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Remember all those complaints about Apple’s new in-app purchasing policy when it first launched? Those have somewhat died down, but they haven’t stopped altogether: The developers of the iPhone, iPad and iPod e-reading app iFlowReader have weighed in with a public complaint about Apple’s ways, announcing that it will be closing for business at the end of the month.
BeamItDown Software, which developed the iPhone, iPod and iPad app, says in a strongly-worded open letter on its site that Apple’s in-app purchasing policy — in which Apple takes a 30 percent cut of all in-app purchases — has all but obliterated its margins on books, because it has coincided with many of iFlow’s most important suppliers — the big book publishers — also adopting the “agency” model commissioning structure. iFlow’s gross margin on books, it says, is now less than 30 percent, which makes the service unsustainable as a business.
Since launching its app in December 2010, the developers say they have seen six million downloads of it across the three platforms.
“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,” write the developers.
The agency model was developed by Apple, and the company has been requiring publishers to adopt it if they want to sell books in Apple’s own iBooks store. It stipulates that resellers of books get a 30 percent commission on the price of books sold, and they must all sell the book for the same price, as set by the publisher. Before, resellers typically got the books on a 50 percent discount, write iFlow’s developers.
This is not the first time that Apple has been criticised for its in-app payments policy: several companies, in particular those who developed business models around reselling content, came out with public criticisms when Apple launched IAP in February. While bigger resellers like Amazon (NSDQ: AMZN) might be able to take the hit on its margins (if, indeed, Amazon has been subject to the same requirements; it’s not clear if it has), smaller resellers like BeamItDown perhaps have been hit the hardest.
The decline at iFlow, as detailed in the letter, has been gradual, although not without warning from Apple (NSDQ: AAPL). The company notes that when it first submitted its business model idea to Apple in September 2009, “Apple told us they couldn’t guarantee anything.” Apple approved the app at the end of 2010, although “two months later, Apple changed the rules and put us out of business.” In February, it notes, 17,000 Random House titles disappeared from its catalog; they were then listed on iBooks the following day.
What happens next? iFlow users are told in the letter the following:
— 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.
The iBooks store represents small part of Apple’s activity in content, with some 15 times as many apps downloaded as books, if you compare the two in terms of months from launch.
But moves like this could at least guarantee that if there is a market to be had in e-books on Apple products, Apple will get to it before anyone else.
Update: Some more details from Dennis Morin, the founder of BeamItDown. He declined to give any details on how many book downloads iFlow had seen, or how much it had made in sales. He says business was growing — obviously not fast enough.
On developing for other platforms, such as Android and even the web: “We had planned to develop other platforms but it’s a financing issue. Other apps would have been a good supplement. Some, like Android, might have over time come to dominate, but not now. Android is still just a small fraction of the ereader market at this point,” he said.
On other business opportunities: “We had a company in Japan that wanted to invest in us to redevelop the app to work in Japan and Korea, and we had interest in the UK,” he said. “We were the only soup-to-nuts reading app, designed from the bottom up, so we could have licensed that to people.” But with “no possibility of making a profit” from its main retail operation, these other opportunities were not enough to sustain it.
As it was, BeamItDown was self-funded, with more than $1 million invested in the iFlowReader product. Where did the capital come from? Some years ago, Morin had started and sold (for $375 million) another company: automation software specialist Wonderware, now owned by Ivensys.