How HTML5 adoption impacts Apple
Written by Alex Armstrong   
Tuesday, 13 September 2011

Apple's growth in profits is being whittled away by browser-based apps - but how widespread is the threat?

The headline on Fierce Developer, "Forecast: HTML5 app development will hurt Apple's bottom line", sounded worrying. The forecast in question came from Wall Street  financial analysts Bernstein Research and PC World interpreted it as:

The widespread adoption of HTML5 for Web apps could cut Apple's operation profit growth by 30 percent.

The basis for this gloom turns out to be a revised prediction for growth - from 19% compound annual growth rate to 13% which still sounds pretty healthy but even so it prompted senior analyst  at Bernstein, Toni Sacconaghi Jr., to warn that the emergence of HTML5 apps is

"an important, longer-term issue for Apple investors to monitor."

So what exactly is the fuss about?

Two of the "culprits" threatening Apple's financial success are identified as the Amazon and Financial Times apps which were introduced in response to Apple's levy of 30% commission on in-app sales.

So, yes, Apple is losing out by not getting its slice of a pretty lucrative cake - and yes HTML5 has been instrumental in this.

Amazon, however, is something of a special case. It is a retailer that has already paid, publishers in this instance, for the original goods. Other products in the Apple app store are the original goods so paying a 30% commission, or rather receiving 70% of revenues, doesn't seem such a bad deal.

Manufacturers have always had to pay distributors and a 70:30 split seems relatively attractive compared to other deals. The same split applied to the Freemium model - where the original app is free and revenue is generated by in-app purchase - also seems fair.

So how far will HTML5 take over from native apps simply to avoid paying app store commission - not only to Apple but also to Google for Android apps and Microsoft for Windows Phone 7?

The point is that in situations where Apple is acting as a retailer for an existing retailer moving to HTML5, and so avoiding the 30% charge, is essential to making a profit. On ther other hand, for manufacturers looking for a high volume outlet, Apple is a highly attractive retailer

Given the downside of pure web apps - they can't access the phone's hardware and services and they aren't easy to sell to an end user without the help of an app store - you really do need a good reason to abandon the native app. Amazon, as a retailer, clearly has a good reason for doing just this, but I doubt many others do.

In short the idea that HTML5 apps will impact Apple's profits doesn't seems to be more a misunderstanding of the situation than a good prediction.

 

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