Black markets are nothing new. They crop up for all kinds of reasons: to curb regulation, to defeat (excessive) taxes, to exchange illegal goods. As I read the news this morning, I could make out the outlines of a new black market on iOS.
I’m not referring to cracking paid applications that plagued Android a few months ago. Instead, in this black market, the market makers are the unlikeliest suspects: the Financial Times, Amazon and Vudu.
- Amazon’s Answer To Apple’s Terms: A Web-Based Kindle Cloud Reader
- Vudu Is Now Streaming To The iPad, Uses Web App To Avoid The App Store Revenue Tax
- FT’s new web app bypasses need for iTunes
In this case, these well reputed companies are building HTML5 web applications to defeat the 30% revenue share Apple exacts on transactions.
The Apple App Store is a powerful mechanism for distribution – and it drives millions of downloads per day. But the 30% tax is too much for certain media types, in particular print, music and video. These media’s margins are much smaller than the massively profitable mobile gaming companies with 60% gross margin and 30% profit margins (net of the Apple tax).
Because the 30% tax is too great, Amazon, the FT and Vudu are forced to build a web app to compete with their iOS app. It’s a bet ultimately that the web can provide an alternative distribution mechanism that provides at least 70% of the customers of the iTunes store – one well worth making. In fact, GetJar, a web-based mobile app store announced 2B cumulative downloads. Much smaller than iTunes at 15B+ downloads, GetJar nevertheless is proof that ex parte distribution can be a viable channel.
It’s no surprise that Apple hasn’t reduced the tax for these content categories for Apple knows the economics of these businesses well. In fact, iTunes Music, Movies and iBooks compete directly with Amazon and Vudu. Over the long run, Apple’s levy will impose a financial burden so great that companies competing with the core iTunes store content sales will be priced out of the market.
This is precisely why we need Android and other mobile operating systems to succeed. Android provides an alternative market place with lower tax rates. We need competition to drive down taxes and open the market to choice. Lowering these barriers to entry will ensure the mobile app ecosystem continues to thrive.