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Apple Subscribes to Danger

Apple Subscribes to Danger

Apple's new in-app subscription model has been met with both praise and anguish. Some publishers see it as a goldmine of new subscriber opportunities; others say Apple's insistence on taking 30 percent of subscriptions purchased inside the app is just too much to swallow. Meanwhile, iPhone rival Android has flexed its muscles in Barcelona, and Nokia may prove a more powerful adversary with Microsoft on its side.

By Richard Adhikari MacNewsWorld ECT News Network
02/16/11 5:00 AM PT

Apple has added a new revenue channel for iOS app developers, but as always, Cupertino was careful to make sure it gets its own slice of the pie.

Apple's new in-app subscription service allows publishers of various types of content to deliver new content to customers on a regular basis for a recurring fee. However, if a publisher sells a digital subscription separately outside of the app, the same subscription offer must be made available, at the same price or less, within the app. If a subscription's sold within the app, Apple gets a cut of the action.

Reactions were mixed, with critics citing concerns about Apple requiring a feature that would, under certain circumstances, let it commandeer a sizable chunk of publishers' subscription revenue. However, Mark Beccue, a senior analyst at ABI Research, described it as a "godsend" for publishers.

"They've been struggling with their business models, and to have subscriptions catered for them through the iTunes App Store is a really good thing," he told MacNewsWorld.

Apple did not respond to requests for comment by press time.

The market seemed uncertain how to take the news, and trading in Apple shares was volatile Tuesday, with share prices see-sawing above and below Monday's close.

AAPL closed Tuesday at US$359.90, up 72 cents.

All Your Subscriptions Are Belong to Us

Magazines, newspapers, video and music publishers are among those affected by Apple's app subscription policy.

The publishers will set the price of subscriptions and their term, customers will make their selection, and Apple will process all the payments, taking the 30 percent cut it takes for all other in-app purchases.

Apple will not take a cut of individual digital subscriptions sold through a publisher's own website. However, they must provide their own authentication process inside their apps for subscribers who signed up outside the apps.

Will Publishers Agree?

A similar Apple rule involving book sales led to the rejection of a Sony e-reader app earlier this year. The move upset some publishers, and it's still too early to tell how they'll react to Cupertino's latest move.

However, Hachette Filipacchi's Elle magazine has reportedly signed up for the new subscription offer. It remains to be seen whether other publishers, many of which are locking horns with Apple over the question of ownership of customer data, will follow suit. Those publishers include Time, which doesn't see eye to eye with Apple over the customer data issue in connection with its Sports Illustrated magazine.

Overseas, publishers in Belgium and France have already called for antitrust investigations of Apple over the Sony e-reader issue. Whether or not European publishers will embrace Cupertino's new billing rules is open to question.

"The companies that are going to complain the most are media publishers, but they'll have a better opportunity to gain new subscribers because of the power of iTunes and Apple, and the ease of use," ABI's Beccue pointed out. "Media publishers' online profit margins are being dragged down by their legacy business models, not the digital business."

Android Boosts its Threat

Over the past week, Android has beefed up its muscles.

Several new tablets running Android 3.0, aka "Honeycomb," and a host of new Android smartphones, have been announced at the Mobile World Congress, being held in Barcelona, Spain, this week.

However, it's uncertain how much of a threat they'll pose to iPad 2, which is reportedly scheduled for launch in March and is expected to have a slew of advanced features.

Meanwhile, Google has beefed up the near-field communications features of Gingerbread, with release 2.3.3, in a response to Apple's recent emphasis on NFC.

NFC lets consumers use mobile devices to make purchases and exchange data with other devices. It's one way of conducting mobile commerce, a field that's poised for rapid growth.

"Android's NFC in its first implementation is rather rudimentary in terms of use case, but it's standards-compliant," Gartner analyst Sandy Shen told MacNewsWorld. "We expect the iPhone 5's NFC to support more interesting applications."

Apple, Verizon and Smaller Smartphones

The iPhone 4's launch on Verizon Wireless' network appears to have gone well, with the carrier reporting record single-day sales. However, in-store sales the actual day of the launch appear to have been tame, and it's yet to be seen whether the demand for an iPhone on Verizon's network will live up to expectations.

Meanwhile, there are reports that Apple's working on a smaller, less expensive smartphone to tap into the lower end of the market.

White-box smartphone sales have been growing strongly at the lower end of the market, and Gartner said they were partly responsible for the year-over-year decline of Nokia's share of the mobile market in 2010.

This device will probably add to Apple's range of devices instead of cannibalizing iPhone sales, Michael Morgan, a senior analyst at ABI Research, told MacNewsWorld.

"If this device was created, it will be because Apple's discovered a market segment that's not being served by its current devices," Morgan pointed out. "As such, it would be well-targeted and would lead to little or no cannibalization."

NokiaSoft, or Microkia

Last week, Nokia stunned the mobile world by walking away from MeeGo, the smartphone platform it jointly established with Intel in 2010, and announcing it's teaming up with Microsoft on the Windows Phone 7 platform.

It's not yet certain whether the move might help stem Nokia's losses in the smartphone market and turn around Microsoft's fortunes there as well.

"It's too early to predict ultimately whether Nokia and Windows Phone 7 can catch iOS and Android," Peter Farago, vice president of marketing at Flurry, told MacNewsWorld. "But, given the head start and critical mass that both Apple and Google have, it would not be for some time."

That doesn't necessarily mean the partnership could be considered a marriage between two also-rans.

While there's little differentiating smartphone manufacturers such as Samsung, LG, Motorola and HTC from one another, "Windows Phone 7 could be more meaningful for Nokia," Farago pointed out.


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