How Apple’s App Store policies have contributed to the surveillance advertising industry

Image from The Verge

Apple’s goal is to sell more hardware, in particular sell more iPhones. That’s where the bulk of Apple’s revenue comes from even today. In order to sell more hardware, Apple wants to commoditize its complements and the biggest complement is apps. The irony is that this decision to destroy the value of software has led directly to their need to crack down on surveillance advertising. The law of unintended consequences at its finest.

How did we get here? This story starts all the way back in the mid-90s when Microsoft launched Windows 95 and Adobe, Pagemaker and Quark decided to support Windows.¹ For years before, Apple had paid huge co-marketing fees to keep these three mammoths of the software publishing business on Mac OS. But Apple’s market share was tiny and the digital publishing business, along with education, were the only two markets still using Macintosh computers. Apple was dying and everyone knew it.

Microsoft came along with Windows 95 and offered a lifeboat to these businesses. Port to Windows and you will be saved. They jumped at the chance.

Apple was the jilted lover and seems to have decided that if it ever survived that mess it would never put itself in that situation again, beholden to software companies. Instead, it would ensure that no one software company could ever get big enough and powerful enough to hurt Apple again.

25 years later and Apple of course is the largest company in the world, and has leveraged its dominant position in the technology industry to ensure no software company could ever challenge them again.

So Apple has been more than happy to see the impact of the App Store, and has been more than a willing participant in devaluing mobile software. Prices in the Palm OS and Windows Mobile days? Shareware titles were $20-30, commercial titles were $50 and more. My own products ranged in price from $10-$160 with our best products at $60. Average price was $37 net with most sales going through our website where we collected contact information and promoted upgrades.

In the iOS days? Prices started at $10 and quickly dropped from there. Within a year average prices were in the $1 range (before Apple took 30%) and most apps were free. The same apps I sold for $60+ on Palm and Windows Mobile were selling for $3.50 net on iOS with all sales going through Apple, no customer data, and no upgrades.

This helped sell lots of iPhones. All this cheap software made Apple’s hardware all the more valuable (commoditizing its complements). And Apple did little to help raise the price. No upgrade pricing, no trial versions, lax App Store policies. If your product failed, oh well for you as there were 100s of others willing to take your place.

The problem is all this cheap software required a business plan to make real money. If developers couldn’t make a living actually selling software, then they would make money selling you. They tracked your location, sharing information with the highest bidder. Because the income to stay in business had to come from somewhere and it wasn’t coming from selling software. Welcome to the surveillance advertising business.

(This is where I want to point out that I never did this and thus work full-time for someone else. Not every company did this and I’m in awe of those who made it through, survived this insanity, and still were able to build indie businesses.)

Even if these developers charged an up-front or subscription price, there was no mechanism to advertise and find out if someone purchased. While Apple could easily provide this capability, they don’t. So developers tracked consumers using the same mechanisms utilized in surveillance advertising. How will developers know if their advertising works now that tracking has been eliminated?

Now Apple cracks down on the surveillance advertising industry, blaming Facebook and others for the intrusion. Is Facebook to blame? Of course. But Apple is no innocent bystander in this insanity to track everything you do and everywhere you go in the name of selling you more crap.

Is Apple wrong to crack down on all this tracking? Of course not. It’s an abhorrent practice that should go away. But let’s not pretend that Apple’s App Store approach and policies hasn’t led us to this exact spot. The two go hand in hand.

¹ I know this story because a former Apple executive told it to me many many years ago.

Math doesn’t change

“Math doesn’t change,” the customer tells me as to why he doesn’t want to pay a subscription.

Yes, he is absolutely right. Math does not change. But iOS does. Constantly. And in order to keep that math working the app that that math works within does have to change. Otherwise it stops working.

We developed PowerOne Finance and PowerOne Scientific at the dawn of the iOS App Store. (Actually PowerOne pre-dates the App Store by more than a decade but that’s a different story.) At one point versions of PowerOne occupied 3 spots in the top 1000 apps with one of them occupying a slot in the top 100. As the App Store gold rush cooled, we couldn’t justify the investment in maintaining this old code and a one-time price so we started working on a new version we hoped would replace it and hoped we had a substantial number of customers who would move to the new version, propelling us up the charts, and driving enough subscribers to keep working full-time.

A few years ago we released PowerOne 6 and gave a great deal to existing customers to move over and, well, they didn’t.

At this point, the writing was on the wall. After 23 years of working on Infinity Softworks full-time, it was time to work for someone else. PowerOne was making enough money to keep it going, barely, but not enough to work even part-time.

Now I do a handful of releases per year, maintain the web servers, and am happy to work with a small group of customers who really enjoy the app. PowerOne Finance and PowerOne Scientific have continued to work all these years for anyone that already had a copy.

This week, however, Apple released iOS 14.5. For me, PowerOne Finance and PowerOne Scientific still worked. For some customers, though, it does not. A few customers reached out to me and asked what to do. I suggested they download PowerOne 6, explaining it was free with advanced features available for a subscription price of $19.99 per year.

Very politely, the customer responded that they don’t see a reason to pay a subscription because the “math doesn’t change.”

And he’s right. The math doesn’t change. But the platform on which the software runs is constantly changing. The server to sync templates across devices costs time and money. The earth in which that unchanging math lies is constantly shifting.

I’m really not upset. I’m sad but not upset.

I’m sad because the mobile landscape became hostile to running a small company with a niche product. I’m sad that I couldn’t figure out how to keep Infinity Softworks going as a full-time job after 23 years. I’m sad because I thought I had more customers that cared deeply for the product and would stick with me. And even that sadness isn’t the same as it was two years ago when I decided it was time to get a job. Then I was devastated. Now it is more of a lament.

While I’m not upset with this customer, it does strike me as ironic that the same person complaining that PowerOne Finance and PowerOne Scientific no longer works did so at the same time while lamenting a subscription price for software.

Because “the math doesn’t change.”

Lead with your values

Yesterday the folks at Basecamp decided to make some changes. Their goal was to streamline the organization to remove politics and paternalistic ethos from inside the company while still enabling its employees to have a voice outside the company.

When I was in college I had a professor who talked like this. He believed that companies weren’t responsible to the community in which they existed and the world in which they sold products. I believe this was an outcropping of the 1980s Reagan “win at all costs” mentality for businesses, the “greed is good” Gordon Gecko ethos, which in and of itself was a reaction the late 60s and 70s hippy culture.

I work at Nike now and have for the last two years. Nike is a company of this hippy era. Nike is a company that leads with its values. There are many people that work at Nike that believe strongly in those values and there are others that work at Nike despite those values, but I can tell you for certain that those values are strong and at the center of what Nike tries to do. Does it always get it right? No, but I do believe it tries to live up to them. For example when Black Lives Matter protests started last year, a lot of people were expecting statements from companies dictating where they stood on the issue. No one questioned where Nike stood.

Jason Fried and David Heinemeier Hansson, the founders and owners of Basecamp, just abdicated this responsibility at Basecamp. Their goal is to make the company stand for nothing and let the people who work there stand for things instead. I don’t know their reasoning but I can guess. It seems like it would be a good idea as at the end of the day internal discord can tear a company apart. In this day and age of polarized politics, having employees across the spectrum is difficult. The company needs to get its work done and it can’t do this if political polarization is creating a culture of dysfunction.

There’s a simple truth to the founding of every product: you want a strong reaction one way or the other. It’s good if people hate your product and it’s good that people love your product. The death trap is in the middle, where people have no feeling at all.

While Jason and David are trying to build a culture of tolerance they are actually doing the opposite. People don’t just need strong feelings about the products they buy, they also need them about the companies in which they work. Jason and David are steering Basecamp to the middle.

Politics is life. We make political decisions every day in our personal lives and our professional ones. There is no way to hide from these. Home Depot, Coca-Cola and other Georgia-based companies didn’t want to wade into the deep end of politics but were forced to when the Georgia legislature passed new voting measures a few weeks ago that many believe (including me) will restrict voting for minorities. This worst place to be for a big company is reacting to what’s happening around them. They just don’t move fast enough to make these statements unless they are clearly held positions from the beginning.

As a company leader, we can’t run from these issues. Especially socially, these issues permeate the world in which we work. How does Basecamp feel about under-represented groups as engineers? What does it think about the LGBTQIA+ population and its impact on its company culture? Where does the company stand on racism and hate?

There is no way that Jason and David don’t have strong opinions on these topics, and there is no way the employees of Basecamp don’t have strong opinions on these topics. But these are indeed political issues that impact Basecamp.

The reality is that companies that don’t lead with their values will have values thrust upon them. And that’s definitely one place I wouldn’t want to be.

Texas Isn’t a Failure of Capitalism

The stories out of Texas are horrific. Rolling blackouts. Burst water pipes. Icicles dripping from ceiling fans. Electricity bills as high as $17,000. And to make it all worse, idiots all over Twitter claiming this is a failure of capitalism.

Capitalism is nothing more than an economic mechanism that allows markets to match supply with demand. In most countries around the world, the government tries to manage this. But governments are horrible at matching supply with demand. So here in the United States, we let the market figure that out.

A $17,000 electricity bill is actually unfettered capitalism working. It means that when supply is at its lowest and demand is at its highest, prices go up. But capitalism also assumes that consumers have choice and knowledge, and in many cases they do not, including this one.

The failure in Texas isn’t capitalism. The failure here is government.

Electricity, like lots of markets, is one where the company has way more knowledge and power than the average consumer. It is also a market where consumers have no choice.

The government of Texas, meanwhile, sells deregulation to unassuming consumers as a guise for “get the government off our back.” But all deregulation is doing in this instance is giving electric companies unfettered access to screw consumers.

The act of regulation is a critical role in capitalism. The act of regulation is the act of leveling the playing field between consumers and companies. But in Texas, and many other places across the country, government has failed to do its sworn duty to protect consumers. Instead, it has abdicated its role, throwing in with the companies, and screwing over those who voted.

You want a better country? Don’t throw out capitalism. Throw out the elected officials who aren’t working for you.

Why Companies Should Build Free Apps

The fundamental responsibility of marketing is to attain and then retain attention. When I was a kid, there were only so many ways to attain attention for large brands who need substantial volume: print advertising in magazines or newspapers, television advertisements, radio, retail. In other words, in order to attain attention large brands have to go where the consumers are and that’s where the vast majority of consumers were. The most popular shows on tv in the 1970s and 80s, for example, routinely attracted 28-35% of all viewers, which frankly was all of us. If a company wanted to get its name in front of 30% of the country at once, it could buy an ad slot on one of these shows. 

(Source: Benedict Evans)

Why do we care about attention? Because as the world is evolving it is proving to be the ultimate finite resource. We can make more money, we can extend our bank accounts with credit, but we always only have 24 hours in a day and we spend 1/3 of that time sleeping.

Once attention is attained then the role of marketing is to retain those people. In many ways, this was done the same way via the same channels, but others were also available. Sears sent periodic catalogs to people’s homes, for example. The best companies got those who browsed to buy, and those who bought to buy again.

The problem now is that the world has changed. Attention is far more difficult to attain. Remember those television 30 ratings from the 70s and 80s? Television’s influence has dwindled since then. From 2016-18 the top rated show was The Big Bang Theory with only an 11 rating.

The options have exploded with the Internet and mobile. Social and communication apps now control 50% of attention, but many of these are not platforms for advertising. The top six apps by active user are all social media apps¹. The long tail, though, is very long, and those consumers even on these six platforms are not paying attention in the way they did 40 years ago.

How about retail? The options there have expanded as well. We hear a lot about how Amazon is taking over retail but it still only accounts for 6% of all retail. Walmart another 9%. That leaves 85% scattered amongst millions of websites and retail stores, with dwindling focus on physical retail.

(Source: Benedict Evans)

So how do companies survive and grow? By owning its own attention and retention avenues. And apps are a critical component of that strategy.

What very few companies have figured out is that functional applications help solve both the attaining and retaining portion of the marketing puzzle. By creating functional applications that attract high volumes of user activity (read: sessions), companies can create a virtuous cycle where consumers actually seek out a company’s marketing and willingly (!) ask for it to be blasted at them over-and-over again in the form of an icon that sits in a favorite spot on the launch screen and an app that provides value.

Think about how many companies you willingly asked for more advertising. There aren’t many. Apps can make that happen.

My thoughts on this have changed over the years. Once upon a time companies built apps and sold them in app stores. We helped DEWALT do this with DEWALT Mobile Pro construction calculator (now discontinued) for years.

What I came to understand, and what DEWALT couldn’t, is that a free app that customers willingly downloaded and used was far more powerful then the income the app could generate. After all, DEWALT isn’t in the app business; they are in the construction tools business. By discontinuing DEWALT Mobile Pro, they gave up on millions of consumers who would use the app hundreds of millions of times, constantly reminding consumers of DEWALT and its brand, and helping DEWALT sell the construction tools that makes them a powerhouse in the industry.

¹ Interestingly this does not include Apple’s Messages app, which I will bet would be ranked easily amongst these six apps.