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 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.
- 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.
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.