# Agency Pricing, Apple and iFlow Reader



## ElaineOK (Jun 5, 2009)

On the surface, this is an issue that should be posted to either the Apple products or other ereaders forum. I posted it here, because I think it is such an interesting commentary on the Agency Pricing model, how it came to be and how it is being used.

http://www.teleread.com/paul-biba/a-sad-tale-iflow-reader-shutting-down-they-say-apple-killed-them-how-to-preserve-your-books/
This is the farewell letter from iFlow reader (an Apple ebook app) to its customers. The lawyer in me has any number of interesting questions and knee-jerk responses. The reader in me sees this as an unfortunate development in a growth market and the need to protect my ebook collection from format and hardware changes and developments. The consumer in me is flashing back to the role of big corporations in the Alien movie universe.

Elaine
Norman, OK


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## KindleChickie (Oct 24, 2009)

I am of two minds on this issue.  

1. Apple built their customer base.  No outside business is entitled to service their base unless they play by Apples rules.  Period.  Don't like it, build you own independent customer base.

2. I read Apple is now the second most valuable business behind some large oil co.  Wikes!  When I first bought into the Apple hype, it was a small boutique computer business.  They were the David to Microsofts Gollath.  Power corrupts, money corrupts.  Apple is showing signs of no longer caring for their customers, we are not their primary concern.


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## akpak (Mar 5, 2009)

The problem with that "farewell" letter is that it doesn't tell the whole truth. Yes, Apple takes a big bite of so-called "In App" sales, but that doesn't prevent apps from displaying content bought through other channels. The app GoodReader, for example, lets you load whatever documents you want from within iTunes without Apple taking a bite.

Also, Apple didn't create the agency model... The publishers did, in response to Amazon's pricing. Apple wasn't even the first to "cave" to it... Amazon was.

If people are trying to create small ebook stores, with purchases through the app, then yeah... It's not really sustainable. I don't see how that's only Apple's fault, and not the publishers. (Notice you can still buy books through the Kindle iOS app, and Amazon isn't going out of business...)

The folks at iFlow aren't telling the whole story. I suspect the whole story is: "We just can't compete with [big ebook store], but let's blame it on Apple for some free press."


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## ElaineOK (Jun 5, 2009)

akpak said:


> Also, Apple didn't create the agency model... The publishers did, in response to Amazon's pricing. Apple wasn't even the first to "cave" to it... Amazon was.


That is not the way I remember the press releases at the time. Agency pricing was a response to Apple's demand that no one be allowed to sell ebooks for less than Apple in the Apple store, and Apple didn't want to meet Amazon's discounting.

Elaine
Norman, OK


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## VictoriaP (Mar 1, 2009)

akpak said:


> The problem with that "farewell" letter is that it doesn't tell the whole truth. Yes, Apple takes a big bite of so-called "In App" sales, but that doesn't prevent apps from displaying content bought through other channels. The app GoodReader, for example, lets you load whatever documents you want from within iTunes without Apple taking a bite.
> 
> Also, Apple didn't create the agency model... The publishers did, in response to Amazon's pricing. Apple wasn't even the first to "cave" to it... Amazon was.
> 
> ...


The agency model WAS in fact Apple's creation, prior to the release of the first iPad. It's in fact the same model they use with developers for apps and other content, they just required any publishers who signed with them to follow it. Part of the model is the requirement that no one be allowed to sell a given title for less than Apple, thus forcing the publishers (admittedly willing conspirators in this case) to go back to Amazon and others to work out new contracts or lose the ability to sell that publisher's books. All of this is very well documented, was admitted to by the bigwigs at the publishers, and a Google search on Agency Model during the period of late winter 2010 should give you the background.

Secondly, while Amazon isn't "going out of business", there's no evidence yet that you'll be able to continue reading your Kindle books on iOS. As it currently stands, the Kindle app is not in compliance with the new rules that go into effect June 1st. Those rules, in effect, state that if an electronic product--music, video, ebook, audiobook, etc. is purchasable outside the app (via Safari, which is the current method), then it MUST be purchasable within the app, through an in app purchase. All in app purchases require a 30% commission be paid to Apple--which, conveniently, is exactly the amount of the commission the publishers pay to their vendors. In a nutshell, Apple is demanding that they get the *full* profit of anything sold via their device.

It is unknown at this point what Amazon, Barnes and Noble, and others intend to do at this point. But we'll know soon enough, since the deadline is approaching. I will not be at all surprised if the Kindle app for iOS in its current form ceases to be, especially with word coming this week of a purchase by Amazon of 800,000 touch screens and the rumors of them producing an Android-based tablet. But they could just as easily decide to take a loss on ebook sales through iOS--after all, they've taken a loss on ebook sales before in order to get people hooked on using Kindles.


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## The Hooded Claw (Oct 12, 2009)

Victoria has it right, Apple was in the thick of creating the agency model. One minor error is that Apple is not demanding The full profit of anything sold from ithings....Amazon has costs which would normally be covered by the thirty percent. If things go according to the Apple plan as announced, Amazon will eat these costs while Apple pockets the thirty percent. So Amazon will actually lose more than 30%, they have to pay operational costs to get nothing, but give Apple their thirty percent.

In addition to publishers, Netflix is potentially affected by this policy. I doubt it will happen as advertised, I suspect some deal giving Apple a smaller cut than 30% will be reached. Apple would annoy too many customers by suddenly losing Netflix and other apps. Apple is arguably within their rights, but I resent the heck out of it.



VictoriaP said:


> The agency model WAS in fact Apple's creation, prior to the release of the first iPad. It's in fact the same model they use with developers for apps and other content, they just required any publishers who signed with them to follow it. Part of the model is the requirement that no one be allowed to sell a given title for less than Apple, thus forcing the publishers (admittedly willing conspirators in this case) to go back to Amazon and others to work out new contracts or lose the ability to sell that publisher's books. All of this is very well documented, was admitted to by the bigwigs at the publishers, and a Google search on Agency Model during the period of late winter 2010 should give you the background.
> 
> Secondly, while Amazon isn't "going out of business", there's no evidence yet that you'll be able to continue reading your Kindle books on iOS. As it currently stands, the Kindle app is not in compliance with the new rules that go into effect June 1st. Those rules, in effect, state that if an electronic product--music, video, ebook, audiobook, etc. is purchasable outside the app (via Safari, which is the current method), then it MUST be purchasable within the app, through an in app purchase. All in app purchases require a 30% commission be paid to Apple--which, conveniently, is exactly the amount of the commission the publishers pay to their vendors. In a nutshell, Apple is demanding that they get the *full* profit of anything sold via their device.
> 
> It is unknown at this point what Amazon, Barnes and Noble, and others intend to do at this point. But we'll know soon enough, since the deadline is approaching. I will not be at all surprised if the Kindle app for iOS in its current form ceases to be, especially with word coming this week of a purchase by Amazon of 800,000 touch screens and the rumors of them producing an Android-based tablet. But they could just as easily decide to take a loss on ebook sales through iOS--after all, they've taken a loss on ebook sales before in order to get people hooked on using Kindles.


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## VictoriaP (Mar 1, 2009)

I actually think a smaller percentage on in app purchases would be reasonable--say, 5-10%.  That way, Apple nets something from the convenience factor and from potential new buyers that would never have tried ebooks, or streaming Netflix, or whatever, if it hadn't been available on the iPad/iPhone.  The vendor still can make a profit of some sort, and the consumer is the winner, in that the content of their choosing is available on the device of their choosing.  

I'm not interested in being forced to log into a "real" computer to make my purchases, so simply removing the purchase option from the app isn't going to cut it, since Apple seemingly doesn't plan to allow you to therefore make that purchase through mobile Safari (remember, if it's available through the web, it HAS to be available through in app purchase, so in truth that's probably not an option).  The way it stands now, I honestly wonder if Apple's legal and marketing teams have their heads shoved someplace dark.  This opens them up to even closer anti-trust scrutiny and significant potential consumer backlash at a time when Android is beginning to make inroads on their market share.  As a shareholder, I'm appalled.  As a consumer, I'm disgusted.  As a reader...well, the new Kindle tablet can't come soon enough.  LOL  

I love my iPad and iPhone, but I'm very glad I'm not in the market to upgrade either this year.  If the Kindle & Audible apps are negatively affected by this, as I do expect they will be, these will be the last Apple products I purchase, and I'll plan to replace them with their Android equivalents.  I use those apps too much on my devices now to have to deal with impaired functionality long term thanks to Apple's greed or intent to hold a monopoly or whatever the heck they think this is going to accomplish.  And if Amazon and others simply cave on this point, which is certainly possible, I will go out of my way to make my purchases through mobile Safari instead, so that Apple doesn't make a dime off those sales.


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## redshift1 (Jun 20, 2009)

For all the above reasons I went with a Motorola Xoom Tablet, works great as an e-reader and no worries over what may or may not happen with the Kindle App.


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## geko29 (Dec 23, 2008)

akpak said:


> Also, Apple didn't create the agency model... The publishers did, in response to Amazon's pricing. Apple wasn't even the first to "cave" to it... Amazon was.


You could not possibly be more wrong. Apple refused to allow publishers to sell on iBooks unless they did so under the same terms as music and apps--ie 70/30 split. This is why, at launch, not all the major publishers were available on iBooks. Random House and several other publishers refused to adopt the Agency model as Apple required, so they were barred from the store until they changed their tune.

Furthermore, another of the terms was that the same product sold on iBooks could not be sold in any other venue for a lower price. Therefore the agency model was enforced on other vendors. Amazon fought this for a short time and lost. So perhaps they were the first to "cave", even though Apple instituted the policy first. Since Apple's demands were the source of the policy, they didn't have to "cave" to anything--they got exactly what they wanted from day 1.


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## mooshie78 (Jul 15, 2010)

KindleChickie said:


> I am of two minds on this issue.
> 
> 1. Apple built their customer base. No outside business is entitled to service their base unless they play by Apples rules. Period. Don't like it, build you own independent customer base.


My problem with that reasoning is that app availability is a big part of why they've built such a big use base. App availability is one of the first things mentioned as a positive of the iOS over Android or the other platforms currently.

The iOS's main strength as an e-reading platform is that one could access multiple stores on one devices.

With this new policy they're driving stores away, and punishing people who helped them build their customer base by offering attractive content on their platform.

In any case, I'm thoroughly opposed to Apple (or any other OS/hardware company) taking a chunk of in-app content sales personally--and especially not a huge 30% chunk that takes pretty much all of a companies profits in the case of e-books. If I'd been more aware of this issue sooner I wouldn't have bought my iPad 2. And if they don't change their policies on this front, the iPad 2 will be the last Apple product I ever buy.


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## KindleChickie (Oct 24, 2009)

mooshie78 said:


> My problem with that reasoning is that app availability is a big part of why they've built such a big use base. App availability is one of the first things mentioned as a positive of the iOS over Android or the other platforms currently.
> 
> The iOS's main strength as an e-reading platform is that one could access multiple stores on one devices.
> 
> With this new policy they're driving stores away, and punishing people who helped them build their customer base by offering attractive content content sales personally--


I disagree. All these start up apps were not around when the iPhone caught fire.


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## mooshie78 (Jul 15, 2010)

KindleChickie said:


> I disagree. All these start up apps were not around when the iPhone caught fire.


The hardware is very well designed, and the iPhone did take off like hot cakes when it first came out, But also, there was no real competition at the time. There weren't Android phones etc. back then. The only other smartphones really were Blackberries which were aimed at business users more than personal use.

Apps are 100% a big reason why the iPhone and iPad are still doing so well now that there is competition, as app availability is a big advantage to the iOS platform.

I'd 100% have an Android based tablet if the App selection was closer, and there was a good one that had the iPad's screen ratio rather than the 16x9 widescreen the Xoom and other major ones have (sucks for reading in portrait mode as it's too narrow--and that's my main tablet usage). I bought it begrudgingly as I've always disliked Apple and their followers. And now I really regret it even more due to this stupid policy change.


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## KindleChickie (Oct 24, 2009)

Please refer back to my original statement and the reason you disagreed.  Apples base was built by their own "followers" which you admit you dislike.  Outside app developers love being able to access apples base customers because they are a dream come true.  They spend a lot of money on their gadgets and have a high mean income.

Apple built their business.  They developed their following.  No third party business has the right to play their game unless they follow their rules.  If they dont like their rules, then they need to play else where.

Now, whether we as customers have a right to expect Apple to do this or that, is a whole different ballgame.  Mooshie, you paid top dollar for your iPad.  IMHO, you have a right to expect a certain level of service from Apple.  You are a customer not a business looking to make money.  That is where I see the difference.


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## mooshie78 (Jul 15, 2010)

Fair enough.  It's just the two things collide.

When Apple plays hardball, us money paying customers lose as we'll have fewer App options, fewer e-book stores to choose from etc.

But even just on the developer side.  Microsoft (and Apple) make the Windows and OSX playforms, make Safari and Internet Explorer etc.  Does that mean they should get a cut of every software package sold that runs on those platforms?  Does it mean they should get a cut of any content purchased through software on their platforms?

If not, then why is the iOS (or Android as they take cuts of things too) any different than the PC operating systems?  Microsoft built up Windows as the huge dominating platform in the PC world just like Apple has on Smartphones/Tablets thus far.

I just don't like it.  Hardware/OS companies should make their money selling hardware and their own first party software they make themselves.  Third party developers should be free to sell whatever software and content they want on those machines IMO as I just don't see smartphones or tablets as different from PCs in that sense.

But that's just Apple's walled garden approach, and it's not going to change.   And it's my own fault for not doing a bit more research before buying a tablet.  Hopefully when MS finishes their tablet OS they leave it more open and treat it like a Tablet PC (and also have more PC like features like a file system, MS Office, usb drive support etc.).  I'll happily sell my iPad or give it to a family member when something like that is out.  In the meantime I'm not getting anymore paid apps or buying any in-app content.


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## The Hooded Claw (Oct 12, 2009)

An important difference between the iOS system and Windows is that Apple has set up a marketplace, and handles payments and screens out apps that don't meet certain standards (not everyone adores their screening, but it does have uses, and is an expense for them.  They also don't allow us to put things on our iThings that haven't come through their system.

Windows doesn't have such a system, anyone can sell and install everything, thus Microsoft can't get a cut of third party software sales.

There are advantages to both approaches, but the bad side of the Apple approach seems to be bubbling up.


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## mooshie78 (Jul 15, 2010)

Yep.  And honestly, since they run the App store I'm ok with them taking a cut of App purchases.

I just have a problem with them taking a cut of in-app content sales as that's not going through their apps store.  The person has already bought/downloaded the app through the App store.  Everything else is just using the internet connection to buy stuff through the app (or jumping out to safari).

I have major problems with them taking a cut of that as that's really no different that using a web browser (which is an app!) to do online shopping etc.


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## ElaineOK (Jun 5, 2009)

One distinction in the iflow facts that several commentors seem to be overlooking is that Apple approved the app, approved the development, approved its original terms; and then, when massive amounts of money had been invested, Apple changed the rules (or more accurately, starting enforcing them).  The app customers, of course, were in the dark for the most part.  If I were in a law firm that could support a seriously expensive consumer class action, I think I would be sitting back and reading some contract terms.  This could get interesting, although, the case would be so overwhelmingly expensive that it will almost certainly never be brought; and frankly, at this point I couldn't even give an educated guess as to its viability.  I do think researching that would be interesting, though.

Elaine 
Norman, OK


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## Les Turner (Mar 13, 2011)

Why does no one care that Amazon ebooks have DRM yet Apple's iBooks are DRM free?

The whole reason I avoid buying books on the kindle is because I am then locked into a situation where I have to only use Amazon hardware/software and have no choice.

On my iPad I can currently read and buy books from Apple or other vendors, but let us just say that Apple's new rules forces all other players out and I can only use iBooks, that's okay because all of them are DRM free and will easily port into iBooks. But what if Amazon did the same thing and you all got on your highhorse and said you were leaving Amazon... you can't, all your books are tied to the Kindle (please correct me if I'm wrong).

At this point I only buy through Apple or Smashwords, that way I own all my stuff and have the choice to read it using whatever app I like.

Yet you all think that being locked into a company is fine, yet another company that gives you choice (while stacking the deck so that you choose them) is terrible.

And again please tell me if I'm wrong because that's how it looks.

(Full disclosure, I'm a massive Apple fanboy and will find an argument to defend them in any scenario)


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## VictoriaP (Mar 1, 2009)

Um...unless something's changed (and it may have, I'm not certain), Apple's iBooks are not truly DRM free in the US. They use a form of Adobe's ADE setup, and if I recall correctly, it's a proprietary form of it at that. Again, I haven't looked into that issue in months, but that's what I recall from when the iPad first came out. And of course, things may be different for you in Australia. But it was a pretty big talking point, since music through iTunes is DRM-free.

Edited to add: as of last month, at least, looks like this was still true-- https://discussions.apple.com/thread/2427314?start=45&tstart=0 iBooks purchased through the iBookstore couldn't even be read on a Mac, let alone another non Apple device.

Having said that, I personally don't see DRM as central or even relevant to this particular discussion. As a shareholder AND as a consumer, it's in my best interests that all ebook platforms continue to be readable on the iOS platform, regardless of DRM. This maximizes its usefulness as the only current device able to do so, and increases the market for this device. What Apple is choosing to do will very likely make their device less appealing to buyers. As a shareholder, I disapprove. As a current consumer, I'm left with a device that's less useful for my specific purposes, and that may take a hit in resale value as a result of that reduction in usability.


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## Les Turner (Mar 13, 2011)

VictoriaP said:


> Um...unless something's changed (and it may have, I'm not certain), Apple's iBooks are not truly DRM free in the US. They use a form of Adobe's ADE setup, and if I recall correctly, it's a proprietary form of it at that. Again, I haven't looked into that issue in months, but that's what I recall from when the iPad first came out. And of course, things may be different for you in Australia. But it was a pretty big talking point, since music through iTunes is DRM-free.
> 
> Edited to add: as of last month, at least, looks like this was still true-- https://discussions.apple.com/thread/2427314?start=45&tstart=0 iBooks purchased through the iBookstore couldn't even be read on a Mac, let alone another non Apple device.
> 
> Having said that, I personally don't see DRM as central or even relevant to this particular discussion. As a shareholder AND as a consumer, it's in my best interests that all ebook platforms continue to be readable on the iOS platform, regardless of DRM. This maximizes its usefulness as the only current device able to do so, and increases the market for this device. What Apple is choosing to do will very likely make their device less appealing to buyers. As a shareholder, I disapprove. As a current consumer, I'm left with a device that's less useful for my specific purposes, and that may take a hit in resale value as a result of that reduction in usability.


Thanks for the correction, because as I said, I wasn't entirely certain I was correct. As I had mentioned I buy most of my books through Smashwords and then import into iBooks.

I agree that having as many book sellers as possible on iOS is best, but still as someone else said, iFlow is like setting up a book store inside Barnes and Noble and then complaining that you can't beat them.


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## Xopher (May 14, 2009)

I think that part of the issue is that iFlow worked with Apple to get their businesses up and running, and were told by Apple that they could have the option to purchase without the 30% kickback, then Apple changed the rules (or at least stated enforcing them). I know there was at least one company who was told that and felt the bait-and-switch pinch.

Apps like the Kindle app could get around the fee by removing the ability to purchase from within the app (if I remember correctly, the iOS version is just a link to their website). By removing the store/link, they could still give access to the online archives (already purchased) and still be in compliance. iPhone and iPad users would just have to open the web browser manually to make purchases.

The question is, will Amazon give in to Apple (lost revenue) or remove the ability to purchase from within the app (lost ebook sales)?


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## mooshie78 (Jul 15, 2010)

Xopher said:


> The question is, will Amazon give in to Apple (lost revenue) or remove the ability to purchase from within the app (lost ebook sales)?


They definitely won't give in. On Agency priced books, the breakdown is usually 70% to publisher, 30% to Amazon. Add in their operating costs, and they lose money by giving Apple 30%.

If they stay on iOS it will be by removing the in-app link to the website or some other workaround. If Amazon is coming out with their own family of of Android devices this fall as rumored, then I wouldn't be surprised to see them just pull their app from iOS and throw all their wait behind Android.


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## Meemo (Oct 27, 2008)

mooshie78 said:


> They definitely won't give in. On Agency priced books, the breakdown is usually 70% to publisher, 30% to Amazon. Add in their operating costs, and they lose money by giving Apple 30%.
> 
> If they stay on iOS it will be by removing the in-app link to the website or some other workaround. If Amazon is coming out with their own family of of Android devices this fall as rumored, then I wouldn't be surprised to see them just pull their app from iOS and throw all their wait behind Android.


I dunno - one of the things they've heavily advertised is that you can move your archives from device to device - including from iOS to Android, and vice versa. And always be able to access your books. They'd have a lot of unhappy campers if they pulled the app - I'm sure there are plenty of folks who read their Kindle books exclusively on an iPhone and/or iPad. I think it's more likely that they'd leave the app available & just remove the purchasing option. I do purchase books from the Kindle store via my iPhone from time to time, when I'm out and see notice of a freebie and don't want to risk not remembering it once I get home. But that's the only time I shop for Kindle books on anything but my computer.


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## mooshie78 (Jul 15, 2010)

I think that's more likely as well.  They definitely won't give into Apple, but I do think it's more likely they just remove the purchase option.

Also, there were rumors of them moving to a web-based app that was just accessed through a web browser and offered some kind of offline reading mode.  That would get around the problem as well since they wouldn't have to have an app in the App Store and thus wouldn't be subjected to Apple's rules.


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