Published on September 23, 2008

This post was previously on the Pathfinder Software site. Pathfinder Software changed its name to Orthogonal in 2016. Read more.

Monopsony – the market condition that exists when there is only one buyer.

We all have heard the term “monopoly” and even know a little bit of what it means – a market where there is only one seller. But the related term “monopsony,” a market where there is only one buyer, is not as well known and it’s dangers not as well understood.

Certainly, both monopolies and monopsonies will reduce competition, innovation and consumer choice, but they further constitute a big risk for the sellers. For businesses on the seller side, a monopsony can be the kiss of death. Just ask Walmart’s suppliers how good it’s been for them.

Not all monopsonies are as obvious or as overtly damaging to suppliers as that of Walmart, but Apple’s iPhone and iTunes app store looks like a benign monopsony. A monopsony in that although the iPhone consumer is the ultimate buyer, Apple determines what is permitted in its app store, and benign in the fact that Apple hasn’t flexed that restrictive muscle more than a few times.

But for the business launching an iPhone app this monopsony – benign or not – presents a real concern, a real business risk. What happens if Apple decides to compete in your space? The evidence on what happens right now is not encouraging. Take the recent example of the podcasting application that was excluded from the AppStore. The reason for its exclusion?

Since Podcaster assists in the distribution of podcasts, it duplicates the functionality of the Podcast section of iTunes.

That’s the desktop version of iTunes versus an application on the iPhone that you can use without a PC or Mac. Presumably, if people don’t have to use iTunes to get their podcasts, then there’s less reason to use iTunes and consequently less chance that they’ll actually spend money with Apple.

Since you only find out whether your application will be approved in the last step, i.e. after all of the hard development work has been done, that’s a lot of risks to take. How to minimize it? One approach to minimizing risk might go as follows:

  • Distribute an application with an initial pretty minimal set of functionality. Quick to produce and get the yes/no app store answer.
  • Design your application so that it supports and embedded language runtime, such as Ruby or JavaScript, and a capability to push additional modules of functionality to the application independent of the app store.
  • Extend your application using the above distribution mechanism. The only time you’ll have to push a new version of the app is when the underlying iPhone platform changes and you’d like your embedded layer to take advantage of new features.

Of course, Apple is known to have a “kill switch” to turn off apps that have already been downloaded to a phone, so even the above approach may not insulate you from risk. So, if you are developing for the iPhone, have a care on whether your application will run into competition from Apple. You may find your application unceremoniously rejected or killed.

Update: Looks like Apple has banned another application, MailWrangler, that competes with its own email application.