What are the issues that we cannot ignore?
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Editor’s note: No company has done more than Apple in promoting the development of the Internet in the past 15 years, but the author of this article believes that Apple’s policy cannot produce the most prosperous overall ecosystem, and it has not “An Internet” (meta universe) lays a solid foundation. On the contrary, Apple is suppressing the future of the Internet. It does this through fees, controls, and technology. Not only does this negate what makes the open web powerful, but it also prevents competition and prioritizes Apple’s own profits. The problems that Apple brings are getting bigger every day, just like the company’s unprecedented strength. The future of the global economy is digital and virtual. Broad prosperity depends on platforms that vie to create value for developers and users, and spawn the same new platforms. Apple has not met the needs of the moment. Original title: Apple, Its Control Over the iPhone, The Internet, And The Metaverse by Matthew Ball.
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Chapter 5: The importance of prioritizing full prosperity
Why is this important? How much should we care about how apps are made and who gets paid? Or allowed platforms? In other words, who can have an advantage in which solution, service or standard? The answer is that we must care. In 2021, almost every company is a digital company, and the scope, significance, and complexity of the digital/virtual world are also expanding.
In order to be prosperous, new winners must be able to emerge at every level of the “new economy” and not be constrained by a single company or demand. The current situation is not terrible. Great things are happening in terms of users, makers and innovation. However, it is these decisions that have made Apple so successful today that also limit participation in virtualThe number of quasi-economic makers hinders the creativity of their products and business models, and makes each transaction more expensive. Most importantly, it hinders the organic evolution of the entire Internet.
Apple’s App Store charges are an obvious example. We need companies to be rewarded for creating value and be able to make corresponding investments. However, the average profit margin in the United States is between 10-15%. Therefore, Apple takes 15-30% of App revenue, which means that Apple receives more profits from creating a new digital business or digital sales than those who invest and take risks to build it. Since Apple is one of the companies with the highest market value in history, it generates more operating cash flow than any company in history, and the products it operates are also the most successful products in history. Therefore, Apple’s fee system is undisputed and may not be An ideal result.
For companies that focus on virtual experiences, Apple’s expenses are particularly high, and the strategic importance and commercial value of this group is growing rapidly. As analyst Ben Thompson pointed out, Apple’s current organizational principle is digital and analog; any digital thing must have in-app purchases, and any analog thing, that is, something connected to the real world, can be whatever it wants. Local monetization. That’s why Amazon or Uber can use credit cards, and Airbnb can do the same for rooms, but not for digital experiences (according to Apple).” This is a terrible system, which compares iOS to smartphones. Audience control is confused with the role of creating all smartphone-based markets and penalizes the company that needs investment the most: the new company.
If Nike decides to establish a “virtual sneaker” store in 2021, will iOS be responsible for this opportunity? If Nike builds a new physical sneaker brand that can only be purchased through the App, why does Apple take 30% of these transactions, while the physical store sales are not divided? Apple’s role (and investment) here is indistinguishable, but its commission (literally) is infinitely high and is not negotiable. Nike may have legacy cash flow to fund this nascent business, but the environment facing a startup is more challenging. In addition, Apple has always given exceptions to its largest partners (such as Amazon or Vivendi), otherwise its standard payment terms. In this case, Nike, which is worth $170 billion, may get a discount, but startup NewCo will not.
Apple’s cumbersome rules are based on its bargaining power ten years ago. It distinguishes existing businesses (Apple’s limited influence in them), nascent businesses (Apple is a key growth partner), and businesses that have not yet been created (Apple is Gatekeeper). Today, these principles are maintained under Apple’s influence. Now almost all businesses are digital, and it is impossible for Western businesses to pass through the iPhone. And considering Apple’s overall competitive position, itsThe rules are basically undisputed.
The prosperity of the virtual world is also hindered by Apple’s control over the existence and when of new businesses, business models and technologies. Cloud gaming is an obvious example, as are WebGL and browser support. However, the best example is Roblox, which covers many key issues of the App Store and clearly created our virtual future.
Problems in Roblox
Although Roblox is usually described as a game, it is more suitable to be described as a platform that operates an unlimited number of user-generated worlds that can be accessed and integrated on all platforms, and get identity and The payment system is supported by economic development through transactions, creation and scarcity. No one seems to know why this company, which is valued at more than 30 billion US dollars and has more than 150 million monthly users, will be allowed to enter the App Store.
It is also worth noting that Roblox emphasized that the policy change of the app store is its sixth largest risk factor, and wrote. “The owners and operators of these mobile application platforms…have the right to approve the deployment of our platform on their systems, and provide consumers with products that compete with us…[It also Have] extensive discretion to change and interpret its terms of service and policies… If we violate it, or the operating system provider or app store believes that we violated its terms of service or policy, [it] can restrict Or terminate our visit… In some cases, these requirements may not be clear, or our interpretation of the requirements may be inconsistent with [it]’s interpretation… This may lead to our Inconsistent implementation of the terms of service or policy may also lead to…[restrict or suspend [our] access…”. Roblox also mentioned that these policy risks span “data collection and privacy practices, business models, operations, practices, advertising campaigns, application content”.
This seems alarmist, but Apple’s recent decision to abolish IDFA is estimated to cause Facebook and Google, two of Apple’s three major FAANG competitors, to lose billions of revenue in 2021. If Apple can hurt the world’s largest company so easily, then it’s no surprise that although analysts such as Thompson have communicated with dozens of developers who are dissatisfied with the App Store, none of them have “because of Fear of angering Apple and willing to publicly express opinions”. Although Roblox slipped past Apple’s approval policy, its development was still restricted due to the lack of direct payment competition in the App Store.
There are many happy users and talented creators on Roblox’s platform. But few of these creators can make money. Although Roblox has 2 billion US dollars in revenue, 3 billion hours of travel per monthPlay time and more than 160 million users, but in 2019 only 29 developers (ie companies) have net income of more than 1 million U.S. dollars, and 3 developers have net income of more than 10 million U.S. dollars. This is very bad. More developer revenue means more developer investment and better products. However, revenue from Roblox is limited by the company’s meager payment rate.
$100 in iOS Roblox revenue (estimated to account for 75-80% of all revenue). $30 is owned by Apple, while $31 is consumed by Roblox’s core infrastructure and security costs, and the other $11 is consumed by management fees. As a result, Roblox has a total of $28 in pre-tax gross margin dollars that can be used to reinvest in its platform. This reinvestment spans three categories: R&D (making the platform better serve users and developers), user acquisition (increasing network effects, the value of individual players, and developer income), and developer payments (promoting in Roblox Create better games). Today, Roblox reinvests 23% of its revenue in research and development, 7% of its revenue is used in sales and marketing, and the above 24.5% of revenue is used to pay for developers. Therefore, its current operating profit margin is approximately -25%.
Roblox has undoubtedly enriched the content of the digital world and has driven hundreds of thousands of new digital content creators. But for every $100 it creates, it loses $25. The developer receives a net income of $24.5 (that is, before all development costs are deducted). Although Apple does not invest any risk, it collects about $30 in net profit. Today, if Roblox wants to increase developer income, the only way is to increase its losses or stop research and development, which in turn will damage the interests of Roblox and developers in the long run.
Roblox’s economic benefits should improve as the scale expands. The growth of management expenses, sales and marketing should be slower than the growth of revenue. However, this will only free up a few percentage points to make up for major losses, or slightly increase the developer’s revenue share. R&D should also provide some scale-related profit margin improvements, but fast-growing companies should not use R&D operating levers to achieve profitability. The company’s two largest costs account for approximately 61% of revenue and are basically fixed. The infrastructure is mainly scaled with the increase in usage. As the platform expands its concurrency capacity and expands to the VR field, its cost will become higher and higher. And Roblox does not control store fees, which is entirely determined by the platform.
Translator: Di Kewei
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