My guess is that Apple’s App Tax got Choked in the Legal Library by Professor Amazon

clue game box

On the Peter Kafka post at All Things D, the headline reads, “Steve Jobs Blinks! Apple Backs Down on App Subscription Rules.” I’m guessing that Steve Jobs blinked, but only after the “invisible hand of the market” choked it (the app tax).

And by “invisible hand of the market,” I mean Amazon.

Quote from All Things D:

“Apple appears to have backed down on a major component of its new in-app subscription rules, which should provide a big boost to content companies: It has scrapped a rule requiring apps that play content like music, movies, and books to also sell the same content within the app itself, and share the revenue with Apple. Now, apps can offer access to content purchased outside of Apple’s walls, as long as the app doesn’t have a “buy” button that connects consumers directly to an external store. That is: Apple won’t make it easy for users to buy in-app content without going through Apple’s store, but it won’t outlaw it, either.”

As the 12 regular readers of this blog know, I’ve never had an issue with the in-app transaction (this includes all transactions, not just subscriptions) fee of 30% Apple charges. Making sales inside a channel created by Apple is, using the buzzword of the day, “additive.” In other words, the sale would not have happened had not Apple delivered the purchaser to the seller. A commission on such a transaction is lower than the margin a retailer, wholesaler and marketing costs would cost a publisher, no matter what the channel.

My problem with the earlier term agreement was the precise issue that has received a mercy killing.

Apple is admitting with this policy change that it can’t do something that is likely illegal (price fixing) and that they have little to gain from painting on their forehead such an easy target for an entire coalition of booksellers and consumers and potential iPad purchasers and competitors to revolt against, once the reality of the terms became evident (and demonized).

Of course, none of that mattered to Apple. However, the power of Amazon: That, they get.

I said it first, when the terms were introduced: “Does Apple really want to have a “no links to your local bookstore” rule?


“Apple has just done something that I would have previously believed impossible: They have given independent booksellers and Amazon a reason to join forces. A common enemy often does that.”

And then, last month, I blogged about the first victim of Apple’s terms, the iFlow Reader. On that post, I ended with the following:

“As the issues raised by iFlow apply also to, well, Amazon, this is not the end of this story.”

That’s why I say, it is Amazon’s invisible hands that choked off the app tax. Apple knows the legal war chest Amazon commands could easily turn this issue into a protracted, expensive battle that, in no way possible, would Apple eventually win. Perhaps if we were talking about Apple dictating prices on video games, there could be some room for Apple to gain the hearts and minds of consumers (and jurors). But books? Apples mythical marketing machine may be able to make “agency pricing” look like something other than price fixing, but the previous rules in the app seller terms prohibiting different pricing off-app, is right up there with book-burning for independent booksellers and the readers who love them.

While it may appear to some that Apple has not blinked enough because it won’t allow a “buy button” link to a purchase option off the app, the new terms also provide an “app-out” for that, as well. (Besides, I think they’ll back off that also.) The new terms allow transactions to be set at prices in-app above the off-app sales price, allowing the app owner to price the in-app transaction at a price-point that will net-out at the same place they’d be if selling the product direct. In other words, they will mark-up the in app price to reflect the app tax. In other words, with this “off-app” pricing fee, the “app tax” becomes a “convenience fee” (translation: sucker’s fee).

Consumers will learn immediately that they are being charged a 30% app tax and will learn to click to the web site option, even if no link exists. Don’t believe me? Come to Tennessee (a no income tax, high sales tax state) and watch people drive across the state line to save 2% on a gallon of milk. Better yet, watch people line up for panic buying during any “no sales tax” weekends.

In other words, consumers just love to know there’s a hack around a high price and those who don’t will do what those people always do, pay for the convenience of being stupid.

Thank you Amazon. I say that because I’m sure you’ll be doing something evil next, and I’ll need to point back to this praise of your invisible hand.

[If I were “writing” instead of “ranting,” I feel certain I could have come up with a few alternatives to the phrase, “in other words,” which appears a few dozen times in this post.]