lynnfredricks.com

Kotaku and Techcrunch have been making the most of a term in iPhone developer contracts that require the iPhone developer to reimburse  Apple for their 30% margin on sales if a customer returns a product within 90 days. Many have said this is a term to ensure quality – its not.

For a 30% margin, Apple is getting a slightly rich return as a reseller, but not an absurd one. Where the problem comes in is that the App Store is pursuing a low price, popularity based strategy. The apps that get the most marketing value are those that sell in the greatest volume. There are some good arguments to this strategy:

• If its cheap, people will more often than not, make the spontaneous buy
• If its cheap, people who are unhappy with it are not likely to take the time to return it
• If the product is also a trend setting product, buying what’s popular has merit (all my friends bought it)
• If its a no touch cost product (direct download, fully automated), your total costs are spreadsheet simple

But this is directly contrary to a product image that is based on premium quality. Look at the return situation:

• You have to offer returns or you invite an unknowable situation where unhappy customers will sabotage you whenever possible
• Returns almost always include a variable touch cost of customer interaction; the more variable your touch cost is, the more expensive its going to be, since its not so easy to automate
• Even with credit card transactions at their lowest, a credit card company will still eat a base fee and a percentage per transaction

The problem is that this isn’t a quality issue – its a transaction issue. The popularity model with such a return policy does not ensure quality.  It is a strategic choice  by Apple to manage their channel costs. iPhone developers cannot make channel based decisions at all since the App Store is the only venue for selling iPhone applications.