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Comment by epistasis | Hacker News Reader

There are two components to this company: an eBook reading app, and a bookstore. They clearly took much more pride in the app, and that's where they have true value. With the store they are just middlemen, and though perhaps they could add value by helping people find they books they'd most enjoy, they don't seem to be innovating there. In the end their eBooks are just Adobe DRM protected ePubs.

So monetizing the middlemen part won't work, but aren't there any number of ways to monetize the reading app part? I, for one, wouldn't mind a flow-based reader. I've bought eBooks from a few places now, but also hate the page-turning interface.

This comes across as a stunt to try to change the agency model for book selling. Good luck on that, though, because now you need to convince both Apple and all the publishers to give them 20% again. But why would they do that? Extra middlemen are not going to offer 20% of value in a digital distribution chain.

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By extra middlemen are you referring to anyone who sells something on an Apple platform which Apple also sells?

I'm referring to collecting money through Apple's payment system:

Customer --> Apple --> Reseller --> Publisher

as opposed to:

Customer --> Reseller's website --> Publisher.

iFlow says in the linked article this second model is unworkable for them because iFlow can't get by on 30% of the transaction. iFlow wants 50% like they were getting before the agency model.

"iFlow wants 50% like they were getting before the agency model."

You may not have intended this, but that sentence reads as though iFlow is merely making less money than it wold like. The problem's worse than that. iFlow would be losing money with each book sold.

iFlow doesn't have the clout to negotiate contracts with individual major publishers: books are made available through a wholesaler. The wholesaler distributes the publisher's cut, takes its own, and gives iFlow itself a cut of _less than_ 30% of the sale price. Since Apple suddenly wants an entire 30% of the sale price, iFlow would literally be losing money with each transaction to make up Apple's "cut".

As part of the agency model, all books must be sold at the same retail price, so iFlow can't simply bump up the price of its books to compensate, either.

iFlow never sold books directly through their app, because the iOS terms never allowed in-app sales. If iFlow was selling books before, they were doing it through a website, unless their app was incorrectly approved.

iFlow doesn't need any clout when negotiating a cut, everybody gets the same deal:

>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.

Apple only gets a cut if they handle the processing, i.e. sold on iOS. Books are not a subscription, they can be sold on a website outside of iOS without restriction.

Am I wrong on any of this? I got downvoted but I'm not sure why.

Am I wrong on any of this?

Yes.

If you sell digital goods for use on an iOS device then you must also offer them via in-app sales, for the same price as you do elsewhere.

Since their app is only an iOS app, everyone will continue to buy via the in app purchases even if they did offer it online, and for each of those purchases they have to pay the Apple tax.

I don't believe that's correct either. I'm guessin your source for Apple's policy is this:

http://www.apple.com/pr/library/2011/02/15appstore.html

But this policy only applies to subscriptions, not to purchases. In particular:

>Publishers set the price and length of subscription (weekly, monthly, bi-monthly, quarterly, bi-yearly or yearly).

does not sound like it is in any way compatible with the book world's agency model.

Edit: found an Ars Technica article here:

http://arstechnica.com/apple/news/2011/02/apple-responds-to-...

but it seems that this policy was unclear even at the time according to the terms, and it's certainly not enforced with the Kindle app, so it's unclear what's going on here.

> it seems that this policy was unclear even at the time according to the terms

That's pretty much the problem in a nutshell - the policy's unclear, and it's always unclear until Apple brings the hammer down. Not a good environment in which to try to build a business.

See the comment and link above - http://news.ycombinator.com/item?id=2535773

Books are explicitly included in that document.

If you read carefully, they get (up to) %30 of the book price in margin from the publisher. Then they are asked to turn around and pay %30 of the book price to Apple. This means they make %0 net.

Subtract from the %0 net margin the costs of doing business and you are in a lot of trouble.

Sounds like they need to move to a premium app model and stop trying to make money from book sales.

To the best of my understanding, in the top model here iFlow gets 0%, in the bottom model, iFlow gets 30%. iFlow previously used the bottom model and got 50%. They could continue to use the bottom model at 30%, on iOS or other platforms, but clearly that's not enough for them to get by.

Their complaint here is the agency model of pricing itself.

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