Why is Apple buying Google Ads for HBO and Tinder?
Why promote other brands?
Question: Why has Apple been spending millions on Google Ads for HBO Max?
Answer: Because the revenue from ad conversions is greater than the cost of advertising.
Welcome to Costs Matter, a series that asks different questions all of which have the same answer: to better manage costs. The costs are frequently economic though not always. The series focuses narrowly on the impact of costs. It does not claim these costs are the sole cause. To read more in the series, visit https://medium.com/galileo-onwards/costs/home.
Welcome to the world of iPhone app monetization. Before we get into the details, my source for this post is an excellent piece by John Koetsier in Forbes [1] dated Nov 12, 2021.
In the world of Apple Apps, any non-physical purchases made on their apps are levied a 30% fee. Thus, if you downloaded the HBO Max app and purchased a $15 subscription through the app, then $5 of that amount goes to Apple. Let’s call this Exhibit ①.
Digital purchases made on the Safari browser are not subjected to this Apple Tax (as it is commonly known). Let’s call this Exhibit ②.
The combination of Exhibits ① and ② explains Apple’s ad purchases. Apple’s convoluted and brilliant reasoning goes something like:
- iPhone users searching for HBO Max will see HBO Max ads.
- They’ll head over to HBO Max and purchase HBO Max subscriptions.
- If users went to the HBO Max App instead, we (Apple) would get 30% of the proceeds.
- Let’s purchases ads for apps that take payments from users so we (Apple) get our cut.
One often hears about cutting the middleman, but here Apple inserts itself as the middleman. The only ads Apple have purchased are to brands which accept payments within their apps. (See the Forbes article for details.)
Parenthetically, this is why you can’t buy Kindle books or YouTube rentals on the respective iPhone apps. Neither Amazon nor Google want Apple to take a 30% cut of their proceeds. (Their costs matter too, you see.)
So why don’t apps just give a link to a browser and ask you to buy stuff on their browsers? If an obvious road isn’t taken then there must be something blocking it; in this case that block is Apple’s App Store terms [2]. The relevant section is §3.11 which says:
In addition to using the In-App Purchase API, [an app] may read or play content (magazines, newspapers, books, audio, music, video) that is offered [by] Your website… provided that You do not link to or market external offers for such content within the [app].
In simpler terms, the section says, you must not link to your website for purchases, you must only advertise offers in the app itself. Briefly, if your user’s going to pay you money, you must accept those payments only within the App.
Richard Stallman’s description of the Apple ecosystem as “a jail made cool” does sound appropriate.
The Epic battle
As I write this, Epic Games, maker of popular games like Fortnite, has sued Apple over precisely this 30% cut. The case was decided last September. Wikipedia has all the details [3].
References
[1]: https://www.forbes.com/sites/johnkoetsier/2021/11/12/apple-quietly-buying-ads-via-google-for-high-value-subscription-apps-to-capture-app-publisher-revenue/. I’m thankful to Karthik Narayanan for sharing this article with me.
[2]: Paid Applications Agreement (Schedules 2 and 3 of the Apple Developer Program License Agreement) available at https://developer.apple.com/support/downloads/terms/schedules/Schedule-2-and-3-20211021-English.pdf. Apple states “Acceptance of the latest version in App Store Connect is required to offer paid apps and in-app purchases.” The PDF was accessed on Nov 20, 2021.
[3]: Epic Games v. Apple https://en.wikipedia.org/wiki/Epic_Games_v._Apple.
