BeamItDown Software — which developed the iFlowReader app for the iPhone, iPod and iPad — says in an open letter on its site that Apple’s in-app purchasing policy — in which Apple takes a 30% cut of all in-app purchases — has all but obliterated its margins on books, reports “mocoNews.net” (http://macte.ch/Z3v4P). Sot eh company is ceasing operations as of May 31.
Here’s a segment from the open letter from BeamItDown: “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. The six largest publishers have now all adopted the agency model. These publishers account for nearly 90% of all ebooks sold. Random House was the last publisher to adopt the agency model, which they did on March 1 of this year.
“You may have noticed that all 17,000 Random House titles disappeared from our catalog on February 28. They appeared in Apple’s iBooks catalog the following day. We, as well as all other small booksellers, have yet to complete an agency agreement with Random House.
“Up until February 28, these were our most profitable items because we were still getting a 50% discount on these ebooks. With an eight-hour notice, all of these titles disappeared from our store as well as the stores of all other small ebook sellers.”