Google vs. Apple

People still think of Apple as a hardware company that builds MacBooks and iPhones, but the subscription payment plan announcement shows its real value is as an e-commerce platform. Likewise, Google may be the first and last word in search, but the company can't seem to help sprawling into everything from robotic cars to digital book making. So it only makes sense that it would offer a rival payment system, called Google One Pass. Both moves are great news for consumers—it is about to get a lot easier to buy everything from newspapers and magazines to software and services online. For companies that make all that digital media, the prospects are a lot grimmer. It may not yet be time to "go to the mattresses," but it is definitely time to pull out the calculators.

Apple's subscription model includes two key, controversial concepts. First, Apple will pocket 30% of all subscription revenue generated from AppStore sales. Want to buy a One year subscription to the PCMag Digital Edition for Kindle for $12 a year? Apple gets $3. Want to subscribe on your iPhone for $100/month? Apple gets $30. Suffice to say, digital publishers and service providers will all have their calculators out.

Since Apple built the AppStore platform and collected the millions of credit cards in its customer base, it certainly deserves to make profit on the exchange. After all, without the iPhone and AppStore, you wouldn't be able to sell that extra subscription. Also, if you sell the service outside the AppStore, perhaps on the Web site, the vendor gets to keep all the money and Apple gets nothing.

But there is another sticking point in Apple's plan. The AppStore has to be guaranteed the lowest price available. That means any offer made for a subscription (i.e. PCMag Digital Edition for $10) must also be offered in the AppStore. Apple will not be undersold.

Apple CEO Steve Jobs puts it succinctly:

"Our philosophy is simple — when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing," said Jobs. "All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app."

The combination of the hefty 30% cut and the hard line on pricing have made some providers cry foul and start using terms like "monopoly" and "price fixing." Music subscription service, Rhapsody, has lead the charge by issuing a statement that is just as clear as Steve Jobs, but completely contrary:


Charges of monopoly are somewhat undermined by the fact that Google today launched a competing subscription plan—one with far more generous terms for publishers. Under Google One Pass, Google would keep just 10% of the transactions. The payments are managed by Google Checkout, its version of the iTunes payment system.

Google will also let publishers retain control of their customer's data, whereas Apple plans to make sharing data with a publishers something subscribers must opt in to. This is something few consumers will do.

One Pass will work with smartphones, tablets, and PCs. Indeed, since it can be accessed via the web, you should be able to purchase content on your iPhone or iPad just by using the browser. That makes the monopoly argument kind of a tough sell, especially as Android-based tablets start to grab market share this year.

The real worry here is that Apple will do to the publishing and software service industry what it did to the music industry. Once it became the primary source for digital music, it began to set pricing and distribution models that the industry was forced to accept. Some executives I have talked to blame the $.99 track pricing alone for the death of the industry.

Of course, that $.99 pricing wasn't just great for Apple. It was also great for consumers, who could finally access almost any song ever recorded for a fairly reasonable price. The same thing is going to happen here with digital media and services. Consumers are going to win.

As for Apple's growing market power and restrictive terms of service, well, I am just glad Google isn't just a search company. Aren't you?

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