Beware The Inverse Razor Blade In This Apple

Reading Jason Ankeny's excellent piece on FierceMobileContent yesterday about the insignificant direct financial benefit Apple realizes from its App Store (~$20mil to $45mil), relative to its iPhone revenue, made me think more about a cautionary post I made back in January. Is there danger inherent in mobile publishers' collective, ongoing obsession with, and perhaps reliance upon, the iPhone platform?

Almost every major mobile game publisher has announced that the App Store has become a major focus of their initiatives. While many have admitted that the money they are seeing today is still small compared to that from the traditional carrier channel, they are quick to point out that the App Store has been the growth component of their businesses over the last 10 months. There is a lot of optimism that many of the problems currently constraining the revenue potential of the platform...such as too many developers, lack of meaningful quality control and pricing anarchy...will soon be nipped in the bud by Apple. To that end, there's been a long running rumor that Apple is planning a premium games section, with a limited pool of publishers, where games will be priced at $19.99. But this may not be the case...

Publishers need to realize that Apple's interests are not aligned with their own and that the guys from Cupertino may not find the aforementioned problems troubling at all. Apple's interest is in using the lure of a broad selection of inexpensive, if not free, content to drive the sale of devices. In the classic razor blade model Gillette et al gave you a razor in the interest of selling you replacement blades over time. Apple has the inverse model, and in this case the loss-leader is content (Apps, music, digital TV episodes, etc.). By virtue of this (and the low prices it facilitates) Apple is establishing itself as the dominant distribution channel for legitimate digital content. iTunes is becoming the Walmart of digital content retailing, but with a twist...they don't need to make money from any of the content in the store because they're making their money selling you a very sexy shopping cart. The music, TV & film guys are all aware of this and are proceeding with appropriate caution with regard to their digital dependence on Apple...mobile game publishers would be wise to do the same.