On Tuesday, Apple announced new App Store rules that aim to redirect a larger share of revenues from app subscriptions and content sales to Cupertino. Widely expected by developers and consumers for some time now, these rules will have broad implications as they will apply all forms of digital media accessed through iPhone and iPad apps. The rules essentially mandate that apps that sell content, either as one-time purchases or subscriptions, include an in-app purchase option – with 30% of revenues going to Apple.
As Steve Jobs puts it,
“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 Steve Jobs, Apple’s CEO.
NewsCorp, which recently released “The Daily”, is an example of the standard that Apple is seeking to apply to all digital media developers. While most press around this announcement focuses on the impact on large companies like Amazon, the Washington Post company, and so on, these rule changes will also have big impacts on the fledgling industry growing around mobile medical apps and should serve as a warning to the health IT industry as a whole.
Perhaps the most widely talked about developer that will be impacted is Amazon. As described at Computerworld, Amazon will have to remove its link to its Kindle store from the app. Instead, it will only be allowed to sell e-books via its the Kindle App through Apple’s In-App purchase system, representing a loss of 30% of revenue for Amazon, or online through the Kindle Store. Further, Apple has mandated that the price set for the In-App purchase must be the same as that in other venues like the Kindle Store.
This obviously has clear implications for Epocrates, Lexi, Up-to-Date, MDConsult, and other developers who provide (or will presumably soon provide) medical information at the point of care for a fee. Additionally, Elsevier, Kaplan, and other publishers of medical reference texts will be affected. For those that don’t already utilize in-app purchases and revenue sharing with Apple, it means a hit to their bottom line. Also nestled within Apple’s announcement is another caveat,
Customers purchasing a subscription through the App Store will be given the option of providing the publisher with their name, email address and zip code when they subscribe.
When it comes to medical apps, a big part of their value is access to physicians and other healthcare providers – a high value market. In the sphere of medical apps, this means that Apple will now have access to a very valuable demographic that had previously been hidden among the millions that use the iPhone and iPad. Furthermore, the statement suggests that this information may be denied to developers. As we discussed when we covered the Epocrates IPO, access to this demographic is a key part of the value proposition of app developers – loss of even a fraction of that market could be very detrimental.
What will be more interesting is what happens as electronic health record systems go mobile. Between Epic Systems and Eclipsys alone, 2009 brought in over a billion dollars in revenue. As an increasing fraction of a clinician’s time is spent on mobile platforms, apps like Haiku will begin to gain a lot more value.
While these systems involve far more complicated licensing agreements than say a subscription to a Lexi product, given the amount of money involved here, its tough to imagine that Apple will not eventually seek to claim a piece of the pie. And if that piece is again nearly a third of whatever value it assigns to the mobile platforms of these systems, it could mean a hit to these rather hefty bottom-lines.