Apple 2.0

Covering the business that Steve Jobs built

iFlow Reader is closing down, a victim of Apple's 30% cut

May 11, 2011: 7:41 AM ET

Even as big publishers strike deals to put content on the iPad, a small ebookseller bites the dust

Source: BeamItDown Software

In an bitter letter to users, BeamItDown Software's Philip Huber makes no bones about whom he blames for the fate of his company and its iFlowReader app, both of which will cease operations on May 31.

"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.

"Five of us spent nearly a year and a half of our lives and over a million dollars in cash and sweat equity developing the iFlowReader app with its unique AutoScrolling approach to reading that many of you really like. ... We put our faith in Apple and they screwed us."

BeamItDown is, as far as we know, the first victim of changes Apple (AAPL) made in its in-app purchase rules earlier this year, shortly before it announced its new subscription model. (See Steve Jobs to pubs: Our way or highway.)

In the past week, Time Inc., Conde Nast and Hearst have all struck deals with Apple to offer their original magazine content to subscribers on the iPad and iPhone. But content resellers like BeamItDown have a different business model, one that is getting squeezed by the book publishers on one side and Apple on the other.

To some extent Amazon (AMZN) and Barnes & Noble (BKS) are in the same boat, and it's not yet clear what they are going to do come June 30, when Apple's new rules go into effect.

On Hacker News, where by Wednesday morning the topic "Apple's 30% vig for ebooks just killed the iFlow Reader app" had drawn more than 100 comments, opinion was split between those who blamed Apple, those who blamed the publishing industry's "agency model," and those who blamed BeamItDown for hitching its wagon to Apple in the first place. As one commentator put it, "You shouldn't build your foundations on ground that can move at any time."

Instructions on how iFlow Reader users can preserve the books they purchased are available here.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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