    Amazon would make a wonderful partner for physical goods but Amazon is quite capable of doing the job themselves ala the Amazon Window Shop app for iOS where Apple does not appear to insist on percentage of in-app purchasing for that free application.

    Do you have a reference that says the 30% subscription fee extends beyond periodicals? I’ve seen they likely do take 30% of in app purchases for games (for example the Mighty Eagle in Angry Birds).

    • Ravi

      Apple should partner with Amazon because Amazon is more than ten times the bookseller Apple will ever be. As I’ve said in other contexts, Amazon may well be the greatest bookseller known to mankind.

      Random House is a publisher, not a bookseller. They know how to generate the overall mix of books that booksellers want and they’re good at that. But in any nontrivial case, they don’t know how to turn a customer considering a real or metaphorical shelf of books into a successful purchase. Amazon does.

      • Shock Me

        So let me get this straight….partner with the dude doing the SAME thing you are doing instead of partnering with the dude who owns the content?

        Yeah that makes no sense. But hey if Amazon doesn’t want my money for content on my iPhone and iPad, I can’t MAKE them take it.

      • mikecane

        So, in other words, you expect the thousands of writers who are only available in Kindle format to pack up and move to the iBookstore? Keep dreaming.

      • Shock Me

        There’s no reason to believe that people who wish to sell their writing wouldn’t do both or have it done for them by a publisher.

        It isn’t an either or situation.

      • mikecane

        Yes, it is.

      • Shock Me

        You are wrong about this, but it remains an interesting issue.

        For those authors choosing to remain exclusive to Amazon or eschew eBooks entirely, I say they will lose sales of their work.

        In the same way driving Kindle away will cost Apple some tablet and phone sales. It would be a poor business choice by either party even if the Kindle never existed.

        But the consumer will have the final say.

  4. Jocca

    The 30% that Apple takes go to cover such things as credit card fees, web hosting and distribution of the software itself, accounting cost that the developers will have to deal with if they were to sell the software themselves. Apple keeps very little of this 30% to itself. The eBooks they sell have advantages over Kindle books because you can highlight a word you are not familiar with and it will return a dictionary search on it. They are not lame at all and this feature alone trumps any other eBooks on the market today. It is time that you go back to school and take up Business 101 because your article is totally off the mark. This goes to all those people who believe that Apple products are all made in China. Wrong. Only the final assembly of the products are done in China. The design, software and high end part of the business take place in America. Apple employs a lot of people in this country and the jobs they provide are much higher paying than assembly line, low end job. The different parts that are used in the products are purchased from other high tech companies, such as Samsung, the chips makers, Skyworks etc. etc. from Japan, Taiwan and the US. The computer industry is a complex one and your article just does not reflect this.

    • mikecane

      You know nothing about eBooks. Dictionary lookup is something eBooks have had well before Apple came on the scene. Apple would not host the eBooks of Amazo, Kobo, etc. It’s impossible, simply due to the enumeration limitations currently in the App Store. Plus, no eBook vendor would want Apple to. Apple’s 30% vig on eBooks is robbery and greed.

      • althegeo

        No, robbery and greed is selling your customers’ private information. Selling a book at a profit is earning a living.

  5. Peter

    Apple isn’t going to beat Amazon, Sony, Kobo, and Barnes & Noble in eBooks. So why should Apple even try?

    Apple is certainly going to beat Amazon, Sony, Kobo, and Barnes & Noble. It’s Apple’s platform and nobody beats Apple on their own platform.

    So what Apple does is change the terms of service so that if you want to sell stuff, you have to do it through Apple’s store and give Apple 30%. If you do that, Apple makes money off of you. If you don’t, you leave the platform and Apple becomes the only game in town–if you want to buy e-books, the only store is Apple’s. It’s win-win for Apple.

    As to why should Apple try? Because there’s money to be made, silly. Remember when Steve said that there’s no money in eBooks because nobody reads? When he was shown to be wrong, he opened his own store. When it was clear that he wouldn’t make as much as money as the other guys, he changed the rules so that he’d get some of their money.

    • Ravi

      Of course Apple is going to beat Amazon and the rest on iOS. That’s Apple’s platform and except for antitrust concerns they make the rules. That wasn’t the point.

      The point is that Apple isn’t going to beat Amazon and the rest in *eBooks*. People can (and do) read eBooks without iOS devices, after all. And if Apple loses eBooks (which they will), the money they get selling books will cost the iOS platform dearly. Think about this: Apple is standing up and *guaranteeing* that the default iOS eBook experience will be inferior to that of every other general-purpose mobile platform (since the default eBook experience will be trying to read an eBook that you didn’t buy from Apple.).

  6. AdamC

    Anyway Apple don’t need your money….

    Since you think others are better at serving ebooks than Apple why keep bitching at Apple?

    Get a life and bark at another tree.

  7. Ken M

    Apple does partner up. All Apple resellers are partners in which Apple could easily destroy, undercut price, or just make things plain difficult. But they don’t even though they have their own store. Have you ever wondered why you can’t buy Apple hardware with an iTunes card? Well it’s because Apple spends a bunch of money on cutting the price of iTunes cards. At Staples iTunes cards were $50 card for $40. That is a 20% cut. There are plenty of ways that Apple works to promote iTunes, but if they don’t get anything in return what is the point for them.

    Apple doesn’t do everything. That is why Apple has done so well as to keep the price of an iPad so affordable via cash up front for all of its hardware parts. Even with some of their competitors.

  8. You know what’s funny about your write up is that you assume the 30% is pure profit. Guess what? Apple doesn’t see 30% on all music and app purchase. Believe it or not, their are people – including myself that get a cut of that revenue. Ever heard of Linkshare? Yes, third parties like me receive a percentage of sales that we refer to the iTunes store.

  9. Ted

    Mike, you are forgetting 30% is a great deal for publishers, they no longer have to pay for “printing” and no longer have to pay 50% to retailers to sell their wares. So it’s a win/win for everyone.

    Publishers make an extra 20% per copy sold and Apple makes 20% once all costs are factored out.

    It’s far better than Amazon’s electronic model don’t forget.

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