When David becomes Goliath

What a difference a decade makes for Apple. During the late nineties the computer company (that’s all they built back then) nearly went broke. But then came the iMac which changed the company’s fortunes, followed by the iPod, which changed the world.

For most of its thirty years in business Apple has held underdog status, a David in the context of a Microsoft Goliath. The Apple brand brought connotations of a fringe-dwelling cult and its followers were personal computer outcasts with just a two or three-percent market share. But you need to strain hard to remember those days now given what Apple has become: today it’s a globally dominant force in half a dozen markets.

For instance iTunes sells more music than any other distributor, online or off. Just three years after entering the mobile phone industry, the iPhone is the most ubiquitous smartphone on the planet. The Mac itself has punched convincingly into the mainstream with Goliath now on the back-foot in the consumer sector at least, and in less than a year since its release the iPad is already the world’s dominant tablet computer. Apple now has a toe in the waters of online book distribution too.

But on the horizon are new, potentially very grand plans that might see Apple evolve into news media distribution and online advertising. Media companies the world over have been pinning their hopes on the iPad providing a catapult for a mass move towards paid online content, so it makes plenty of fiscal sense that Apple would look to capitalise by applying its iTunes business-model here too.

Then there’s iAd, Apple’s plan to implement interactive advertising in iOS software, with the company once more charging a healthy margin and imposing itself as the curator.

For media companies the iOS environment offers a lot of lures, like the existing massive market penetration of its hardware, and its tens of millions of registered credit card numbers, all belonging to customers who, unlike print subscribers, can be reached notwithstanding geographical boundaries. But it’s no utopian scenario for news publishers, who would be compelled to pay Apple a big cut of their display advertising revenue as well as a hefty share of their cover price. And just as problematic, Apple plans to retain strategically important customer data too.

Developing an accurate picture of who your customers are and what makes them tick helps a business maintain its relevance and ensure it continues to attract them to its product. Apple, however, insists on occupying that middle ground and to that end media companies have developed stopgap arrangements whereby actual financial transactions take place outside of the App Store environment, thereby allowing a publisher to avoid paying Apple’s cut and simultaneously hold onto their customer data too.

However rumour has it that Apple is right now on the verge of releasing a specialised news portal, possibly named “Newsstand”, which will be to newspapers and magazines what iTunes is to music and movies. Apple would provide a set of creative tools for production, host the content on its own servers, and process payment in the familiar iTunes way.

The question hanging over the heads of news publishers now is whether Apple will continue to permit external transactions once Newsstand is released, or whether it will force distribution to occur wholly through its own portal. If this happens, publishers lose a third of sales revenue as well as their customer data overnight. And while it seems quite unimaginable that Apple would exercise its curator powers over editorial material, the fact it could well do so would seem to be a major issue in itself.

But a number of the world’s biggest news organisations have told Apple they won’t accept those terms. While Steve Jobs is a businessman with a history of getting his own way, he hasn’t yet dealt with Rupert Murdoch so who really knows where the pieces will finally fall in this deal?

Whatever happens, precedent suggests that with Apple as middle-man, it’s unlikely the iPad will deliver newspaper publishers the rivers of gold they once knew. But it might be a very different matter for Apple.

wade@wadelaube.com

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