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The Case of Hey.com vs Apple; Why Apple Needs to Change Their Policies

17 June 2020

I’m a big fan of Basecamp, or more specifically, the people behind Basecamp (@dhh and @jasonfried). I am strongly aligned to their philosophies on remote working, communication, project management, treatment of employees, growing a sustainable business, among others. I’m also a big fan of Apple. I’m a developer, a fan of all things minimal, a believer in equality, an advocate for protecting the environment, I want to challenge the status quo and make great products focussed on customer need. When I designed Moderation, my entire design philosophy was “what would Apple do if they made a food diary App”.

If you haven’t caught up with the latest news yet, the founders of Basecamp have launched the freshest take on email since Gmail was launched 16 years ago. It’s a paid service, with iOS and Android Apps that allow you to access your @hey.com email address and take advantage of the extra functionality that their service others. Their App was originally approved, and later rejected by Apple because they don’t offer a way for you to purchase the subscription from within the App (which Apple would take a 30% cut).

This may sound familiar, Spotify, Netflix and other big companies have battled with Apple over the revenue cut and App Store policies previously. The general rule of thumb has been, if you don’t want to use Apple’s payment system you don’t have to, but you can’t link or upsell your subscriptions (or website!) within the App. The App becomes a companion for existing customers, instead of a way of generating new customers. This is the approach Hey.com took, which is the same approach they use for their project management software Basecamp, which as of writing, is still available on the App Store despite not allowing any in-app purchases.

I don’t want to delve into the detail too much as it has been covered extensively elsewhere. I want to explore why I find this troubling. Here are a few links that can get you up to speed on the story if you need to:

How should Apple respond?

With the pending antitrust investigations and the general upset caused by the latest in a long line of App Store Review scandals, I feel it is inevitable that Apple will continue to evolve its policies for the App Store. If I was Tim Cook, I would do the following:

Reduce The App Store Revenue Split

Apple should reduce their revenue cut to something defensible based on their actual costs, and introduce a banding system based on the size of the App to encourage competition.

30% is an outrageous number. We’ve accepted it and lived with it for so long. Giving a company almost a third of our profits has been normalised. It shouldn’t be.

I work for a car insurance company in the UK, and one of the phenomenons of the industry is the act of charging ‘admin fees’ if you wanted to make a change to your policy. These fees averaged around £20 and was essentially a way for companies to fleece customers for making the smallest of changes, such as changing their address. This eventually came under the scrutiny of the regulator.

The regulator forced companies to substantiate their admin fees. If someone did the change online, where there is no call centre staff involved, no office and the process is presumably automated, then the fee should be lower. For the fees charged over the phone, companies should be able to evidence how that fee is made up (with a reasonable margin of profit) by factoring in the cost of servicing the fee.

Apple needs to do the same with their revenue split. I imagine the margins of the App Store are ludicrously higher than the 50% margin of the company. They should total up the cost of the review team, the editorial team, the hosting infrastructure, support and so on, and then reduce their revenue cut so that they are only making 50% when all of that is factored in.

It gets tricky quickly because presumably the cost of the annual developer membership ($99) is meant to cover some of those costs as well…A case of Apple having its cake and eating it.

I also think they need to introduce revenue sharing bandings. The majority of payment processors charge you more if you processed fewer transactions. I think Apple should do the opposite and subsidise smaller Apps and independent developers, helping encourage innovation so that radical new takes on spaces controlled by the big tech giants (like Hey.com) have a higher chance of being successful.

Payment Processing

Apple should allow Apps to use its own payment processors, but Apple’s payment system should always be offered as an option. The prices should be allowed to vary between the different processors, and customers should be given back choice.

When the App Store was released 10 years ago there was less trust and security in regards to buying things online or buying digital goods. This gave Apple a competitive advantage - by having all payments processed through them, they became a trusted middleman and helped start the App revolution.

The world has changed. We buy takeaways on a whim, order taxis, plan our holidays, and even manage our banking; completely on our phones. Consumers are more comfortable purchasing things online - it’s now become an expectation. Customers trust payment processors like Stripe, WorldPay and Paypal. Payment methods are more secure than ever because of Apple Pay and technologies like Verified by Visa and 3DS. The argument that Apple needs to be the trusted middleman no longer holds up.

The ‘It’s Apple’s Store, you should play by their rules’ Argument

I’ve seen this argument a lot on Twitter, and it’s one that I have argued previously. The general idea is that Apple innovated with the original App Store and has spent a lot of time and effort growing it and therefore should be able to decide the rules around participating. In general, I agree, but it becomes problematic for a few reasons:

  1. The scale of smartphones. Some studies suggest that more people own smartphones than toothbrushes. There are over 5bn smartphones. Having one is quickly becoming comparable to having access to the internet, or water. The problem is that the entire world’s supply is controlled by two companies. Inevitably, such a market needs regulation to protect consumer interests. This has happened time and time again.
  2. Apple competes with the very people they are meant to be supporting, marketing and helping. Have an idea for a way of disrupting the music industry, much like Spotify did? You will have to charge 30% more than Apple just to make the same margins. Want to make the next Dropbox? You’re competing with iCloud, and will have to charge 30% more than Apple. Have an idea to revolutionise email? Well, I guess that’s where we are right now..

Just build a web app I hear you say? If you wanted to make the next Spotify, how well would playing background audio in Safari work? Or the integration of Album Art in the Now Playing screen? What about taking advantage of Siri or other table stakes for consumers?

Can you create a Todo App using a web app that can send you push notifications? Can you even create a simple App such as an Alarm Clock? The answer is no. Creating a native App is the modern equivalent of building a web app. Businesses don’t have a choice anymore. They have to have a native App to be competitive, and that’s where Apple’s strict (and inconsistent) rules creates upset, stifles innovation and ultimately leads to anti-competitive behaviour.

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