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

[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.”

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.../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.

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.

[Deozaan]

[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.

[Eóin]

Yeah I kind of agree. Android is already beating Apples market share, they should have tried switching platform. Though if they didn't write portable code, that could be difficult.

[40hz]

Yeah I kind of agree. Android is already beating Apples market share, they should have tried switching platform. Though if they didn't write portable code, that could be difficult.

-Eóin (May 11, 2011, 06:17 PM)

Problem is it isn't just the code. It's obtaining content. That's where they got blindsided.

And Apple wasn't the only guilty party - even if they were the instigator. The other part of the burn deal was how all the major book publishers lined up behind Apple with an agency arrangement that effectively shuts out the little guys.

I think you'll be seeing more independent innovation get swallowed up this way. Small outfits will come up with the idea and the first apps. And the big boys like Apple will then sign them up just to see what happens. Most times it won't be something where they'll see enough profit potential to move in on it immediately. But that doesn't matter because it costs them nothing to adopt a wait & see attitude. And they have all the time they need since they control the platform.

However, once something looks like it will really take off big time, all it will take is a rule change to push the innovators out so the big companies can take over and "properly exploit the opportunities" such an emerging "new use" will create.

In short: only the 'big players' need apply.

Nothing to see here, folks! Just business as usual...now move along!  

[steeladept]

Problem is it isn't just the code. It's obtaining content. That's where they got blindsided.

-40hz (May 11, 2011, 06:28 PM)

Except they already had the content.  They got the agreements with the publishers, they had the required DRM, and they had the application on a viable platform.  The only thing that changed was the payment rules of the platform.  Therefore, if possible, change platform and keep on trucking.  Of course that is the caveat, isn't it?

[Target]

However, once something looks like it will really take off big time, all it will take is a rule change to push the innovators out so the big companies can take over and "properly exploit the opportunities" such an emerging "new use" will create.

-40hz (May 11, 2011, 06:28 PM)

seems like this is an 'innovative' take on an old tactic

In the past the big guys paid squillions to buy up the competition.  Apple seems to have come up with a new approach where they make money out of closing the competition, then more money by capitalising on the 'new' opportunities...

[40hz]

The only thing that changed was the payment rules of the platform.

-steeladept (May 11, 2011, 06:42 PM)

Which the publishers got behind knowing full well it would price iFlowReader out of the market.

That short 8-hour notice before the publishers (as a group) pulled on iFlowReader and went over to Apple was a coordinated and well planned "hit" if I ever saw one. Moves like that don't just happen without extensive prior arrangements being made. Ask anyone who ever managed a major database just how easy a big update like that would be. They'll be the first to tell you all the pieces had to have been in place long before the announced 8-hour deadline went into effect. Those eight hours were probably only used to make the data change "official" and run a final test on it.

And now that the agency model is in place (assuming Apple didn't obtain exclusive or preferential distribution rights like they usually try for) there's no reason why the publishers would want to offer any different deals to the other platforms.

Nor is there reason for any of the other platforms (Android, et al.) to be interested in offering any different deal to their app authors.

As the matter of a fact, why deal with an indy developer at all? Why not just create the app in house for themselves and keep 100% of all revenues including the app sale? After all, if Apple can demand and get 30%, why should the other platforms accept any less - or cut in anybody else in for a slice of their pie?

Like Target pointed out, it's old wine in new bottles.

This particular vintage is called Sorry Charlie Chianti.

[Renegade]

I'll keep my opinion on Apple to myself rather than spew venom.

However, I will make a note that similar tactics have been used for a long time by large companies to drive smaller companies out of business.

Here's the Modus Operandi:

• Create big store
• Sell "bread and butter" products below what small stores can afford
• Wait for small stores to close

Small stores used to carry specialty items to keep customers happy and coming back. That doesn't happen anymore. You can't buy specialty items at retail now. You get $0.50 products for $12.95 instead, because there's nobody that can compete anymore. If you want a specialty item, well, get it online or don't get it because there are no stores anymore that serve customers. And no... I don't believe that a greeter or a forced smile is a substitute for competence.

Apple is doing the same thing -- making it impossible for anyone to do business except for them.

Yay. Capitalism at work. Making the markets "more efficient" because that's "good for consumers"...

Right.

[Renegade]

I think this sums up a lot:

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.

For emailing:

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 ( [email protected] - [email protected] - [email protected] )

Apple makes it so hard to justify developing for their platforms...

[40hz]

Apple makes it so hard to justify developing for their platforms...

-Renegade (May 12, 2011, 12:11 AM)

I think it's more accurate to say "impossible to justify" - unless your business 'plan' amounts to little more than: getting as much as possible for as long as possible* while waiting for the inevitable sucker punch.

----------

* Don't laugh. I saw that exact phrase in the business plan of a small tech start-up where it was listed as the key element in their overall strategy. Good grief! And these guys wondered why they were having so much trouble securing venture funding with something as unintentionally hilarious as that? 

[rxantos]

Why not simply stop developing for Apple and concentrate on the Android?

In fact, instead of writing to Apple (which will do no good), write to congress. Ask for a stronger anti-monopoly law. Make it so companies cannot disallow competitive stores.

If enough people do this, Apple will be forced to spend more money on government kickbacks to avoid an antimonopoly law. Everything will stay the same, but hey, you feel better.

Then again, who knows, car manufacturers had a monopoly on parts, and if you put even oil not made by the manufacturer, you lost the warranty. But congress made this illegal. So is possible that a pro consumer anti monopoly law can be passed.

[Renegade]

Why not simply stop developing for Apple and concentrate on the Android?

In fact, instead of writing to Apple (which will do no good), write to congress. Ask for a stronger anti-monopoly law. Make it so companies cannot disallow competitive stores.

If enough people do this, Apple will be forced to spend more money on government kickbacks to avoid an antimonopoly law. Everything will stay the same, but hey, you feel better.

Then again, who knows, car manufacturers had a monopoly on parts, and if you put even oil not made by the manufacturer, you lost the warranty. But congress made this illegal. So is possible that a pro consumer anti monopoly law can be passed.

-rxantos (May 16, 2011, 03:42 PM)

I posted here:

https://www.donation...ex.php?topic=26731.0

About a few things that I thought might be good for contract laws and EULAs. That could be a start to what isn't allowed. It would be nice if there were a law that you couldn't be a "super dick". Everyone can be a dick at times, but man... This takes the cake. Way over the top.

[zridling]

Ah yes, and corporate jerks like Apple is these days is why I've been happy to take my devices to the Linux side. At least there I can choose how deep I want to dive into proprietary hell rather than have it shoved up my arse. (And don't look for politicians to help -- anyone on those relevant committees has already been bought and sold 100 times over to assure enough cash for their reelection.)

[superboyac]

Ah yes, and corporate jerks like Apple is these days is why I've been happy to take my devices to the Linux side. At least there I can choose how deep I want to dive into proprietary hell rather than have it shoved up my arse. (And don't look for politicians to help -- anyone on those relevant committees has already been bought and sold 100 times over to assure enough cash for their reelection.)

-zridling (June 08, 2011, 04:25 PM)

Seriously.  It feels like the whole system is set up to make us just...stuck.  I've been racking my brain recently to figure out how I can live a life where everyone just leaves me alone.  I almost just want a cabin in the woods with an internet connection, and that's it.  no mortgage, no personal ties except for a few close friends maybe, no monthly bills (other than the internet connection).  i really want to get out of this whole system that makes me toil for no real personal purpose...just work, try to get more money...why?  just to pay for everything that I don't really care about anyway.  Easier said than done, that's my little fantasy, though.

[40hz]

I just watched an interesting travelogue about Antarctica.

Almost made me wish I pursued that PhD so somebody down there would hire me for either the US or Ukranian station. I'd sign up for the "winter over" shift in a heartbeat the way I've been feeling lately. As long as I had three dozen books, a computer, a musical instrument or two, and a web connection, I'd be happy there. Or pretty much anywhere else, as long as it wasn't hot and humid, and I didn't really know anybody.
 

[superboyac]

I just watched an interesting travelogue about Antarctica.

Almost made me wish I pursued that PhD so somebody down there would hire me for either the US or Ukranian station. I'd sign up for the "winter over" shift in a heartbeat the way I've been feeling lately. As long as I had three dozen books, a computer, a musical instrument or two, and a web connection, I'd be happy there. Or pretty much anywhere else, as long as it wasn't hot and humid, and I didn't really know anybody.
 

-40hz (June 08, 2011, 04:58 PM)

Damn...talk about kindred spirits.  Sounds perfect to me.  I've been planning on sort of itemizing the costs of such a lifestyle.  It's really quite cheap.  All I need to do after that is really, honestly ask myself if I can actually pull it off.  i think I can, but I'm also aware of my human condition to be perpetually dissatisfied.  So I don't really know.  not enough to do anything about it quite yet.

[phitsc]

Interesting though that the one thing you guys would not want to give up is the web connection. It's weird how important the web has become in our lives, something that did not exist in the current form a mere 20 years ago.

[Stoic Joker]

Interesting though that the one thing you guys would not want to give up is the web connection. It's weird how important the web has become in our lives, something that did not exist in the current form a mere 20 years ago.

-phitsc (June 09, 2011, 01:13 AM)

That ones been bugging me to. How exactly do you go "off-the-grid", while being on the internet? Aren't those sort of diametrically apposed concepts?

[40hz]

^It is interesting...

When I first wrote my list of essential takealongs, the books, musical instrument(s), and computer got put down immediately.  Mainly because I've been thinking about this subject for a very long time. But as I was looking at the list, it somehow didn't look quite right. After some additional thought, I realized I really wouldn't want to completely give up a web connection. At least not by choice.

So you're right. The web has changed many people's perspectives in very deep and subtle ways. I know the reason why having that link is important to me. But that reason doesn't go into words that easily. At least for me. Which is further indication some deeper thought processes are involved.

Gonna have to ponder that one a bit and see if I can articulate my reasons why the web would be a factor in my current notion of happiness. Because it didn't used to be.

Hmm...

--------

P.S. I also realized I left out one other absolutely essential item from my 'happiness' list: coffee!  :  

[40hz]

Interesting though that the one thing you guys would not want to give up is the web connection. It's weird how important the web has become in our lives, something that did not exist in the current form a mere 20 years ago.

-phitsc (June 09, 2011, 01:13 AM)

That ones been bugging me to. How exactly do you go "off-the-grid", while being on the internet?

-Stoic Joker (June 09, 2011, 07:05 AM)

You're absolutely right. You can't.

But in my case I wouldn't want to go completely off the grid. (Unless maybe the Feds were after me. )

I'm thinking more in terms of 'simplifying' and 'paring down' rather than 'abandoning.'

Despite occasional lapses of patience with what I consider stupidity, I very much enjoy the company of other people. Even if it's just online. Because you really can't live alone. Even in Antarctica!

Actually, when you think about it, the more remote a place you go to, the more you'll need to depend on what few people are there simply to survive. So if you want to eliminate the need to depend on other people any more than you have to, a big city is a far better choice of residence since so many human interactions have been replaced by automation in areas of dense population.

A guy living in a penthouse in New York City has a better opportunity to live completely alone than does some guy counting penguins on a glacier shelf.

Rather paradoxical.

If you truly want to be alone, your best bet is a dense population center.   

[superboyac]

I've thought about this lately, and this is how I justify it to myself.  It's not being on or off the grid that is my end goal.  It's not like I have some psychological problem with technology and I want to clean myself of it.  My problem is the rat race, i don't care for it.  but I also know that I do very much like the modern conveniences like internet, and am dependant on it for just about everything.  My main "fear" is with the global financial system...I feel helpless in it.  If I choose to participate as I'm doing now, I'm just going to go after more and more money, all with the purpose of helping me achieve my true desires ultimately.  But I'm not seeing an end to it.  It's just going to be me chasing after money and all the things that go along with it.  And I don't care for it.

That's why a possible solution is to just go out and live in the middle of nowhere.  Garden for food, work with your neighbors to fill each other's missing needs (i.e. a community).  But for the most part, I'll have financial freedom.  I wouldn't need too much to live that way.  The reason why I need to computer is so I can focus on creating content, learning, exploring, which is a requirement for me.  I can consume the media through the interent, produce my own work on the computer and websites.  If I were to try to do this 100 years ago, instead of having a computer/internet, I'd like to be relatively close to a university.  I need somewhere to get knowledge and explore and communicate ideas to people.  That's why the internet is required.  How's that, 40?

[40hz]

Well it finally happened. Somebody got fed up enough with the e-book agency model that a lawsuit has been filed.

From Matthew Lasar over at ArsTechnica.com

Apple, publishers conspired against $9.99 Amazon e-books, says lawsuit

"Terrified" by Amazon's Kindle e-reader and discounted e-book pricing, five major publishers allegedly acted together to increase e-book prices and compel Amazon to abandon its discount sales strategy. That's the gist of a new class action antitrust lawsuit filed in the US District Court for the Northern District of California by the Hagens Berman litigation group.

The five book sellers named in the suit are HarperCollins, Hachette Book Group, Macmillan, Penguin Group Inc., and Simon & Schuster Inc, plus one more defendant: Apple.

"Fortunately for the publishers, they had a co-conspirator as terrified as they were over Amazon's popularity and pricing structure, and that was Apple," charges Hagen Berman attorney Steve Berman. "We intend to prove that Apple needed a way to neutralize Amazon's Kindle before its popularity could challenge the upcoming introduction of the iPad, a device Apple intended to compete as an e-reader."

The essence of the claim is that these publishers, in coordination with Apple, conspired to nix the low price e-books that Amazon launched in 2007. Amazon wanted to quickly gain market share with its Kindle, the court filing observes, the first version of which sold out in less than a quarter of a day. And so, capitalizing on its "first mover" advantage, Amazon sold e-books at prices conspicuously lower than physical books—many titles were made available for $9.99.

This had to be stopped, the class action charges.
*
*
*
The lawsuit charges Apple and the publishers with violation of the Sherman Antitrust Act and several other federal laws. It names two individual plaintiffs who bought an e-book at a price higher than $9.99—after the Apple/publisher agency model deal.

"Once approved, the lawsuit would represent any purchaser of an e-book published by a major publisher after the adoption of the agency model by that publisher," the law firm's class action suit website pledges.

Read the full article here