Apple Kills an eBookstore, Who’s Next?

Apple Kills an eBookstore, Who's Next?

Very ominous news from the iOS ebook world today. Teleread has reported that iFlowReader, a small ebook app, announced the 30% cut to Apple was too much for their tight margins and are closing their doors. Now, you might be thinking “I only use Kindle/NOOK/Kobo, why should I care?” Well, if you do any ebook reading at all on an iOS device, you should be extremely angry and concerned.

iFlowReader has an open letter on their site explaining the situation, and here’s the most important part:

Why Do We Have to Shutdown?

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. The six largest publishers have now all adopted the agency model. These publishers account for nearly 90% of all ebooks sold.

So basically, Apple has told iFlowReader they need to hand over their lunch money entire profit margin. Now, Nate at The Digital Reader says he’s heard that Amazon and B&N can get around this by cutting out direct store links of any kind. Instead, you’ll need to entirely exit the app, head to the eBookstore’s website, purchase your book, then head back into the app and sync. That supposedly will work. For now.

But why is Apple doing this? It doesn’t make a lot of sense to NOT force Amazon and B&N to pay while driving out smaller players. The smaller players don’t have large installed bases and aren’t a big threat to iBooks. Even if they came up with the cash, it’s not like they are generating anywhere near the revenue of the bigger stores. So why give the bigger stores a pass and persecute the smaller ones?

I don’t have any good answers to that, but I don’t like it at all. There are a few things that really trouble me here. One, the ebook market is still rapidly growing. Amazon and B&N may be the biggest, but that doesn’t mean they are the only ones out there. Unfortunately, iOS is a huge market for ebook apps and stores, and losing that space is going to severely cut the potential growth of any “indie” eBookstores. Two, it smacks of bullying. Apple didn’t have the impact they wanted to on the ebook world; the publishing world isn’t falling to their knees in gratitude and Amazon is still number one. So instead, they rejiggered the rules to stack the deck in iBooks’ favor. Not cool, Apple!

Finally, my big fear here is what this means for other iOS apps and remaining eBookstores in the future. Amazon and B&N are (supposedly) safe for now, and they can always fall back on their ebook reader lines. But this pretty well precludes anyone from trying their hand at an eBookstore in the future for iOS. Not to mention, if Apple succeeds in this, who’s next in the crosshairs? Rumors have flown around for YEARS about iTunes music adding a streaming service. Is Pandora next? Will Spotify be shown the doo, or Rdio? And the worst part is that this isn’t a blanket “Don’t compete with us” policy. This is a soft, moving policy, where Apple pretends to be innocently looking for a way to increase revenues but in reality exercises these rules to force out competition.

Apple used to be a company that innovated, and argued you should “Think Different”. Now they’re relying on thinking like the middle school bully to get what they want, and that’s not ok. It’s wildly disappointing, and this is not by accident. Apple absolutely knew the profit margins on ebooks were tight, and they purposely went ahead with this policy anyway. It’s their store, and their rules, but that doesn’t make it ethical or acceptable. I used to love my Apple products; I bought an iPhone the day the original was released, I’ve had Macs for years…but if this is how they’re going to behave I’m going to vote with my wallet and cut the white cord. My next computer won’t be a Mac and no matter how tempting they make iOS if this is how they’re going to behave, well, I’m going to stay firmly and safely in the Android camp. I hate hearing about bookstores that go out of business due to poor management and other internal factors, and it really boils my blood to hear about stores being squeezed to death by a market leader overstepping their boundaries.

So that’s my rant…what’s your take on this news?

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About the Author

Zek has been a gadget fiend for a long time, going back to their first PDA (a Palm M100). They quickly went from researching what PDA to buy to following tech news closely and keeping up with the latest and greatest stuff. They love writing about ebooks because they combine their two favorite activities; reading anything and everything, and talking about fun new tech toys. What could be better?

8 Comments on "Apple Kills an eBookstore, Who’s Next?"

  1. I am actually skeptical … reading the recent ‘loophole’ change in Apple’s policy, along with iFlow blaming everything down to variable shower temperature on Apple … makes me think this is a bit of a ‘cry wolf’ approach to supplant a failed business strategy by looking downtrodden – the new business model looks like ‘we were the best EVAR until EVIL APPLE squashed us … wanna buy us?’

    That said, the whole thing between the Agency model and Apple’s new 30% cut is a real problem that I cannot see the logic behind … there just seems to be more to the story in this case.

    The other thing I agree with from your post – this is going to cost Apple customers. Like you, and I chose NOT to grab a new MBP this spring as well (though I failed my iPad 2 saving roll …).

  2. There’s no doubt that iFlow posted it in such a way to get attention and sympathy. However, no one is going to buy them (unless it’s for their app’s bells and whistles) because any buyer has the same issue. I don’t know all the iOS ebook apps anymore, but any that are iOS only (no revenue from Android or Blackberry as a fallback), or that deal mainly in agency titles (lower margins/no flexibility) are going to be hit like iFlow was.

    The way I see it, there’s no reason to levy a 30% cut of ebook sales UNLESS the goal is to drive everyone out while claiming they’re just enforcing the “in-app purchase” rules. 30% of an arbitrary purchase amount in a game is one thing, but 30% of a product where the app/store doesn’t control the pricing is another. And like I said, Apple sells ebooks. They know exactly how razor thin those margins are, and they know fully well that most stores can’t function under those circumstances without taking a loss (or setting up a costly server/sync relationship like Amazon and B&N do).

    It’s just dirty pool on Apple’s part, and it is very ominous that they can, at their whim, drive a competitor out of business. If I were Amazon and B&N, I’d have a backup plan in the works just in case…

  3. Joel McLaughlin | May 12, 2011 at 9:51 am |

    Say it with me: This is what a centralized ecosystem brings.

    Sure Android may have it’s foibles and be more “confusing” with multiple app stores, but if the main Android Marketplace bans tethering app like they did recently and you want one (and aren’t cheating or working around your carrier), you can get one from Amazon’s app store or the many other minor app stores hat are on Android OR you can download the apk and install it yourself.

    Same goes for Amazon, Kobo, Aldiko and other eReaders on Android. Google has one but they don’t do anything to prevent an open and free ereader market.

    If you stick with Apple, they force you into their environment by making it appear easy, simple and comfortable. Apple used to use the term “Think Different”, however now that they are on top of a market, they are thinking EXACTLY the same as Microsoft did in other markets and are in fact LESS open than Microsoft ever was. That won’t ever change until Steve Jobs is no longer involved and even then it may not change because why would they want to hurt their own stores??

  4. tracycooperjr | May 12, 2011 at 12:09 pm |

    My question that I have always had is how is it legal for Apple , and in a lesser sense any business, to completely change their contract after it has been agreed to? The idea that if they make a change you can cancel the contract means nothing as the contract can only be changed in one direction.

  5. I am not a lawyer (nor did I stay at a Holiday Inn Express last night), but my understanding is that Apple can put language in the app store agreement that lets them change the terms at will as long as advanced notice is given. In this case, the ereader circles have been buzzing since at least January that Apple’s new changes were going to hurt ebook stores, so this was definitely a potential issue for a while.

    I think that’s what really frustrates me about this. Apple has every right to do what they’re doing legally, it’s just really, really awful ethically. It’s possible there’s an anti-trust or some other issue here, but my guess is that it would take an army of lawyers and years of court arguments before anything changed.

  6. Christopher Gavula | May 12, 2011 at 9:08 pm |

    Thats a misnomer. Apple didn’t change the contract. They are choosing to enforce something that was alrady there that they didn’t previously enforce.

  7. Christopher Gavula | May 12, 2011 at 9:17 pm |

    I’m not sure that Apple is entirely wrong in promiting the agency model. Don’t misunderstand me – 30% is a lot, but the ood publishing model wes often a rip-off for consumers and the big publishers were not exactly open about their real costs. I worry about the amounts in questin here, but I think the old publishimg/selling model sucked.

    That said, i thtink that the centralized ecosystem is a good thing and the confused open mess of Android is lacking and has so far had the nasty habit of perpetuatiing many of the ills of the old Windows mobile situation. I don’t want to be back in that world again – it was unpleasant and dysfunctional – no thanks! They need to get cntrol of versions and too many different hardware requirements for devs to keep up with!

  8. I’m in agreement with your reaction, in general, and that’s an understatement.

    However, iFlow has the same ‘out’ that Amazon and B&N do. They can choose to not have the link-to-buying from their website INSIDE the app. They can give their web address without linking it. Sony too. Apple did make this clear mid-February. That if the app includes option-to-buy-outside-the-app, then an option to buy in-app (from Apple) has to be an option too. Solution: No linked-option in-app to take people to their website.

    iFlow Reader can work this, leveraging the attention they’re getting on this — people who want to help them out can still use their app (after they remove the buy-outside-links. And interested people can go to their website to buy, separately. Since all online-bookstores would be in the same boat that way, this is a possibility. The problems are that the other two bookstores have a larger selection and are better known.

    Their app being an option at iTunes means a certain amount of exposure for their site though.

    A possible added problem: someone wrote that the reviews of their app itself seem to average only 50-50 or so, so they apparently haven’t made it attractive enough to a good segment of the app users.

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