Wednesday, May 11, 2011

As June deadline approaches one company quits the App Store, company behind iFlow Reader blames Apple's in-app purchase rules

I hadn't heard of the iFlow Reader, so its decision to quit the App Store, blaming Apple's agency commission structure, is hardly a big deal to me. But the company's "open letter" to Apple, along with its accusation that its in-app purchase policies have made it impossible to do business, will resonate with some developers who wonder if they can make a successful business out of iOS retailing.
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The app, created by BeamItDown Software, has the unfortunate name of 40,554 Free Books and So Much More - iFlow Reader HD, possibly the longest name in the App Store, and hardly something that rolls off the tongue. But the company has come out swinging by changing its app description inside the store:

Thank you for your interest in the iFlow Reader. You can still download this product, but you should be aware that we are going out of business on May 31, 2011. We do not want to do this. We have a great product and lots of great customers who love our unique approach to ebooks. Unfortunately for us and for you as an iOS user, Apple has decided that it wants all of the ebook business on iOS for itself and it has made mid-game rule changes that make it impossible for almost anyone but Apple to sell ebooks at a profit on iOS. They are now requiring us to give them 30% of the sale price of any eBook that we sell. This is greater than our total profit on these ebooks so we cannot possibly make any money on the sale. This makes it impossible to stay in business. For more information, you can go to our website at iflowreader.com.
The company here is making a rather strong accusation: Apple wants all eBook sales to go through iBooks. But the issue here is that Apple wants to enforce its existing in-app purchase rules that companies that have to offer in-app purchasing as an option if the purpose of the app is to facilitate sales. For instance, the Pandora radio app is essentially a player app and would be fine under Apple's policies except that under settings it offers the ability to upgrade to a commercial free format for $36. Clicking the button takes you outside the app to make the purchase. This would appear to be a violation of Apple's guidelines.

So Pandora, it would seem to me, has two options: drop all upgrades from within the app and make it simply a player app, or do update their app so that users are offered the ability to buy the upgrade through an in-app purchase. Apple has given developers until June 30 to make their apps compliant to in-app purchase rules.

For some companies this will be a minor annoyance: the commission Apple charges is offset from the savings a company gets by not having to handle transactions. But if you are already a retailer, like Amazon.com, things get tricky. Amazon will not want to pay Apple a penny for any books sold, so it has two choices: make their app simply a reader app, or leave the platform. (Amazon doesn't allow Apple to have its iBookstore on the Kindle, by the way.)

My guess is that some will leave the store, either because their margins are too small, or to make a statement. I doubt Apple will be too upset either way. But an iPad without the Kindle or Pandora app is not the same product we have enjoyed this past year and would create a major point of differentiation between Apple's tablet and any competitive tablets. Unfortunately for companies like BeamItDown Software, manufacturers have not been putting much competitive pressure on Apple with their new tablet introductions. In anything, the launch of the XOOM and PlayBook have to have Apple feeling pretty good about things.

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