Tag: Monopoly

There’s a very old Canadian joke. A farmer is angry at the weather, so he raises his fist to the sky, and yells, “Goddamn you, CP Rail!”

Back in the age of rail if you were a farmer the only way to get your product to market unless you lived very close to a city, was by rail. There were few railroad companies, probably only one near you, and whatever they charged, you had to pay.

Rail company freight prices were based on maximizing profit for them, and that price drove a lot of farmers out of businesses, and left many others working for poverty wages.

App stores are, effectively, the only way many software developers can get their products to market. Most of them charge 30%.

A lot of consumers think this doesn’t matter, “who cares how they split the price?”

But that 30% is a cost, a high cost, for a service which costs companies like Apple and Steam almost nothing. (Apple also insists on a cut of all in-App purchases.)

Thirty percent is actually about a 42% price increase (30/70). It is HUGE. It is absolutely a cost; apps are not viable at all price points: you can’t just charge whatever, because most of them aren’t “must haves.” Running app stores costs almost nothing compared to the profits (not for the monopoly or near-monopoly providers, like Google, Apple and Steam).

Anyone who is the least familiar with business knows that increasing your production costs so much absolutely means that many products will never see the light of  day; they aren’t profitable. Entire companies will not come into existence because when the initial costing is done, the 30% makes their offerings unprofitable. Other companies will go out of business because their product(s) don’t make a profit or enough of a profit with that 30% in place, where they would at 15% or 10% or 5%.

Even businesses which do exist, and prosper, would prosper more if the charge was less, AND Apple and Steam and Google would all still be fine, and able to provide just as good services. (All these businesses are infamous for their profits, and their app stores are nearly pure profit.)

So what app stores at 30% has cost us is a lot of businesses: many which never existed and we can’t miss, others that went out of business. Thirty-percent app stores have also cost existing businesses a lot of profits they could have reinvested in new employees, or given to shareholders (or, admittedly, wasted on their executives.) They have also cost us a lot of apps, both from companies that never existed and from existing companies, because the 30% made them unprofitable right at conception.

App store fees are taxes; all major app stores that I can think of off-hand are near monopolies or part of oligopolies. We don’t know what Apple’s profits from the app store are, but one expert guessed around 80% (Apple said “no” but never gave the necessary data to refute.)

No one makes that sort of profit except in brief periods or when they have a huge, and unfair, market advantage. There is no way in any reasonable market theory to justify such profits over a period of more than a couple years. These are pure market position/monopoly/oligopoly profits.

So, yes, my friends, unless you are attached to the spigot (not necessarily the App spigot, but the general oligopoly spigot), the App store has cost you something: a world with a lot more jobs, companies and apps. You don’t even know what you lost, because what App store companies have done is mostly akin to strangling newborns: you never got to see what they killed, just by existing and taking extortionate profits.

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