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Apples, Walled Gardens, and Screw Deals - Oh My!

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40hz:



Sad cautionary tale from Matt Ingram over at GigaOM.

The Danger of Playing in Apple’s Walled Garden

Every so often a news item comes along that reinforces the downside of building your business on someone else’s platform, and this week’s poster child is iFlowReader, an e-book app for the iPhone and iPad. The company behind the app announced today that it is shutting its doors for good, and it puts the blame for its demise squarely on Apple and its new 30-percent levy on in-app sales. The benefits of getting into bed with Apple are obvious: access to a huge universe of motivated users and built-in payment handling. But the downsides for those who play inside Apple’s walled garden should be just as obvious — namely, that you lose control over some fundamental aspects of your business.

The bitterness that iFlowReader feels about Apple suddenly changing the rules of the app game spills out of every line in the company’s blog post, in which the company advises users that it will be “going out of business” as of May 31, and that this is a “sad day for innovation.”
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Link here for full article.

Be sure to check out some of the links found within the article.  The blog post making iFlowReader's going out of business announcement is an especially painful read.  I took the liberty of providing a copy below (emphasis added) for reference should iFlowReader's website disappear because it's really worth reading. Especially if you're planning on getting into bed with Apple as a developer.

Full iFlowReader announcement Dear iFlowReader User,

Thank you for being one of our valued customers. We are writing to you today to make a very sad announcement.  BeamItDown Software and the iFlow Reader will cease operations as of May 31, 2011.  We absolutely do not want to do this, but Apple has made it completely impossible for anyone but Apple to make a profit selling contemporary ebooks on any iOS device. We cannot survive selling books at a loss and so we are forced to go out of business. We bet everything on Apple and iOS and then Apple killed us by changing the rules in the middle of the game. This is a very sad day for innovation on iOS in this important application category. We are a small company that thought we could build a better product. We think that we did but we are powerless against Apple’s absolute control of the iOS platform.

The first of this letter part tells you what actions that you must take before the end of May to protect the books that you have. For those of you who are interested, the second part of this letter explains in detail what happened to us and why we are forced to shutdown.

Actions you need to take before May 31, 2011 to protect your books

Many of you have purchased books and would like to keep them.   You may still be able to read them using iFlow Reader although we cannot guarantee that it will work beyond May 31, 2011. We suggest that you download all of your books to your devices and then do a backup with iTunes.  This should allow you to restore them if you change devices. We also strongly recommend that you go to our website and download all of your books to your computer which will let you access them with Adobe Digital Editions or any other ebook application that is compatible with Adobe DRM protected epubs.  To do this, you will first have to have Adobe Digital Editions running on your computer. This is available for free at:

http://www.adobe.com/products/digitaleditions/#fp.

Once you have done this, go to our website at iflowreader.com, log in, and then go to My Books. There, you can select a book and then select “Read on My Computer” and then “Download”.  This will download a small file with the extension “acsm”. You can double click on this file and it should "fulfill" and put a copy of the epub in your Adobe Digital Editions Library. You should then back these files up from your computer. These actions will allow you continued access to your books with Adobe Digital Editions, however, all server-based features of the iFlowReader will unfortunately stop working when we shutdown. There will also be other changes:

    
* iFlow Reader will no longer be supported and updated. Existing installations may not work in future releases of iOS.
* We will no longer be selling ebooks from our app or website. Our Website at iflowreader.com will be gone so you will no longer be able to access it import books or download your books to your devices or examine any of your bookmarks.
* You will not be able to download library books.
* You will not be able to Sync between devices, and user defined bookmarks will not appear on other devices, only the one where they were created.
* We will no longer be offering any apps in the iTunes App Store.
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. Random House was the last publisher to adopt the agency model, which they did on March 1 of this year. You may have noticed that all 17,000 Random House titles disappeared from our catalog on February 28. They appeared in Apple's iBooks catalog the following day.  We, as well as all other small booksellers, have yet to complete an agency agreement with Random House. Up until February 28, these were our most profitable items because we were still getting a 50% discount on these ebooks. With an eight-hour notice, all of these titles disappeared from our store as well as the stores of all other small ebook sellers.

Five of us spent nearly a year and a half of our lives and over a million dollars in cash and sweat equity developing the iFlowReader app with its unique AutoScrolling approach to reading that many of you really like.  We think that our product is the best one available on iOS for reading ebooks. We had extensive plans to make it even better.  We looked to the future of ebooks for inspiration while Apple and others were looking at the printed books of the past. This explains the cute, but gratuitous page turning animations, and old-timey bookshelves, which are all very amusing at first, but not very useful in the end.

We sent a letter to Apple VP Philip Schiller in September 2009 to confirm our business model. Apple told us they couldn't guarantee anything - submit the application and they'd let us know after submission. 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.

Thank You For Your Support

We greatly appreciate your patronage and we sincerely regret that we are forced to do this. We are sorry for any inconvenience that this causes. We had a great product and our customer list was growing daily. We were rapidly adding books to our catalog and we had plans to add many, many more by adding PDF support to the iFlowReader along with many other exciting features. We were also in the middle of discussions with OEM customers in many countries who wanted to license our technology in countries around the world. We had investors ready to invest money in our future. It was the American dream that we all strive for. Sadly, the America that we thought we were working in turned out to be a totalitarian regime and the dictator decided that he wanted all of what we had. Our dream is now over.

If you think that this move by Apple is contrary to your interests as an iOS user then we urge you to email a complaint to Apple by clicking on the link below:

Email to: Steve Jobs, Philip Schiller, and Developer Programs at Apple

If you have any questions about any of this, please send us an email at: [email protected]

Best regards,

The iFlowReader Staff.

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Regardless of whether iFlowReader was overly trusting, much too optimistic, or simply naive, Matt Ingram's conclusion pretty much says it all:

Would iFlowReader have failed even without Apple’s new fees? Perhaps. But the fact that the company changed the rules for content-based app makers so dramatically probably pushed it over the edge, and theoretically it could do the same to anyone. That’s just the nature of playing Apple’s game — the house always wins.
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Deozaan:
:( :down:

phitsc:
That really sucks >:(

JavaJones:
Ouch. I would never recommend anyone trust Apple or really any other big company for your business model, at least more than you have to. But this is still pretty crappy.

- Oshyan

steeladept:
Agreed.  They didn't have the chance to fail, and that is what really sucks.  My only question is what about the other players out there?  Android, Windows Phone, RIMM, etc.  iProducts are not the only ones out there, and Microsoft, in particular is reaching to those developers to develop on the Windows Phone platform as well.  Perhaps they can/could have salvaged the company by diversification and dropping Apple like a bad habit.  Just a thought.

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