Apple Blocks Sony’s Reader App: Smart or Stupid?

Apple tightened its grip on the App Store after rejecting Sony’s Reader iPhone app this week, the New York Times reported. The surprising move spurred bloggers to condemn Apple for its nefarious and draconian ways. Truth is, Apple made a sound business move, at least in the short-term.

According to Apple, Sony’s Reader app didn’t conform to the fine print concerning in-app purchases. Here’s how the Sony Reader iPhone app would have worked: The app opens up Safari whenever a user wants to buy a book. This means book purchases bypass Apple’s in-app feature.

Apple mandates that users be given the in-app option, whereby Apple takes a 30 percent cut on purchases. “We have not changed our developer terms or guidelines,” Trudy Muller, an Apple spokeswoman, told the New York Times. “We are now requiring that if an app offers customers the ability to purchase books outside of the app, that the same option is also available to customers from within the app with in-app purchase.”

Industry watchers wondered why Apple would force an in-app buying option. Apple makes its money selling devices, not content. In fact, the iPhone becomes more marketable with more content, even content bought outside the app. While a 30 percent cut on in-app purchases sounds like a lot, the revenue won’t move the dial on Apple’s earnings.

So what gives? Perhaps it’s a point of principle, says tech analyst Rob Enderle. “Just as Sears likely wouldn’t allow some other vendor to open a store in store shop without paying a royalty to Sears, Apple doesn’t want to have people start to bypass their store through apps,” he says.

Tactically, Apple’s move is smart because it somewhat contains revenue erosion by eliminating the bypass, Enderle says. In the long run, though, it might draw the attention of regulators. “The government will likely not stop at just eBooks,” he says.

One app developer and digital publishing company, YUDU Media, thinks Apple’s emphasis on in-app purchasing foreshadows an Apple announcement of a long-awaited subscription-based service. Apple doesn’t want publishers to be able to skirt the App Store when users sign up and pay for subscriptions.

“This move by Apple has several important consequences for publishers and consumers,” says Richard Stephenson, CEO of YUDU Media.

Consumers should benefit because they’ll no longer have to navigate away from the App Store to third-party portals and payment gateways.

For publishers, in-app purchasing of a subscription is a mixed bag, according to YUDU Media. They stand to prosper from impulse purchasing, but a 30 percent cut for Apple might also force them to bump up their subscription pricing.

Tom Kaneshige covers Apple and Networking for CIO.com. Follow Tom on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline. Email Tom at tkaneshige@cio.com.