Another sign the Kindle for iPhone party might be ending soon

This post on why iFlowReader are closing shop is fascinating.

It touches on four things that this post will cover –

  1. Kindle Tablet is absolutely necessary for Amazon if it wants to keep dominating eBooks. Amazon can depend on Apple iOS and Android as much as iFlowReader can, i.e. not at all.
  2. Nook is a hugely important counter-weight to the Kindle.
  3. It’s exceedingly careless to not realize what an app store fundamentally is, i.e. the app store company’s personal kingdom and a means to find out the most profitable products. Most app store companies will want to take over these profit streams (because they are for-profit companies), and usually will.
  4. Reciprocation means that every move like this has consequences. When an Ecosystem owner takes advantage of an Ecosystem participant – the owner is eventually well rewarded for its ruthlessness. If a mass destruction of eReading apps and eBook App companies happens – It might be Apple jumping the shark.

Let’s start with the first.

Kindle Tablet is absolutely necessary for Amazon to keep dominating eBooks

Let’s work through a bunch of assumptions and facts.

  1. Kindle Reading Apps are just software. Out of all the elements – books, software, hardware, ecosystem – they are the easiest to replace.
  2. The core books are the same no matter what delivery vehicle you use. It’d be exceedingly foolish to imagine that your software can’t be replaced. If physical books can be replaced, then a piece of software can definitely be replaced.
  3. There’s lots of money in selling eBooks. Whether you approach it from the perspective of selling bits in the ether, or whether you approach it from the perspective of huge volume, there’s little doubt that $23.5 billion a year in book sales might morph into $10 billion+ a year in ebook sales eventually. And that’s just in the US.
  4. It’s very easy for any ecosystem owner to take over ebook sales. All they have to do is either kick out other ebook sellers or put their own ebook store as the default.
  5. Companies with power never spurn the opportunity to capture the lion’s share of the profits. There’s no company in the world that says – We’re happy with 5% of the profits even though we totally dominate the supply chain and could take 90%.

All of that is a convoluted way to say – If Apple sees Amazon make lots of profit from ebook sales through iOS devices, it will take over that profit stream.

iFlowReader just demonstrated an App Ecosystem’s True Purpose (1 out of a few)

iFlowReader is just collateral damage. However, its experience points out a few interesting things –

  1. The Agency Model might have been the first step down the slippery slope of Apple taking over iDevice ebook sales. It seems a bit crazy but it’s worth considering.
  2. The Apple directive to hand over 30% of ebook sales means any apps selling ebooks will not only struggle to make a profit, they will probably run into significant losses.
  3. Apple might be asking for 30% of sales, but it’ll usually be 50% to 100% of profits.
  4. A lot of the companies selling ebooks will have to close down.
  5. Apple will, in effect, be left with all the ebook profit streams that other companies had created/found in the iOS system. Whether it’s individual book apps, eReaders like Kindle for iPhone, or some other means of selling books – everything will flow to Apple.

Lest we devolve into a pro-Apple, anti-Apple conversation – Nothing against Apple. It has just demonstrated how to take supreme advantage of other companies. Surely, the shareholders don’t care that some small app developer company is dying.

In fact, Apple has done every other company dependent on iOS a favor by demonstrating the precariousness of depending on someone else’s ecosystem and someone else’s customers.

 Let’s switch back to the Kindle Tablet.

Kindle Tablet is the only way Amazon can gain a direct channel to Casual Readers

Apple and Google have made very strong moves to eat up the profit streams Amazon and B&N spent so much money and effort to uncover –

  1. Google has opened an eBook Store that is the default eBook Store for Android.
  2. Apple has introduced this ‘30% of revenue, 90% of profits’ tax levy.

Amazon should have done what B&N did – it should have released a Kindle Reading Tablet to appeal to casual readers. It’s mystifying that Amazon still doesn’t have a Kindle Tablet out. Everything that happened to iFlowReader, and the fact that it, quite rightly, laid all the blame on Apple, should be a stark reminder to Amazon.

All those glorious Kindle for iPhone ebook sales are about to be snapped up by Apple. Although Apple will settle for 90% of the profits and a Thank You!

Nook is a hugely important counter-weight to Kindle

If we look at the eBook and eReader landscape, this little iHoodwinked fiasco highlights the danger of a single company dominating one or both of eReaders and eBooks.

There is no guarantee that the dominating company won’t pull an Apple.

Give us all the profit streams. You can keep the struggle to survive.

A dominant ecosystem, one which controls eReaders and the flow of eBooks, has no reason to limit itself to only 10% of the profits. Why wouldn’t it take 90% of the profits?

Barnes and Noble, with Nook and Nook Color, is ensuring there’s some semblance of balance. A second eReader and a second eBook Store.

What is an App Store?

Here’s what an App Store is on the surface –

  1. Developers make apps and sell them and profit.
  2. Device owners get more features for their device, sell more devices, and profit.
  3. A share of sales revenue is kept for the Ecosystem’s maintenance.

This is perfect. On the surface we have a great win-win situation.

It is, of course, tilted a bit in the favor of the ecosystem because the ecosystem makes money from every app sold – whether or not the app developer makes an actual profit on total investment. However, that’s fine because the ecosystem company is providing a channel to customers of good intent.

So, it seems to be relatively well-balanced. But, it isn’t. In reality, the odds are stacked heavily in favor of the Ecosystem Company. The House Always Wins.

Here’s what an App Store is in reality –

  1. All of the things in the prior list.
  2. Totally dominated by the App Store owner, and by the App Store owner’s moral compass.
  3. A testing ground to weed out the most profitable sub-businesses in an ecosystem.

While some of the sub-businesses are roped off (for example, music in the iOS ecosystem) there are other profitable sub-businesses. Once these are found we get a very interesting situation – The App Developer found the vein of gold (Ex: Amazon finding ebook profit) but the App Store owner owns the mountain. It comes down to the Moral Compass of the Company and that Moral Compass is Profit.

That’s the point everyone seems to miss. It’s not immoral or right or wrong for an App Store owner to say –

How nice of you to invest heavily, take a huge risk, and discover this amazing stream of money.

Now, let us take it off your hands.

It’s just the nature of a company. It’s a bit strange to expect a for-profit company, that completely owns an ecosystem, to let another company make tons of money from that ecosystem without asking for a cut. It’s even stranger to expect the ecosystem company to not demand the largest possible cut.

That’s what’s happened. Apple has realized ebooks are a goldmine – and that it’s really easy to sell ebooks. It’s decided it wants the goldmine for itself.

There is no way an app developer can guard against this. None. All it can do is build its own channels to customers and invest in other ecosystems – make sure that it doesn’t depend 100% on a revenue stream that is totally out of its hands.

Reciprocation Works Both Ways

Here’s the thing Apple is missing – Reciprocation. If you don’t treat people well, they reciprocate by treating you badly.

Apple needs app developers more than app developers need it.

That might sound strange if you don’t look at things as they really are. But the truth is that the single biggest advantage Apple has over competing closed and pretend-open ecosystems is the range and quality of apps.

Think of each app as a value-add for some set of customers. With 300,000 apps you get a lot of extra value for nearly every owner. With 300,000 apps each individual app’s importance goes down.

However, app developers as a collective group are still the engine.

Apple’s move with the 30% ebook tax is rather interesting. There isn’t really a way to fathom it because 30% of revenue means that almost every single ebook app developer will have to close shop.

There are tens of thousands of ebooks being sold as individual book apps that will have to either give Apple 30% (which is nearly all the profit) or close down. There are big eReader apps like Kindle and Nook selling millions of ebooks every month that will either have to give Apple the entire 30% they get from ebook sales or close shop.

It’s a massive betrayal of developers. Developers who took a chance on the iOS ecosystem. Developers who helped sell iPhones and iPads and iPods.

Every other app developer will notice. It’s a clear message – Come in and make apps and help us sell devices. If you do really well, we’ll just take over your profit stream for ourselves.

It takes away the possibility of building up a big sustainable business in the iOS ecosystem.

It means that unless you are creating and selling your own product, without any partners or invested parties taking a share, you can’t really survive in the iPhone App Store. How many really big businesses (or, for that matter, companies) do we know where everything is done by one company?

It’s almost impossible. Yet, that’s what you would have to do if you want to build a viable business in the Apple App Store.

Apple keeps making stupid moves like this one – which helps the growth of Android and other competitors. Isn’t it making enough money from selling status indicators? Why try to rob developers out of profit streams they put a ton of effort and money into uncovering?

iFlowStream spent 1.5 years and close to a million dollars to build their business. Now, it’s been stripped away. The way Apple is treating iFlowStream means that other app developers will learn to choose other platforms, or will build direct channels to customers.

Whether it’s a closed ecosystem, an open ecosystem, or a pretend-open ecosystem – Someone else controls it. Sooner or later, they either want you to hand over the profits or to make less/no profit. It’s best to build your own site and your own store and your own channel to customers. That’s so much easier and so much purer.


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