Why vendors are annoyed by the new In-App Purchase rules

17 Feb 2011 in ePublishing on Apple

I was asked in a comment to another post to explain why my reaction to IAP isn’t just indicative of greed on the part of publishers, who used to get something for nothing, and don’t want to start paying for it now. Since then it’s been suggested that I promote my response to a full post, so I’m now doing that, tweaking it only slightly to better indicate that my points apply equally to any eBook vendor.

Remember: This is not Kobo talking, this is me. I happen to have some knowledge about how things worked at Kobo, so I have some knowledge about the business in general. It is from that perspective which I now write.

First and foremost, however: Amazon, B&N, and Kobo are most emphatically not publishers. They are vendors who work with hundreds or thousands of publishers the world over in an attempt to help those publishers sell content online. One such channel is iOS. They don’t have to pay their web hosts a percentage of all sales, or the creators of other operating systems, or the telecoms providers, or the ISPs. Only Apple claims that they should get 30% of all content sales which take place on a platform they created. They don’t yet claim that for Mac OS. Might they in future? Who knows…

So, here’s my side of things, and as a former employee of Kobo Books I have some idea what I’m talking about, although of course as a coder I wasn’t privy to the exact nature of their deals with publishers and the like, so please don’t take any figures as absolutes, and definitely don’t assume I speak for anyone besides myself.

1. Kobo et al. have spent millions of dollars building content-distribution solutions, negotiating deals with publishers (please note: Kobo is not a publisher, it’s a vendor), and paying teams of hundreds of people to build & maintain these systems.
2. Vendors make no more than 30% of sale price–usually less–on any given book that they sell, the same as everyone else in the industry.
3. Apple requires that the vendor now pays 30% of sale price to them to use In-App Purchasing. After being told that this isn’t economically feasible, Apple informs Kobo et al. that they should redirect outside the app to sell content.
4. Apple then decides to compete with Kobo, Amazon, Stanza, etc.
5. Apple’s competing application makes use of a vast number of private APIs (any one of which would cause any competitor to be rejected from the store) to simply, easily and cleanly implement functionality which the rest of the market can at best kludge together. Any attempt to replicate some of these private APIs will also result in rejection. For instance, no competing JavaScript-capable HTML rendering engines.
6. Apple decides that all iOS apps which have anything to do with purchased content must offer to sell that content in-app, giving Apple a 30% cut. At no point does Apple make any acknowledgement of the immense costs incurred in the management of such a catalog. They just want 30% of sale, but the seller must still bear all the costs of that sale.
7. Apple is asking for no less than every cent of eBook vendors’ revenue earned through any iOS devices, and has outright banned any attempts to prevent their doing so. Competitors to iBooks cannot even mention an alternative payment method in their apps. In return for taking a 30% cut, Apple offers the following:
   • Billing services, charged at 10x the prevailing market rate.
   • No hosting of content.
   • No bandwidth cost subsidies.
   • No account management services.

In Summary

Apple is requesting that competitors to their own services hand over more money than they make in profit. 100% or more of revenue, before deducting costs. Apple makes no offer to change that percentage, nor do they offer to assist with user or account management or the various PCI-compliance issues which come with them. Their in-app purchasing system only allows 3000 or 3500 distinct items to be in your catalog (depending who you talk to). Kobo and Amazon each have around 2.5 million titles. Judging by the title of Kobo’s app, 1.8 million are public domain (or otherwise free), so some 700’000 are paid titles, which they are under obligation to the content owners to make available for sale to all their users.

At the end of the day, this is all about stifling competition for Apple. Their in-app purchasing wasn’t designed to handle this sort of thing. It copes with only very small catalogs, and was designed to enable small developers to easily make nuggets of content or functionality available for additional purchase. In fact, when it was first unveiled, free applications were not allowed to use this: “free apps remain free” as Steve Jobs said when he announced it.

If Apple were to allow for an alternative for those of us who cannot use IAP due to the various technical and monetary concerns outlined above, I personally would be over the moon. I’d love to use IAP.

It’s just that adopting IAP means dropping 99.86% of our catalog and making a substantial loss on every single sale. If they had even offered evidence that they deigned to notice such trifling matters, we would be a lot happier. But they haven’t, and we don’t expect that they will. They want us to inflate all our prices (across the board) so people who buy iPhones will shop at the iBookstore instead.