Death Of iFlow Reader Due To Apple Changes Shows Why Betting On Closed Platforms Is Risky

from the go-open dept

Tom points us to the post from the makers of iFlow Reader, a popular eBook app for iPhones and iPads, about how the company and product are shutting down almost entirely due to Apple’s change in policies. Specifically, there are two key policies that seem to conflict with each other, unless the entire point was to drive all third party ebook retailers out of business. As the iFlow Reader guys describe it:

The crux of the matter is that Apple is now requiring us, as well as all other ebook sellers, to give them 30% of the selling price of any ebook that we sell from our iOS app.  Unfortunately, because of the “agency model” that has been adopted by the largest publishers, our gross margin on ebooks after paying the wholesaler is less than 30%, which means that we would have to take a loss on all ebooks sold. This is not a sustainable business model.

Where did the agency model come from and what is it? The agency model was created by Apple who made it a requirement for any publisher who wished to sell books through Apple?s iBooks app. The agency model has three key points:

  • The publisher is now the retailer of record. The company selling the eBook to the end user is an “agent” of the retailer who receives a commission on the sale.
  • All sales agents are required to sell books at the same retail price, which is set by the publisher. No one can sell at a different price.
  • All sales agents get a 30% commission on the sale of a book. No one gets a different deal. Prior to the agency model, publishers typically offered retailers a 50% discount.

The key point here is that all sellers now get a 30% commission and Apple now wants a 30% fee, which is all of our gross margin and then some.

For obvious reasons, that’s unsustainable. The clearly upset folks who are now shutting down their operation point out how hard they worked to communicate with Apple to make sure they weren’t wasting their time building the app and company:

We submitted our new iFlowReader app Apple in November of 2010 and they approved it a few days later. After approval, we made substantial additional investments in licensing fees, integration fees, and server fees so that we could open our ebook store on December 2, 2010. Two months later, Apple changed the rules and put us out of business. They now want 30% of the sale price of any books, which they know full well, is all of our profits and more. What sounds like a reasonable demand when packaged by Apple’s extraordinary public relations department is essentially an eviction notice to all ebook sellers on iOS. After over three years of developing products for iOS during which we had over six million downloads of our BeamItDown iFlowReader products, Apple is giving us the boot by making it financially impossible for us to survive. They want all of the eBook business on iOS and since they have the unilateral power to get it, we are out of business and the iFlow Reader is dead.

We put our faith in Apple and they screwed us. This happened even though we went to great lengths to clear our plans with Apple because we did not want to make this substantial investment of time and money blindly. Apple’s response to our detailed inquiries was to tell us that our plans did not infringe their rules in any way, which was true at the time, but there is one little catch. Apple can change the rules at any time and they did. Sadly they must have known full well that they were going to do this. Apple’s iBooks was already in development when we talked to them and they certainly must have known that their future plans would doom us to failure no matter how good our product was. We never really had a chance.

Of course, this really shouldn’t be too surprising. When you’re making a bet on a closed system and relying entirely on that, it’s inevitable that there are going to be issues. It’s one of the reasons why we keep hearing more and more developers wanting to move away from developing native iOS apps towards developing more open standard apps, such as in HTML 5. Not only does it make it easier to build cross platform apps, but it also means they’re not completely at the whims of a single company that’s been known to reverse direction with little notice.

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Comments on “Death Of iFlow Reader Due To Apple Changes Shows Why Betting On Closed Platforms Is Risky”

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47 Comments
Michael Kohne says:

Wait a moment...

If Apple is the one who pushed the publishers into the agency model with the 30% margin, and then Apple is the one charging 30% to other ebook sellers on it’s platform, how isn’t this an anti-trust violation? I mean, even if the publishers picked 30%, didn’t Apple pick their 30% AFTER the publishers did?

Meaning that Apple was price fixing in order to own a marketplace. I suppose I don’t know enough about the law, but it looks like they are using their market position to set prices in such a way that no one else can be in the market.

Anonymous Coward says:

Re: Re: Wait a moment...

Wait… that’s like saying someone that owns the mall can now dictate the prices someone who pays to be in there should sell for, and what they should pay to their suppliers. I’d think that’s a clear case of anti-trust in the real world, I don’t see why trying to dictate this in the virtual world isn’t.

ltlw0lf (profile) says:

Re: Re: Wait a moment...

Wait… that’s like saying someone that owns the mall can now dictate the prices someone who pays to be in there should sell for

Not a perfect analogy, but what I believe is happening here is that the stores and the distributor determined a set cost for the product and a profit margin, then the owner of the mall, who also had their own store in the mall and the same deal with the distributor, decided to end-run their competitors by setting the rent for the mall to be the same price they knew the stores were getting as a profit margin from the distributor.

Beta (profile) says:

It's a clumsy parasite that kills its host.

Quite apart from the moral and legal aspects, this just looks like bad strategy. Apple could have chosen a better number, taken most of iFlow’s profits and left just enough to keep the company alive on starvation dividends and emotion. It would have been like running a subsidiary of talented innovators with none of the liabilities. Why crush competitors when you can milk them at will?

f0nZi3 (profile) says:

Classic CrApple move...

I have to agree that iFlow should have seen this coming since iBooks was already in development and the giant red flag should have been “Apple’s response to our detailed inquiries was to tell us that our plans did not infringe their rules in any way”.

That said, just because it is legal for Apple to practice business this way does not mean it’s ethical. I guess since CrApple caters to hippies with situational ethics, they wont loose much in market share because of this.

sheenyglass says:

Re: Classic CrApple move...

True. Plus they also should have seen it coming because its Apple. Apple has made it pretty clear that 1) they reserve the right change any policy to do whatever they want and 2) what they want is to squeeze the lion’s share of developers’ revenue, under the assumption that their market/mindshare will still make them attractive to those developers hoping for a big score.

Plus, the fact Apple will not issue terms of service, which are binding on both parties, and instead issues “guidelines” while reserving the right to do what ever it wants is so mind-numbingly inequitable as to defy reason.

Boyd Waters says:

Problem wasn't the platform

The platform wasn’t the problem here. Lots of developers have “bet” on the iOS platform and been successful.

The problem was the business model: trying to be a distributor, a middle-man, with no control over any point in the supply chain. They didn’t create content, or own a (shudder) DRM scheme, or control the hardware. So when each of the points along their supply chain demanded its cut, they had nothing left over for themselves.

What am I missing here?

lfroen (profile) says:

What HTML5 have to do here?

I know, Mike is not a programmer, but when talking about somewhat technical subjects I expect at least some understanding of the matter.
HTML(4,5,whatever) is not a substitute for native applications. In no shape or form or kind. All those “apps” are really just a page opened in Safari. Close the browser and all this “apps” are gone.
There’s a term in software world for this kind of behavior, it is “leaky abstraction”. Which means “abstraction which implementation details leak out”.
Those iFlowReader guys choose bad business model (isn’t it Mike’s favorite subject). What does it have to do with openess of the device, whatever this mean?

lfroen (profile) says:

Re: Re: What HTML5 have to do here?

The phrase “If the app had been web-based” makes no sense. “App” is native program, running on device. “Web-based” meaning HTML page loaded in browser from remote server.

You probably wanted to say “they should be just selling (e)books over Internet”. They still can, don’t see a problem here. You (or they) can create such “web app” in few hours instead of whining. But hey, blaming Apple is easier than run business, I guess.

Mike Masnick (profile) says:

Re: What HTML5 have to do here?

HTML(4,5,whatever) is not a substitute for native applications.

In many, many, many cases it is. In fact, a large % of “native” apps are really HTML 5/javascript/CSS compiled into native code.

All those “apps” are really just a page opened in Safari. Close the browser and all this “apps” are gone.

You should check out the state of HTML 5 apps these days. It’s not what you appear to think it is.

Those iFlowReader guys choose bad business model (isn’t it Mike’s favorite subject). What does it have to do with openess of the device, whatever this mean?

If they weren’t locked into Apple’s walled garden, Apple’s decision wouldn’t have impacted them.

I stand by the post.

lfroen (profile) says:

Re: Re: What HTML5 have to do here?

>> In fact, a large % of “native” apps are really HTML 5/javascript/CSS compiled into native code
HTML _compiled_ into native code?! Yea, now I see where rest of the bullshit you wrote come from. Here’s an idea: search what “compiler” is. What “native code” is. Check out why you can’t compile CSS. If not sure, check what CSS is.

>> You should check out the state of HTML 5 apps these days. It’s not what you appear to think it is.
No, it’s _YOU_ should check out state of HTML5. See, I actually do programming for a living, not article writing.

>> If they weren’t locked into Apple’s walled garden, Apple’s decision wouldn’t have impacted them.
They still can have web-page-loaded-to-safari-called-web-app, don’t they?

Major says:

Re: Re: Re: What HTML5 have to do here?

Chill out man, Here have some Kool-aid.

I know being self rightous on the internet is mainstream nowaday but dude; Try to be informative and / or link to a website highlighting your point… Or get back to work…

Well being a dev, i cant stick behind Mike explanation either, but nonetheless i get the overall point he was trying to make. IMHO You, Right now, are sounding like those people who bash around people trying to learn something on tech forum. Seriously.

You ain’t a troll yet but you should consider signing for the MAFIAA they LOVE to recruit people who get emotional on blog post.

Not that it actually work mind you.

Jeffry Houser (profile) says:

Re: Re: Re: What HTML5 have to do here?

Here are some tools that convert HTML/JavaScript into Native iOS apps:
http://www.nimblekit.com/index.php
http://www.phonegap.com/

If you Google, there is a lot of info out there:
http://www.google.com/search?q=Can+I+build+native+iOS+Apps+with+HTML&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a

It sounds like these work because someone wrote a a “convertor” of HTML/JavaScript to iOS byte code–similar to what Adobe did for Flash/AIR w/ their iOS Exporter.

That said, I agree the business model sucked. The company may not be shutting down if they also had a web version of their software, and a Mac version, and a Windows version, and an Android version, and a Windows Phone 7 version, etc…

I’m a bit surprised the decision was to shut down instead of convert their work to a different platform.

Of course, I’m constantly surprised these days how many people tie their business to a single source. I never consider it a good business model.

lfroen (profile) says:

Re: Re: Re:2 What HTML5 have to do here?

Did you even _read_ my reply?

I argued that “web-app” Mike was talking about is actually HTML page loaded in Safari. Yes, I know you can create compiler from one language to another. In your example from JavaScript to ARM assembly. So what? Result is still native app, which you could write in Obj-C for same price.
And mind you, it’s not a “convertor” as you call it, it is compiler in full meaning of the word.
This kind of app will still need Apple’s approval, _because_ of this “native-ness”.

I sick of this “web apps is a future” mantra being pushed around by people understanding nothing in computers.

masquisieras says:

But Apple did not

Force the publisher into the agency model.

Apple offer the agency model to the publisher and they liked it, and the publisher are forcing the model to others. With no inventory and shell positioning problems what interest has the publisher to use a reseller and get a 50% of the price that is controlled by the reseller instead of getting a 70% of a price that they get to decide.

The problem would be when the e-book became dominant and the authors began to cut the publisher ;P then is when you would began to hear cries to the sky.

John Doe says:

While sad for iFlow, this is good overall

While I hate that they lost their company, this will be good for the smartphone market overall. At some point, after enough people are kicked out of the walled garden, the iPhone/iPad will lose some of its appeal to developers and eventually users. The more and sooner this happens the better will be for everyone. Being held captive by one company/one man is not good for anyone. The walls need to come down and when they finally do, Apple will be surprised to find that their devices will be even more desirable.

masquisieras (user link) says:

Re: Re:

Apple do no care if it stay in bussnisses or not
Apple want its 30% if it let someone to not pay why should anyone else pay.
If you find a way to sell things through the App Store without paying count that Apple would close the loophole some time in the future.

Apple is the shop-mall owner that rent space for a 30% of the shops income
If you find a space where there is not charge be sure they will in the future or everybody will move there.

The iFlow problem is its providers (the publishers) can shell through Apple directly for that same 30% and are not interested in selling to iflow cheaper.

Paul Keating (profile) says:

Anti-Trust Issues

What really bothers me about the article is the restrictions on pricing being imposed by Apple.

What is to stop developers from offering their Apps outside of iTunes? While it may take longer to get off the ground there are many apps out there that do just that using Cydia. Once you have a following (such as the company mentioned) I see no reason why you could not just push the books directly without iTunes.

john says:

The "agency model" may be good for consumers

It eliminates price competition between sellers (bad) but not between publishers (good). Apart from the particular iOS issue it could lead to more competition between ebook sellers and software.

iFlow is a crappy product so it’s hard to feel too much sympathy. But iOS is perfectly open for developers who want to sell DRM-free ebooks. iTunes and iBooks support DRM-free books from any third-party source just fine, and the best ebook reader on any platform (save for its lack of cross-client syncing) is Stanza, which also can read DRM-free ebooks from any source.

If you rely on DRM, you’re at the mercy of any number of intermediaries. To the extent that large publishers demand it, I’d just leave that market to Amazon, Apple, and Google and focus on more specialized content.

Mike Raffety (profile) says:

“All sales agents are required to sell books at the same retail price, which is set by the publisher. No one can sell at a different price.”

Isn’t this illegal? We went through this with CD price fixing a decade ago (when CDs were important):

http://www.ftc.gov/opa/2000/05/cdpres.shtm

Even today though, there are certain brands you simply cannot find discounted, or only at specific levels for specific time periods, as controlled by the manufacturer. Examples include Bose and Calvin Klein and all the fine cosmetics brands.

For example, ALL retailers put Calvin Klein underwear on sale for 25% off at the same time every year. They never discount it otherwise.

Robert Shaver (profile) says:

This is why ...

This is why I don’t have an iPhone or iPad or iPod Touch … that and the monthly fee.

Apple makes the finest of computer hardware and software. But their business model for mobile puts me off. I do have an iPod Shuffle ($50) and a Mac Pro for software editing. Those platforms are still open enough. However if the app store paradigm takes over OS-X then its back to Windows for me. (Windows 7 64 bit is pretty decent.)

Johan van de Merwe (profile) says:

Re: LOL ... total loser move

Suppose you are carpenter and the producer wants 30% of all the profit you make with it. I think you wouldn’t call yourself a loser, for it doesn’t make sense. If you listen to your favorite radio station, you don’t expect it either, that suddenly it is not possible anymore, for the broadcaster doesn’t have a contact with the brand of you radio. You would make a statement about your legal rights. Apple is exactly doing this. It shuts off what they don’t like, not asking what you would like.

Johan van de Merwe (profile) says:

Re: Reality check

Kindle has it’s own tablet and is owned by Amazon. Apple knows that sometimes it’s better to hold your fire, if your opponent creates so much sympathy of the consumer, that it endangers you own product. Apple doesn’t like Kindle, but it is just too big to swallow. The iFlowreader company was an easy target. Simply changing rules and have an army of lawyers ready ordered shoot to kill. The lawmakers can’t keep up with this new form of couthouse economics.

Johan van de Merwe (profile) says:

Welcome to the future

Please let’s be reasonable here. We, consumers tend to talk more and more to act like market analysts. In the mean time we are on the brink to become figurants in a world of “Umbrella” companies that act like locust in our economies. It won’t take long before we need an Itunes account to be connected to the Apple Ecg monitor in a hospital. Apple is the evangelist that likes to promise you their heaven, be you feel like to have entered their hell. Apple eats competitors and consumes our freedom. It is gong to be so global that no politics seem to have any control over it. We honored Steve J. as a cyber messias, but are we really sure that we have not legalized cyber marketing Apple way. Freedom of choice is better than freedom the Apple way. I like the product, not the principle.

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