Apple Charges Subscription Bounty, Dependency on Single Platforms, Part 2

The indefatigable @webwright posted some comments to my previous post Apple Charging Subscription Bounty, Evolution of Platforms, Free vs. Paid, Right vs. Wrong. @webwright brought up Pandora, who has tight margins and can’t give Apple 30% of its normal subscription fee without taking a loss on every subscription it gains through the app, via this new restriction.
I guess that I could naively say that Pandora should just raise its subscription fee to incorporate the 30% over and above its normal margin and just tell its user base that it had to do it because of Apple. But pricing is rarely so cut and dry.
I could also just say that Pandora should just give up the iOS platform and go Android, which is still a pretty big market and theoretically should make the company plenty of money. But giving up any market is a tough decision to make, especially when there are entrenched users.
And especially that Pandora is in the IPO line up for this year. In looking at their S-1, it unfortunately didn’t mention what the breakdown was in terms of iOS users versus other platforms. So I don’t know if punting on iOS would be a big deal for Pandora or a loss they could absorb with the growth of other listening platforms.
Still, all my supposed solutions are just the musings of a guy sitting outside of Pandora and not a guy who is in the trenches at a company trying to do its best to make money and ultimately go IPO.
I think my point, though, is this. Let’s say a company was singly dependent on iOS as a platform. I am sure we can point a number of companies like that. To me, this is a problem. That’s because when you build a business solely on one platform, you incur the risk of having that platform ultimately be able to jerk you around or even sink you.
Let’s go back to my example of the electric company in my preceding post. The platform on which that electric company depends is fuel. How much it charges for electricity is highly dependent on fuel costs. If oil prices go up, so does our electricity bill. But yet we all roll with the fact that this is true and we may grumble but we don’t go on Twitter and rage about how my heating bill is up a few bucks because those damn oil cartels in the Middle East raised prices again.
Still, at some point, oil prices might rise so much that we might do something. We might even refuse to use electricity from that company and get it elsewhere: home solar cells, energy from one of those other green utilities, etc. That company could go out of business because it was dependent on oil prices with which it has zero control.
Take a look at Facebook apps and the ecosystem it first created, which allowed a myriad of businesses to flourish. Then, they went and started closing down the viral mechanisms that allowed so many games and apps to gain users. Yes, it did do so to clamp down on bad practices, but it also affected legitimate companies and stifled their ability to grow. Many startups either left the app ecosystem or just outright died.
Nowhere else did dozens of companies feel the pain and death as a result of their dependence on a single platform.
Last year, Zynga almost left Facebook but had built enough value and power against the platform to leverage a 5 year deal. It also realized that its future could not depend on this platform, so it started to break away in a variety of ways, forging a partnership with Yahoo!, MSN Games, and also working on Zynga Live.
Zynga was fortunate enough to have grown so large and so quickly before the platform could entirely sink the company. They had gotten enough users who loved their games that they could now just take those users somewhere else. So Zynga shows that you can use a single platform as an early growth mechanism, but it also shows that you better hedge your bets against the day when the platform turns against you.
Apple’s iOS is a platform which has spawned a ton of new businesses. Many of these are thriving in the iOS platform. However, Apple did not create the platform so that other businesses could just flourish out of the goodness of their hearts; they created it so they could make a ton of money and benefit its users who would in turn buy more Apple products and services. It is easy to forget that and just feel entitled that the platform should just exist for the benefit of those working in it.
Therefore, businesses whose livelihood are dependent on one platform as at extreme risk of that livelihood being screwed with by the platform owner and as history has shown, they could even die by the machinations of the platform owner. Companies should be acutely aware of this and work to make their businesses immune to the manipulations of any one platform. If they can, they should strive to create their own platform and jerk other people around instead being jerked around themselves.
So if you were developing on iOS and dependent on subscription revenue, and then Apple comes in and says you gotta pay up 30% or we’ll drop you, you better have a back up plan and execute it fast if you can’t absorb the 30% cost somehow.
On the other hand, if the 30% bounty either kills off enough businesses or makes them leave, such that their users become dissatisfied enough to revolt and leave, then Apple will have to make changes because it needs those users. Facebook doesn’t have this problem – pretty much every user in the world is on Facebook. Users can leave, but where would they go? If they leave, their social graph is still back on Facebook…