> If I sell paper cups to Walmart they will take a 12-17% cut for “entitlements”. I can’t compete with the white label house brand on price that doesn’t have those entitlements.
The store is obviously going to make a margin to pay for the costs of operating the store. The store brand can't avoid those costs by being in-house because it still needs shelf space and stock clerks etc.
This is different than with Apple because it's actually plausible that it costs "12-17%" to have a physical store with physical goods in it, but a 30% margin for online distribution is just blatant monopoly rent. Which comes from the fact that other stores compete with Walmart in retailing paper cups but Apple prohibits anybody from competing with them in retailing iOS apps.
> This is why when you go into pretty much any grocery, electronics, automotive or whatever store the house brand is always at least a dollar cheaper.
The house brand is cheaper because it has less brand recognition, which in turn is because it has less expense in building a brand through advertising and long-term quality control. This is why, despite the products often being completely identical, many people will pay more for the one they're familiar with and not have to take the chance that the store brand isn't as good (even if it usually is).
The retail store makes its margin based on the spread between wholesale and retail price. They mark it up. Typically, 50%.
Entitlements sit on top of that. They are usually broken out between logistics, damage, marketing support, liability, referral, platform, etc..They average around 15%, but it depends on category.
Amazon.com calls it a “referral fee” for marketplace sellers. No physical store there. This is strictly a fee you pay to access their customers. Same as Apple. It’s the fee you pay to access their customer base, with credit card and billing info, and have them handle the transaction and associated liability.
It’s pretty clear you have zero understanding of retail business logistics.
Most wholesalers don't get charged entitlements by the stores. Damaged items are not entitlements, they're straight contractual issues and especially with foodstuffs, wholesale contracts may specify that up to a % of goods may arrive damaged and in unsaleable condition.
Marketing support is negotiated by brands seeking premium shelf space, or end-of-aisle placements or in-store marketing.
Liability is not an entitlement. Ever. It's something you work out between legal departments if you get sued under product liability laws.
My sources? My clients include about a dozen clothing retailers, 20ish restaurant chains, 3 big box stores, and a number of smaller grocery chains.
It's pretty clear you have zero understanding of retail business logistics and you should consider revising your comments to reflect that.
EDIT: After reading your other comments, it's pretty clear that you think that a manufacturer, i.e., Alpha Cola, sells to a Walmart shopper and pays Walmart for this opportunity. That's not how retail works. Walmart pays Alpha for a bunch of soda, and as part of this Alpha may negotiate an offset (what you've been calling an entitlement) for marketing support like in-store displays and premium shelf space alongside Code.
BUT BUT BUT in many situations, this is actually reversed: for example, for beer and convenience stores, the store agrees to give the beer premium space and in-store displays and may even agree to cover the costs. And in my example above, Coke usually wouldn't pay a store anything for marketing support--instead, the store would agree to provide unpaid marketing support to Coke for the privilege of carrying Coke's products. The store then uses Coke as a loss-leader to get people into the store.
“EDIT: After reading your other comments, it's pretty clear that you think that a product maker, i.e., Alpha Cola, sells to a Walmart shopper and pays Walmart for this opportunity. That's not how retail works. Walmart pays Alpha for a bunch of soda, and as part of this Alpha may negotiate an offset (what you've been calling an entitlement) for marketing support like in-store displays and premium shelf space alongside Code.”
It depends. With Walmart specifically It depends if it’s owned, dsv, or platform. Sometimes a manufacturer (that’s what we call them, not “product makers”) does sell to a Walmart shopper and pay Walmart for the opportunity. That’s what the Walmart Marketplace is. Same as the Amazon Marketplace. Even DSV contracts are now changing, as e-commerce retailers will have you ship items from your warehouse in their box with their tape.
Walmart literally calls these either entitlements or allowances, it depends where (and when) you signed a contract with them.
You went way overboard into incivility in your comments in this thread. In fact, although I'm sure you didn't mean to be, you were repeatedly a jerk. That's sad, because you obviously know some things.
We ban accounts that do that. Would you please review https://news.ycombinator.com/newsguidelines.html and stick to the rules when posting here? That means being scrupulously respectful others, no matter how ignorant they are or you feel they are. If you know more, the thing to do is not to put down those who know less, but to explain some of what you know, so we can all learn.
I'm looking at a recent contract that was signed by a large national brand and a large national retailer right now and literally none of what you said is in there.
You keep using the wrong terms for standardized language (for example, you keep referring to breakage as "liability" even though both have very different meanings and keep referring to a number of very different things as "entitlements"), so I'm pretty certain I also have a better exposure to the legal and practical underpinnings of the retail market than you do.
> Entitlements sit on top of that. They are usually broken out between logistics, damage, marketing support, liability, referral, platform, etc.
"Entitlements" are just a component of overall margins. Breaking them out separately doesn't win you anything because the store brand still needs to pay its pro rata share of the cost to cover those things.
> Amazon.com calls it a “referral fee” for marketplace sellers. No physical store there. These is strictly a fee you pay to access their customers.
Yet notice that their fees are typically something like 13% rather than 30%, and they're still dealing in physical goods and then have to contend with the sellers who send an empty box rather than a product etc.
> The Apple fee also drops to 15% after a year. It’s 30% for the first year because of the amount of fraud and chargebacks
You're referring to subscriptions, but at that point it's still outrageously high precisely because they no longer have to worry about that stuff and it's only a matter of transaction processing for which a 15% fee is still completely unreasonable.
> Do you have an actual point you are trying to articulate, or is it just trolling?
My point is that Apple is charging monopoly rents, which they can because they have a monopoly on iOS app distribution.
> Spotify pays 15% after a year, not 30% forever.
Spotify is a subscription service. All the non-subscription app developers are still paying 30% and 15% is still unreasonably high for a subscription service.
Moreover, for subscription services it's 15% after a year per subscriber, not after a year of the service existing. Every time they get a new customer it's back to 30% again. It's practically designed to suppress the growth of a competitor by siphoning off revenue as they're expanding. Even worse if they have a non-trivial churn rate.
> 15% isn't unreasonable at all. Many industries, from physical goods to digital subscriptions, work on a similar fee schedule.
15% is completely unreasonable for a service where all you need them to do is charge the customer's credit card once per subscription period.
> For example, you pay 15% forever for selling physical books, no matter how few chargebacks you get.
Because they're still physical goods, which are more expensive to handle in multiple ways.
> The rates for digital goods are often higher. For example, Amazon takes 30-65% for Kindle sales.
Amazon has the same kind of dominant position for Kindle books as Apple has for iOS apps, so the only thing you're really proving there is my point.
> Spotify can use Stripe if they want (and they do), at the lower rate.
Not from within their app.
> First you thought the rate was higher than it was.
You were the one talking about paper cups and Walmart. Paper cups aren't a subscription service, and they charge 30% for actual apps, without expiration.
> Then you thought that rate was unreasonable when compared to physical goods and it wasn't.
It continues to be unreasonable when compared to physical goods.
You chose an example (paper cups) where you know the percentage of the value that goes to the retailer is high, because the product is very inexpensive to produce and so it has a high ratio of retailing costs to production costs. Even so, the retailers have real competition, so even Walmart has overall net margins of only around 3%, because all that stuff the money you're talking about is paying for, actually gets paid for. It's real cost. And they're the successful ones -- there is a name for what happened to the others:
By comparison, digital distribution has trivial retailing costs. The cost of developing and operating a payment processing and digital distribution system amortized over each app purchase is negligible. It's basically 0%. Apple's net margins are almost the entire amount. About the only thing they really feel is the bite from that other monopoly, the credit card processors, and at their size even that is probably down around 2%. 15% is unreasonable. 30% is scandalous.
> 15% is too much… because it's possible to get that service somewhere cheaper, which they do, and that's how most customers pay?
15% is too much because it's possible to get that service somewhere cheaper and they purposely interfere with you doing that so that you are more likely to pay them the monopoly rents, to the point of an outright prohibition when your product is the app itself, at which point they still want 30%.
They exist because they have great brand recognition far better than most third party products. And the reason they are cheaper is because they sign bigger, low margin deals with suppliers who would be scared of undercutting their existing products.
A house brand is just a white-label product sold with minimal marketing other than shelf space in a store. The difference between a house brand and a branded products is marketing spend.
General Mills, for example, supplies most of the store-branded cereal products alongside its own, more-expensive/heavily marketed brands. Most US liquor is supplied by the same handful of distilleries, and most "craft" liquor is actually just the same stuff with a different label.
Amazon, for example, has more than 100 house brands. But you wouldn't know what they are...since Amazon doesn't advertise them anywhere except on their own website. And they definitely don't have better recognition or outsell their branded counterparts. (Raise your hand if you've purchased a Nike product in the last few years. Now raise your hand if you've ever purchased a Peak Velocity product?)
> They exist because they have great brand recognition far better than most third party products.
Your claim is that Athletic Works (a Walmart brand for athletic apparel) has better brand recognition than Nike and Great Value cola has better brand recognition than Coca-Cola?
> And the reason they are cheaper is because they sign bigger, low margin deals with suppliers who would be scared of undercutting their existing products.
Again, your claim is that Great Value brand sells more cola than Coca-Cola?
What's your explanation for why many people nonetheless buy the more expensive non-store brand?
> > If I sell paper cups to Walmart they will take a 12-17% cut for “entitlements”. I can’t compete with the white label house brand on price that doesn’t have those entitlements.
> The store is obviously going to make a margin to pay for the costs of operating the store. The store brand can't avoid those costs by being in-house because it still needs shelf space and stock clerks etc.
Your implication here is that Walmart's 12-17% charge is fine because that covers the costs of operating the store. Ignoring the fact that 12-17% are in massive excess of the operational costs, your implication is then that storefronts should not make a profit.
Which is frankly a ridiculous notion. Storefronts should make a profit, or there is little point to their existence. The App Store is not a public service. It is a privately-owned storefront. As long as we live in a capitalist society, demanding that the App Store cede its profits is absurd.
> your implication is then that storefronts should not make a profit.
No it isn't. It's that they should operate in a competitive environment so that the profits are the ones produced by a free market without unreasonable barriers to entry rather than being monopoly rents.
> It's that they should operate in a competitive environment
Apple operates in a competitive environment. There are hundreds of other options to choose from.
Unless you mean the App Store should be competitive within the iPhone. Why? How many layers deep do we need to ensure a perfectly competitive and open environment? If I put an app (say, a VM) on the App Store that has its own operating system and contained app store, am I now obligated to allow people to put their own app store in my app?
> without unreasonable barriers to entry
In what world is 30% "unreasonable?"
Companies have the option of going to the App Store. There is no obligation for a company to use the App Store. They are not being cut out of the smartphone industry if they don't use the App Store. Apple is not a monopoly here - there are other options than the iPhone for you to sell your service on.
> Apple operates in a competitive environment. There are hundreds of other options to choose from.
For phones, not for App Stores. Which other viable store distributes iOS apps?
> Unless you mean the App Store should be competitive within the iPhone. Why?
Because iPhone users are a different app market with different customers than Android users. A customer who wants to buy a PC can easily buy it from Amazon, Walmart, Target, Newegg, etc. based solely on e.g. best price for the same product. A customer who has an iPhone is not going to buy a new phone just so they can buy the same app through Google instead of Apple.
> How many layers deep do we need to ensure a perfectly competitive and open environment?
What does it have to do with layers? The user should be able to control the product they bought, all the way down. You don't have to enable anything, just don't actively interfere with it.
> If I put an app (say, a VM) on the App Store that has its own operating system and contained app store, am I now obligated to allow people to put their own app store in my app?
Apple prohibits you from doing that to begin with, which is half the problem.
> In what world is 30% "unreasonable?"
The one where it bears no relation to underlying costs and is that high only due to the lack of effective competition.
> Companies have the option of going to the App Store. There is no obligation for a company to use the App Store. They are not being cut out of the smartphone industry if they don't use the App Store. Apple is not a monopoly here - there are other options than the iPhone for you to sell your service on.
Platform monopolies are like regional monopolies. Android customers are not a substitute for iOS customers in the same way that customers in Florida are not a substitute for customers in California -- because you sell to both of them, not one instead of the other. If Walmart had a retail monopoly in California, you can't argue that they don't by pointing to a competitor in Florida.
In which world is "iOS apps" an industry? The industry here is apps in general. In which case you have hundreds of other devices and tens of other stores, of which Apple is a minority player in both.
> The user should be able to control the product they bought, all the way down.
To what degree? Should the user be able to swap out the kernel code? Should they be able to switch out the phone CPU? Clearly the notion is ridiculous. To enable the user to customize this deeply requires implementing additional functionality to do so. It is not as simple as "not interfering."
> You don't have to enable anything, just don't actively interfere with it.
And in doing so, you compromise the security of your product. If I allowed my consumer to edit (compromise) my product arbitrarily, I can never make a secure product, and making a polished product becomes that much harder. Integrating against a generic interface always requires more work and thought than integrating against a known one.
> Apple prohibits you from doing that to begin with, which is half the problem.
This is why I phrased it as a thought experiment and not a reality. You are sidestepping the question.
> The one where it bears no relation to underlying costs and is that high only due to the lack of effective competition.
Just about zero storefronts have commissions that even remotely align with business costs. Walmart's 12-17% commission is far in excess of the operating costs. So is the Play Store's 30%, or Amazon's own commission.
> Platform monopolies are like regional monopolies. Android customers are not a substitute for iOS customers
How? Moving from Android to iOS or the other way is trivial. It is not nearly like moving from state to state. You either buy an iPhone with an App Store, or an Android phone with something else. There is no artificial lock-in besides your own wallet.
The one where the set of customers is almost completely disjoint.
> To what degree? Should the user be able to swap out the kernel code? Should they be able to switch out the phone CPU?
The vendor should take no measures to prevent the device owner from doing these things.
> And in doing so, you compromise the security of your product.
Products should not be "secure" against their owners. You need not concern yourself with the experience of people who willingly choose to take matters into their own hands.
> This is why I phrased it as a thought experiment and not a reality. You are sidestepping the question.
I answered the question. You should not take any measures to impair the owner from doing as they please. You don't have to make it easier, just don't actively make it difficult or take steps to purposely impair competition.
> Just about zero storefronts have commissions that even remotely align with business costs. Walmart's 12-17% commission is far in excess of the operating costs.
Competitive businesses have margins that align with business risk and the cost of required capital, because that's what competitive means -- it means that somebody else exists who is reasonably able to take your customers by undercutting your price as long as doing so is still profitable enough to exceed their own capital costs.
> So is the Play Store's 30%, or Amazon's own commission.
Google Play has a weaker app monopoly than Apple because their mechanism is different -- OS APIs that require Google apps, which in turn require Google Play and cause it to be the default app store on nearly all Android devices. But it's not as if that's the canonical example of a competitive market either. And then you look at some of the competitors they do have, like F-Droid, which operates with zero margin at all.
> How? Moving from Android to iOS or the other way is trivial. It is not nearly like moving from state to state. You either buy an iPhone with an App Store, or an Android phone with something else. There is no artificial lock-in besides your own wallet.
You can't be serious. Once you have one device or the other, your data ends up on that vendor's services in those data formats, the builtin apps are different and you become accustomed to them and incur retraining and data transfer expenses, both platforms don't have exactly the same apps so if you use an app which is only on one platform then you have to use that platform and are locked into that app store for all other apps, once you've paid hundreds of dollars for a phone the resale value drops immediately and switching would require eating the loss which can be more than $100 compared to an app cost of only $1. You may prefer one platform over the other for any number of reasons having nothing to do with the app store but those reasons discourage you from switching and thereby tie you to the app store of that platform.
Its exactly like moving from state to state. The numbers aren't as big because a phone doesn't cost as much as a house, but they're the same relative to the cost of apps when an app costs around $1 compared to the typical trip to a grocery store of several hundred dollars, and have the same kind of switching costs where you have to move all your stuff and make labor-intensive changes to many other things that are independent of the app but not the location/platform.
> The one where the set of customers is almost completely disjoint.
This does not constitute an industry. Industries are defined by product space.
The Pixel and iPhone compete in the same industry. The Play Store and the App Store compete in the same industry. There’s no question around this.
> You don't have to make it easier, just don't actively make it difficult or take steps to purposely impair competition.
This completely ignores the concept of a physical security model. The owner cannot be trusted. Enabling the owner to modify their device arbitrarily introduces physical security bugs.
Your model prevents anyone from making secure devices. At least - not without a lot of extra thought and engineering time, which they should not be obligated to in the first place.
> it means that somebody else exists who is reasonably able to take your customers by undercutting your price as long as doing so is still profitable enough to exceed their own capital costs.
Case in point: Android and the Play Store which directly compete with iOS and the App Store. You cannot claim that Android and iOS compete while simultaneously claiming that the App Store and the Play Store constitute different industries. And there are few more obvious examples of competition than Android and iOS, or the Play Store and App Store.
> Once you have one device or the other, your data ends up on that vendor's services in those data formats
This is no different from me not being able to transfer my purchases from the Play Store to the Amazon App Store. No platform is obligated to give you the tools necessary to switch off said platform. If you buy a game on the PS4, you have no reasonable expectation of getting it on PC for free, regardless of how nice a feature that may be.
Transfer of purchase has never been an expectation of any storefront.
> This does not constitute an industry. Industries are defined by product space.
And you're back to arguing that brick and mortar retailers in Florida compete with ones in California because they sell largely the same products.
> The Pixel and iPhone compete in the same industry. The Play Store and the App Store compete in the same industry. There’s no question around this.
By this logic, if Samsung announced a competing phone platform that nobody uses and a competing app store that only works on that platform and has no apps but charges 5% fees, everyone could switch to that app store and sell/get all their apps there even though it has no users and no developers.
> This completely ignores the concept of a physical security model. The owner cannot be trusted. Enabling the owner to modify their device arbitrarily introduces physical security bugs.
The vendor cannot be trusted. The owner is you. If you can't trust yourself then you've already lost.
> Case in point: Android and the Play Store which directly compete with iOS and the App Store.
So you expect that if Google Play reduced their fee from 30% to 15%, developers would switch from distributing their apps on iOS to distributing them on Google Play? How is that even possible when they already distribute them on both?
> You cannot claim that Android and iOS compete while simultaneously claiming that the App Store and the Play Store constitute different industries.
Suppose that two companies make power plants. They all burn carbon to make heat to make steam to make electricity. One company's burns coal, the other natural gas.
When you're buying a power plant, there is competition between them. You can buy either one and they both burn carbon to make electricity.
But suppose, Standard Oil style, that the company making coal fired power plants has a monopoly on coal and the one making natural gas fired power plants has a monopoly on natural gas. Then those are two separate markets -- once you've bought your power plant you're locked into one or the other. Trying to combine them into the "fuel market" only works if you can switch from one to the other without replacing your very expensive power plant, but you can't. Which is why they're two different markets.
> This is no different from me not being able to transfer my purchases from the Play Store to the Amazon App Store. No platform is obligated to give you the tools necessary to switch off said platform.
It's not a matter of being obligated to help you switch. It's a matter of the switching cost being a barrier that segments the app market.
> By this logic, if Samsung announced a competing phone platform that nobody uses and a competing app store that only works on that platform and has no apps but charges 5% fees, everyone could switch to that app store and sell/get all their apps there even though it has no users and no developers.
Exactly. This is how the free market works. If Samsung’s App Store is more palatable to developers and users, they will move there. This is what we see with Epic Games moving Fortnite off of the Play Store.
> The vendor cannot be trusted. The owner is you. If you can't trust yourself then you've already lost.
How do you define ownership? Physically owning the device? If a thief steals your phone, should they have the same permissions as you do over the device? Absolutely not.
Physical security matters. Ownership should be linked to a secret in your brain, not the fact that your hands are on it. And this model of ownership restricts quite a bit of modification without extra engineering or thought.
> Then those are two separate markets -- once you've bought your power plant you're locked into one or the other.
You are not buying a power plant. You are buying energy. There is a front-loaded one-time cost to switching to another power plant.
But let’s avoid silly analogies. The costs associated are obvious and visible to the users before they decide on Android or iPhone. Buying an iPhone does not segment them into a different industry. They can easily get the same apps from an Android phone. The barrier to entry via device cost does not create an industry. Industries have always been and will always be defined by product space - what is being sold. In this case, apps.
That it is expensive to switch from an iOS App Store to an Android App Store is a factor that is left to the user to make when they decide to choose one of the app stores. This is little different from switching from Steam to the PlayStation store with respect to the games industry.
> Exactly. This is how the free market works. If Samsung’s App Store is more palatable to developers and users, they will move there.
Except that they can't do that when they have to create an entire ecosystem in order to compete in app stores, because of the network effects. Microsoft tried and failed with Windows phone, despite having its own desktop monopoly to leverage, pouring a fortune into it and by most accounts creating something that was actually quite good, because you can't get developers without users or users without developers. The barrier to entry is a mile high.
> This is what we see with Epic Games moving Fortnite off of the Play Store.
Which is only possible because Google doesn't prohibit that. Apple does.
> How do you define ownership? Physically owning the device? If a thief steals your phone, should they have the same permissions as you do over the device? Absolutely not.
> Physical security matters. Ownership should be linked to a secret in your brain, not the fact that your hands are on it. And this model of ownership restricts quite a bit of modification without extra engineering or thought.
That's all software. As soon as you lock the device, the decryption key should no longer exist and require the thing in your brain to recreate it.
If the software is designed correctly -- and nothing about that needs to be a secret -- there is nothing the thief can do to decrypt the locked device even with unlimited control over the hardware.
The thing hardware lets you do is allow you to use weak authentication, by having the hardware remain in possession of the real decryption key but rate limit the number of authentication attempts.
But that has absolutely nothing to do with app stores or anything like that. All you need for that is a tiny piece of special purpose tamper-resistant hardware that can store a strong key and then release it in response to successful authentication, while rate limiting the number of authentication attempts. Then when you lock the device the main processor discards the key and the only way to get it back is the rate limiting authentication hardware, which can be completely independent of the rest of the device.
> You are not buying a power plant. You are buying energy. There is a front-loaded one-time cost to switching to another power plant.
But that's the point. If you have to spend hundreds to have a choice of where to buy a $1 app, that isn't a real choice. If the alternative app store has the same app for $.01 instead of $1 -- a 99% discount -- all you can do is shrug because it's not worth spending hundreds of dollars to save $0.99. There is no amount of discount the other app store can offer to get you to switch. They could pay you $1 instead of charging you $1 and the switching cost would still put you deep in the red. That's what a lack of competition looks like.
> The costs associated are obvious and visible to the users before they decide on Android or iPhone.
If Walmart has a monopoly in California and Target has a monopoly in Florida, you can know that before you decide where to live, and pick whichever state you like, but either way you're living somewhere with a monopoly.
> Industries have always been and will always be defined by product space - what is being sold. In this case, apps.
So you can't have a monopoly in California if there is a brick and mortar competitor in Florida, because you both sell similar products?
> This is little different from switching from Steam to the PlayStation store with respect to the games industry.
Yes, that is exactly the same, and the consoles should not be doing it either.
Which data? Most apps that store and create data are cross platform and even if they subscribe to Apple Music that is available for Android.
Purchased iTunes has been DRM free for over a decade and you can even transfer movies bought on iTunes to other services at least from four of the major studios.
A customer who has an iPhone is not going to buy a new phone just so they can buy the same app through Google instead of Apple.
What do you think would happen if the Facebook or Instagram app weren’t available for iOS? What if you could only use Netflix or YouTube on Android devices?
Fortunately, they are not the only storefront that exists. There are plenty of other storefronts on slightly different hardware available to the consumer.
In fact, the App Store is a minority storefront on minority hardware.
The store is obviously going to make a margin to pay for the costs of operating the store. The store brand can't avoid those costs by being in-house because it still needs shelf space and stock clerks etc.
This is different than with Apple because it's actually plausible that it costs "12-17%" to have a physical store with physical goods in it, but a 30% margin for online distribution is just blatant monopoly rent. Which comes from the fact that other stores compete with Walmart in retailing paper cups but Apple prohibits anybody from competing with them in retailing iOS apps.
> This is why when you go into pretty much any grocery, electronics, automotive or whatever store the house brand is always at least a dollar cheaper.
The house brand is cheaper because it has less brand recognition, which in turn is because it has less expense in building a brand through advertising and long-term quality control. This is why, despite the products often being completely identical, many people will pay more for the one they're familiar with and not have to take the chance that the store brand isn't as good (even if it usually is).