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Traffic Acquisition Costs

In June of this year Apple reported that it had paid a total of $100 billion to developers. That is the 18th such figure given in the 10 year history of App Store, making the progress of payments and hence revenue and spending easily trackable.

The other regularly reported figure is the business segment revenue where App sales are currently allocated. Now called “Services” this omnibus segment includes many other sources of revenues such as:

  • Digital Content (Books, Music downloads, Video downloads–including TV shows and movies and movie rentals.)
  • AppleCare, Apple’s extended warranty service.
  • Apple Pay, transaction fees
  • Apple Pro Apps, including Final Cut, Logic Pro, Motion, Aperture
  • Licensing including “Made for iPhone/iPad”
  • One-time settlements of various lawsuits.
  • Other Services revenues which include
    • Apple iCloud-related services
    • Music Match
    • Music subscriptions
    • Other third party subscriptions (commissions)
    • Third party licenses

This combined Services segment is significant with $35 billion revenues in the last 12 months. This is quite a jump from 2016 when Services had crossed $25 billion. At the end of 2016 Apple said it expected Services revenue to double by 2020. With a growth rate since then of 25% the company is on track to reach its target one year early.[1]

Consumer spending on Apple services includes more than what it books as revenue since only the (typically) 30% of App Revenues is considered Apple’s revenue. Including the payments to developers, Services generated over $65.5 billion/yr in billings. This will reach $100 billion/yr in 2 years. The difference between reported revenues and consumer spending is shown in the following graphs.

I described the visibility into App Store revenues (which is the orange area in the graphs above) but the other sub-segments of Services are much more difficult to ascertain. Of special interest is Other Services which includes very high margin services. As part of that there is a peculiar source of revenues: Google.

It’s known that Google pays Apple for the default placement of Google search within Safari on iOS and Mac OS. That payment is registered by Google as a “Traffic Acquisition Cost” or TAC. TAC is essentially payment for distribution where what is granted by the distributor is access to queries (traffic.) This way Apple acts as distributor for Google. So, for that matter, does Firefox which also receives TAC payments.

What is peculiar is that the amount of TAC paid by Google to Apple is becoming staggering.

A few years ago Google was paying over 20% of its revenues as TAC. Recently that ratio rose to 23%. Bernstein analyst Toni Sacconaghi estimated that Google paid Apple $1 billion in 2014 as TAC and that payments to Apple were about $3 billion in 2017. Now Goldman Sachs analyst Rod Hall estimates Google could pay Apple $9 billion in 2018, and $12 billion in 2019.

This is starting to look interesting but is it believable?

My own estimate of Apple’s Other Services (which includes TAC revenues) is a run rate of $15 billion for calendar 2018. This makes $9 billion (60%) from Google quite challenging but not impossible. The remaining $6 billion needs to account for Apple’s own cloud and subscription service revenues.

Does this make sense given Google’s spending? TAC payments to distribution partners in Q2 were $3 billion. The $9 billion/yr assumption implies a $2.25B/quarter payment to Apple. That would be 75% of Google’s distribution costs. That also sounds reasonable given the high utilization of iOS relative to any other platform.

An increase to $12 billion for next year is also quite a claim but it certainly is possible. I don’t have a basis for making this estimate but the assumption of growth leads me to conclude that the payments are tied to actual traffic generated.

In other words the two companies have an agreement that Apple is paid in proportion to the actual query volume generated. This would extend the relationship from one of granting access for a number of users or devices to revenue sharing based on usage or consumption.

Effectively Apple would have “equity” in Google search sharing in the growth as well as decline in search volume.

The idea that Apple receives $1B/month of pure profit from Google may come as a shock. It would amount to 20% of Apple’s net income and be an even bigger transfer of value out of Google. The shock comes from considering the previously antagonistic relationship between the companies.

The remarkable story here is how Apple has come to be such a good partner. Both Microsoft and Google now distribute a significant portion of their products through Apple. Apple is also a partner for enterprises such as Salesforce, IBM, and Cisco. In many ways Apple is the quintessential platform company: providing a collaborative environment for competitors as much as for agnostic third parties.

 

Notes:
  1. To calibrate this consider that Facebook revenues for the last 12 months were $48 billion and it now has a market capitalization of $468 billion or 41% that of Apple whereas Services consists of about 14% of Apple’s total revenues. []
  • “In other words the two companies have an agreement that Apple is paid in proportion to the actual query volume generated”
    Does Google expected this kind of volume growth from Apple, or the agreement turned against them?
    In other words, since TAC spending has grown from 20% to 23% of revenue mostly due to Apple traffic, was it worth it?

    • Walt French

      Consenting adults in an arm’s-length transaction, so “worth it” has to be presumed as “better than the alternative” for both parties.

    • melci

      Considering that the iOS platform generates a gob-smacking 75% of Google’s search revenue, I’d suggest it is absolutely without a doubt worth Google’s $12b spend.

      “Of the $11.8 billion in mobile search revenue Google booked in 2014, 75 percent — nearly $9 billion — came from iOS, according to a recent Goldman Sachs analysis cited by the New York Times. Half of that total is chalked up to a deal with Apple that makes Google the default search engine for mobile Safari.”

      Then there is the fact that iOS users generate an absolutely gob-smacking 1,790 percent more return on investment (ROI) for retail advertisers compared to Android users according to Nanigans.

      Not to mention this corker from Nanigans: “It’s not just that Android monetizes worse than iOS — it actually offers negative return on investment. In other words, while advertising on iOS brings retailers 162 percent more cash than they spend on the ads, advertising on Android returns 10 percent less than the cost of the ads.”

      So, in other words, if it weren’t for Google spending big to buy into the iOS audience, Google would be in deep do-do

  • klahanas

    Google pays Apple $9 billion to be default search.
    So then with Apple as well “you are the product”, which is okay or something.

    • Kizedek

      Pretty sure the phone is still the product. Not sure how allowing Google search onto a phone as one search option (and if Apple didn’t it would cause a great uproar from you) equates to allowing Google to siphon your contacts list or something right off the phone.

      Part of the 9B is probably used to stay a step ahead of Google who says they honor browser preferences, but “whoops, we ignored your preferences again.”

      • klahanas

        “Default search option” – Fixed it for you

        If Google is the devil, Apple sold you to the devil, by default, unless you explicitly change it (provided you know about it). To the very organization who sells your data! You know, the stuff many vocal Apple fans gloat about.

        This is tantamount to Apple receiving a commission from Google for doing exactly what you say. Both sold Apple users.

      • applecynic

        I don’t like Apple very much either but you’re not being honest about this issue. Or you don’t understand it. On an iPhone you have to actively engage with Google apps or services for Google to get any data. Even then the data Google can collect is limited much more on iOS than on Android. Using an Android device and just having it sit on a table doing nothing is sending data to Google. Apple has many problems. Selling user data isn’t one of them. Stick to legitimate beefs and people might take you more seriously. Hardly anyone replies to you. I assume that’s because you come off as a flake wearing a tinfoil hat.

      • klahanas

        No you do NOT. Apple gets paid $9 billion by Google to be the default. YOU need to actively a) Know this fact. b) Change it. Apple is not selling user data directly, they are getting a commission for selling YOU to Google.

      • Kizedek

        Ah, I see your logic — by “selling” LESS than my personal data, Apple is actually selling MORE than my personal data, Apple is selling “ME”! The world thanks you for your magnanimous reductionism.

        Others, like me, might just look at it from the perspective that the phone is a complex product that is a platform capable of combining all kinds of applications and services; it is not just a simple commodity (which you like to selectively argue when it suits you).

        As such a platform, a phone potentially intersects with a number of personal activities. Apple limits the potential for this to be abused, as much as possible, and is clear about how it does so. Not so Google, MS, Samsung or anyone else.

      • klahanas

        I’m not going to unravel those mental gymnastics.

        Apple can “limit the potential for this to be abused” even more by not selling your default setting for $9 billion dollars.

        Are you asked during intitial set up who you would like as your search engine? No.

        Is it obvious to my mother in law that when she enters a search term in Safari that Google is going to be doing the search? No.

        Is it obvious to her that she can change it and how? No.

        How about Siri input? No.

        I personally choose Google, even on my iPad, and Chrome is my default browser. But to claim they don’t sell your data is true, Apple delivers you to the house that will. For 9 billion dollars.

      • applecynic

        iOS includes features that obscure or hide you from Google when using Siri and Safari and other Google apps. Google is the best search engine. The way Apple is handling this is a win win. Users get to use Google but don’t have to worry about Google scraping up their data. Other than knowing that some anonymous person searched for whatever which is meaningless when it comes to my personal privacy. You’re looking for a problem where there isn’t one. What it looks like to me is that Google is increasingly desperate to stay plugged into iOS users and Google is getting less and less from the deal as Apple clamps down with privacy features.

      • klahanas

        If you are referring to differential privacy, users are still contributing. Is it even opt out? I should be able to choose to not enrich Apple without direct consent.

        The matter is as before a) you have to know about it and b) how to change it. I don’t think the common Kardashian does. I co ui ld be wrong, but my mother in law definitely doesn’t.

      • applecynic

        I posted this already but it didn’t show up. I am not referring to differential privacy. iOS blocks tracking and data gathering. Google tried to bypass this a few years back and got caught. iOS 12 and Mojave are even more aggressive with blocking this activity by Google and others like Facebook. Your mother in law was smart to hire Apple to take care of this for her. Apple does a good job of protecting user data and privacy even when you use Google. She gets to use the best search engine and doesn’t have to worry about her data. You also don’t have to lift a finger to help her with this issue.

      • klahanas

        Even if what you say is true, then Google is an Apple Philanthropy? I doubt it.

        I’m cynical, remember?

      • applecynic

        What I’m saying is true. When you said “I don’t get paid to educate her. Thats why she hired Apple.” that is what is happening. Apple is taking care of it for you and your mother in law.

        Reading melci’s post about the ad numbers it seems just having iOS users search with Google and serve dumb ads without being able to track users the way Google normally does and the way all Android users are tracked is very very valuable to Google. I was mistaken when I assumed Google was getting a bad deal. Google certainly wants more data from iOS users but dumb search is still valuable enough to make the TAC worth it. Google is getting a less good deal but it isn’t a bad deal. It is true that Google gets less and less from the deal as Apple clamps down but what Google is getting will still be worth it if melci’s numbers are accurate.

        An analogy might be that iOS users get to have their cake and eat it too and there are enough crumbs left over to make Google happy.

      • klahanas

        Proof, not a statement, or its BS.

        Didn’t read melci’s statement, responding directly from a notification. Did he bring up “virtuous cycle” again?

        Anyway, melci speaks as if he’s stockholder. Conflict of interest from a user’s standpoint.

      • applecynic

        What on earth are you talking about?

        https://www.cnbc.com/2018/06/04/apple-limits-safari-tracking-gives-more-control-over-personal-data.html

        Apple has been protecting user data for years. Google got caught trying to bypass Apple’s protection years ago. Apple is now clamping down even more. This is common knowledge among the tech crowd.

        melci owning stock doesn’t have anything to do with advertising revenue numbers. If his numbers are accurate it only proves that Google’s deal with Apple isn’t as bad as I had assumed. Oh, I see, you’re not reading melci’s comment. It was about the ad revenue Google makes off iOS users. It’s a lot more than I thought so Google paying so much money to be the default is still an okay deal for Google. They don’t get user data like they do from Android devices but the dumb ads are apparently profitable enough to justify the huge payments to Apple.

      • klahanas

        Okay, thank you. The article was specifically about Safari, but that is likely what most Apple users use (I don’t).

        Then this does not compute…
        WTF is Google paying for? Is this why the referenced article does not even discuss search?

      • melci

        Since 75% of Google’s Search revenue comes from Apple devices, it seems obvious Google is paying Apple to stay alive.

        Here’s the full article:

        “Of the $11.8 billion in mobile search revenue Google booked in 2014, 75 percent — nearly $9 billion — came from iOS, according to a recent Goldman Sachs analysis cited by the New York Times. Half of that total is chalked up to a deal with Apple that makes Google the default search engine for mobile Safari.

        That arrangement is thought to cost Google between $1 billion and $2 billion each year, and many believe that it will end sooner than later. Apple is rumored to be considering a switch to Yahoo or Bing, and might also enter the market with its own solution.

        Apple is known to be working on a large-scale web search program, led by the team acquired with social analytics firm Topsy in 2013.

        These developments put Google in a precarious position when it comes to mobile search, and losing iOS is a potentially disastrous scenario. Google has already seen mobile search volume eclipse desktop search volume in 10 markets — including the U.S. and Japan — and many new Android-based manufacturers have eschewed Google’s own services in favor of other local options.

        This is especially true in mainland China, where most Google offerings are blocked by government firewalls. Without Apple, Google risks being ironically cut out of the market by its own software.”

      • klahanas

        Thank you. Very interesting, and also enlightening.
        Raises anti-competitive concerns, I’ll hold on to this one.

        It does leave the fundamental question on the table…
        Google must be getting something out of it, otherwise, how is it “staying alive”.
        And it’s Apple that’s delivering the users.

      • melci

        Anti-competitive for who? I think Apple is nicely insulated from any allegations of anti-competitive practices considering their unit shipments only amount to 15% of the worldwide mobile market (even if their actual active installed base of 1.2 billion iOS devices is closer to 50% the size of Google’s 2 billion active Android devices).

        The fact that Apple has a vice-like hold on the most lucrative segments of the market does not a monopoly make. 🙂

        Or were you referring to Google?

      • klahanas

        It’s off topic for this discussion, but I would already regulate Google, at least in search as a public utility. I was referring to Apple.

      • melci

        I think you’ll find that it is not possible to segment the market down to just those who are customers of Apple (from the perspective of anti-competitive behaviour). Otherwise every company that has very loyal customers could be accused of holding monopoly power over that group of customers!

      • klahanas

        Very powerful companies. You yourself highlight Apple”s influence in mobile, to coerce “tribute” from Google. Sheez, even MS didn’t do that, and I would have busted them up.

      • melci

        “coerce “tribute” from Google”?

        Hardly. The position of default Search engine in Safari just happens to be a very valuable spot and all Apple is doing is renting that spot to the highest bidder. Simple equation of supply and demand. There is no “coercion” involved and all the other search engines are only a click away (or $12B away if they want to be the default).

        What MS did was compete directly by not even giving competitors the possibility of being the default browser on Windows. In contrast, Apple *IS* allowing competitors to take the default slot in search engines and all they need to do is pay an appropriate rent for the privilege. This is the very essence of competition – each Search vendor is competing with each other for the most valuable seat in the house.

        The complete opposite of anti-competitive practice.

      • klahanas

        “What MS did was compete directly by not even giving competitors the possibility of being the default browser on Windows.”
        Apologist drivel. One of the prominent guidelines of App Store Approval is “not duplicating functionality”, which by definition includes “improving functionality”. Stop,
        That and an App Store Monopoly on the dominant mobile platform.
        Like I said, this is off topic right now.

      • melci

        No need to resort to ad hominem attacks klahanas. I’m not saying that what MS did was right or wrong, just pointing out it is completely different from Apple renting out the position of default search engine in their browser to the highest bidder.

        What we are talking about is the default search position in Safari which is very much on-topic and very much a highly competitive spot (and hence explains why Google is paying an arm and a leg for the privilege).

        What we are not talking about is the App Store.

        Because Apple is NOT the dominant mobile platform by the measure of unit sales market share which the Market (rather stupidly) continues to treat as the be-all and end-all of metrics, Apple is quite shielded from any accusations of monopoly abuse.

        Even if you take the much more sensible metric of active user base, iOS is still only half the size of Android so again no monopolising of the market is going on.

      • klahanas

        Again. Tailored to suit you.

        Apple is powerful enough to require payment from Google, according to you, to survive….

        I would call that anticompetitive. When a good or service can be locked out of a platform, by fiat, I would call that anticompetitive.

        When a company can monetize its user base, and this is on topic, without user consent, is selling the customer. No better than Google. In fact it’s worse because the user is paying twice. Once with money, the other as a participant.

      • Curmudgeon

        It has been accepted practice in retail stores to rent shelf space where end caps command a premium price. Top or bottom shelfs in the center of the aisle don’t.
        Just because Google is paying the top price to be the default search engine doesn’t mean it is locked out of iOS when it fails to have the highest bid. I assure iOS Safari doesn’t work like that. Duck Duck Go is not locked out of iOS because it doesn’t bid the highest. Right now I can switch in the settings to Bing, Yahoo, or Duck Duck Go. In the day Google no longer bids the highest for default search position you will be able to pick it in Settings just like I switched to Duck Duck Go.
        No longer getting the end cap shelves is not the same as being locked out of Walmart.

      • klahanas

        A store has an owner. So does a computer or other good, in that case it’s the customer.

        You’re arguing legalities, I’m arguing the hypocrisy of protecting us from Google like tactics, while selling us to Google.

        I’m not on the side of the store, just the side of the customer.

        And to be clear, I’m not defending Google in any way.

        Love your handle by the way…

      • melci

        @applecynic and curmudgeon, I’m afraid klahanas has indeed slipped beyond logic. Oh well, the discussion was fun up till then.

      • klahanas

        Now that’s an ad hominem!

      • melci

        Actually, that was an observation of your train of argument not invective against your person. Have a great day klahanas!

      • klahanas

        My train of argument is very simple.
        Apple “We don’t sell your data”. But they get paid by people that do, to steer you in that direction. Fact, not opinion.
        Then the opinions start. But this, but that. I’m not going to repeat them. They’re all here.
        Even is Google is stupid enough to pay Apple for no benefit to themselves (they are not), Apple is still profiting from its users without the users explicit consent. A very Googlesque move. Fact, not opinion.

      • applecynic

        You’ve hit the nail on the head. I’ll stop as well. Pointless to try and have a discussion with klahanas.

      • applecynic

        You don’t deserve to use the term cynic. You’re taking your position too far into derision and blind hatred. Apple is not selling its customers. We went through this and I thought you understood but you don’t seem to listen to anyone. Apple is giving users access to the best search engine while at the same time blocking Google from sucking up their data as is normal on Android devices. Google gets enough out of the deal to make it worth it. If/when Apple has a better option for search I expect they will switch to that. It’s not Apple’s fault or problem if Google relies too heavily on iOS users for revenue.

      • klahanas

        If Google gets ANYTHING out of the deal, or even nothing at all, Apple got PAID to send users there…., It’s called a commission.

      • applecynic

        You’re taking it too far again. You can’t deal in absolutes like this. Apple is providing access to good services for its customers and protecting their data while doing so. By your twisted logic Apple shouldn’t have an App Store of any kind official or third party because that monetizes customers. You are not a cynic. You are a hater. I’m glad I snagged my username on Disqus before you got a chance to abuse it.

      • klahanas

        Sure applecynicfollower….
        I do hate being sold though.

      • applecynic

        It isn’t just Safari. iOS devices also provide user data protection. My first thought was the same. That Google is getting screwed. melci’s post sheds some light on why Google is paying Apple.

      • melci

        Hi klahanas here’s the proof for you: “A study of more than 200 billion ads on Facebook says that mobile ads on iPhone generate 1,790 percent more return on investment than ads on Android. Even worse, advertising on Android actually costs more than it returns.

        “The study is by Nanigans, one of the biggest buyers of Facebook ads, and it focuses on retailers, saying that on Facebook’s desktop ads, clickthroughs are up 375 percent and overall return on investment is 152 percent.”

        “But it’s when the report focuses on mobile advertising that the really surprising numbers pop up.”

        “Retailers are realizing significantly greater return from audiences on iOS than audiences on Android,” the report says. “For the first three quarters of 2013, RPC [revenue per click] on iOS averaged 6.1 times higher than Android and ROI [return on investment] on iOS averaged 17.9 times higher than Android.”

        “Retailers have a large opportunity on mobile, the company says, but clearly the opportunity is much, much more lucrative on iPhone than it is on Android. Frankly, the numbers are shocking.”

        “It’s not just that Android monetizes worse than iOS — it actually offers negative return on investment. In other words, while advertising on iOS brings retailer 162 percent more cash than they spend on the ads, advertising on Android returns 10 percent less than the cost of the ads.”

        “Nanigans doesn’t speculate why the ad ROI differs so greatly between iOS and Android, and the study doesn’t delve into reasons, simply highlighting what’s happening. Likely, the challenge is the same that Android has faced for years: a lower-end audience.”

        “Brutally put, iPhone owners simply tend to both make more money and spend more money than Android owners.”

        ps. I don’t do the Stock Market – too much like gambling for my liking.

      • klahanas

        Hi melci,

        It’s not possible for me to care less about whiskey making how much money. I was asking about shielding Google searches from Google as was claimed.

      • melci

        Not sure what whiskey has to do with anything? You seemed to be doubting the figures I quoted – I merely provided the additional data you requested.

      • klahanas

        Whiskey was an autocorrect error and was corrected.
        Didn’t even pour over the financials, I don’t care. I only care about user matters.

      • Kizedek

        Settings (first click), Safari (second click), Search Engine (top item).

        Obvious or not obvious that Google is doing the search?
        Unfortunately, for many, many people, Google *IS* the internet, apparently. Not only do they go to Google to search for any website they want to visit and click the top result, they use Google’s Search Bar instead of a browser’s address bar.

        Apple doesn’t have an internet indexing service. However, when you put a search term instead of a URL in the browser address bar in iOS Safari, the very first thing, as clear as day, is “Google Search”, followed by the search term; then alternate places to search. When I clicked on my key word under “Google Search”, I got a privacy reminder. So, yeah, it’s pretty obvious.

        It is disturbing when people don’t know the difference between Google or Facebook and the internet, and how a web browser functions. If that applies to your mother-in-law, I would encourage you to help educate her on the matter.

      • klahanas

        And Apple to manipulate and profit on her ignorance while claiming to protect her as they are selling her out.

        Still hypocrisy.
        What next… hypocrisy is good?

        Oh… and I don’t get paid to educate her. Ghats why she hired Apple.

      • Kizedek

        Yes, think of the children!!

        No, hypocrisy isn’t good. What’s interesting is that so many are holding Apple to a high standard, like they would a proven trust-worthy person; certainly to a higher standard than just about any other corporation or governmental or charitable entity on the planet.

        One wonders if this is because they have a fairly good track record at doing what they say and believe, and haven’t been completely written off in terms of ethics like most entities that put some goal out there, like “do no evil”.

      • klahanas

        Tough being at the top. Yes, you are held to a higher standard. Especially when you sell tech as if it’s nutritional supplements and fashion.

      • Kizedek

        Yes, tough being at the top, but I think it is more than that. Apple hasn’t always been at the top. During MS and Dell days, the high standard thing was noticeable.

        Rather, I think it is likely related to a corporate culture that talks/promises little and delivers more, rather than vice-versa as demonstrated by the majority of others.

      • klahanas

        Stick to the hypocrisy.
        No one is defending MS or Dell.

      • Kizedek

        I was simply saying the heavy scrutiny on Apple in particular has been there throughout Apple’s history, even when they were not “on top”. They have always been an unusual, if not extraordinary, company.

      • klahanas

        I know you care because you’re a fan. I don’t do “fan” when it comes to companies at all. Just sports, lightly, and even there it’s an irrational emotion.

      • Not to take sides on this, but it would be more precise to claim Apple is selling access to you. Every search through the default iOS search engine gives Google the opportunity to advertise to you and lets them know what is searched, which is data they use to generate revenue. Despite not being personally identified (unless you sign in to Google), Google can still generate geographic profiles to identify trends in markets. At the very least, it lets Google identify trends with Apple customers, which is valuable data. Regardless, Apple has never denied monetizing access to its customers. iTunes, App Store, etc., all sell third-parties access to customers. So yes, Apple is selling access to you to Google and that does pass a degree of data on to them, but it is not personally identifiable unless you intentionally sign in with Google.

        That said, Apple does take an absolute stance by claiming “you are not the product” when it’s a spectrum, not a coin. Google sells other services, so they’re not entirely monetizing users, but the vast majority of their revenue comes from that. On the opposite end, Apple makes the vast majority of their revenue selling hardware, but some of it comes from selling access to customers. Absolutist claims are rarely absolutely correct, so Apple should revise their stance or stop monetizing access to customers.

      • klahanas

        Thank you!

      • applecynic

        If you are counting any third party access to a customer base as monetizing then Apple and many others have to shut down and stop doing business if you want them to “stop monetizing access to customers”.

        Unless I’m not understanding what you’ve said. You are counting the App Store as monetizing customers. I would describe the App Store and Google’s placement as the default search on iOS as enabling access to services for customers. If it is done responsibly it is a win win. From all the evidence we have Apple is doing this responsibly and protecting user data.

      • From an absolute standpoint, the App Store is a monetization of customers; Apple takes 30% of each transaction, and they boast of how much they pay to developers, which mirrors their payment to Google. But again, that’s an absolutist view, which is how they frame “you are not our product.” If we were absolutely not their product, Apple would not make money by sharing access to us, no 30% cut, no payment for default search status. “You are not our primary product” would be a more accurate and fair claim. I agree how they monetize customers is responsible and improves value for us, but they should recognize it puts a flaw in their absolute claim.

      • melci

        By that definition, every physical store is a “monetization of customers”!

        Of course the reality is that every shop including the App Store actually monetizes the *products that they sell* by acquiring goods from suppliers (apps from developers) adding a percentage margin on top and re-selling the products (apps) to customers. That is the way it has been since time immemorial.

        Unlike a physical store that typically charges for every product it re-sells, Apple actually also allows developers to provide apps to users for FREE and allows developers to make money other than via outright purchase price – via subscriptions, advertising etc, ie. options where Apple doesn’t necessarily make a cut.

        You need to remember that before Apple came along with the App Store, Nokia, Carriers, Microsoft and others extorted up to a 70% cut of an app’s purchase price from poor developers. When Apple came along and only charged a tiny 30% commission, it was a revelation and one reason why the App Store was and continues to be such a massive, massive success.

      • No, that is not correct. Apple operates the App Store as a marketplace that gives third-parties vendors access to their customers and vice versa. They don’t buy the apps and then resell them. It’s like a farmer’s market or other event that hosts outside vendors. The host makes money selling that access, not by selling products. Furthermore, Apple charges a membership fee to host products on the App Store or distribute apps within your own group, so even free apps are charged an access fee. And yes, all those fees are far more fair than previous incarnations, but that just means they are charging a fair price for access to their customers, and I never claimed it wasn’t fair.

      • melci

        You don’t seem to realise that many shops sell goods on consignment. “In consignment shops, it is usually understood that the consignee (the seller) pays the consignor (the person who owns the item) a portion of the proceeds from the sale. Payment is not made until and unless the item sells.”

        Again, the store owner is monetising the supplier of the goods.

        And even in the case of markets, Markets charge stall holders a fee or rent to set up and sell their wares. Again, the market is monetising the stall holders not the customers.

        Frankly I don’t know what the point of this argument is. Are all shop owners evil for selling goods to customers? Of course not. Is Apple evil for selling apps to users? Of course not.

      • “Again, the store owner is monetising the supplier of the goods.” — That’s clearly not monetizing the customer, so I’m not seeing what your point is. I never said selling products to customers is evil and never said Apple was evil.

      • klahanas

        You won’t see this, but others will…

        No, shop owners are not evil for selling goods to customers. Anti-competitive behavior is evil. That’s why laws.

      • klahanas

        Exactly correct!

      • applecynic

        I’m sure most reasonable people understand what Apple means when they say “you are not the product” and don’t view it in absolute terms. They understand as you and I do that Apple’s business is not tracking, gathering, or selling customer data and that some monetization of customers from an absolute perspective is necessary to provide value. If done responsibly it’s fine. I’m sure Apple isn’t attempting to make an absolute claim. As reasonable people who do not wear tinfoil hats we shouldn’t take it as an absolute claim. It’s just an easy way for Apple to communicate the point that they care about the data and privacy of customers.

      • I’m not saying I view it in absolute terms, but they are making an absolute claim. It is an easy way to make a point, but easy generally means simplified and imprecise. From that respect, I see klahanas’ point. I did not say I agree with it.

      • applecynic

        I also understand klahanas’ point but that view goes too far and veers off into tinfoil hat land. From an absolute view we can begin to say many things which don’t make much sense but they are technically true from an absolute point of view.

        klahanas certainly thinks you agree.

      • First, it’s not paranoid to point out absolute claims are generally flawed and expect a respected company to not make them. I make absolute claims all the time that are clearly hyperbolic BS. None of them are to gain or assure the trust of millions of customers. See, I just did it twice. First was hyperbolic (it’s not actually all the time). Second was absolutely true because I don’t have millions of customers. So yeah, we can all do it, but not all of us have a responsibility to issue precise and accurate claims.

        Second, a lot of things merit thanks aside from agreement. Respect for one’s perspective is one of them.

      • applecynic

        You might want to clarify with klahanas then. I was right. He thinks you agree with him. He just wrote “I don’t need to think he agrees. He flat out said it.” referencing you.

        I understand the point klahanas is making just as you do. I don’t think either of us agrees with his extreme view.

      • klahanas

        He agrees with the facts I brought up. Its all that matters.

      • applecynic

        Nice dodge.

      • No, I don’t necessarily agree with his view, but I definitely disagree that it is extreme given that Apple is making an extreme statement with “you are not our product”. They don’t say “you are not our product, except…” We could argue that statement is marketing talk, but that’s basically admitting it’s BS. Apple, on the other hand, frames their stance as a matter of values. If that’s the case, then they should be making measured statements. Otherwise, they open themselves to accusations of hypocrisy. Apple puts so much attention to detail in everything else. I don’t see why claiming we are not their *primary* product is an extreme expectation. (For that matter, they don’t need to make any search engine default or accept money for it. It’s a choice, and I don’t have a problem with questioning the choices of a publicly traded corporation.)

      • applecynic

        It’s not so much “you are not our product, except…” as it is “you are not our product in the way that Google or Facebook treats users as a product”.

        Apple is treating customer data and privacy responsibly. Google and Facebook are not. We should not conflate the two approaches because Apple is technically monetizing customers. That is in my opinion an extreme view.

        Marketing talk is sometimes BS but it is also often shorthand. Apple’s treatment of customer data and privacy is different from Google and Facebook. It’s more responsible and more importantly Apple does not depend upon monetizing customers to survive. Google and Facebook must monetize customers and do so aggressively in order to survive.

        klahanas has said “selling a default setting to Google while claiming “privacy as a feature” is absolutely incompatible.”

        That is a misrepresentation of the facts. Apple can sell the default setting to Google and also protect customer data and privacy. That is in fact exactly what Apple is doing.

      • How Apple qualifies their statement is up to them, but it should acknowledge how Apple monetizes customers. Again, I believe their approach is responsible, which I would argue solidly differentiates them from Google and Facebook.

        On the issue of “privacy as a feature”, I already pointed out in my initial comment that Apple protects your personally identifiable data against the search engine, so the data they do receive does not violate your privacy. I’m not going to defend a statement made later. (And it’s off-point, which I would have avoided. It also strikes me as the kind of ethical debate that goes deep into the weeds.)

      • applecynic

        Can we agree that the statement “selling a default setting to Google while claiming “privacy as a feature” is absolutely incompatible.” is a misrepresentation of the facts? Ethical weeds aside, Google as the default search engine can be and is right now wholly compatible with strong privacy features on iOS devices.

      • I have three issues with that. First, I didn’t want to get into it. Second, I do have a bias against Google. Third, I draw on more facts than you are considering. Apple dumped Google default options from iOS, including considerable effort (and humiliation) to remove Google from Maps. There’s no reason Apple even needs a default search engine; a selection of search engines can be presented when you set up your iPhone. Apple has strong privacy protections, but how do you know Google’s prowess in collecting and connecting data isn’t stronger? Seemingly irrelevant data can still fit in a puzzle if you can connect it to enough other pieces. When you consider that effort to excise Google; the frivolousness of even having a default search option, much less selling it; and the struggle to maintain privacy against a machine on a mission to index the world’s data (and, yes, you are part of that world), selling that option to Google does not seem to support Apple’s privacy stance. I would not say “absolutely incompatible”, but there is a dissonance. Of course, that also means it’s not “wholly compatible”, so I disagree with both of you because you can’t both be right, but you can both be wrong. And that’s why I try to avoid absolute statements or choosing sides.

      • applecynic

        I understand what you mean by not wholly compatible. I meant that in the context that Google is the default search engine and strong privacy features do exist on iOS devices. Those are both facts. The two facts are compatible. They have to be because that is what is happening on iOS devices right now. We can agree that “absolutely incompatible” has to be wrong. Wholly compatible is also wrong in the way you meant it.

      • I agree they’re both facts, and they do co-exist. However, I realize my earlier agreement that Apple monetizes customers in a responsible way that improves value
        for us does not apply. I do not see how having a default search engine is any better for customers than offering a selection at setup, nor does it seem any more responsible. Arguably, even having a default search engine seems less responsible than offering a choice at setup, regardless of who buys the spot. It is a pure profit money grab with no benefit to customers compared to not having a default option. So you got me on compatible with “privacy as a feature” but broke me compatible with “you are not the product”. I told you I didn’t want to dig into this.

      • applecynic

        I don’t care either way. I have a bias against Apple but not on this issue. A narrow view of “you are not the product” results in all of us being the product all the time no matter what. I’m sure there are exceptions but I can’t think of any. The important point is that Apple does treat customer data and privacy more responsibly than Google or Facebook. This is true because the business models are different. One depends on hoovering up data. The other does not. Nitpicking aside I do think it is fair for Apple to say their customers are not the product. Could Apple do even better? Yes. Is Apple better on this issue than Google or Facebook? Yes. Does Apple lock down what Google can get as far as your data? Yes. Are you less the product on Apple’s platforms? Yes. The debate then is how much “not the product” is required for Apple to say you are not the product. No company can be 100 percent. I don’t think that is possible on any tech platform.

      • First, it’s a broad view of “you are not the product”. Second, being better on how they do it doesn’t mean they’re not doing it. Third, Apple is selling access to us that they don’t even need to sell. Who bought the option doesn’t even matter. I was perfectly happy believing Apple monetizes customers in a responsible way that improves value for us, but selling the default search engine option neither serves nor benefits the customers. Apple claims they make the best choices for us. Explain how Apple is making the best choice for us by auctioning off default search engine status. Explain how it benefits customers. My support for it is simply broken without that.

      • applecynic

        I think you know that I meant narrow in the sense that almost no situation lends itself to us not being the product. I’m fine with your view too. It’s the same thing looked at from different angles.

        Being better on how they do it does mean different and that means we cannot conflate Apple and Google on this issue.

        The benefit to Apple customers of setting Google as the default could be… 1. Apple can deliver a more consistent back end search experience across the user base by setting a default. 2. Apple could be able to do a better job of protecting data and privacy by only having to deal with a single primary search engine used by customers. 3. Apple may very well be learning much about search through this partnership as they are rumored to be working on their own search solution. 4. Apple can pour all of Google’s payment into research and development of their own search solution or even other tech. 5. Google may have unique features and information that aren’t accessible otherwise through other search engines.

        Finally, I’m satisfied with your statement “We can agree that “absolutely incompatible” has to be wrong.” That’s the core of klahanas’s misrepresentation.

      • klahanas

        Google is paying for something, and Apple users are contributing…

      • klahanas

        I don’t need to think he agrees. He flat out said it.

      • Hey, I support your perspective because it’s built on a valid point, but it’s not one I would have adopted for myself.

      • klahanas

        It’s all I ask. I make every effort to counter BS with facts.
        You don’t even have to like me, though it would be nice. 🙂

      • applecynic

        I was right. Sumocat did not flat out say he agrees with you. I also understand your point but don’t share your view. Hey just countering BS with facts 🙂

      • klahanas

        He agrees I was speaking factually, but have it your way.

      • klahanas

        As but one store, I have no problem with a store making money. The problem arises, in the store’s case, that it’s the only allowed store.

        But I digress, selling a default setting to Google while claiming “privacy as a feature” is absolutely incompatible.

  • klahanas

    “The remarkable story here is how Apple has come to be such a good partner. Both Microsoft and Google now distribute a significant portion of their products through Apple.”

    Did they have a choice of alternate iOS application distribution? Is that something they can’t handle otherwise? Really?

  • Space Gorilla

    Sigh. Out of 54 comments (as I write this) only three comments aren’t because of klahanas. Asymco used to have such a great comment section. I think I’m just going to give up at this point. I see most others have also.

    • Childermass

      You are not alone.

      Horace, you are losing control and eyeballs and soon, money

    • klahanas

      Do stay in touch.

      • Space Gorilla

        Nope. I’m blocking you on Disqus. I won’t even know you exist anymore. Should have done it ages ago but I’m an optimist. I thought maybe after dozens of other commenters telling you much the same thing that you’d smarten up but you’re never going to.

      • melci

        I think that is the sensible option SG. I’ve now blocked him as well.

      • Space Gorilla

        It’s weird, I immediately feel cleaner, refreshed.

      • klahanas

        I’ll be around should you change your mind.