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Is Apple subscription plan evil?

By MG Siegler, Special to CNN
  • MG Siegler says Apple will let app developers bill for subscriptions through their apps
  • But Apple will take a cut of 30 percent for doing so, Siegler says
  • He says other content that flows through apps could be subject to the 30 percent cut, too
  • Siegler: Apple, big publishers will make money, but some developers could lose

Editor's note: MG Siegler is a writer for the technology website TechCrunch, where he covers a variety of things, including Apple. You also can find him on Twitter at @parislemon.

(CNN) -- For two days, the technology corner of the Web has been consumed by one story: Apple's new subscription rules for the iOS ecosystem -- that is, the iPad and Apple's other devices.

Why? The rules appear to reach well beyond magazine and newspaper apps, altering the way that almost all content flows through Apple's App Store and into apps. What was once free for app developers will no longer be free. And it has some wondering if Apple is evil.

The easy answer is no, Apple is not evil. That is unless developing new models of industry disruption and leaving a trail of money are evil. If that's the case, then Apple is the devil. It is very good at making money.

The gist is this: Apple has said it plans to offer app developers the ability to integrate its new subscription billing service into their apps. In exchange, Apple takes a 30 percent cut of all sales made this way. It's the same percentage cut that Apple takes on paid app sales.

Further, Apple will only take the 30 percent cut on these subscriptions if subscribers sign up for them within the app itself. If a user signs up for a subscription outside of the app (via a different mechanism that a company can provide if it chooses), Apple takes nothing.

Essentially, this is a bet by Apple that its system is so good, users will choose to use it over any out-of-app experience a company may offer. And that's a smart bet. Apple's system comes with instant access to more than 100 million user accounts tied to active credit cards. This system will enable one-click purchasing of subscription services.

But here's where things get a bit hairy. Apple is also requiring companies that use its subscription system to offer prices at or below subscription prices they offer anywhere else. And if those companies do offer subscriptions anywhere else, they now have to offer them in the app as well -- again, using Apple's system. A system that will grant Apple a 30 percent cut.

Things get even more hairy when you consider that Apple is going to force any app that sells digital goods outside of the app to also offer the ability to sell them within the app, via the in-app purchase system Apple has built. It could potentially mean that an app such as the Amazon Kindle reader would have to sell Kindle books through the app. Amazon might be OK doing so, except that Apple will get the 30 percent cut of all sales.

These new rules will put many developers between a rock and a hard place. So why is Apple doing this? There are three reasons, all related.

Apple's new rules are meant to tighten control of the app ecosystem, provide a better user experience and to make money.

Tightening control of the ecosystem allows Apple to offer new services, such as subscriptions. Apple is smart enough to know that if the publishers it is working with attempt to undercut this new system with lower prices elsewhere, the entire thing will fail. And if some publishers try to circumvent the in-app system, it will also cause the entire thing to fail.

A system in harmony, even a closed one, will provide a better overall user experience. Currently, it's a nightmare to subscribe to and pay for content online. Apple's system makes it streamlined. But it has to be adopted across the board.

And those two things lead to a situation where everyone, not just Apple, is able to make money.

When you look at it that way, it makes sense.

But many developers are upset because they have long used other (albeit more convoluted) ways of getting customers to pay for services outside of these apps, then bringing them back to use the apps for free. These changes mean it's time for a wake-up call.

But here's what doesn't make sense: Apple's 30 percent cut of the money across the board. It's simply not economically sound for an app such as music subscription service Rdio, which offers streaming access to music for a monthly fee, to give Apple 30 percent of that fee. That would take its margins into negative territory.

The same is true of seemingly all the music subscription-based apps and even large content apps such as Netflix, Hulu, and yes, Amazon.

The 30 percent cut makes sense for newspapers and magazines, which desperately need and can afford this model. But the aforementioned apps all have to license content from elsewhere, which is an expensive thing to do. There is no way they can afford to lose 30 percent of their revenue.

And think about other companies that offer iPhone apps such as Comcast. It offers a subscription service; does it, too, now have to offer the option to buy it through the app and give 30 percent of the sales each and every month to Apple? That makes no sense.

So where does that leave us? It leaves us with a situation where Apple will have to tailor the fees to suit different types of businesses. And when that happens, the outrage over the changes will die down.

Apple has a right to control its ecosystem in a way that both makes some money and provides a better user experience. But the economics have to make sense, or both developers and users will leave.

This has nothing to do with Apple being evil, and everything to do with finding the right balance to implement the next disruptive system.

The opinions expressed in this commentary are solely those of MG Siegler.