E-Book Market 2011: Apple Tightens Its Grip

Interesting news coming out of Cupertino... Apple is getting tougher with apps that sell products outside of Apple's usual 30% cut. Apparently Apple has blocked Sony's e-reader app and mandated that purchases of e-books cannot be sold without giving Apple their cut. Even books you bought outside the App would not be allowed within.

This has massive implications. Kindle has been successful partly because the software is available on all sorts of platforms, and wherever you bought your Kindle book it's available, and bookmarked the same. So if you start reading a book on your Kindle reader, then go to it on your iPhone, it's in the same place. No longer; under Apple's new policy apps can no longer access content purchased outside the App Store.

As you can imagine, there's already widespread concern since this article was published in the New York Times. I can understand Apple's concern, because at its logical extreme this would encourage app makers to funnel in-app purchases to outside places, and Apple would lose what's currently 50% of App Store revenue: the in-app purchase. On the other hand, you can see where Amazon wouldn't want to take an extra 30% hit on ebooks they sell... there goes the profit margin, and then some.

Conceptually there seems to be a difference to me between buying an e-book on Amazon, then wanting to read it on my iPhone or iPad, versus going to an app on my iPhone and buying an ebook there. Though it gets fuzzy when I think about using a Kindle app on my iPhone to buy an ebook... would the user even know where the transaction takes place, or care? Well, Apple and Amazon sure do.

So this struggle is going to be a major one, and it may well affect how ebooks are sold and distributed and read. I'd hate to see ebooks become walled off based on the platform where you purchased them, and I don't think consumers will sit still for that, either. This same policy would also affect things like Sony's plan to bring PSOne games to iOS, for instance; Apple would not allow sales of Sony games within a Sony app unless Apple got a cut, under this policy. Would Sony sit still for that?

This also bears on the magazine/newspaper subscription revenue issue that's still outstanding.

Apple's going to be in the middle of some interesting discussions. I hope this ultimately plays out to the benefit of the customers. Apple may have to make its simple 70/30 split structure a little more complicated to accommodate reality and customer needs.

UPDATE: Apple has responded, to clarify that content purchased elsewhere is OK as long as it is also available through an in-app purchase (where Apple can get its cut). If the app developer doesn’t want to use Apple’s in-app purchases to sell content, then the app can’t access content purchased elsewhere either. I don't think this solves the problem, and no doubt the discussions will continue.