An electronic book app for the iOS platform is to close its doors, forced - its creators claim - by Apple's demand for 30 per cent of revenue generated by in-app sales, which has made it impossible for third parties to make a profit.
Apple's decision to add a requirement of revenue sharing for in-app purchases gives the company a nice secondary income stream: any app that offers additional content for an extra fee, such as a newspaper subscription or magazine downloads, must give Apple 30 per cent of the proceeds of that transaction.
While the move is good for Apple, BeamItDown Software - creator of the popular iFlowReader e-book app - claims that Apple's move has made it impossible for the company to continue, forcing it to remove its app from the App Store and close down its business.
"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," the company claimed in a statement to its customers. "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. This is a very sad day for innovation on iOS in this important application category. 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."
The issue stems, the company explains, from a combination of Apple's decision to take a healthy cut of the proceeds of each sale and the publisher's adoption of an 'agency' model, which sees the price of e-books fixed and those doing the selling only receiving a 30 per cent commission.
To put the figures into perspective, take an e-book priced at £5. While the cost to the consumer is £5, the 'sales agent' - the people who developed the on-line service that allows you to browse and purchase the book - receives a mere £1.50 for their trouble. As there's no production cost, and little distribution cost, this was enough for companies like BeamItDown to keep body and soul together - until Apple changed the rules.
"The key point here is that all sellers now get a 30 per cent commission," the company explained, "and Apple now wants a 30 per cent 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 per cent of all e-books sold."
The iFlowReader app took a year and a half for BeamItDown to develop - and over a million dollars in cash, the company claims. While downloads were brisk - with over six million copies of the app installed to date - and sales of e-books high, Apple's move means that the company has to close - and BeamItDown places the blame directly at Apple's door.
"We sent a letter to Apple vice president Philip Schiller in September 2009 to confirm our business model," the company explained. "Apple told us they couldn't guarantee anything, [and to] submit the application and they'd let us know after submission. 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, however, Apple introduced the 30 per cent rule for in-app purchases - putting the company in an untenable position. It's not just BeamItDown that's in trouble, however - the company believes that Apple is out to get every e-book seller on the App Store with the same tactics.
"What sounds like a reasonable demand when packaged by Apple's extraordinary public relations department is essentially an eviction notice to all e-book sellers on iOS," the company claimed - in order, it believes, for the company to push its own e-book software and store, iBooks.
"They want all of the eBook business on iOS and since they have the unilateral power to get it, we are out of business. We put our faith in Apple and they screwed us," the company claimed. "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. 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."
The team behind iFlowReader asks fans of the software to get in touch with Apple to complain about the fate of the app, which is due to vanish from the App Store at the end of the month - and warns users that any books they have purchased through the app should be downloaded via the My Books section of the iFlowReader.com website in order to ensure they will remain available once the company's servers are shut down.
With iOS app development continuing to make peoples' fortunes, it remains to be seen if the fate of iFlowReader is a one-off, or if - as BeamItDown predicts - it heralds the future of all e-book apps on the platform, as Apple pushes its own iBooks instead.