WEEKLY RECAP

Will Apple Be Forced to Cancel Its Subscriptions?

Did Apple just save the publishing industry? Or did it just get sohungry for burgers that it butchered its own cash cow?

The rumblings started earlier this month, when Sony got itself in abunch over Apple’s rejection of its e-reader app on the grounds thatit didn’t sell books quite the way Apple wanted it to.

Say you buy a bunch of e-books on a website, and then you download anapp that lets you access those books on an iPad. According to Apple’s rules, the application has to also let you buy books directly through its owninterface. Hey, some customers just don’t like to futz with a website,so there has to be an in-app option as well.

And of course those sales would count as an in-app purchases — ofwhich Apple takes 30 percent.

For some people, this was quite troubling. Not so much because of theway Sony was treated, but because of what it could mean for a muchmore popular iOS app — Kindle. What if Amazon were told to follow thisrule too and had to offer book sales through a channel in which Appleskims nearly a third right off the top? Would Amazon decamp the AppStore? And is this the beginning of a broader move by Apple to imposea 30 percent toll on all commerce conducted over iOS? Am I beginningto sound like Glenn Beck?

Then, this week, Apple announced the availability of somethingnewspaper and magazine publishers had wanted for a long time: in-appsubscriptions. Readers can download a publication’s dedicated app,start up a subscription right there in the software, and get regularcontent updates automatically in exchange for regular payments. Soundslike it beats logging onto a Web page every time you want to read thelatest issue.


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But once again, how Apple wants payments to be handled has become a sticky topic. First off, apps using the subscription system can’t restrictthemselves to subbies who signed up via the pub’s website. The appsmust also offer to sell that subscription directly through the app.And any reader who buys one through the app is making an in-apppurchase, so like always, Apple gets its 30 percent slice.

That’s not the only way a reader can start a subscription, of course –as long as that in-app offer is there, publications are free to signup however many subscribers they want through a website or any othermeans, and Apple gets none of that revenue. But that scenario may turnout to be pretty rare, at least among iPhone and iPad users. Apple hasexpressly forbidden publishers from playing price games to getsubscriptions through the Web rather than through apps — thethrough-the-app price has to be the same or lower.

Apple won’t evenallow publishers to link to their own websites in their apps. It wantsin-app purchases, complete with the Apple toll, to be far and away themost convenient way to start a subscription and start reading. And sofar, it seems that’s exactly what it is.

That’s not a problem at all for some publishers. Apple has presentedits 30 percent split as a finder’s fee. Its argument is that thesubscription never would have happened if Apple hadn’t provided theplatform in the first place, so it deserves its cut.

And consider how eager some publications are to figure out how to makedigital subscriptions work. Even after giving Apple its taste, thatsubscription revenue is more than it was making before it scored thatnew reader. Consider it a delivery cost that just takes the place ofprinting and mailing a physical magazine to that reader’s door.

So far we’ve only been talking about periodicals, but the text ofApple’ press release also mentions two other forms of media, andthat’s where things might get downright weird: music and video. Itmakes you think about popular apps like Netflix, Rhapsody and Hulu, andwhether they’ll opt to bend to Apple’s sales rules or just walk rightout of the App Store entirely. Their businesses are very differentfrom those of newspaper publishers, and Apple’s 30 percent split may prove to be just too much to bear.

Just like every other time Apple does something like this, bigconversations happen about whether the company has the right todo it. And there has been some antitrust chatter going on around this, even in the U.S. Department of Justice and FTC, reportedly. The European Commission is also looking at the situation. They’re usually much quicker to pull the antitrust trigger than American regulators, but even they acknowledged that the tablet market is still new and evolving, so it’s hard to say anyone has a really entrenched monopoly. Of course, Apple’s rules don’t just apply to tablet software; they also apply to phone software, and phones are a more established sector. So one of these regulators might make a move eventually, but until then, it’s really Apple’s store to manage how it sees fit.

And even if these regulators find Apple has a perfect right to do what it’s doing, there’s still the question of whether it’s wise to do it. Squeezing profit out of an asset is great, but at a certain point it could start squeezing so hard that some app makers aren’t going to want to play anymore. Some of their apps might be very important ones — apps whose very presence in the App Store benefits Apple by making iOS an attractive platform for consumers. And it’ll be those app makers’ right to back out if that’s what they thinkis best. Android’s growing every day.

Even if it never comes to that and everyone figures out how tokeep working together, from the perspective of consumers who payattention to this stuff, things just look kind of uncertain. What appsthat iPhone and iPad users love right now won’t be available in 12 or18 months? The new policy’s thrown a big clod of doubt into the air,and it could make buyers pause ever so briefly as they get ready toshell out for an iPad 2 that they hope to keep for three or fouryears.

Up Pops the Alternative

Not at all coincidentally, Google followed Apple’s announcement the very next day by revealing Google One Pass, it’s own content subscription system that it hopes to use not just for mobile apps but for websites as well. It’s meant to synchronize the user’s subscriptions across tablets, phones and desktops with a single sign-in. Publishers can play around with how much they charge, for what, and how often, but Google Checkout is the designated cash register.

You won’t find as much restrictive language in the way Google heralded its subscription plan. There was nothing about price controls in in-app purchases vs. through-the-Web purchases. The language also made it sound like periodicals are really what Google has in mind with this, but it did leave the door open for other types of media too.

The big difference, though, is Google’s split: Google wants just 10 percent of the action, not 30.

Besides the split, there’s another important distinction between Google’s system and Apple’s, and it has to do with subscriber information, which is crack to publishers. Basically, Apple is opt-in, Google is opt-out. When customers subscribe through Apple’s system, they get to choose whether to share that info with the publisher. Most are going to say no because it just sounds like more junk email.

But Google’s system shares info with the publisher by default — the user has to actively tell it not to. Publishers have gotta love that, but consumers — the ones who are aware of it anyway — might not be so hot on it. Still, even with its opt-in system, Apple gets to know your info, even if you don’t want it passed on.

MeeGo’s Amigo Nevermore

Nokia has abandoned its child with Intel and absconded with an American. It’s cut itself loose from the MeeGo mobile platform and signed up with Microsoft to put Windows Phone 7 in its future smartphones. Expect Microkia babies in about nine months.

The move came rather suddenly, though the warning signs were certainly there. Nokia went through a big upper management shakeup last year that included the appointment of a new CEO, Stephen Elop, who came directly from Microsoft. And last week, a memo was leaked in which Elop told employees that the company was standing on a “burning platform” and lamented that years after Android and iPhone came to the scene, Nokia still couldn’t come up with something that matched the experience.

So now it’s made an agreement with Microsoft to focus on building Windows Phones, and the two have locked arms to try and regain some of their faded glory.

Nokia’s still the biggest phone maker in the world, but the emergence of relatively new smartphone platforms has not been kind to it. Its Symbian OS seems to be stalling, and at the point Nokia got itself in gear with MeeGo, it was already questionable whether even a phone maker Nokia’s size could cram yet another platform into the market. Some people said it should just do what almost everyone else was doing and start using Android, but one Nokia executive compared that with peeing on yourself to keep warm on a cold day. Maybe that’s a common expression in Finland.

Meanwhile over at Microsoft, the company’s just gotten off the ground with Windows Phone 7. It’s a clean break from another stalled-out OS, Windows Mobile, which was once a very large player in smartphones back when those devices were considered much geekier gear. WinPho’s received a fairly warm reception, but it doesn’t seem to have a special hardware friend. Samsung and HTC are both very much preoccupied with Android, and Motorola might not even give it the time of day.

I guess the way I’ve laid it out makes it sound like these two were made for each other and that this was the only rational choice. But a lot of Nokia investors and employees don’t think so at all. There was reportedly much dissension in the ranks in Espoo, and a few investors went into open revolt with Plan B, an initiative to boot Elop and get back to MeeGo. It faded pretty quickly.

The abrupt change in direction has also left some wondering whether Elop was out to complete some kind of high-profile mole mission, digging his way into Nokia’s upper ranks and driving the company right into the arms of his former employer. But he was just installed a few months ago, and this kind of decision was probably in the works long before he signed on. Besides, it’s Nokia’s board that really calls the shots, including hiring Elop, so maybe it was really the other way around. Maybe he was considered the best guy to oversee a transition that had already been put into motion.

Turning toward Microsoft could mean the company’s going to make a big push into the North American market. But in order to do that, it’s going to have to start playing nice with the major carriers here, especially when it comes to selling their high-end smartphones at a subsidized price. Most buyers in the U.S. don’t care whether a phone is unlocked or not if it costs $700; all they know is there’s another really nice phone over here for less than a third of that if I just sign a contract, so why not?

The two are also going to have to get to know each other very quickly. These are two very big corporations working together, plenty of big egos are involved, many of them bruised, and the whole thing has lots of moving parts that will have to execute just right to regain the footholds they once held.Retailer JCPenney has been accused of using black magic to charm Google and boost its search rankings, something the search engine expressly forbids. But what Google has done about it has raised some eyebrows.

Thumbing Google’s Scale?

SEO is a sort of technological alchemy in which a website arranges its data just so in hopes of catching the attention of the algorithms used by big search engines like Google, thus giving the site better visibility when people do searches. Some SEO practices are completely kosher, while others cross the line into what Google considers the dark arts.

Suspicions were raised about JCPenney when people noticed a big difference in search results before and after the holiday season. Starting just before the annual spendfest, you couldn’t do a search for something like “bedding” or “dresses” on Google without getting Penney’s results up to your eyeballs. But if you tried those same searches just a few days ago, you’d see a far lower rank for Penney’s stuff.

That kind of fast change isn’t exactly natural, and it prompted The New York Times to investigate. The paper reported that JCPenney’s search rankings were elevated using just the kind of black-hat search techniques that Google frowns upon. In fact, some of the alleged infractions were so severe that under Google’s rules, Penney’s could have been banned from the engine altogether.

But that didn’t happen. It appears that the retailer received basically a slap on the wrist, if anything. Google has denied the suggestion that there’s any link between JCPenney’s placement in its search rankings and the huge amount of money the retailer spends on Google advertising. Meanwhile, Penney’s denied complicity in any kind of SEO witchcraft.

If it’s true, it certainly looks bad for both companies. But worse things have been done in the pursuit of higher search rankings. At least JCPenney didn’t threaten to assault its own customers just to get talked about, like that Vitaly Borker guy did. Allegedly.

Let’s Welcome Our New Silicon Overlords

IBM already conquered chess years ago with Deep Blue in its famous ’97 match with Gary Kasparov. But chess has no TV audience; if you really want to get some publicity for your super-smart machine, you have to put it up against a couple of human brainiacs on the game show of the people: “Wheel of Fortune.”

But winning at “Wheel” proves nothing; I’m pretty sure a Speak ‘n’ Spell can do that. So IBM sent Watson, its latest computer prodigy, to the Trebek Thunderdome, where it faced off against some of “Jeopardy’s” all-time greatest contestants in a three-day battle that was both a triumph and a humiliation for all humanity. It mostly wiped the floor with the meatbags, though it did end up tying one round.

Watson represents the work of eight universities, and the thing that makes it really special is its ability to understand a question asked in natural language and come up with a sensible answer after very quickly sorting through trillions of tidbits of information. The real purpose of the technology behind it is not to subjugate humanity by way of game show dominance. Its underlying abilities could be used in healthcare, finance, government or any other field in which the best answer can only come by sorting through a truly gigantic mountain of data.

But if there’s even a spark of actual intelligence within Watson, it’s crawling around in the dark — the machine can’t really sense anything around it like people can. It didn’t interface with the questions on “Jeopardy” via cameras or microphones; technicians actually had to type those questions in. So we’re not quite in Johnny 5 territory. In fact, perfecting a way for a computer to understand real, everyday language spoken by humans may be a much more difficult challenge than putting Watson together.

1 Comment

  • No, you’re not sounding like Beck. You’re being reasonable and using facts.

    Apple is demanding a 30% cut for what? The privilege of using their iPhone? I have a Windows desktop. So does that mean Microsoft can demand a cut from whatever online store I patronize? My TV set is made by Samsung, so if I buy something because of a commercial I see, do they deserve a cut?

    The iWhatever is a computer, a small specialized computer, but still a computer. If someone else’s program runs on a computer, the computer makers have no right to claim tribute. They got that when the computer was purchased and the developers paid the licensing fee.

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