Has Apple (NASDAQ:AAPL) finally gone too far? After the computing giant stated that it will claim 30 percent of all in-app subscription fees for content and services sold through its App Store, publishers and content providers were quick to express their dismay over the change--and it looks like some aren't going to play along. Apple confirmed the new rules last week: "Our philosophy is simple--when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing," Apple CEO Steve Jobs said in a statement. "All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app. We believe that this innovative subscription service will provide publishers with a brand new opportunity to expand digital access to their content onto the iPad, iPod touch and iPhone, delighting both new and existing subscribers." Additionally, Apple said publishers may no longer provide external links in their applications to allow the customer to purchase media or subscriptions outside of the app.
When contacted by The New York Times, the three largest U.S. publishers--Time Inc., Hearst Magazines and Condé Nast--all declined to indicate whether they would sell magazine subscriptions for iOS devices under Apple's stated terms. Apple's new subscription sales model also poses tough decisions for digital media service providers like Amazon.com and Netflix--for example, the new guidelines subject the sale of an Amazon Kindle magazine subscription or ebook download to the 30 percent transaction fee if the publication is purchased via the App Store. Kindle titles downloaded directly via the Amazon.com web store or video subscriptions purchased from the Netflix site remain exempt from Apple's terms of service. Digital music service provider Rhapsody issued a statement calling Apple's conditions "economically untenable," adding it will huddle with market peers to determine an appropriate legal and business response.
But the impact of the new App Store rules extends far beyond publishers, content providers and digital media services. Smaller developers are in the crosshairs as well. Late last week Apple rejected reading platform Readability's proposed iOS application, contending the solution violated section 11.2 of the App Store Review Guidelines, which states "Apps utilizing a system other than the In App Purchase API to purchase content, functionality, or services in an app will be rejected." Readability creator Rich Ziade posted an open letter to Apple on his company's blog, writing "By including 'functionality, or services,' it's clear that you intend to pursue any subscription-based apps, not merely those of services serving up content. Readability's model is unique in that 70 percent of our service fees go directly to writers and publishers. If we implemented In App purchasing, your 30 percent cut drastically undermines a key premise of how Readability works." Ziade goes on to say Readability will abandon its iOS efforts in favor of developing for the web. "Before we cool down and come to our senses, we might as well share how we're feeling right now: we believe that your new policy smacks of greed," he adds. "It's your hardware and your channel and you can put forth any policy you like. But to impose this course on any web service or web application that delivers any value outside of iOS will only discourage smaller ventures like ours to invest in iOS apps for our services."
Readability isn't the only developer scrapping its iOS plans. Screenshot sharing service provider TinyGrab is also walking away. "We currently sell our accounts from TinyGrab.com through PayPal. We can't actually use Apple's In App Purchasing system because they won't pass on a user's data to us, they also prevent you from purchasing goods that exist outside of the app and the App Store," explains TinyGrab project manager Chris Leydon. "So, for example, it prevents you from actually buying a TinyGrab account because the account is a real world purchase and doesn't lay within the jurisdiction of Apple... We can't provide a free TinyGrab version in the app store and then sell a version on our site, because you still require an account to login. Apple wants a slice of that pie and we can't give it to them; in other words, they've locked us out... Until Apple loosen up on their restrictions we're ceasing all active development on TinyGrab for iPhone." It's too early to tell whether developers like Readability and TinyGrab herald a larger exodus from the iOS platform, but the issues and challenges raised by their defections serve notice that the price of doing business in the App Store may be too steep for many companies to pay. -Jason