Apple's risky game

Apple's recent spat with Hey has shown a possible problem with Apple's strategy.

If I may oversimplify events: Hey.com built an app for e-mail, and submitted it to Apple for distribution in the Apple App Store. Apple approved it. Hey then submitted an upgrade, which Apple rejected, claiming that the Hey.com e-mail app did not conform to Apple's rules. Hey.com charges users $99 per year for the e-mail service, and Apple wanted 30% of it. Hey fought back, saying that the terms for apps were 30% of in-app purchases, and people could buy a subscription on the hey.com web site. Apple said that such an arrangement was not satisfactory, and stood firm on its rejection of the upgraded app.

Hey's complaint is mostly one of fairness: the terms and conditions said "in-app purchases". Hey thought that they conformed to that clause. Apple then explained that an app must allow for in-app purchases when a subscription is required. (And apparently when a customer subscribes on the web site, Apple still wanted 30%.)

To further muddy the waters, Apple allows "read only" apps such as Netflix to avoid the 30% fee. 

One can see the advantage of Apple's strategy: by forcing an app maker to pay the 30% fee, it increases income (for Apple).

But a side effect of this strategy is that it converts a partner in one's ecosystem into a customer. Were hey.com to accept the proposed terms, they would be paying Apple. (Which, last time I checked, makes them a customer.)

So is hey.com a partner, a competitor, or a customer?

They are a partner in that they provide an app for the Apple App Store.

They are a competitor in that their app (an e-mail app) competes with Apple's built-in e-mail app.

They are a customer in that they pay money to Apple.

It is one thing to irritate your competitors; it is another to irritate your customers. Competitors expect that you will compete. Customers expect that you deliver value. And the folks at Hey consider the services provided by Apple in exchange for the 30% fee to be insufficient.

For Apple, this is probably a business decision, governed by finances and not by emotions. Even if they lose some app providers (customers), they make more money overall.

Further muddying occurred with a recent announcement (true or otherwise) that Amazon paid less than 30% for its app. This will not sit well with developers, especially after Tim Cook (CEO of Apple) claimed that all app developers have the same arrangement.

"Ah," think the small developers, "I see how this works. The big companies have a nice little club with discounts, but I have to pay full price."

Apple must tread carefully here. Apple has its market, and its walled garden, and its App Store. Partners or partners-turned-customers may grumble and pay the 30% "Apple tax" -- for now.

Apple runs the risk of becoming the next Microsoft -- or more specifically, the next big company that people love to hate. Developers may play by Apple's rules, grudgingly, as captives in the market. But when an alternative appears on the horizon, they will remember Apple's behavior and many will flock to that new opportunity. Apple may gain in the short term and lose in the long.