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Seven Percent of Nothing Equals Nothing

Participants in Apple’s affiliate advertising program got an email yesterday announcing that the commission for apps and in-app purchases is being cut from 7% to 2.5%, effective next week. As usual, Michael Tsai’s blog has the most convenient roundup of reporting and reaction. There’s quite a bit of head-scratching, along with some hope the move presages a change in Apple’s 30% cut of App Store revenues (given the relative sizes of the affil program and the App Store as a whole, I suspect that’s wishful thinking).

I’m in the affiliate program myself. The iBooks link in the right nav on this blog is from the affil program. And over on Invalidstream, the show notes for every episode are rife with iTunes links to videos referenced in the preshow, games from the App Store that I demo, and there’s even an iTunes banner in the sidebar with music from the pre-show waiting room (which I’m attempting to reproduce here, wish me luck, and reload if it doesn’t work:)

I’m not going to play Devil’s Advocate or mindlessly defend Apple, but I think if you wargame this from Apple’s POV, this move actually makes some sense. Let’s put ourselves in their shoes and play this out.

Quick reminder of how affiliate programs work: as an affiliate, I can create a link to Apple’s online stores (iTunes, App Store, etc.) with metadata identifying me as the referrer. If you follow that link and then buy anything for a given period of time (24 hours for Apple’s program), I get a 7% cut. So, if I can convince you to buy Final Cut Pro — please do, by the way — then I get 7% of the $300 purchase price, or $21.

So what’s changed, what’s the problem, and what justifies slashing the affiliate’s percentage?

Let me suggest it’s this: paid apps are dead. Therefore, sending traffic to the App Store isn’t generating purchases because there is no purchase.

If I link to a free-to-play game and you download it, no money has changed hands, and I’ve done nothing to earn my keep in Apple’s program. Worse, if you happen to buy some iTunes music or a season pass to a TV show within the next 24 hours, I’ll get a 7% cut of that, even though it’s highly unlikely I had anything to do with that purchase.

As for in-app purchases, keep in mind that the affil program doesn’t let affiliates create links to in-app purchases (it’s not clear how that would work on the web anyways, since by definition the purchase is made in an app). So if you make an in-app purchase, like buying “energy” in some exploitative F2P game or turning off ads in Overcast (see what I did there?), it’s highly unlikely my link had anything to do with your purchase. Even if I link you to a given app and you make a purchase in that app, chances are you’re buying your smurfberries or gold coins long after my link’s 24-hour window has closed, so associating subsequent I-APs with any given affiliate is likely bogus.

So, to me at least, this seems like a reasonable change — it’s very hard to make the case that affiliate ads are driving purchases of apps (since almost all of them are now free) or in-app purchases (since those purchases are seldom if ever the result of following an affil link). Apple is reducing the commission on these kinds of purchases because they think the affils are contributing little value to the app ecosystem.

And, much as we might not like it, that’s probably true.

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