Adobe is onto something with Creative Cloud

Adobe has started accepting pre-orders for CS6 Creative Cloud, its software subscription program. Everything that's been in Adobe's previous Creative Suites, plus a number of new applications that are either being released from or are still in Adobe Labs beta, and all of Adobe's tablet apps, are included in one monthly subscription. Month-to-month subscriptions are $75/month; annual subscriptions are $49.99/month. Prior purchasers of any version of Creative Suite from 3 or above qualify for a discount on the first-year subscription, which brings the price down to $29.99/month.

There were many complaints when Adobe first announced its plan to move to subscription pricing. The fear was that subscriptions would cost more than purchasing software outright--and in some cases, the fears were well-placed: Upgrading from CS5.5 Master Collection, which is the equivalent of Creative Cloud, costs $525, less than the $600 annual price of Creative Cloud before the first-year discount. However, if you skipped version 5.5 and stayed with version 5, the upgrade price is $1,049.00. Upgrades from earlier versions of Creative Suite are even more expensive.

The $29.99/month discounted first-year subscription price is a powerful incentive for Creative Suite users to switch to Creative Cloud. Adobe hopes that it can convince enough people to switch to Creative Cloud that eventually, it will no longer be economic for people to upgrade their packaged software. There's nothing keeping Adobe from raising prices once they get a critical mass of CS users to switch, of course. However, it looks like Adobe is willing to take a chance that lower prices will result in more total users. In addition, the company may be counting on the psychological benefit of a fairly low monthly payment versus a one-time big purchase to get into or upgrade Creative Suite. A completely new Creative Cloud user will get the equivalent of  $2,599 worth of software for a first-month payment of $50 on the annual plan.

My bet is that Adobe's pricing is going to bring in many more users, and it's going to put additional pressure on Avid, and especially Apple.

Is there a hidden reason for Apple's in-app payment policy changes?

Apple's announcements about its in-app purchasing policies have ignited a firestorm of criticism from booksellers, publishers and app developers. First, a little more than two weeks ago, Apple announced that apps for eBooks and similar products had to have in-app purchasing. They could continue to link to an external website and price products on those sites however they wished, but they had to enable and pay Apple 30% of in-app transactions. Also, they couldn't disable all purchasing capabilities in the app in order to avoid the 30% fee. These rules were to go into effect on March 31st.

Yesterday, Apple announced its subscription processing system, and announced a new, more restrictive set of rules. There cannot be any links within an app for purchasing subscription content from outside the app--only in-app purchases are allowed, for which Apple gets 30% of each transaction. Further, the price charged inside the app must be as low or lower than the price charged for the same subscriptions sold anywhere else (for example, a publisher's own website.) The subscription rules go into effect June 30th.

There's considerable confusion as to whether the new subscription rules supersede Apple's earlier statements about eBooks, or if there will be separate policies for content sold one time, such as eBooks, and content sold on a subscription basis. If the former is true, Apple has closed the loopholes and made it impossible to sell content on an iOS device without paying Apple 30%.

Apple had to know that these policies would result in charges of price-fixing and anti-competitive behavior. The company is very profitable and is sitting on one of the biggest cash reserves in U.S. business, so it doesn't need the money from transactions. So, why is it pursuing policies that are guaranteed to cause friction?

One possibility is that Apple is trying to get Amazon to stop its "most favored nation" pricing policy, which requires that any publisher or author who sells through Amazon insure that Amazon's prices are as low or lower than any other reseller. Apple's argument could be that if its pricing policy is anti-competitive, so is Amazon's, and conversely, if Amazon's policy is legal, so is Apple's.

Another possibility is that Apple is planning to make some pricing changes that will lower the profit margins on its iPads and iPhones. There have been a flurry of rumors recently about an "iPhone nano" that would sell at a significantly lower price than the existing iPhone 4. This new, less-expensive iPhone will make less money per unit and could cannibalize some sales of the iPhone 4 and forthcoming next-generation iPhone. In addition, Apple may be planning to bring out the iPad 2 at a lower price, with commensurately lower margins. By increasing its transaction revenues, Apple can subsidize these lower prices and maintain its overall margins.

It makes sense for Apple to announce its new in-app sale pricing policy before the next wave of iPads and iPhones is launched, and to give vendors (and the market) more than four months of notice. If Apple doesn't need to launch its new products with lower margins (which is looking increasingly likely on the tablet side), it can rescind or modify the in-app pricing policies. Or, if antitrust litigation pressure from the U.S. or E.U. gets too great, Apple can change its policies before announcing prices for its new products.

In any case, I wouldn't be surprised if Apple modifies its new policies before they go into effect, but neither would I assume that Apple will change its mind.