Support 100 years of independent journalism.

  1. Business
  2. Economics
8 March 2012updated 26 Sep 2015 8:16pm

When the app economy becomes the real economy

As the lesson of the FT shows, the App Store isn't quite ready for the economic importance Apple see

By Alex Hern

When Tim Cook, CEO of Apple, announced the new iPad yesterday, one of his selling points was that the new retina display could print “text sharper than a newspaper”. Three years ago, this might have sounded like a threat to publishers, but these days it’s closer to a promise.

There is broad agreement that, where the internet disrupted journalism in a way that threatened the ability to make money from content at all, the second generation of digital news presents more hope.   Readers on smartphones, and especially tablets, have shown a willingness to pay for the journalism they read, even when it is available for free elsewhere. In turn this may allow the transition to digital to be — if not quite painless — then at least not as painful as it might have been.  

But with new territory has come new conflicts. One of the big promises of digital is the fact that it does away with the printer, the distributer, and the retailer — and their financial cut. Yet new middlemen have sprung up to take their place. Why go through all the hassle of a switchover just to give Apple — and it is invariably Apple — 30 per cent of everything you take, which is what it demands to be stocked in its App Store.  

For the most part, publishers have grumbled, but accepted the company’s terms. After all, there isn’t so much a tablet market as an iPad market; it’s pay to play, or get out.

Last summer, however, the Financial Times took the latter option. It coded an app that ran entirely in the browser, thus skipping Apple altogether.  

Sign up for The New Statesman’s newsletters Tick the boxes of the newsletters you would like to receive. Quick and essential guide to domestic and global politics from the New Statesman's politics team. The best of the New Statesman, delivered to your inbox every weekday morning. The New Statesman’s global affairs newsletter, every Monday and Friday. A handy, three-minute glance at the week ahead in companies, markets, regulation and investment, landing in your inbox every Monday morning. Our weekly culture newsletter – from books and art to pop culture and memes – sent every Friday. A weekly round-up of some of the best articles featured in the most recent issue of the New Statesman, sent each Saturday. A weekly dig into the New Statesman’s archive of over 100 years of stellar and influential journalism, sent each Wednesday. Sign up to receive information regarding NS events, subscription offers & product updates.
I consent to New Statesman Media Group collecting my details provided via this form in accordance with the Privacy Policy

At the Press Gazette News on the Move conference yesterday, FT.com managing director, Rob Grimshaw, went into a little more depth as to why his paper made that decision.

As well as avoiding the 30 per cent cut it would have to pass on to Apple, building a web app allowed the FT to consolidate its development process, moving from focusing on multiple platforms (not so much of an issue in the tablet market, but a major concern in smartphones) to just one. But the real issue for Apple was the FT’s concern over subscriber data.

When subscribing to a publication through the App Store, readers are given the choice as to whether or not to share their personal details with the publisher, and a significant proportion opt out. This leaves the publisher essentially clueless as to who a lot of their readership are, which affects two major areas: advertising, and retention.

Ad sellers are willing to pay a lot more to deliver targeted campaigns (think how much more Rolex would pay to be certain to advertise to a fund manager than, well, me), and the FT need to encourage renewals — a big deal when the cheapest subscription is £270 a year.  

Grimshaw estimated that the value to the FT of this information is between 25 to 30 per cent of the value of the subscription. In other words, a user coming through the App Store was worth between £145 and £160 a year less than one subscribing through the FT’s own website.

So the FT has a pretty big motivation to leave. What is interesting is how comprehensively this outweigh’s Apple’s motivation to retain the charges and restrictions.

The App Store is there to make Apple’s products more attractive, not to make huge amounts of money for the company. Seven years of the iTunes store generated just $1bn in profit — the same amount the iPad made in just one quarter. An iPad with apps is more valuable than an iPad without; and apps with strong customer protection are more valuable still.

And yet, in doing so it has caused a very important developer to bail ship, and create an alternative experience that — despite being a world-class example of what it is — is unarguably worse for their customers. We can’t know the value of those restrictions to Apple, but it is unlikely to be anywhere near £150 per user per year.

It’s not clear if there is an easy solution to this battle of wills, but it certainly seems like a market inefficiency. And with Apple loudly trumpeting its $4bn app economy, inefficiencies in its market are fast becoming inefficiencies in everyone’s market. This isn’t a cottage industry anymore, and it needs the scrutiny to ensure that.