I’ve been catching up on Apple’s rejection of Basecamp’s Hey.com iOS app since yesterday and trying to understand the arguments on both sides. Here are my thoughts:

Personally, I don’t think 30% is too high of cut for Apple. I work in the insurance business and our partner agents and brokers get 30-40% commission for selling our company’s products to their customers. That’s the key thing to remember here - our company won’t have access to these customers if we do not agree to a partnership with these agencies/broker firms. They will sell somebody else’s product. Also, agents are paid commission per insurance policy. If no one buys a policy, they get zero. I kept these points in mind when I was trying to think of a solution for the App Store problem.

I view Apple and the App Store as the broker for any business or developer who wants to sell their apps to Apple’s customers. Apple’s customers are owners of Apple devices. If you want access to Apple’s customers, you pay them a commission. In it’s regular form, the commission that a developer pays is the Apple Developer Program membership fee. What you get is access to the App Store where Apple will handle the sale and distribution of your app. You also get access to developer support, resources, analytics, beta testing tools and management. And of course, this is annually charged by Apple.

So why does Apple charge you again the same commission for In-App purchases? Going back to the insurance agent analogy, insurance companies do not pay agents their commission until they make a sale. IAP in the Hey.com situation is Apple making a sale on an Apple customer (Apple device owner) who purchases a Hey.com subscription. Based on our analogy, Apple should get a commission. But it seems like Apple got paid twice? No, I don’t think so. The Developer Program fee doesn’t guarantee you make a sale. You just get a higher chance to make a sale. When an Apple customer purchases your $4.99 iOS app then you and Apple have made a sale. Apple gets 30%, you get the rest. You would have earned zero if you didn’t have the App Store. But is it the same as an Apple customer who purchases a Hey.com subscription via IAP through Hey’s iOS app? Of course it is! Is it fair? For some like indie developers or smaller businesses, yes. But for Basecamp, no.

Basecamp can sell their service to Apple’s customers without needing the App store. Basecamp doesn’t need to sell their iOS app first on the App Store to get new users from Apple’s customers. But Apple’s customers are not going to sign up for your service if you don’t have an iOS app they can use. So Basecamp built an iOS app that does nothing unless you have an existing subscription. Apple wants Basecamp to sell their subscriptions via IAP or they won’t let them have an app. Using our analogy, agencies/brokers are forcing an insurance company to go through them for sales first otherwise the agencies or brokers won’t allow customers who already paid directly to the insurance company to use the insurance company’s services. Of course that is unfair.

So what’s the solution here? Well, to be honest I don’t think there is a solution. Insurance companies have agreements with agencies and brokers that Insurance companies never go direct to customers. Apple is doing the same thing. It’s not fair but it’s what businesses do, you make sure your customer base are locked in to your own products or services. I’d like to see government chase after insurance agencies the same way it is chasing Apple right now on anti-trust practices.

Apple is probably going to have to revert their decision on the Hey app and let it stay on the App Store without any IAP for subscriptions added, like Netflix. That is a big win for Basecamp, saves a bit of face for Apple, but ultimately a win for the customers of both. I hope the silver lining to all this is that Apple starts thinking of changes to the App Store business model that would be more fair for everyone especially the indie and small developers in the future.

Oh and I’m also somewhat convinced that this is a PR move by Basecamp as well. Like, 30% convinced.