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?