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Tuesday, February 01, 2011, 10:00 am PT (01:00 pm ET)

Apple denies claim that Sony Reader, Kindle in danger on iOS App Store

Apple issued a surprisingly timely response to a claim made by the New York Times that suggested the company might bar iOS apps that sell content outside of Apple's software market within iTunes.

The original report was based on comments from Sony, which said its ebook Reader app had failed to pass Apple's approval process because its in-app sales weren't going through Apple.

Writing for the New York Times, Claire Cain Miller and Miguel Helft wrote the Apple is "further tightening its control of the App Store," and then speculated that this might spell the last days for similar apps, including Amazon's Kindle ebook title, which like Sony Reader, competes against Apple's own iBook app.

However, Wall Street Journal blogger John Paczkowski has reported official comment from Apple spokesperson Trudy Miller, who said the company has not "changed our developer terms or guidelines," while noting that "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."

That would be the reverse of the situation reported by the Times, and also makes more sense. Pulling popular titles such as Kindle, and similar content-access apps including Dropbox, Hulu+, Netflix and Pandora, would do little to benefit Apple.

In-app option required, but not exclusive

Instead, as Paczkowski explained, "Apple wants its cut on sales enabled by its iOS devices, it has an established guideline that allows it to take it and that’s what it’s doing.

"Developers are still free to send customers to their own Web stores, but they must also offer them the option of purchasing content within their apps themselves, and they must route those sales through Apple which will then take its percentage."

This harmonizes with Apple's previous policy, enabling users to buy through iTunes (and allowing Apple to earn a cut for facilitating the convenience) without forcing all content to be purchased within iTunes. For example, Amazon can sell Kindle-DRM ebooks directly from its website or through its own Kindle device, and iOS Kindle app users can sync those purchases to their iPhone, iPod touch, or iPad.

Apple has never supported in-app sales of content within apps that bypass its iTunes payment system however, an issue that has irritated the music labels, movie studios, newspaper and magazine publishers, and now, Sony's Reader business.

Why Apple charges a cut

The company's newfound ability to earn a cut from software built to use and benefit from its platforms, starting with iPod games and moving through iPhone and iPad apps and the new Mac App Store, has enabled Apple to deliver a rich ecosystem of software that contributes to its device sales.

In its music and app stores, Apple is acting as a virtual mall developer, building markets that attract shoppers and charging vendors a cut to support the costs needed to build and operate the stores. Apple also manages promotion, merchandizing and sales fulfillment, enabling small developers and indie musicians to focus on their craft, leaving much of the business side to Apple.

While the company has always aspired to operate the iTunes Store as a break even business, the cut it takes from media and software sales enables it to deliver an attractive, curated market for content that has attracted users who previous refused to pay anything for music or apps, creating real markets for content to replace the "open" distribution of music, video, and mobile apps that have been devastated by direct piracy, copyright infringement, malware, and junkware.

Outside of iOS apps, Apple hasn't made iTunes the exclusive source for content, allowing third parties such as Amazon to sell music and ebooks that iOS users can play. It has however restricted third parties from selling DRM-protected music (including Windows Media Audio files sold through PlaysForSure stores), from offering iOS native apps intended for widespread distribution outside of iTunes (web apps offer the only wide-open iOS platform for third parties), and has examined other grey areas as well.

For example, Apple initially blocked Adobe from delivering native iOS apps created using its Flash Developer tools, a position it has since relaxed now that iPad and iPhone apps are well established as viable platforms.

Taking a cue from Nintendo

Tying third party apps to its platforms in the same way Sony, Nintendo and Microsoft promote exclusive games for their respective platforms (and similarly charge licensing fees from their developers, albeit much higher than Apple's cut) has also enabled Apple's iOS App Store to stand out and receive valuable third party promotion from broadcasters and advertisers directing their customers to iTunes.

Apple previously struggled for decades to attract third party software titles to its unique Macintosh platform; it did not directly benefit from very profitable software sales of titles such as Microsoft Office or Adobe Photoshop and PageMaker, applications which originated on the Mac, profited from its existence, and then jumped ship to support Windows, taking the value of Apple's platform and directly transferring it to Microsoft.

With the shoe now on the other foot, Apple appears unlikely to ever relinquish control to third party developers that have historically demonstrated scant platform loyalty when it conflicted with their own profits. Apple's iTunes markets now drive their own traffic, making it hard for developers, studios, and labels to refuse to offer their content through Apple.

Apple plays hardball

NBC Universal pulled its content from iTunes for a year in late 2007 before it came crawling back ready to play. And while neither Microsoft nor Adobe have moved their mainstream apps to the new Mac App Store yet, both have experimented with new iOS apps and have expressed an interest in expanding their app availability through Apple.

If Sony fails to establish its position on the iOS App Store, it will likely continue to be blown out of the water by competitors who have, including Amazon and Barns and Noble.

Sony—and Nintendo—may also eventually find themselves willing to support game sales through the iOS App Store, something both currently view as anathema. Both are still working to build their own new generations of portable gaming hardware, even as smartphones eat into the market for standalone players.

Sony has announced a plan to bring original PlayStation titles to Google's Android, but the software markets on that platform are currently dysfunctional and not attracting users or developers.