Perhaps consequentially, app stores are the preferred distribution model for only 15% of North American developers, with over half preferring direct sales to end-users or enterprises.

The reality of retail outside of the App Store is that retail demanding a 30% margin is not fantastical. In fact, a range between 20-30% on software titles as a retail margin are the norm. Retail provides vendors with the floor space love necessary to connect with the end user. As a venue with a complete monopoly over iPhone and iPad applications, App Store does not make any special promises comparable to real world equivalents that differentiate it from the basic service model provided by resellers.

If 85% of the developers believe the service is overpriced, and over half of app store developers responding prefer direct sales to end users and enterprises, it is possible they perceive the App Store as simply a credit card charging service, or at best, something akin to Kagi or other shareware sales venues.  I would otherwise think it a poor comparison because Apple does provide reseller value to the developer. The major difference between the App Store and a normal reseller relationship is that the App Store holds a monopolistic control over 100% of revenues generated from app sales (it is possible to generate other revenue from apps, but not on the app itself)  as well as extreme authorial control through SDK restrictions. This casts the 30% in a different light – if a reseller gets a percentage of all revenue generated, it is entitled to the same percentage that’s the norm in retail? Certainly Apple thinks so.

Another conclusion about the unhappy developers is that they know enough about how to set up a basic sales website and would like to shrink their overhead costs down to modest website upkeep and credit card fees. That makes sense. With so many App developers previously or currently being Mac OS X application developers as well, they may already have the infrastructure in place to do just that – they know they can be paying 5% or so on those sales instead of a mandatory 30%, at least for some of their sales.

This morning I got the heads up that the long time available, free plugin for using ODF documents within Microsoft Office would now cost $90 per user. ODF or Open Document Format, is the native format for OpenOffice. It is also used by several third parties as a universal format.  Oracle isn’t necessarily breaking any promises that Sun made – Sun never declared that this plugin would remain free forever, nor is it open source software. But its simple enough to see what happened here – someone at Oracle was doing an asset review and posed the simple question:

Why aren’t we charging money for this thing we own?

That’s a very good question, and one that frustrates many vendors of Linux products. Some vendors develop a Linux version of a product that competes directly with free products. That’s okay, especially if you have some special support package or some special feature that differentiates your product and so translates into special or significant value.  However, I think our friends at Oracle are missing the point here – this is a great way to get a taste of Sun/Oracle into Microsoft only shops – but only if it is free.

I hope users of the community edition of MySQL are taking note of this.  MySQL AB had some very interesting ways of making money that took the sting out of free. For example, if you were a commercial developer, deploying MySQL wasn’t all that different than any other licensed third party developer database – you pay up.  MySQL AB was very, very aggressive about its developer sales; I don’t think that same aggression made it to Sun. Also, if you wanted to use the latest and greatest updates and get any kind of support whatsoever, their support program was in the money. Requiring payment for support isn’t anything new at Oracle of course.

Leegin v PSKS, the US Supreme Court case No. 06-480 involved a lawsuit of Texas based boutique owners (retailers) Phil and Kay Smith vs a California based Leegin Creative Leather Products company. The Smiths sued Creative Leather Products after Creative Leather Products cut off the supply of their products to the boutique retailer because of discounting the Smiths applied to the Creative Leather Product’s Brighton shoes and accessories. This was a case on appeal after the Smiths had already won $3.6 million.

In the United States, a 1911 precident setting case made it illegal to set prices. Although numerous experts have commented that manufacturers have so little clout in retail to make a difference – those cited as exceptions are both in the computer industry: Apple and Microsoft.

But really, price controls have been a matter of fact for some time now, through the use of high manufacturer’s pricing, rebates, abuse of Market Development Funds (AKA “MDFs”), restrictive measures on use of logos and trade dress…and the list goes on.

Manufacturers have a long list of reasons why they would want to maintain high prices in the channel, but one that is particularly frightening to retailers is the reallocation of relationships – moving the customer relationship from the reseller to the manufacturer. Computer software, and to a lesser extent, computer hardware, have been rapidly moving in that direction for some time, beginning with End User License Agreements that establish a direct relation with the vendor – as a result of the initial customer sale by the reseller. Much computer software is purchasable online and can be downloaded immediately from the software vendor. Because many of the barriers to direct purchase have been removed, most software vendors are in competition with their own channel partners for the first sale; remove deep discounting, and its more likely that the first sale can become a direct sale.

Apple and Sony both have significant, direct retail presences that are built around their premium brands- it isn’t just a matter of perception, these companies are direct-to-customer, face to face resellers. Why would anyone enable a competitor to compete on price?

Sony in the Channel

ShinyLittle Gadgets pointed out that you can find the same product through multiple retail venues for Sony products that are healthily discounted off of the SonyStyle price. Sony, like most other manufacturers put broad categories of products into the channel, and each product-to-channel can have variable terms and availability (product, venue, venue-by-country, etc). The most flexible terms are going to be on product skus that they are willing to strategically sacrifice in the non-SonyStyle channel. Although SonyStyle and the SonyStyle stores are comparable to Apple and the Apple Stores in their consumer orientation, Sony has a far more complex channel mix that requires greater channel flexibility, especially in the laptop market, which includes both consumer oriented products as well as business products – each of which have their own channels. Sony has to continue to sacrifice more pawns in the channel as a result and are happy to do so, while they remain dependent on non SonyStyle retail for serving the consumer market.

Quicktime 7.2 automatically disables Quicktime Pro based on previous versions of Quicktime – Quicktime 5 and Quicktime 6. If you purchased Quicktime Pro and want to continue using its functionality, then you must pay for Quicktime Pro 7.x. Quicktime Pro allows you to import and export Quicktime movies in a variety of formats. While there are plenty of utilities out there that allow more and better conversions, there is a load of convenience to doing this within Quicktime itself.

From a software sales perspective – this release is interesting because of the forced upgrade requirement. Think about how Quicktime is implemented and how well this would be received if it was implemented differently:

Forced Upgrades for Components. Quicktime has application elements such as the player application. But in the end, it is a component that adds new capabilities to the operating system. In most cases, it makes sense not to have multiple component versions at the operating system level – who needs or wants a less stable operating system?

Forced Upgrades for Applications. This is where it gets more interesting. In the 3D content business, many content developers test content within multiple versions of an application, much like a web designer has to test their creation within several web browsers to ensure their web pages show correctly. They cannot give up a previous version until the market declares backward compatibility for that version is no longer relevant.

A terrible example of Force Upgrades by Application was Intuit forcing Quickbooks customers to upgrade to a more recent version of Quickbooks, just to use the Quickbooks Merchant Service. There are no inherent differences in the interfaces to this service from Quickbooks 2004 to Quickbooks 2007, and all information is passed in a standardized way. So in effect – no value is added at all by the upgrade in regards to the merchant service, and if you are otherwise happy with Quickbooks 2004 – you just have to suck up and pay for the upgrade or lose your merchant service.

In either case – Quicktime 7.x Pro forced upgrades or Intuit 2004 upgrades – neither company would be able to pull this off unless they were highly confident that the user base would find a transition to another solution more painful than paying up. And this is the lesson to be learned for software industry professionals – unless the total benefits plus pain avoidance clearly outweigh the cost and benefits of moving to a competitive solution, you should think again about employing this strategy.