This is in many ways the same argument that ISPs used during the net neutrality debates as to why Netflix should have to pay them extra money. Netflix was using all the bandwidth, and ISPs were keeping that access fast... blah, blah, blah. Many of the objections that I had to ISPs trying to double-dip on bandwidth fees back then also apply to this idea that Apple's product to Netflix is its customers.
The thing is that Apple provides a platform for their customers to access Netflix. Apple benefits heavily from Netflix being on their platform, they would lose a lot of customers if every content provider decided to leave iOS tomorrow. Those customers pay Apple for a phone that they can use to watch their favorite TV shows, they pay Apple for a device that can keep pace in capabilities with other tablets and phone OSes on the market.
So the argument that Apple deserves compensation for maintaining a market that is itself regularly compensating them is the same kind of double dipping that ISPs tried to engage in. I pay my ISP for an Internet connection so that I can access websites. People pay Apple for good hardware with a good app store. That's the arrangement; the deal isn't really happening on Netflix's side of the table.
It's very difficult to argue that Apple has invested in best-of-class hardware for Netflix's sake. They did it so that people would pay them money to buy phones. Apple is not selling their phones at a loss, and they were clear during the recent trial with Epic that they do not look at the app store as a revenue target. Taking fees for maintenance is one thing, but it's very difficult to seriously argue that Apple had an idea for a 3rd-party platform and then made an attractive phone in order to support that platform. We all know that it's the other way around.
This talk about Apple being the gatekeeper that graciously allows companies access to a market is also a somewhat dangerous road to go down, because it creates a lot of perverse incentives for the company. I have no doubt that some parts of Apple's leadership do think of their customer base as an asset that they offer other companies. And I think that attitude can help explain some of Apple's lock-in behavior and refusal to work with other platforms, because when users are an asset to be horded and leveraged, it becomes more important to force them to be loyal and to make it harder for them to switch platforms based on your future business decisions.
I feel like one of the biggest lessons of the modern Internet is that it's dangerous for consumers when companies start referring to their customer base as a product. Apple is occasionally a breath of fresh air in that regard. But in this case, not so much.
This is in many ways the same argument that ISPs used during
the net neutrality debates as to why Netflix should have to
pay them extra money.
The parallels are there for sure. I would agree that gatekeeping is bad, and I often don't like how Apple behaves as gatekeeper.
But there are massive key differences as well. Many ISPs have a local monopoly over broadband access. Many people have only a single choice for a broadband ISP and this can't be changed unless they move to a new address.
By contrast, Apple doesn't even have a majority share of the mobile device market, much less a monopoly. Even if Apple booted Netflix out of the App Store tomorrow (or if Netflix packed up their bags and left) there are still myriad ways one could access Netflix.
The same would not remotely be true if one's ISP blocked Netflix or demanded extra money to use it. Many people have no ISP alternative, and may be locked into contracts. You are under no such contract with Apple. You can switch to another device tomorrow, or use literally dozens of competing operating systems and platforms at the same time.
Apple benefits heavily from Netflix being on their
platform, they would lose a lot of customers if
every content provider decided to leave iOS tomorrow
Absolutely, sure. I asserted that Netflix derives massive value from Apple's platform and payment system. I didn't assert that it was a one-way street. Apple benefits as well, no doubt.
It's very difficult to argue that Apple has invested in
best-of-class hardware for Netflix's sake.
Nobody's arguing that.
The same could be said of AWS. Amazon didn't create it solely for Netflix's sake. But more importantly: huh?
We all know that it's the other way around.
Again, what does it matter whether or not apps are 1st or 729th on Apple's list of priorities? The question is whether or not Netflix derives value from their relationship with Apple, or not.
Jobs didn't originally want an App Store, yeah, but that was 14+ years ago. Apps downloaded from the App Store are clearly the primary use case for iPhones/iPads in 2021. Apple has invested massively in their app store, payment system, SDKs, XCode, etc. But at any rate, I fail to see how this is even relevant to the question of whether or not Netflix derives value from their relationship with Apple.
> Apps downloaded from the App Store are clearly the primary use case for iPhones/iPads in 2021.
My general sense is that most people prefer not to install apps: I know many people that look askance at websites that attempt to funnel them to an app and generally only isntall 1-5 apps beside the default set from Apple.
I am one of those people. But even then, I am pretty sure we're a small minority: most people have many, many apps that they hardly ever use. If a website tells them to install an app, they'll do it, because the website told them to.
I know many people that look askance at
websites that attempt to funnel them to an app
Yeah, these are universally disliked, I think.
But my sense is that for most people, they don't think of e.g. Facebook as a website. They think of it as an app. Ask a kid what Tiktok or Instagram are. I promise they'll say, "apps."
> Many ISPs have a local monopoly over broadband access.
Not outside of the US, and net neutrality was still considered important.
If my ISP blocked Netflix tomorrow I've got 5G coming into my house and the choice of twenty competing ISPs. I still think the entire company should get dismantled if they were stupid enough to do that from a regulatory POV.
> whether or not Netflix derives value from their relationship with Apple, or not
I think that's a very different question than whether or not Apple has a strong argument that Netflix ought to pay them for that value. As an example, Apple extracts value from its customers who sign up for Netflix on its platform. But Apple is not paying any of that money back to its customers, and I doubt it would try to argue that it has an obligation to do so.
The way I see it is:
- Apple customers pay Apple for strong hardware and a vibrant platform that supports their favorite content/apps.
- Developers pay Apple for support/moderation on the app store.
I don't see the loose ends here where Netflix owes Apple anything beyond maintenance costs. Of course both Apple and Netflix benefit from each other. But the argument that Apple is providing Netflix a service by giving them access to those customers twists the relationship that Apple should have with its customers, sets up a bad incentive structure for the company, and feels very analogous to the kind of double-dipping behavior that we called out with ISPs.
The fact that Netflix gets value from Apple's relationship with its own user base does not create some kind of extra obligation for Netflix. Sometimes people/companies do things that happen to benefit other companies as a side effect of selling a product. It doesn't immediately mean everyone else who benefits is obligated to pay them money.
> The same could be said of AWS. Amazon didn't create it solely for Netflix's sake.
I don't think that's analogous at all. Netflix is directly in the category of customer that AWS is designed to serve. AWS is a hosting service that is sold to Netflix and to companies like Netflix, companies that needs hosting.
On the other hand, iOS does not exist for app developers, it exists for consumers. It's a weird perversion of that relationship to treat Netflix like they're a customer. Consumers are the customers.
Plenty of companies invert that relationship (Facebook, Google, etc); those are products where advertisers are the customer and consumers are a product that is given a benefit in the form of a free service. Apple (often to its credit) went a different direction. But it doesn't now get to pretend that it's in both positions at the same time :)
An analogous situation between AWS and iOS would be if Amazon started charging me as a consumer for access to Netflix's servers in addition to charging Netflix for hosting costs, and if AWS then argued that this was a fair price because I was benefiting from Netflix's increased performance on their servers.
> Many ISPs have a local monopoly over broadband access.
ISP monopolies made the problem worse, but their arguments about Netflix paying their "fair share" would have been disingenuous even if they were not monopolies. Customers paid ISPs for access to websites, there was nothing "fair" about ISPs trying to double-dip and charge companies and consumers twice for the same service.
Similarly, Apple customers (the people who buy its hardware and subscribe to its cloud services) pay Apple for access to the market it created. It's not unfair for Netflix to profit off of that market without compensating Apple, because Apple is already being compensated by its real customers. For an Apple exec to argue that its customer base is a service they provide to other companies is a perversion of that relationship. And pretty selective, because again, it's not like Apple is reducing prices or paying out parts of its Netflix profits to consumers for the value they provide Apple by forming that market. At least Facebook is free.
Outside of basic maintenance costs for the stuff jacurtis mentioned, stuff that's necessary to keep the app store free to access: "credit card processing, and approval into the App Store (plus according to a comment in this email, it sounds like they keep Netflix in the App Store promotion rotation as "free" ad-space)", what is Apple providing for Netflix that hasn't already been paid for by consumers?
That's the analogy I see with the ISPs: not the monopoly stuff necessarily, more the illogical feeling that multiple different parties are somehow simultaneously responsible for paying Apple multiple times for the same service or else they're freeloading.
Of course, ultimately Apple will try to extract as much value as possible out of their position, they're a company, that's what they do. They will charge Netflix because they can. But as consumers and onlookers, we don't have to pretend that they have a moral argument or buy into their public justifications about why they have the setup that they have. Netflix is not freeloading on Apple and Apple is not providing a fantastic well-priced service for developers; Apple is exploiting a position of power that allows them to charge both customers and developers twice for the same product (market access).
>As an example, Apple extracts value from its customers who sign up for Netflix on its platform.
This statement is false. If people are signing up for Netflix via Apple's platform then they're already customers of Apple's and, therefore, Netflix is not providing that value. Instead, Apple is only deriving additional value when customers sign-up through Apple's services for Netflix which is where Apple would collect that 15/30. Currently, you can't do that because Netflix doesn't want to play with those percentages so Apple derives no value from Netflix customers on their platform.
If Apple is trying to make an argument that access to its userbase is a service it provides that on its own is worth X% of in-app revenue, then it follows that Apple's userbase is providing Apple value by being a part of the market/service that they sell.
Unless Apple isn't selling access to a market... then things would be completely different.
But you can't have it both ways. If access to the iPhone market is a service with value that Apple is justified in charging developers to access, then who really makes that market valuable to app developers, and who really makes that market attractive enough that Apple can sell it? It would be the people buying iPhones, the customer base that makes up the market that developers want to reach.
I'm not sure what you're trying to say. Apple is providing value to developers through access to its userbase, curation of a store, hosting, update services, localization, and reviews. Apple's users have already paid for their hardware so they already provide Apple some value. If developers want to have those customers, then they need to provide some additional value to Apple.
In other words, yes... they absolutely can have it both ways. I'm not saying that developers don't also provide Apple with some kind of value but that value, for most developers, is not enough to justify giving the other services Apple is providing as part of its ecosystem to them for free.
My statement was not that Netflix is providing Apple with value (I apologize if it came off that way), it's that Apple's customers are providing Apple with value by being a product that they sell to Netflix.
When Apple says that it provides a service that is "access to its userbase", that is Apple selling their customers as a product to another company.
When I talk about Apple trying to "have it both ways", what I refer to is Apple's simultaneous position that:
A) it monetizes customers directly rather than treating them as a product, which gives it a moral leg up over companies like Google/Facebook.
B) its customers are an asset that it is justified in selling access to.
Both of those statements can't be true at the same time, either it's monetizing access to its customer-base or it's not.
>Both of those statements can't be true at the same time
Why? Both of those statements can be true but I don't think the only options are the 2 that you're describing.
To me, it's more like the value proposition that Costco offers than it is selling customers as assets. Costco members pay a fee every year to stay on as members. Businesses want to put their products in Costco stores because Costco members spend money more liberally than in normal stores. Whereas Walmart shoppers are always looking for the lowest cost, Costco shoppers tend to shop for higher quality items and are willing to pay for them. Costco is not necessarily selling its customers to these businesses but access to them is limited because Costco sets certain standards for the limited space they have in their warehouses. So, in that sense, when companies are vying for the "access to [their] userbase", doesn't Costco also "have it both ways"?
Both of your statements are true in the case of Costco so why is it somehow impossible for them to be true in Apple's case as well? If the customer's appreciate Apple and Costco serving as gatekeepers (because they trust them to perform that task) then neither Costco or Apple are violating the trust of their users while still keeping that moral leg up.
I think that's a very different question than whether
or not Apple has a strong argument that Netflix ought
to pay them for that value.
Capitalism is awful in a lot of ways, but this is kind of its core thing.
Apple extracts value from its customers who sign up
for Netflix on its platform.
As opposed to what? Google/Microsoft/Roku/Sony/whoever not extracting value from their app stores?
The difference here is that Apple treats end users as customers and charges them money directly.
Google and the others extract plenty of value from you. But they do it by advertising to you and selling your information.
You can like one model better than the other, but either they're gonna extract value from you. It's just a matter of how you want it done.
At least Facebook is free.
(actual laugh out loud)
Okay.
I don't think that's analogous at all. Netflix is directly
in the category of customer that AWS is designed to serve.
AWS is a hosting service that is sold to Netflix, a company
that needs hosting.
Well, nobody likes a middleman.
Do you also hate Netflix because they're a middleman between you and the actual performers in the shows you watch? They don't pass your entire subscription fee onto the directors, writers, and actors. And even when they get paid, their agents keep some of it.
I'm not necessarily loving Apple taking a cut. I don't know if it's worth 15%. But I was initially responding to the question posed by the the great great great grandparent post (or whatever) claimed that Apple's app store provided zero value or something close to it, which I think is absurd. You may not like what they're selling and that's fine, but that's different from them offering zero value.
> The difference here is that Apple treats end users as customers and charges them money directly.
It sounds to me like you're arguing it's valid for Apple to both treat its end users as customers and sell them to companies like Netflix as a product.
Look, I admire that Apple tries to have a direct relationship with customers. What went on with Netflix was contrary to that goal. It is movement in the direction of Facebook/Google/etc. And Apple should be better than that.
> At least Facebook is free. (actual laugh out loud)
I also really genuinely don't understand the derision about this. If I'm going to be a product (and it sounds to me that you're arguing Apple has a right to treat me like a product) then of course I would like to get some benefit out of that. Or, don't treat me like a product.
I don't understand what's ridiculous about wanting a company to pick a lane on what relationship they'll have with their customers and commit to whether they're going to sell to them or not. I don't get why it would be beneficial to me as a consumer for a company like Apple to try and simultaneously extract value from me directly and extract value from me indirectly as an asset they can sell to other companies.
Like, go ahead, make fun of Facebook for giving me a product for "free", but you're arguing that it's valid for Apple to be Facebook in the sense that it's selling access to me, and then to also directly charge me substantial amounts of real money for the privilege of being its product that it sells to developers. Facebook is evil, but it doesn't have the guts to try and make me pay for the privilege of being sold to another company.
> claimed that Apple's app store provided zero value or something close to it, which I think is absurd.
I think offering value and offering a service are two different things and we should treat them as two different things. It's too easy otherwise for rent extractors to suck up value out of systems. Apple's argument is that it deserves a certain payment structure because it controls access to a market. Or course it's worthwhile to try and figure out whether Apple is providing a real service by acting as a middleperson in both directions simultaneously, or whether it's just collecting extra rent.
> Do you also hate Netflix because they're a middleman between you and the actual performers in the shows you watch? They don't pass your entire subscription fee onto the directors, writers, and actors.
They most definitely do pass on a portion of that subscription fee to directors, writers, and actors. Netflix pays companies to be on their service, not the other way around. And of course it is reasonable to ask whether or not the percentage Netflix takes is fair or whether they're just extracting rent from a captive market. But this is kind of a silly comparison, Netflix's relationship to studios is almost a complete inverse of Apple's relationship with developers. Netflix courts content producers and pays for content to be either licensed to them or created for them in-house.
Typically, when we get into a scenario where both consumers and producers are paying a middleperson to connect them, we should ask questions. We should ask if there are terms being imposed by that middleperson to make it difficult to reach out to customers in any other way (for example, a ban on mentioning other payment methods). We should ask if there are lock-in mechanisms that are designed to artificially increase the cost for consumers to leave the platform. We should ask how many distribution methods exist (are there only 2 streaming services in the world?) and whether or not the current market is competitive.
And we should definitely ask what the value add of that middleperson is and what they think their value add is and what they think is their primary service that they sell. A responsible, positive middleperson doesn't sell a market, it sells services that make it easier to interact with that market, or it licenses and resells content from another market. I think it's a really reasonable question to ask what about the market access that Apple is arguing that developers "owe" them for hasn't already been payed for. We want middlepeople to provide a service that justifies using them over direct access, we don't want them to just be rent-seekers and we don't want their position of power to largely exist only because of restrictions and platform limitations that they created.
If there's a really serious criticism I have of Apple -- well, there's a fair number of varying degrees of seriousness. But I think their original sin is that while they want everyone to acknowledge how much they ostensibly do for developers, they generally act as if applications bring no value to their platform.
Many years ago, when BeOS was just getting going, Be CEO and former Apple exec Jean Louis-Gassee was asked what the difference between Be and Apple was. He answered, "We don't shit on our developers." It's disappointing, to say the least, that this is still a valid criticism criticism nearly a quarter-century later.
This is in many ways the same argument that ISPs used during the net neutrality debates as to why Netflix should have to pay them extra money. Netflix was using all the bandwidth, and ISPs were keeping that access fast... blah, blah, blah. Many of the objections that I had to ISPs trying to double-dip on bandwidth fees back then also apply to this idea that Apple's product to Netflix is its customers.
The thing is that Apple provides a platform for their customers to access Netflix. Apple benefits heavily from Netflix being on their platform, they would lose a lot of customers if every content provider decided to leave iOS tomorrow. Those customers pay Apple for a phone that they can use to watch their favorite TV shows, they pay Apple for a device that can keep pace in capabilities with other tablets and phone OSes on the market.
So the argument that Apple deserves compensation for maintaining a market that is itself regularly compensating them is the same kind of double dipping that ISPs tried to engage in. I pay my ISP for an Internet connection so that I can access websites. People pay Apple for good hardware with a good app store. That's the arrangement; the deal isn't really happening on Netflix's side of the table.
It's very difficult to argue that Apple has invested in best-of-class hardware for Netflix's sake. They did it so that people would pay them money to buy phones. Apple is not selling their phones at a loss, and they were clear during the recent trial with Epic that they do not look at the app store as a revenue target. Taking fees for maintenance is one thing, but it's very difficult to seriously argue that Apple had an idea for a 3rd-party platform and then made an attractive phone in order to support that platform. We all know that it's the other way around.
This talk about Apple being the gatekeeper that graciously allows companies access to a market is also a somewhat dangerous road to go down, because it creates a lot of perverse incentives for the company. I have no doubt that some parts of Apple's leadership do think of their customer base as an asset that they offer other companies. And I think that attitude can help explain some of Apple's lock-in behavior and refusal to work with other platforms, because when users are an asset to be horded and leveraged, it becomes more important to force them to be loyal and to make it harder for them to switch platforms based on your future business decisions.
I feel like one of the biggest lessons of the modern Internet is that it's dangerous for consumers when companies start referring to their customer base as a product. Apple is occasionally a breath of fresh air in that regard. But in this case, not so much.