Apple and Big Publishers Conspired To Fix Ebook Pricing, Lawsuit Alleges

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Apple kills an ebook company with its pricing greed

 

HomeNewsReviewsVideoINQdepthBlogsJobsDownloads store Chips Hardware Software Communications Week to date Chips Hardware Software Communications Hardware Software Features Opinion Polls White papers Boffin Watch Numb Thumbs Friction Friction Apple kills an ebook company with its pricing greed Will cease trading this month By Spencer Dalziel Wed May 11 2011, 14:15

EBOOK SOFTWARE COMPANY Iflow Reader has said it's shutting its doors because of Apple's inflated pricing structure.

The small e-reader software company developed its Iflow Reader for use on Apple's shiny Ipad and Iphone devices. But the company said that it will go out of business at the end of May because Apple greedily changed its pricing policies "in the middle of the game".

This isn't just implied by the long sign-off that Iflow Reader staff wrote on the company's web site. It is a direct finger pointed at Apple for introducing an agency model pricing structure that means any ebook seller has to give Jobs' Mob 30 per cent of the selling price of any iOS app.

Like a lot of big companies, Apple wants to own the end to end product, which includes hardware, software, content and distribution. That kind of approach is stifling competition, killing innovation and making smaller developers go bust.

"Apple has made it completely impossible for anyone but Apple to make a profit selling contemporary ebooks on any iOS device," wrote the incensed and soon to be unemployed software team at Iflow.

"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," they added.

Apparently Apple created the agency model to siphon off 30 per cent of gross margin and developers can't choose the price points of their products. Prices of ebooks are decided by the publisher instead, which is also Apple. The math means that Iflow Reader would lose money on every ebook it sold.

Apple's cut-throat pricing policy is exactly the same model used on Amazon's Android app store, which is also killing off games development by smaller software companies. μ

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Share this: del.icio.us Digg Facebook Linkedin reddit! StumbleUpon Twitter Share Related articles Apple denies that 'app store' is a generic term Amazon’s Android Appstore still offends Apple Friday, 20 May 2011, 09:15 AM Read more Apple's IOS holds a massive lead over Google's Android The Ipod Touch is the key Thursday, 21 April 2011, 15:33 PM Read more Apple's IOS 4.3.2 gets jailbroken within a week The Ipad 2 holds out a bit longer Tuesday, 19 April 2011, 11:03 AM Read more Apple's Ipad 2 rivals will fail, says analyst firm Jobs chalks up another fan Friday, 11 March 2011, 15:16 PM Read more The Iphone 4 failed to increase Apple's smartphone market share Drops the call and the ball Wednesday, 2 February 2011, 11:59 AM Read more Apple shoots itself in the foot with the Ipad Fanbois buy mirrors instead of Macs Wednesday, 26 January 2011, 17:32 PM Read more < Previous article| Next article > Comments Can't decide if article is more stupid or dishonest

A failure of a company is a failure of a company. Apple's cut is for a vast distribution network, and quibble if you like, but every channel has its costs. The company failed because their product was unable to differentiate itself, promote well enough, and find a market, much like many other companies. Their failure to create a compelling product and find a market is their own, and sniveling about Apple just underlines their inability to compete or accept the consequences of their own failure.

posted by : Eric Mellon,?15 May 2011 Complain about this comment Apple has become IRS

For those of you blaming iFlow for their demise, you should read interview with founder: http://reviews.cnet.com/8301-18438_7-20062030-82.html

It's an eye opening read that illustrates the absolute totalitarian control Apple has over marketplace. The fact that other developers will not speak as candidly is another sign of fear of Big Brother, Apple.

posted by : Bob,?12 May 2011 Complain about this comment no suprise there then

i'm suprised at articles like this. It's as if Apples greed has only just started or only just been discovered.

i'm suprised that any intelligent company does business with Apple at all.

i'm not suprised that another company got screwed by Apple - you know that any company that puts 'no suicide' clauses in it's work contracts is going to have no integrity

goodbye Iflow, you were to stupid to exist

posted by : sarah,?12 May 2011 Complain about this comment @Aaron:

Your contribution to this - let's call it a discussion - being what? Are you working for BeamMeUpScotty-Software?
Reading all comments I think nobody here says there's no responsibility on Apple's part. You'd have to have Stockholm syndrome to think that, since it really was the change in policy that caused their demise. But from reading their sob-story I conclude that the company made unreasonable decisions at numerous points.
The very first being to sell on iThings and iThings only. Why not, say, Android? The fastest-growing and soon to be #1 smartphone OS. Maybe because statistics show that iThing-users spend much more money on their devices? Here's to being too greedy.
Then, to continue anyway even though Apple explicitly said they don't guarantee anything and have a history of arbitrarily changing their policy and booting apps out of the AppStore. And still not thinking it might be a bad idea to bet everything they had on Apple.
And last but not least, just now to simply give up. If what they're saying is true, that their reader-app really is that good and well recognized, why give up so soon?
My thoughts are based on what BeamThing software are saying on their closing-page. I don't think I'm being unreasonable here. And if all of what's written on their page is true, it just means they're some company that made wrong decisions and went bust.

posted by : riDDi,?12 May 2011 Complain about this comment their own fault

yep, I agree with the comments that point the blame at iflow.

They can say all they want that they tried to "clear" it with Apple. By their own statement Apple told them they can't guarantee anything. Iflow went ahead and did it anyways...that's their responsibility and their gamble!

It's obvious Apple did not single them out....did they expect Apple to make a special exception just for them? Why don't they blame the publishing companies for signing on? They all decided to go a different route, and they all signed on....sucks for iflow, but that happens in business. Maybe next time they'll think about how they can secure their business BEFORE they throw the time/money into it they claim they did. Apple actually warned them...

posted by : richard,?12 May 2011 Complain about this comment There we go again...

What kind of a business model is that?
So all they were doing was selling ebooks through a single channel - apps on Apple's iThings - where they compete with so many other companies that do exactly the same. Their business was completely dependent on a third party that straight forward told them there were no guarantees.
And now that things have changed, they simply give up. No backup plan.

I guess I know why they're so pissed. They couldn't find anyone dumb enough to invest with that business plan and had to use their own money instead.

posted by : riDDi, 12 May 2011

Aah was just hoping when a jack-ass comment like this would be surfacing... And it did! Way too soon than I estimated though.

posted by : Aaron,?12 May 2011 Complain about this comment Amazon pricing policy

Is that the retailer of the app sets the price and the author/publisher has no control of it. This is COMPLETELY different from the above situation. The publisher is setting the price (and it's untrue that all agents get the same percentage under the agency model or that they had to sign an agency deal) and retailers have no control of it.

posted by : Steve T,?12 May 2011 Complain about this comment What kind of a business model is that?

So all they were doing was selling ebooks through a single channel - apps on Apple's iThings - where they compete with so many other companies that do exactly the same. Their business was completely dependent on a third party that straight forward told them there were no guarantees.
And now that things have changed, they simply give up. No backup plan.

I guess I know why they're so pissed. They couldn't find anyone dumb enough to invest with that business plan and had to use their own money instead.

posted by : riDDi,?12 May 2011 Complain about this comment Apple rumoured to make a TV set!

Does this mean a TV license will cost ￡189.15 per year for the Apple television if it uses IOS?

posted by : Alan Denman,?11 May 2011 Complain about this comment What did they expect?

If you lie down with dogs, you will get up with fleas.

posted by : Anonymous Coward,?11 May 2011 Complain about this comment Amazon may kill smaller devs...

But no one is forced to load apps from amazon store.

posted by : J,?11 May 2011 Complain about this comment iOS ereaders only is a risky ventur

Seriously, an e-reader company failed and they blame Apple? Ereaders apps are a dime a dozen (actually apps like Kindle are free) and there is no compelling reason why anyone would pick this particular ereader and ebooks over any other ereader.

I just read the article and I don't remember the company's name, so I guess their advertizing sucked.

Nutron Jack used to say, "if you don't have a competative advantage, don't compete". An ereader on iOS only = fail.

posted by : mike,?11 May 2011 Complain about this comment Most read Most commented Most watched Playboy launches fully uncensored on Apple's Ipad Nokia chooses Qualcomm to power its first Windows Phone devices Apple denies that 'app store' is a generic term Nokia picks ST-Ericsson chips for 12 Windows Phone devices China’s great firewall creator gets hit by a shoe Tablets are a 'fad' like netbooks, says Dell No leniency for Gary McKinnon Mozilla is mulling plans to get users off Firefox 3.5 Intel invokes Linux to calm fears of Windows 8 on ARM Microsoft calls Intel's Windows 8 claims 'factually inaccurate' and 'misleading' Samsung Galaxy Tab 10.1 review

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Ebook pricing power is undermined by perceived value - Wide ranging ebook pricing and deep print book discounts leave ...

Much discussion (and some dismay) surrounds the current upheaval in the ebook pricing model. As $0.99 ebooks sit "shelved" next to $19.99 ebooks (whose print counterparts might be discounted to $11.99), one of the larger issues surrounding the pricing problem is the perception of value from customers.

Jane Litte at Dear Author argued in a recent post that value is based on the reader's "willingness and ability to pay":

Every reader has a different price they are willing and able to pay for a book. I believe that price represents the value a reader places on a book at the time of purchase. However, value can vary over the course of time from when the reader first becomes aware of the book to after the book is read, increasing and decreasing based on different variables. When readers speak about price, they are talking about the amount that they are willing and able to pay at the particular time that they are expressing the opinion about price. Willingness includes the measurement of time.

I asked Todd Sattersten, author and owner of BizBookLab, to chime in on the pricing issue. In an email interview, he argued that print book pricing actually is the larger contributing problem to the perceived value of ebooks (mainly, ala Amazon) and suggested that serialization might be the right model for ebooks.

Todd Sattersten: There is only one factor that matters right now — what print books cost. Customers compare ebooks to their paper-based ancestors, and they long ago concluded they should be cheaper because everything else in their digital lives is cheaper than their physical lives.

Publishers don't want this to be true and, with the power to control ebook pricing through the agency arrangements, are pricing the vast majority of ebooks like they are print books. I co-wrote a book two years ago called "The 100 Best Business Books of All Time." The hardcover retail price is $25.95. On Amazon, you can buy that version for $16.61 or a remaindered edition for $10.38, while the Kindle edition is $18.99. That creates a short circuit in customers' brains. You don't pay more for things that are more convenient. You pay less.

What's interesting is that Amazon is actively discounting books in the 40% to 50% range, and in many cases putting the price of the print book very close to the price of the ebook. There can't be any margin left at those prices. Amazon, having lost the ability to control ebook pricing, is saying to customers "ebooks and print books are the same." This drives more people to ebooks (who doesn't want to download their book now?), sells more Kindles, and further cements their place in publishing's future — both provider of new and destroyer of old (what bookstore can compete with 49% off?). Also, notice how Amazon is redefining short writings with their Singles program. Fewer words, lower prices and, most importantly, a new (not very good) term to attach to the new value proposition.

Todd Sattersten: The biggest disconnect is that mainstream publishing's $9.99 to $19.99 ebooks are now sitting next to Amanda Hocking and J.A. Konraths' $0.99 ebooks. There was never that risk in the bookstore channel because of the cost of scaling atoms. The wide range of pricing destroys pricing power.

Todd Sattersten: Yes, they already are. Is everything going to be $0.99? No.

Todd Sattersten: I am not sure we've figured out what the reader should get for $0.99.

The biggest play for publishers in digital is to shorten book length. Everyone will admit that books both in fiction and non-fiction are driven by a page count rather than what is the appropriate length for material. I would like to see more experiments with serialization on the fiction side and an "album" of chapters on the non-fiction.

Here is an example of what I mean from the app space: 1337 Game Design released a game app for the App Store called Dark Nebula. It was $0.99 and had a light narrative that pushed you into Episode 2. So, rather than putting a bazillion levels in a single $0.99 game, ala Angry Birds or Cut The Rope, they divided 35 levels across two $0.99 apps.

Adapt the product to match what pricing will support. Every other industry does it. Why not publishing?

Our biggest problem is that we keep hanging onto the idea of a book. The word itself is laden with 500 years of meaning. In my world, a book is made of paper, bound on one side and it does an awesome job of delivering words and images. We need some new terminology for electronic products so we can get more creative about what publishing creates and what we can offer readers.

Related:

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Publishing News: Week in Review - Ereader complexity, the problems of ebook pricing, and how HTML5 can help publishers

Here are some highlights of what grabbed my attention in publishing news this week. (Note: These stories were published here on Radar throughout the week.)

Screenshot of "War and Peace" from the Kindle iPad appIn a recent post for Gear Diary, Douglas Moran bemoaned the direction technological "advancements" are taking ereader apps and devices. As examples, he compared the original Barnes & Noble eReader (which he liked) to its replacement, the Nook app (which "kinda stinks").

On a personal level, functionality is an ereader obstacle that turns me into an ebook curmudgeon. I recently was gifted a Kindle and I nearly threw it across the room trying to read "War and Peace" (as part of a year-long book club; I'm way behind).

Moran and others noted the simplicity of the Kindle and how its fewer features might make for a more straightforward reading experience. But perhaps the Kindle isn't quite simple enough. In the end, I bought the print version of "War and Peace" and gave up on the device. Trying to toggle around links to read book notes was so clunky as to make that feature completely useless. Why not put the notes at the bottom of the page? Having links is great if 1. they're easy and quick to access, and 2. you can return to your place in the book in some obvious, speedy fashion. Otherwise, just give me the content.

All this led me to questions regarding functionality and user experience in ereading:

Are ereader developers focusing too much on technological possibilities and losing sight of reader behavior?For those of you who embrace ereading: What features on your reader(s) are extraneous or obtrusive to your reading experience?For developers: When working on a new app or an update, how do you incorporate the end-user into development?

Please share your thoughts in this comment area here.

Much discussion (and some dismay) surrounds the current upheaval in the ebook pricing model. As $0.99 ebooks sit "shelved" next to $19.99 ebooks (whose print counterparts might be discounted to $11.99), one of the larger issues surrounding the pricing problem is the perception of value from customers.

Jane Litte at Dear Author argued in a recent post that value is based on the reader's "willingness and ability to pay":

Every reader has a different price they are willing and able to pay for a book. I believe that price represents the value a reader places on a book at the time of purchase. However, value can vary over the course of time from when the reader first becomes aware of the book to after the book is read, increasing and decreasing based on different variables. When readers speak about price, they are talking about the amount that they are willing and able to pay at the particular time that they are expressing the opinion about price. Willingness includes the measurement of time.

I asked Todd Sattersten, author and owner of BizBookLab, to chime in on the pricing issue. In an email interview, he argued that print book pricing actually is the larger contributing problem to the perceived value of ebooks (mainly, ala Amazon) and suggested that serialization might be the right model for ebooks.

Todd Sattersten: There is only one factor that matters right now — what print books cost. Customers compare ebooks to their paper-based ancestors, and they long ago concluded they should be cheaper because everything else in their digital lives is cheaper than their physical lives.

Publishers don't want this to be true and, with the power to control ebook pricing through the agency arrangements, are pricing the vast majority of ebooks like they are print books. I co-wrote a book two years ago called "The 100 Best Business Books of All Time." The hardcover retail price is $25.95. On Amazon, you can buy that version for $16.61 or a remaindered edition for $10.38, while the Kindle edition is $18.99. That creates a short circuit in customers' brains. You don't pay more for things that are more convenient. You pay less.

What's interesting is that Amazon is actively discounting books in the 40% to 50% range, and in many cases putting the price of the print book very close to the price of the ebook. There can't be any margin left at those prices. Amazon, having lost the ability to control ebook pricing, is saying to customers "ebooks and print books are the same." This drives more people to ebooks (who doesn't want to download their book now?), sells more Kindles, and further cements their place in publishing's future — both provider of new and destroyer of old (what bookstore can compete with 49% off?). Also, notice how Amazon is redefining short writings with their Singles program. Fewer words, lower prices and, most importantly, a new (not very good) term to attach to the new value proposition.

See the rest of the interview here.

As technology makes the publishing space more and more geek-oriented, understanding how particular technologies can apply and how existing products or content can be adapted might seem to require a computer science degree.

In a recent interview, Google senior user experience designer Marcin Wichary brought one of those technologies — HTML5 — into perspective, explaining how it applies to publishers.

In design and layout, there's a lot of things that HTML5 now does natively, without you having to hold its hand. Things like multimedia are native to HTML5 — you don't need extensions or plug-ins; they're integrated really well.

We have new devices like the iPad that require new input methods like multitouch or shaking the device. All of this is or will soon be supported by HTML5. So you can imagine delivering an experience through your application or your website or your publication that rivals that of a native application on any of the platforms you want to put it on.

On top of that, it's the web. Al of the things that have been available on the web you also have as well. All the social networking, all the APIs, all the integration with other surfaces — you can just plug it in the way you want.

Wichary also explained how publishers can monetize the opportunities HTML5 brings to the table, and how it might even save money in the long run.

It's very important to recognize that HTML5 fits all the devices you can think of, from the iPhone in your pocket to Google TV to the tablets to small screens and big screens. It's very easy to take the content you already have and through the "magic" of HTML5, refine it so it works very well within a given context. You don't have to do your work over and over again. Of course, all of these different means come with different monetization opportunities, like ads on the web or on mobile devices.

In the interview, Wichary also addressed how publishing workflows might be affected by HTML5 implementation and he outlined specific advantages HTML5 can bring to digital reading. The full interview is available in the following video:

Suggestions are always welcome, so feel free to send along your news scoops and ideas.

Keep up with Radar's latest publishing news and interviews with our publishing RSS feed.

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