Death Of iFlow Reader Due To Apple Changes Shows Why Betting On Closed Platforms Is Risky

from the go-open dept

Wed, May 18th 2011 7:05pm — Mike Masnick

Tom points us to the post from the makers of iFlow Reader, a popular eBook app for iPhones and iPads, about how the company and product are shutting down almost entirely due to Apple's change in policies. Specifically, there are two key policies that seem to conflict with each other, unless the entire point was to drive all third party ebook retailers out of business. As the iFlow Reader guys describe it:

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.

For obvious reasons, that's unsustainable. The clearly upset folks who are now shutting down their operation point out how hard they worked to communicate with Apple to make sure they weren't wasting their time building the app and company:

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.

Of course, this really shouldn't be too surprising. When you're making a bet on a closed system and relying entirely on that, it's inevitable that there are going to be issues. It's one of the reasons why we keep hearing more and more developers wanting to move away from developing native iOS apps towards developing more open standard apps, such as in HTML 5. Not only does it make it easier to build cross platform apps, but it also means they're not completely at the whims of a single company that's been known to reverse direction with little notice.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: closed, iflow reader, open, reliance

48 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

David Liu (profile), 18 May 2011 @ 7:39pm

Seems kind of obvious to me. I mean, is there anything more short-sighted than betting your entire business and have your entire model rely on your competitor's platform? They do realize that Apple is also in the eBook market as well right? They should've known better than to think that their own business could be safe.
[ link to this | view in chronology ]
Fzzr (profile), 18 May 2011 @ 7:45pm

Surprised?
These guys were selling zero-marginal-cost goods on a closed platform. That was never a future-proof business model.
[ link to this | view in chronology ]
Michael Kohne, 18 May 2011 @ 8:00pm

Wait a moment...
If Apple is the one who pushed the publishers into the agency model with the 30% margin, and then Apple is the one charging 30% to other ebook sellers on it's platform, how isn't this an anti-trust violation? I mean, even if the publishers picked 30%, didn't Apple pick their 30% AFTER the publishers did?

Meaning that Apple was price fixing in order to own a marketplace. I suppose I don't know enough about the law, but it looks like they are using their market position to set prices in such a way that no one else can be in the market.
[ link to this | view in chronology ]
- Anonymous Coward, 18 May 2011 @ 11:20pm
  
  Re: Wait a moment...
  When Apple OWNS the market, it's not illegal for them to decide they want to be the only people selling in it. It's crappy, but not illegal.
  [ link to this | view in chronology ]
  - Anonymous Coward, 19 May 2011 @ 7:09am
    
    Re: Re: Wait a moment...
    Wait... that's like saying someone that owns the mall can now dictate the prices someone who pays to be in there should sell for, and what they should pay to their suppliers. I'd think that's a clear case of anti-trust in the real world, I don't see why trying to dictate this in the virtual world isn't.
    [ link to this | view in chronology ]
    - ltlw0lf (profile), 19 May 2011 @ 9:24am
      
      Re: Re: Re: Wait a moment...
      Wait... that's like saying someone that owns the mall can now dictate the prices someone who pays to be in there should sell for
      
      Not a perfect analogy, but what I believe is happening here is that the stores and the distributor determined a set cost for the product and a profit margin, then the owner of the mall, who also had their own store in the mall and the same deal with the distributor, decided to end-run their competitors by setting the rent for the mall to be the same price they knew the stores were getting as a profit margin from the distributor.
      [ link to this | view in chronology ]
  - Anonymous Coward, 19 May 2011 @ 7:09am
    
    Re: Re: Wait a moment...
    Wait... that's like saying someone that owns the mall can now dictate the prices someone who pays to be in there should sell for, and what they should pay to their suppliers. I'd think that's a clear case of anti-trust in the real world, I don't see why trying to dictate this in the virtual world isn't.
    [ link to this | view in chronology ]
Beta (profile), 18 May 2011 @ 8:55pm

It's a clumsy parasite that kills its host.
Quite apart from the moral and legal aspects, this just looks like bad strategy. Apple could have chosen a better number, taken most of iFlow's profits and left just enough to keep the company alive on starvation dividends and emotion. It would have been like running a subsidiary of talented innovators with none of the liabilities. Why crush competitors when you can milk them at will?
[ link to this | view in chronology ]
- Jay (profile), 18 May 2011 @ 10:49pm
  
  Re: It's a clumsy parasite that kills its host.
  Two words:
  
  Steve Jobs.
  [ link to this | view in chronology ]
- Anonymous Coward, 19 May 2011 @ 1:38am
  
  Re: It's a clumsy parasite that kills its host.
  "Apple could have chosen a better number, taken most of iFlow's profits and left just enough to keep the company alive on starvation dividends and emotion."
  
  As usual this is not about just profits but control.
  [ link to this | view in chronology ]
- Eric E. Johnson, 19 May 2011 @ 3:11pm
  
  Re: It's a clumsy parasite that kills its host.
  Good point!!
  [ link to this | view in chronology ]
f0nZi3 (profile), 18 May 2011 @ 8:55pm

Classic CrApple move...
I have to agree that iFlow should have seen this coming since iBooks was already in development and the giant red flag should have been "Apple's response to our detailed inquiries was to tell us that our plans did not infringe their rules in any way".

That said, just because it is legal for Apple to practice business this way does not mean it's ethical. I guess since CrApple caters to hippies with situational ethics, they wont loose much in market share because of this.
[ link to this | view in chronology ]
- sheenyglass, 19 May 2011 @ 6:48am
  
  Re: Classic CrApple move...
  True. Plus they also should have seen it coming because its Apple. Apple has made it pretty clear that 1) they reserve the right change any policy to do whatever they want and 2) what they want is to squeeze the lion's share of developers' revenue, under the assumption that their market/mindshare will still make them attractive to those developers hoping for a big score.
  
  Plus, the fact Apple will not issue terms of service, which are binding on both parties, and instead issues "guidelines" while reserving the right to do what ever it wants is so mind-numbingly inequitable as to defy reason.
  [ link to this | view in chronology ]
Boyd Waters, 18 May 2011 @ 9:04pm

Problem wasn't the platform
The platform wasn't the problem here. Lots of developers have "bet" on the iOS platform and been successful.

The problem was the business model: trying to be a distributor, a middle-man, with no control over any point in the supply chain. They didn't create content, or own a (shudder) DRM scheme, or control the hardware. So when each of the points along their supply chain demanded its cut, they had nothing left over for themselves.

What am I missing here?
[ link to this | view in chronology ]
- Fzzr (profile), 18 May 2011 @ 9:25pm
  
  Re: Problem wasn't the platform
  Add to that the fact that their goods are infinitely reproducible (digital) goods and you have a recipe for disaster. We really shouldn't be surprised about this.
  [ link to this | view in chronology ]
Anonymous Coward, 18 May 2011 @ 10:21pm

Time for court order of seperation
If Microsoft have to seperate the OS development division to other application development (like MS Office), there's no reason not making Apple to be the same as well.
[ link to this | view in chronology ]
- Anonymous Coward, 19 May 2011 @ 7:40am
  
  Re: Time for court order of seperation
  Other than Apple doesn't have a demonstrable monopoly in either arena, sure.
  [ link to this | view in chronology ]
Yogi, 18 May 2011 @ 11:25pm

So?
If you develop for Apple you will always be at their mercy. Since that is a given, I don't see what the shock here is. They wanted to benefit from the closed marketplace that Apple created, and it turns out that closed markets controlled by third parties are extremely volatile and unreliable.
Why is this a surprise?
[ link to this | view in chronology ]
lfroen (profile), 18 May 2011 @ 11:26pm

What HTML5 have to do here?
I know, Mike is not a programmer, but when talking about somewhat technical subjects I expect at least some understanding of the matter.
HTML(4,5,whatever) is not a substitute for native applications. In no shape or form or kind. All those "apps" are really just a page opened in Safari. Close the browser and all this "apps" are gone.
There's a term in software world for this kind of behavior, it is "leaky abstraction". Which means "abstraction which implementation details leak out".
Those iFlowReader guys choose bad business model (isn't it Mike's favorite subject). What does it have to do with openess of the device, whatever this mean?
[ link to this | view in chronology ]
- William, 18 May 2011 @ 11:37pm
  
  Re: What HTML5 have to do here?
  Because the business model has nothing to do with why they failed. It has everything to do with apple kicking them out. If the app had been web-based, they could still survive.
  [ link to this | view in chronology ]
  - lfroen (profile), 18 May 2011 @ 11:52pm
    
    Re: Re: What HTML5 have to do here?
    The phrase "If the app had been web-based" makes no sense. "App" is native program, running on device. "Web-based" meaning HTML page loaded in browser from remote server.
    
    You probably wanted to say "they should be just selling (e)books over Internet". They still can, don't see a problem here. You (or they) can create such "web app" in few hours instead of whining. But hey, blaming Apple is easier than run business, I guess.
    [ link to this | view in chronology ]
- Mike Masnick (profile), 18 May 2011 @ 11:54pm
  
  Re: What HTML5 have to do here?
  HTML(4,5,whatever) is not a substitute for native applications.
  
  In many, many, many cases it is. In fact, a large % of "native" apps are really HTML 5/javascript/CSS compiled into native code.
  
  All those "apps" are really just a page opened in Safari. Close the browser and all this "apps" are gone.
  
  You should check out the state of HTML 5 apps these days. It's not what you appear to think it is.
  
  Those iFlowReader guys choose bad business model (isn't it Mike's favorite subject). What does it have to do with openess of the device, whatever this mean?
  
  If they weren't locked into Apple's walled garden, Apple's decision wouldn't have impacted them.
  
  I stand by the post.
  [ link to this | view in chronology ]
  - lfroen (profile), 19 May 2011 @ 1:17am
    
    Re: Re: What HTML5 have to do here?
    >> In fact, a large % of "native" apps are really HTML 5/javascript/CSS compiled into native code
    HTML _compiled_ into native code?! Yea, now I see where rest of the bullshit you wrote come from. Here's an idea: search what "compiler" is. What "native code" is. Check out why you can't compile CSS. If not sure, check what CSS is.
    
    >> You should check out the state of HTML 5 apps these days. It's not what you appear to think it is.
    No, it's _YOU_ should check out state of HTML5. See, I actually do programming for a living, not article writing.
    
    >> If they weren't locked into Apple's walled garden, Apple's decision wouldn't have impacted them.
    They still can have web-page-loaded-to-safari-called-web-app, don't they?
    [ link to this | view in chronology ]
    - Lawrence D'Oliveiro, 19 May 2011 @ 2:57am
      
      Re: Check out why you can't compile CSS.
      I call bullshit on your bullshit.
      
      HTML5 is far, far, more than just CSS.
      [ link to this | view in chronology ]
    - Major, 19 May 2011 @ 3:25am
      
      Re: Re: Re: What HTML5 have to do here?
      Chill out man, Here have some Kool-aid.
      
      I know being self rightous on the internet is mainstream nowaday but dude; Try to be informative and / or link to a website highlighting your point... Or get back to work...
      
      Well being a dev, i cant stick behind Mike explanation either, but nonetheless i get the overall point he was trying to make. IMHO You, Right now, are sounding like those people who bash around people trying to learn something on tech forum. Seriously.
      
      You ain't a troll yet but you should consider signing for the MAFIAA they LOVE to recruit people who get emotional on blog post.
      
      Not that it actually work mind you.
      [ link to this | view in chronology ]
    - Jeffry Houser (profile), 19 May 2011 @ 3:56am
      
      Re: Re: Re: What HTML5 have to do here?
      Here are some tools that convert HTML/JavaScript into Native iOS apps:
      http://www.nimblekit.com/index.php
      http://www.phonegap.com/
      
      If you Google, there is a lot of info out there:
      http://www.google.com/search?q=Can+I+build+native+iOS+Apps+with+HTML&ie=utf-8&oe=utf -8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a
      
      It sounds like these work because someone wrote a a "convertor" of HTML/JavaScript to iOS byte code--similar to what Adobe did for Flash/AIR w/ their iOS Exporter.
      
      That said, I agree the business model sucked. The company may not be shutting down if they also had a web version of their software, and a Mac version, and a Windows version, and an Android version, and a Windows Phone 7 version, etc...
      
      I'm a bit surprised the decision was to shut down instead of convert their work to a different platform.
      
      Of course, I'm constantly surprised these days how many people tie their business to a single source. I never consider it a good business model.
      [ link to this | view in chronology ]
      - lfroen (profile), 19 May 2011 @ 6:00am
        
        Re: Re: Re: Re: What HTML5 have to do here?
        Did you even _read_ my reply?
        
        I argued that "web-app" Mike was talking about is actually HTML page loaded in Safari. Yes, I know you can create compiler from one language to another. In your example from JavaScript to ARM assembly. So what? Result is still native app, which you could write in Obj-C for same price.
        And mind you, it's not a "convertor" as you call it, it is compiler in full meaning of the word.
        This kind of app will still need Apple's approval, _because_ of this "native-ness".
        
        I sick of this "web apps is a future" mantra being pushed around by people understanding nothing in computers.
        [ link to this | view in chronology ]
      - indieThing (profile), 19 May 2011 @ 9:27am
        
        Re: Re: Re: Re: What HTML5 have to do here?
        Yeah, and you're a fool if you're not using a cross platform system for mobile development.
        [ link to this | view in chronology ]
    - Anonymous Coward, 19 May 2011 @ 5:49am
      
      Re: Re: Re: What HTML5 have to do here?
      >> Here's an idea: search what "compiler" is.
      
      Here's an idea. Check what "compiled resource" is.
      
      And you call yourself a developer?
      [ link to this | view in chronology ]
    - indieThing (profile), 19 May 2011 @ 9:25am
      
      Re: Re: Re: What HTML5 have to do here?
      You may not be able 'compile' CSS, but you can certainly code it's styles etc in an app, after all, what do you think processes CSS scripts ;)
      
      You may also want to check out various app generators, a colleague of mine uses one without any coding skill, useful if you can knock up a good design.
      [ link to this | view in chronology ]
That Anonymous Coward, 19 May 2011 @ 12:03am

Let others innovate, then force them out and use the innovation... there's an app for that...
[ link to this | view in chronology ]
Anonymous Coward, 19 May 2011 @ 2:49am

Sounds like an anti-trust violation to me.... Someone (or many people) should contact the justice department.
[ link to this | view in chronology ]
masquisieras, 19 May 2011 @ 3:16am

But Apple did not
Force the publisher into the agency model.

Apple offer the agency model to the publisher and they liked it, and the publisher are forcing the model to others. With no inventory and shell positioning problems what interest has the publisher to use a reseller and get a 50% of the price that is controlled by the reseller instead of getting a 70% of a price that they get to decide.

The problem would be when the e-book became dominant and the authors began to cut the publisher ;P then is when you would began to hear cries to the sky.
[ link to this | view in chronology ]
John Doe, 19 May 2011 @ 5:22am

While sad for iFlow, this is good overall
While I hate that they lost their company, this will be good for the smartphone market overall. At some point, after enough people are kicked out of the walled garden, the iPhone/iPad will lose some of its appeal to developers and eventually users. The more and sooner this happens the better will be for everyone. Being held captive by one company/one man is not good for anyone. The walls need to come down and when they finally do, Apple will be surprised to find that their devices will be even more desirable.
[ link to this | view in chronology ]
Anonymous Coward, 19 May 2011 @ 5:51am

They found Apple wants them all out of the business, they found Apple wants to be THE ONE SELLER, nice... your brain its on the right way.
[ link to this | view in chronology ]
- masquisieras, 19 May 2011 @ 6:20am
  
  Re:
  Apple do no care if it stay in bussnisses or not
  Apple want its 30% if it let someone to not pay why should anyone else pay.
  If you find a way to sell things through the App Store without paying count that Apple would close the loophole some time in the future.
  
  Apple is the shop-mall owner that rent space for a 30% of the shops income
  If you find a space where there is not charge be sure they will in the future or everybody will move there.
  
  The iFlow problem is its providers (the publishers) can shell through Apple directly for that same 30% and are not interested in selling to iflow cheaper.
  [ link to this | view in chronology ]
Anonymous Coward, 19 May 2011 @ 5:55am

I avoid Apple and all of their iCrap like thew plague. No one should wonder why at this point.
[ link to this | view in chronology ]
Paul Keating, 19 May 2011 @ 7:06am

Anti-Trust Issues
What really bothers me about the article is the restrictions on pricing being imposed by Apple.

What is to stop developers from offering their Apps outside of iTunes? While it may take longer to get off the ground there are many apps out there that do just that using Cydia. Once you have a following (such as the company mentioned) I see no reason why you could not just push the books directly without iTunes.
[ link to this | view in chronology ]
john, 19 May 2011 @ 7:35am

The "agency model" may be good for consumers
It eliminates price competition between sellers (bad) but not between publishers (good). Apart from the particular iOS issue it could lead to more competition between ebook sellers and software.

iFlow is a crappy product so it's hard to feel too much sympathy. But iOS is perfectly open for developers who want to sell DRM-free ebooks. iTunes and iBooks support DRM-free books from any third-party source just fine, and the best ebook reader on any platform (save for its lack of cross-client syncing) is Stanza, which also can read DRM-free ebooks from any source.

If you rely on DRM, you're at the mercy of any number of intermediaries. To the extent that large publishers demand it, I'd just leave that market to Amazon, Apple, and Google and focus on more specialized content.
[ link to this | view in chronology ]
Mike Raffety (profile), 19 May 2011 @ 11:31am

"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."

Isn't this illegal? We went through this with CD price fixing a decade ago (when CDs were important):

http://www.ftc.gov/opa/2000/05/cdpres.shtm

Even today though, there are certain brands you simply cannot find discounted, or only at specific levels for specific time periods, as controlled by the manufacturer. Examples include Bose and Calvin Klein and all the fine cosmetics brands.

For example, ALL retailers put Calvin Klein underwear on sale for 25% off at the same time every year. They never discount it otherwise.
[ link to this | view in chronology ]
Robert Shaver, 19 May 2011 @ 11:36pm

This is why ...
This is why I don't have an iPhone or iPad or iPod Touch ... that and the monthly fee.

Apple makes the finest of computer hardware and software. But their business model for mobile puts me off. I do have an iPod Shuffle ($50) and a Mac Pro for software editing. Those platforms are still open enough. However if the app store paradigm takes over OS-X then its back to Windows for me. (Windows 7 64 bit is pretty decent.)
[ link to this | view in chronology ]
Hephaestus (profile), 20 May 2011 @ 8:33am

LOL ... total loser move
What did these people expect? Trying to be middlemen of digital information, in this day and age, is a total fail on so many levels.
[ link to this | view in chronology ]
- Johan van de Merwe, 4 Dec 2011 @ 6:42am
  
  Re: LOL ... total loser move
  Suppose you are carpenter and the producer wants 30% of all the profit you make with it. I think you wouldn't call yourself a loser, for it doesn't make sense. If you listen to your favorite radio station, you don't expect it either, that suddenly it is not possible anymore, for the broadcaster doesn't have a contact with the brand of you radio. You would make a statement about your legal rights. Apple is exactly doing this. It shuts off what they don't like, not asking what you would like.
  [ link to this | view in chronology ]
  - jvandemerwe (profile), 4 Dec 2011 @ 6:51am
    
    Re: Re: LOL ... total loser move
    I forgot the carpenter's hammer...
    [ link to this | view in chronology ]
Inigo-Montoya, 25 May 2011 @ 10:42am

Reality check
If this story were 100% true, wouldn't all of the other book sellers on iOS also be out of business? Kindle, Nook, and Kobo (to name just three) still seem to be around.
[ link to this | view in chronology ]
- Johan van de Merwe, 4 Dec 2011 @ 6:35am
  
  Re: Reality check
  Kindle has it's own tablet and is owned by Amazon. Apple knows that sometimes it's better to hold your fire, if your opponent creates so much sympathy of the consumer, that it endangers you own product. Apple doesn't like Kindle, but it is just too big to swallow. The iFlowreader company was an easy target. Simply changing rules and have an army of lawyers ready ordered shoot to kill. The lawmakers can't keep up with this new form of couthouse economics.
  [ link to this | view in chronology ]
Arlene Drake, 15 Nov 2011 @ 11:51pm

I flow
I think you were the best!!!
I miss you.
[ link to this | view in chronology ]
Johan van de Merwe, 4 Dec 2011 @ 6:28am

Welcome to the future
Please let's be reasonable here. We, consumers tend to talk more and more to act like market analysts. In the mean time we are on the brink to become figurants in a world of "Umbrella" companies that act like locust in our economies. It won't take long before we need an Itunes account to be connected to the Apple Ecg monitor in a hospital. Apple is the evangelist that likes to promise you their heaven, be you feel like to have entered their hell. Apple eats competitors and consumes our freedom. It is gong to be so global that no politics seem to have any control over it. We honored Steve J. as a cyber messias, but are we really sure that we have not legalized cyber marketing Apple way. Freedom of choice is better than freedom the Apple way. I like the product, not the principle.
[ link to this | view in chronology ]