Apple seeks 'tax' on iPod accessories
Mac maker wants a royalty from the sale of any add-ons that feature the new "Made for iPod" logo.
For the right to display the logo, Apple was at one point looking to get 10 percent of an add-on's retail selling price. More recently, the company has been seeking 10 percent of wholesale pricing, according to people familiar with the situation.
The logo.
Apple announced its intention to start the "Made for iPod" program at January's Macworld Expo. However, the company has refused to discuss most of the details of the program. Apple has said it applies to gear that connects electrically to the iPod--things like car adapters, power cables and remote controls, but not to cosmetic items such as cases. Word that Apple might be seeking a cut of the action was mentioned earlier this month on enthusiast site AppleInsider.
An Apple representative declined to discuss any fees or royalties associated with the program, what the requirements are to take part, how products earn certification and whether such certification will be required of products sold in Apple stores.
"With more than 400 iPod accessories on the market and growing, the Made for iPod logo program is designed to help consumers choose iPod accessories that work properly with their iPods, and also provide participating iPod accessory makers with guidelines and technical specifications to develop their products," Apple said in a statement provided to CNET News.com on Wednesday.
Add-on maker Griffin Technology is among the few already using the logo, featuring it prominently alongside many of the products on its Web site. Belkin, one of the leading makers of accessories, said it has not started adding the logo to its products, but said it is taking part in the program and strongly supports it as a way to help identify quality products.
"I'm hoping that it will make the market a little clearer for customers so that they will be able to buy with confidence," said Brian Van Harlingen, a senior technology manager for Belkin.
Van Harlingen said that he does not expect the program to force add-on makers to raise prices. "Any costs that might be associated with this program, we feel, would be offset by the benefits."
One outspoken critic of the program is Jack Campbell, CEO of Mac add-on maker DVForge.
"Behind the scenes, all it is, is a strong-arm tactic to take control of the iPod channel," Campbell said. "We ain't playing."
Free money?
Although not all partners may be thrilled with handing over a share of their sales to Apple, Piper Jaffray analyst Gene Munster said the benefits to Apple outweigh the risks.
"The risk is the outside chance that they upset one of the people that are helping build this economy," Munster said. "The reality is this whole ecosystem is dependent on Apple anyway. Apple has a bigger opportunity to tax that."
He said that, assuming there are $250 million in wholesale sales of iPod accessories covered by the program, Apple stands to gain as
much as $25 million this year."It's free money," he said. "There's no reason that Apple would want to leave that on the table."
Apple could use the added money to increase its already strong iPod marketing. Munster said that $25 million dollars would buy the company roughly 2,500, 30-second cable TV spots. "Apple's key in this is a strong brand, and this gives them extra ammunition," he said.
The iPod has become critical to Apple's business. Last quarter, Apple sold four times as many iPods as it did Macs, propelling the company to its highest ever sales and earnings.
The accessory market also has boomed, with various players estimating the market to be in the hundreds of millions of dollars a year.
One of the challenges for accessory makers in weighing whether to take part in the program is the fact that Apple is not only the maker of the iPod but also one of the largest distribution channels for accessory sales through the Apple online store and retail outlets.
Van Harlingen said that ensuring a presence in Apple's retail and online stores is a factor in wanting to take part in any Apple certification process.
"That's an important part of it," he said. "It's definitely not only a good distribution channel but a good marketing vehicle as well," he said, noting that people often look at a presence in the Apple store as a way to judge which products to buy, even if they buy them somewhere else. Van Harlingen also said that his company has seen interest in the logo program from other retailers eager to use it as a selling point for products that carry the seal.
Not unprecedented
While the "Made for iPod" program is new, Apple has had a role in the accessory market for some time. Under a previous program, Apple required those who wanted to use either the remote connector at the top of the iPod or the dock connector at the bottom to get their parts from an approved Apple supplier, sources said.
The computer maker also has other logo programs that require developers to meet certain standards, but do not seek royalties. One example is the Mac logo program that software makers can use to show that their products work with Mac OS X.
Microsoft has a similar royalty-free
However, there are also programs, particularly in the video game business, that charge for use of both a logo and proprietary connections. An example would be Nintendo's Seal of Quality.