In February, Apple announced a new subscription service for all publishers of content-based apps. This system took a 30% cut of subscription fees for Apple. The announcement had bloggers, publishers and mainstream media alike calling Apple everything from greedy to anti-competitive and wondering what effect it would have on subscription reliant apps.
For iFlow Reader, that effect has been to remove any profit margin the company had. The company has announced that it will be shutting down by the end of the month and that, in no uncertain terms, it is all because of Apple.
“BeamItDown Software and the iFlow Reader will cease operations as of May 31, 2011,” explains the company in an open letter to Apple. “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.”
It goes on to explain that their gross margin on ebooks is less than the 30% that Apple now charges because of the “agency model” adopted by the largest publishers, which sets a fixed price for all ebooks across all sellers and cuts commissions down to 30%.
“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,” they write.
The company doesn’t mix words in who is to blame in this situation, writing that “We put our faith in Apple and they screwed us.”
While some reactions were ambivalent on whether or not Apple’s policy was prudent, the iFlow Reader team paints a bleak picture for small retailers involved in ebook sales.
“Our philosophy is simple,” explained Apple CEO Steve Jobs upon announcing the rule changes, “when Apple brings a new subscriber to the app, Apple earns a 30 percent share; when the publisher brings an existing or new subscriber to the app, the publisher keeps 100 percent and Apple earns nothing. All we require is that, if a publisher is making a subscription offer outside of the app, the same (or better) offer be made inside the app, so that customers can easily subscribe with one-click right in the app.”
The iFlow Reader team sees it quite differently, writing “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.”