Apple refund clause: Bad for developers?
A clause in the Apple/developer agreement for the App Store, if enforced, could put a financial pinch on developers.
As any App Store developer knows, Apple gets a 30 percent take of every sale made from its store--if an application sells for $10, the developer gets $7 and Apple gets $3. While some argue it's a hefty share for basically being a distributor, the fee includes advertising and access to Apple's loyal user base, as well as an easy way for potential customers to find the developer.
However, TechCrunch has noticed a clause regarding refunds that it says has the potential to bankrupt developers because they are required to pay a steep out-of-pocket fee to Apple if an App is returned.
CNET obtained a copy of one of these agreements from a developer who signed on recently. Here's the clause from Section 6 titled "Responsibility, Liability and Indemnity":
6.3 In the event that Apple receives any notice or claim from any end-user that: (i) the end-user wishes to cancel its license to any of the Licensed Applications within ninety (90) days of the date of download of that Licensed Application by that end-user; or (ii) a Licensed Application fails to conform to Your specifications or Your product warranty or the requirements of any applicable law, Apple may refund to the end-user the full amount of the price paid by the end-user for that Licensed Application. In the event that Apple refunds any such price to an end-user, You shall reimburse, or grant Apple a credit for, an amount equal to the price for that Licensed Application. Apple will have the right to retain its commission on the sale of that Licensed Application, notwithstanding the refund of the price to the end-user.
The clause basically says that if for any reason a customer wishes to return a previously purchased iPhone application within 90 days, Apple "may" choose to give a full refund.
Okay. Fine. Customers deserve full recourse in the event someone sells them a bum App. But here's the twist of the knife: If Apple gives a full refund to the customer, it could well expect the developer to reimburse Apple their original 30 percent take for the sale.
So essentially, if Joe iPhone plays with this developer's $10 app for a while, decides he's bored with it and manages to convince Apple to give him a full refund, the developer could have to return not only the $7 he got from the sale, but also an additional $3 he never saw. Imagine the fear building in the developers reading this who sell study aids to teens, or any sort of temporarily needed application.
The developer who spoke with CNET pretty much summed up what's likely to be a widespread sentiment, which is that Apple is the only game in town right now and as some would say in Chicago you have to pay to play.
"Funny, I just acknowledged that agreement last week and thought that clause was weird. Oh, well, no negotiating power I guess," he said.
Apple did not immediately respond to a request for comment.
In a software-driven world, it's easy to forget about the nuts and bolts. Whether it's cars, robots, personal gadgetry or industrial machines, Candace Lombardi examines the moving parts that keep our world rotating. A journalist who divides her time between the United States and the United Kingdom, Lombardi has written about technology for the sites of The New York Times, CNET, USA Today, MSN, ZDNet, Silicon.com, and GameSpot. E-mail her at candacelombardi@gmail.com. She is a member of the CNET Blog Network and is not a current employee of CNET. 
Did you do any additional research before you published?
I'm not surprised developers aren't screaming bloody murder at this monopolistic treatment.
"Apple is doing little". Really? So you, as a developer, is doing all the international marketing? AppStore expansion, support, hardware leasing, support, 24/7 NOC operations? You are maintaing your own website, sales and making your own App available to an international clientele?
Does anyone have any common sense left these days? Apple does not set your product pricing. You can add an additional 30% to your sales price so that the 70% you receive is the actual 100% price you want. This is Kindergarten business. Please do not claim that you cannot charge that much. That is NOT Apple's problem. In any business, the manufacturer (you) has to decide the price and determine whether it is worth making a certain product to sell at a certain price. Do you own market and business research before jumping in.
Every business has cost of doing businesses and iPhone developer has some too. So price that cost into your product price! If you do not, it is NOT the responsibility of Apple.
Now 30% is truly a premium, Apple should lower it to 15%-20% as a return surcharge.
Again, this whole thing is exaggerated. Unless developers are selling nothing and thus are complaining when they sell one and have one returned, most are still making a profit if they know how to make "sticky" application.
There is NO DOUBLING. You are wrong. It seems few people are business people and few understand the cost of doing business.
My product sells 1000 copies at $5 each and Apple pays me $3500. Customers returned 20% of my product and that totals 200 copies. I cut a check of $1000 to Apple and I still earn $2500. 20% return rate is extremely high.
If return rate is 10%, my cost is $500 and earning is $3000. If the rate is 5%, cost is $250 and earning is $3250.
If my product sells only 1 copy and I must pay back $5 resulting in a loss of $1.5, may be I should get out of this business? If I cannot make something that can sell and I cannot afford the $1.5?
Has anyone asked this developer who complained what was the financial damage? How many copies did he sell? What was his revenue before the return-charge? How much was his return-charge to Apple? How much profit did he make?
Finally, Apple hosts the software and provides all engineering and marketing support as well as servers, bandwidth, back-up and etc. It is not free.
Jacek M
CTO
TradeOffNews
In this case Apple is the retailer and the manufacturer is the developer.
Either way, when has it become a crime for anyone to succeed and make more money then others? God forbid that your wish for "someone" to outdo Apple actually happen and you then accuse them of also being criminals.
Though I doubt apple will let a developer lose a lot of money because that would be a pr nightmare and the app supply would dry up. Then again, mega corporations have been known to do really stupid things.
For the iPhone developer, by the time they accept the fact that they are putting their lives in Apple's hands, this reversal-of-profit-upon-return clause should be no big deal. This isn't a democracy here folks - it's Apple.
Apple Corp is the recording industry that The Beetles created.
Apple Inc, or just Apple is the manufacturer you are referring to.
The real answer is to let the developer set their own return policy for their apps, so they could protect themselves from the problem if they want, and then the CONSUMER would have the choice of whether the APP was good enough to buy even if there's no chance to return it. Not everything can be returned, even in a retail store.
-Steve
The real answer is to let the developer set their own return policy for their apps ...
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Riiiiiight, because there is no such thing as an unethical developer out to rip people off.
Apparently, many developers have read and understood this clause. Thus the "Lite" (free trial) versions of apps.
Boredom is not the issue. Many apps turn out to be duds. They don't perform as advertised. You could argue that Apple ought to exert more control, and that apps should live up to the Apple standard in the first place. Very well. Then Apple should stand behind the products and take the financial hit alongside the developer. However, Apple seems to have opened the floodgates and applies only mild standards, letting everybody take a crack at success. A developer should take the risk, considering what he or she is getting by way of distribution, marketing, and sales support. It's not "money he never saw". If he sold the app on his own site, he'd have incurred similar expenses, with arguable lower sales figures.
In order to lose serious money, he has to make an app that is terrible quality, but promoted well enough to lure a lot of people into buying (despite bad reviews). It has to be overpriced. Few will go to the trouble to ask for a refund of .99 or $1.99. We'll delete and move on. By the time the first refund requests start coming through, the developer has had feedback and the opportunity to fix any problems and provide updates. He would have to have an enormous percentage of refund requests versus sales to be bankrupted by this system. I imagine the product would have been pulled from the iTunes Store long before that many refunds could be processed.
But the real news here is that there is even a possibility of refunds!
If I downloaded the fart machine because it promised to make fart noises, I expect it to make fart noises. If it does, I'm satisfied. If it promised to make me lost weight and it only made fart noises, I would be upset.
You state, "The clause basically says that if for any reason a customer wishes to return a previously purchased iPhone application within 90 days, Apple "may" choose to give a full refund." The "if for any reason" is totally wrong. The paragraph states particular reasons both technical and legal. If the developer is selling apps that fall into those specific reasons, then they deserve to have to pay.
First, this clause is not new. It has been in the contract from day 1. Nothing has changed.
Second, Candace Lombardi has no idea how e-commerce works. The payment gateway for credit card charges a fixed fee + a percentage for each transaction, for example 15 cents + 3%. A 99-cent app costs Apple 20 cents to process. Then, the refund is ANOTHER transaction. When a 99-cent app got purchased and then refunded, it costs Apple 18 cents x 2 = 36 cents.
You tell me what Apple should do in this case.
Is that even related to this topic?
If a developer has his own e-store and merchant account, the refund will cost him 40%. Do you think that if a developer has his own store, the refund has zero cost?
Or, you mean that the developer should set up a table by the roadside, take cash, and send the app to the customer somehow?
Let's say I make a clock application that tells people the time, and I charge 10 USD for it. Apple took $3, I took $7. Now, 100 users download my app, only to discover that I as a developer live in Arizona and have some grudge against Daylight Savings Time. As a result, the clock app doesn't work for 1/2 of the year for people in 49 states. So 80 of those people ask for refunds; that takes a lot of time, work, customer service, etc. to correct an issue caused by a 3rd party developer.
So then someone says, "Apple should examine the apps more closely before putting them into the store." How short everyone's memory is, as Apple was doing just this during the launch period and everyone complained about how their app couldn't get published because of Apple's extended review period and stringent guidelines.
As the reseller, they have to have some way of ensuring that they aren't going to be the ones covering customer service costs for bad applications, and still balance that against being able to allow developers to quickly deliver their wares.
Some would say that the amount is too high; others would say that is the free market at work in the purest form. If you don't like it as a developer, develop for a different mobile platform. If your program is good enough, it may become the catalyst for driving the other platform.
Cheers !
This policy is not criminal. The only malicious act that's been committed has been from CNET and TechCrunch for trying to make Apple look like a bad guy.
Now will someone please create a decent alternative to the iPhone already? Please? Despite all its shininess, for some reason the Apple logo makes me vomit. I think I know why now at least.
- by cmw1025 March 26, 2009 10:37 AM PDT
- This is purely speculation, not fact that they will be charged the 30 %
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