Apple 2.0

Covering the business that Steve Jobs built

Apple's 30% tax: The long view

March 6, 2011: 3:57 PM ET

Another look at the company's in-app subscription rules, this time from 5,000 feet

Source: Apple, Google Earth

One of the things that made John Siracusa's analysis this week of Apple's (AAPL) App Store subscription policy so interesting is what he chose not to write about.

His essay, "The Apple Strategy Tax," which he posted Wednesday on Ars Technica, neatly sidesteps the emotionally charged tar pits in which so many commentators get mired. As he explained Friday at the end of his Hypercritical podcast with Dan Benjamin, he wanted to take the long view:

"I was not interested," he said, "in writing about whether it was mean of Apple to change its rules about in-app purchases. Whether it was right, morally right. Whether they're a big stinker, or even whether they're hurting their developers or helping people or hurting publishers or helping publishers or eliminating middlemen or becoming a middleman or any of those things that make people angry. I felt that that's well covered, and I didn't have anything to add to that topic"

What did interest Siracusa was the big picture -- the effect Apple's policy changes might have on the company in the long run. And from his perspective, Apple is starting to look a lot like Microsoft (MSFT) in the '90s.

But probably not in the way you think.

In Microsoft's heyday, Siracusa explains, there was no aspect of personal computing software into which the company didn't try to extend its tentacles. By the late '90s, it dominated not only most of the major desktop applications -- from Word to Excel to Internet Explorer -- but it owned the platform on which they ran, the Windows operating system.

While that was great for Microsoft in the short term, it led to a kind of negative synergy that came to be known within the company as the "strategy tax." For example, the team working on Internet Explorer was warned not to add too many features to its built-in text editor lest it start to compete with Microsoft Word.

Apple is probably as different from Microsoft as two companies can be, but there is one part of Apple's business where its dominance is comparable to Microsoft in the '90s: the App Store.

In fact, Apple has even more control over its App Store platform than Microsoft ever had over Windows, because Apple has the power to reject or handicap third-party applications in favor of its own -- something it's been doing quite a bit lately.

Which leads Siracusa to the meat of his argument:

"Apple's long-term success is tied to the success of its platforms. These platforms, in turn, rely on the efforts of third-party developers—that's the very nature of a platform. Given this, if the health and success of the platform is to be maintained, anything that hurts third-party developers must be offset by some other advantage to customers.

"In Apple's case, I believe its strategy to expand into new markets has upset this balance. Apple rents and sells movies and TV shows, so it's in competition with Netflix. Apple is in the music business, so it competes with Rhapsody. Apple wanted to be in the ebook business, so now it competes with Amazon. Apple sells an email, file storage, data syncing, and web hosting subscription service, so it competes with Google, Dropbox, Tumblr, and dozens of others. All of these companies have iOS applications and contribute in some way to the success of Apple's platform...

"This tension between being a platform owner and also trying to build new businesses on that very same platform is [something] that Apple shares with Microsoft. But Microsoft is also a perfect example of how this strategy can seemingly succeed (Windows won the war for the desktop and Microsoft's applications came to dominate the Windows platform) while blinding a company to the long-term failure scenario (a lack of competition allowed Microsoft's products to stagnate, and the next round of innovations happened someplace other than the Windows platform)."

Like Google's (GOOG) search engine, Facebook's social network and Apple's mobile devices.

To join the lively conversations sparked by Siracusa's essay, check out Ars Technica or Hacker News.

Also on Fortune.com:

[Follow Philip Elmer-DeWitt on Twitter @philiped]

Join the Conversation
About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

Email | @philiped | RSS
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.