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FTC investigates Apple over new in-app subscription rules

updated 08:50 pm EST, Thu February 17, 2011

Move follows criticism from several groups

The Justice Department and Federal Trade Commission are reportedly looking into Apple's new in-app subscription rules, following public criticism from a number of companies and groups. The US agencies are said to be considering the possibility that Apple may be in violation of antitrust laws by tightening rules for developers that manage in-app purchases outside of Apple's own iTunes payment system.

Although developers are able to sell subscriptions outside of the iTunes service, Apple demands that "the same or better offer" must be made within the app. Customers are seen as more likely to take advantage of the one-click subscription within the app, which also rewards Apple with a 30-percent cut of the revenue.

Many companies have voiced frustration with the new rules, while Rhapsody suggested it may collaborate with 'market peers' to file a lawsuit against Apple. Its service currently exits the app and routes users to Safari to pay for subscriptions, a method which is now banned.

It is unclear if the DoJ or FTC will intervene or even open a formal investigation, as the proceedings are reportedly in the preliminary stage. The European Commission is also said to be "carefully monitoring" the matter for further developments, according to a Wall Street Journal report (sub. required).



By Electronista Staff
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Comments

  1. poetarchitect

    Fresh-Faced Recruit

    Joined: Feb 2011

    0

    Free Delivery

    So let me get this straight. Apple has to receive content for publishers, provide servers to hold that content, deliver that content to thousands or millions of subscribers, and do that for free? How or why should Apple give free delivery when the publishers have never had it before? You can argue about how much and how but clearly Apple is due some compensation.

  1. macentric

    Fresh-Faced Recruit

    Joined: Sep 2005

    +2

    Free Market...

    I don't typically like to taut the free market as being the solution to a problem, but in this case the free market can easily resolve this problem. Google is offering, with their new publishing service, to offer subscription services without the cost. Let all of the content providers go "sell" their product on Android. It really is indicative of the content providers desire to sell their product where people spend money as opposed to where people sideload their software for free.

    Did all of these publishers forget that someone has to actually pay for all of the bandwidth to distribute as well as store all this content. Don't they pay logistics companies to deliver their product to stores all of the world. If they don't like the offer they should build their own delivery and billing model, just like Apple gave them the option to.

    And no, I really don't want publishers to sell my personal info to their advertisers. I am glad to have an intermediary keeping my info out of the hands of their advertisers unless i give them that information of my own accord.

    It all seems a little silly to me.

  1. Salty

    Professional Poster

    Joined: Jul 2005

    -2

    Imagine

    Imagine if Microsoft was demanding that Amazon give them 30% of their revenue for everything bought on a PC? We'd all be screaming bloody murder. I'm sorry but this is probably one of the worst example of Apple's business practices I've ever seen.

    Makes me seriously think that when I buy the laptop after my next I'll be giving serious thought to the WebOS or Android options available on laptops by then.

  1. Inkling

    Dedicated MacNNer

    Joined: Jul 2006

    +6

    No, that's not the reason for the fuss

    Poetarchitect remarked: "So let me get this straight. Apple has to receive content for publishers, provide servers to hold that content, deliver that content to thousands or millions of subscribers, and do that for free? How or why should Apple give free delivery when the publishers have never had it before? You can argue about how much and how but clearly Apple is due some compensation."

    No that's not what the fuss is about. When Apple handles the content, customers are buying through the iTunes, the iBookstore, or the App store. People aren't begrudging Apple's 30% slice in those cases. It's similar to what other online stores charge.

    But starting with Sony's recently rejected ebook reader app, people are objecting to Apple claiming the right to charge that 30% of retail when Sony, B&N and (most important of all) Amazon is handling all the content storage, delivery and display. At most, all Apple is doing is processing a credit transaction for which they should be able to collect 3% rather than 30%. Apple's attempt to force that new policy on other online bookstores is what is creating the fuss.

    With all the numbers being batted about, this is all very confusing. I know it is for me. Just remember that Apple wants to collect the same 30% when it simply forces itself between a willing buyer a willing seller, as when it supplies all the storage, processing, charging and display of a ebook. And that same 30% charge for providing vastly less service is likely to be where Apple gets in serious legal trouble. The only real rationale for it is as an attempt to crush competition. There even an illustration of that in anti-trust law. John Rockefeller did something quite similar to his competitors in the late 1800s using Penn Rail. The only difference was that Rockefeller was clever enough to act secretly.

    Keep in mind that, during the time period when Apple may be making this policy stick, the cost for the 30% that Apple collects for doing nothing will have to come from somewhere. Apple is also demanding that any ebook sold by any app on their iDevices can't be sold for more on their iBookstore even though the cost is twice as high. (The vendors 30% cost and Apple's 30% surcharge.) The only way publishers, Amazon and others can square that circle is by raising prices everywhere. That means Apple's unearned profit will come out of your and my pocket even if we're reading books bought from Amazon on a Kindle and have never owned an iPhone or an iPad.

  1. charlituna

    Fresh-Faced Recruit

    Joined: Sep 2009

    +6

    looking over means nothing

    They will read over the new rules and move on. It is unlikely that Apple's lawyers didn't consider the risks and already advise or that Justice or the FTC will rule any different than they have on every other attempt related to iOS.

    If anything, Justice and the FTC could approve of Apple's rules because it puts the choice in the hands of the consumers and ensures that those that choose to use Apple's system aren't punished with a higher price. Things that they would likely approve of

  1. lamewing

    Dedicated MacNNer

    Joined: Aug 2004

    -6

    @charlituna

    I am afraid you are right. The FTC will do nothing to help the situation. Apple should be able to take between 2.5 and 5 percent (at the most), but NOT 30%. There is absolutely no profit in staying on the App Store so I suspect we will see man of these companies that have been part of the App Store for some time, jumping ship. If certain ones do leave such as Netflix, Amazon, Rhapsody, I will have no reason to keep my iPhone as my mobile device. I will keep it as an iPod and Skype phone...unless Skype leaves too (forgot about Skype). There are other mobile OSes "out there" and I have no problems switching to Windows 7 phone or Android if push comes to shove. I hope this doesn't happen as I like my iPhone...

    I guess we will see if Apple rectifies this situation and curbs their increases greediness.

  1. Greengo

    Fresh-Faced Recruit

    Joined: May 2010

    +4

    OK, let's try and look at it this way....

    A guy named Dave walks into a successful store. He goes up to the store owner...

    Dave: Hey you have a great store here, lots of traffic, I have a product I would like to offer in your store, what are your rules?

    Store Owner: Hey no problem, it's quite simple...if you are giving away the product, I don't charge you anything....if you are selling something, then I ask for 30%.

    Dave: Ok, I can agree with those terms....I am not charging for the product in your store.

    Awhile later, the store owner notices that when people get to Dave's product, they immediately leave the store....he wonders, what is going on??
    He finally decides to go over and look at Dave's Product, only to discover that it's just a "free" sign, giving people directions to Dave's Store!!!

    So the question is, is it ok for Amazon to give away a link in Apple's store, to merely leave Apple's store and go to Amazon's store to buy stuff??
    I think this is the issue...


    Comment buried. Show
  1. lamewing

    Dedicated MacNNer

    Joined: Aug 2004

    -10

    @Greengo

    You make the statement that people are putting free apps up to deceive Apple (The store owner wonders what is going on...). This is NOT the case in any fashion or form. Apple is quite aware and always was aware that people could buy subscriptions to products offered in the App Store. There was NO deception on the part of the App developers. You are misrepresenting Apple's point of view significantly.

    The simple fact is Apple should get a small percentage to cover their costs and maybe 1 or 2 percent for profits since it is their store...BUT they are not hosting the software...they are merely taking payment and redirecting the customer. That is NOT worth 30% of the sale price!!! Anyone who believes that is a fool.

    Simple fact is that these companies wil loose money on the deal, while Apple rakes in profits for doing practically NOTHING. How is that fair? Who in their right mind would agree to those business terms?

    And to answer your question regarding Amazon....YES (even h*** YES)!!!! Why? Because that Amazon Kindle App (and other apps) WILL HELP SELL IPADS, and we all know Apple doesn't take a loss on its hardware!!!! Some folks will choose the iPad over a competing device based on the content, so it is in Apple's best interest to host Amazon's (and others' apps, even if they don't make a profit on the app subscriptions themselves.

    Apple's actions and your flawed thinking process are endemic of the short-sightedness business seem unable to move past. Apple should be looking at this in the long term, not trying to rake in extra $$$ now. h***, Apple has BILLIONS of $$$ sitting in overseas banks they won't even bring back to the U.S. because they feel they should only pay 5% in taxes versus what they legall owe.

    It is all about GREED, nothing more. Anybody who believes Apple is some fluffy, customer-oriented corporation is a fool. It is ironic that so many Apple fans (and I own a lot of Apple equipment...and have done so since my first Apple IIc) complain about Microsoft, yet ignore Apple's own GREED.

  1. nat

    Junior Member

    Joined: Mar 2002

    +6

    please

    it's a frickin company. of course "greed" is part of the deal.

    love those that say they will look for other options because of apple's "greed".

    my gawd, were you people on your soap box's when every pc maker had to pay microsoft whether they used ms os's or something else? your "ethics" hold true across the board don't they?

    for all those who claim this is the last straw i wish you well in finding a company that isn't greedy.

  1. aristotles

    Grizzled Veteran

    Joined: Jul 2004

    +8

    Short memories on the net

    When the Kindle was the only game in town, Amazon was charging 70% for e-book purchases. Then when iBooks offered 30% Amazon dropped their take down to 30% but not without some price fixing where the e-Book had be a certain price relative to the physical book in their store.

    Amazon also charges 30% for subscriptions for magazines and newspapers.

    On the topic of "in-app" purchases, Apple does have to host that stuff for security purposes as they have to vet those add-ons for bugs and security issues.

    So for 30%, Apple is offering delivery of the intial free app to the customer and any subsequent issues.

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