Oliver Reichenstein of iA speaks his mind

by Volker Weber

In the wake of the epic fight between Epic vs. Apple and Google, Oliver Reichenstein of iA writes a brave blog post where he makes three points:

1. Facebook, Google, Amazon, Microsoft and Apple are monopolies.
2. 30% of revenue is more than a reasonable profit margin.
3. Android users are cheap.

I think the first point takes up a bit too much space. One item made me think a bit longer:

All things taken into account, R&D, components, retail, management, and marketing, Apple probably makes more than 30% on its iPhone business. And they better do. Without profit, you cannot run a business. There will always be bad times where you need reserves. And, without at least 15% profit you cannot grow a business. It doesn’t take an MBA from Harvard to figure that out.

The software business is different from many other businesses. There is no bill of materials and scaling effects are huge. So I asked Oliver how he cannot look at the 30% which Apple takes as a cost of doing business. After all, the app store collects the money, provides distribution and storefront. When I discuss with him, the water gets too deep for me very quickly, since I don't have his experience.

The item I found funny was this:

Android users do not want to spend money. If you offer your app for 5 Dollars per year you get called a megalomanic. This is why Google hands out more than 7 Billion Dollars per year just to be the default search on iPhone. Android users don’t spend money on apps. Not spending money is the Android brand. Android is not an alternative, it’s an alternate reality.

He bases this observation not only on the fact that the Apple App Store generates twice the revenue compared with the Google Play Store but also his experience running both an iOS and an Android business.

I hope Oliver writes another post about Apple pushing developers into the subscription model everybody so hates.

More >

Comments

Definitely worthwhile to read. The post provides many facts (companies purchased by Google, Facebook, Microsoft, Apple) that are unknown to most people.
This sentence ruins it for me: „ You are entitled to your opinions, but if you have no experience lecturing people that have worked in the industry for over ten years and managed to be one of the few among Millions to be profitable in this tough environment, your opinions are about as important as your butterfly technique to Michael Phelps.“
Making a living by selling software in an App Store (or Apple‘s App Store for that matter) is super-hard. I have no doubt about it. Listen to Marco Arment‘s podcast. He‘s a successful developer and explains to his audience that it‘s hard. He also branched out into different business ventures (i.e. add sales via his Podcast, optional membership for ATP). But: Selling software in general and making a living off of it is super-hard. Imagine you are a startup and the Apple‘s App Store allows for side-loading. Do you really think you can grow your customer base as much and as quickly so that it sustains your business? Few will be able to do so. Plus, many iOS/iPad OS users will never by software that needs to be side-loaded (for convenience and/or security reasons).
So what‘s left: Force Apple (and Google) to allow app developer‘s to use the App Store with no Commission of 5% commission? Maybe 5% is still to high to sustain a business. Make no mistake about it: What represents a monopoly is solely defined by the law (different laws in different jurisdictions of course). We‘ll have to wait and see how the US Supreme Court will decide one day and what the EU‘s institutions will have to say. If I was an app developer (which I am not so I am not entitled to have an opinion that counts - see above) I wouldn‘t put my hopes into the courts. BTW: This will take years to be decided.

Markus Dierker, 2020-08-18

"This sentence ruins it for me." Maybe you read past the humor there, but, with the hyperbole humor needs, this touches one of the more important aspects. You rarely hear the concrete take from devs because it exposes them to Apple and to the competition. I'm happy to revise the sentence an make the intnded meaning clearer. But one thing we are fed up though is armchair economists who think they know without having any experience in the field. I stand by that.

Oliver Reichenstein, 2020-08-18

"Making a living by selling software in an App Store (or Apple‘s App Store for that matter) is super-hard."

It's not super-hard, it's impossible. In the early days there were tales of lone developers creating wildly-successful apps, and making a fortune, but those days are long-gone. For a small development house, the money doesn't make sense. Only the big players can afford to keep at it with the app stores.

As app development has been cheapened to devastating affect, the same has happened with books and music: it's horrible.

Ben Poole, 2020-08-18

Same experience here with money and android.

I buy all apps I use regularly because I hate the empty screen space, blocked Ads leave behind. ;)
And mainly, because the developers just deserve it.
But when I tell that to my friends, family or colleagues, I usually only get empty stares.

Hannes Niebuhr, 2020-08-18

I have some silly questions. My supermarket around the corner is selling these AppStore Gift Voucher Cards. They do this for free? Or do they get a share of Apple's/Google's 30%? When the supermarket promotes theses cards and offer up to free/additional 15% (buy €100 card for €85 or buy €100 card and get additional €15), who is paying for that? Does the game developer gets refunded 85% resp. 87% what they regularly get? When I argue about any purchase I made within the AppStore and they refund me, does the game developer get it deducted the next time?

I personally think that 30%/15% in the second year is a lot, you can discuss that it is today too high, but when it was introduced it was fair. And today it is still not exorbitant or usury. What I would not say about overdraft interest on giro accounts...

Sven Richert, 2020-08-18

Unrelated. Your gift card just ups your account.

Volker Weber, 2020-08-18

So if I buy a 15% discounted Apple Voucher Gift Card to pay my Netflix subscription after year 1 Apple earns nothing, right?

Sven Richert, 2020-08-19

@Sven - you for sure understand how gift cards work, right? Apple (or your supermarket, FFS) has given you a discount, so you can buy more in the Apple store than the money you paid in your supermarket suggests. Remember the old days in the Berufsschule (and I know you were there since we were in the same class): "Rabatt, das lass dir sagen, wird am Anfang drauf geschlagen.". Neither Apple, nor Rewe, nor Netflix are givin away anything for free. Most likely Rewe has a "Mischkalkulation" that allows them to sell at a discount - and they certainly do not buy the cards from Apple at list price..

Armin Auth, 2020-08-19

I would not worry too much about Apple's profit. "Apple gross profit for the twelve months ending June 30, 2020 was $104.580B."

That is $286,520,548. Every single effing day.

Volker Weber, 2020-08-19

@Armin: There is no free beer; That's exactly my point, the 30%/15% tag is "Mischkalkulation" at is best. People often refer that Apple/Google have to run the technical foundations, marketing and content infrastructure of their stores and that does not "cost" 30%. Scandal! But they also have to take care all the other points I mentioned. If I would sell an App for €0.99 I receive 70% of the net = €0.60 (with the current 16% USt) regardless how much the users have paid for their AppStore credit. If they have paid their credit by bank transfer Apple earns €0.25, if they bought it at Kaufland with 20% bonus last week Apple earns €0.11 = 16%. Minus the commission Apple gave to Kaufland. With Netflix after year one it's even worse. From €11.99 Apple gets €1.55 max and €-0.17 min =-2%. The commission rate for Kaufland et al. must be at least 8% to make any sense to them. So me with my theoretical App and all the other App developers like Oliver are subsidizing Netflix, Amazon & Co. with their second+ year rebate. (I know that not all people are as frugal as I am, and all their AppleMusic and Netflix subscriptions are not paid exclusively with discounted gift card vouchers.)

@vowe: Germany has a total tax revenue (excluding purely municipal taxes) in 2019 of $878,904,028 only (that's 3 Apple days), does that mean my average tax rate of 33.9296 % is too low? Makes no sense, right. Apple is earning money like hay because they sell the right products, through the right channels with right supply chain.

Sven Richert, 2020-08-19

@Sven - everybody is paid, just margins are reduced but this is already priced in. There is no free lunch for anyone. Get over it and enjoy that you can realize more value for money when buying discounted gift cards.

Armin Auth, 2020-08-19

Sven, wenn Du Dich mal in was verrannt hast, willst du unbedingt Recht haben. Arbeite daran.

Volker Weber, 2020-08-19

The 30% are also cross-financing for all the free Apps out there. If Apple only broke even or had low single digit PCON from the App Store it would not make as much sense to invest into it with having other higher PCON choices to invest in. I cannot argue if 30% or 20% is correct, but overall it’s not crazy to ask for a solid double digit margin to make a healthy GP and PCON.

Martin Hiegl, 2020-08-20

I have no doubt it works well for Apple; that's not really the point being discussed is it? Apple can look after itself.

Ben Poole, 2020-08-21

@Ben: There is no doubt. As Martin pointed out, they need "a solid double digit margin", what they currently have, there may be some room for improvement.

BTW: What is Van Laack's share from the € 180 someone paid at Peek & Cloppenburg, or Loewe's share of the € 4,800 someone paid at Hifi Profis, or Buhl's share for Wiso Steursparbuch as a box, or what was Adobe's share when I bought PageMaker at Computer 2000 a hundred years ago as a box with a dozen 3.5" Floppy Disks?

Sven Richert, 2020-08-22

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