Apple’s Lawyers Get Busy

Apple became the world’s most valuable company for a brief period yesterday, overtaking Exxon whose value had dipped on the back of the depressed oil prices.

Those two should continue to duke it out as Apple posts record results, and oil prices inevitably rise.

However, Apple’s celebrations may have been short-lived as Amazon came up with a clever way to circumvent their rules on in-app purchases.

Today, Amazon released the Kindle Cloud Reader. Essentially, this is a snazzy version of the Kindle reading app, but the key difference is that it’s browser-based. This means that iPad owners will be able to read books, and browse for new purchases, all in the same web-based program.

They will no longer have one app where they read Kindle books, and then have to go through the (relatively) cumbersome process of opening their browser and navigating to the appropriate page before they can make their purchase. It’s now seamless (just like it was before Apple finally enforced the new rules about in-app purchases).

It also means that Amazon can sell books through the Kindle Cloud Reader without having to fork over 30% to Apple. And, of course, it’s a blow to Apple’s strategy to force its users to use their mediocre iBookstore.

At the moment, the Kindle Cloud Reader will only function on Chrome or Safari browsers, and will only work with the iPad rather than the iPhone, but this should change soon.

I have only tested this in my browser, but it’s very snazzy, and is clearly aimed at tablet lovers. I haven’t tried it on the iPad, but TechCrunch gave it a glowing review.

It’s a very smart move from Amazon, and we can expect Sony and Kobo to follow suit. Whether Apple have any way to retaliate remains to be seen.

They are facing battles on all fronts – that’s what happens when you are top dog. Amazon are widely expected to release a tablet in September/October. Details have been hard to come by, but most analysts expect a similar spec to the iPad, but for it to be priced at least $50 cheaper.

But there are lots of other tablets both on the market and in the pipeline. Samsung are another company with $100bn revenues that are keen to exploit this market. Their line of Android-based Galaxy smartphones and tablets have come under criticism from Apple, who have lodged several complaints of patent violations.

Today, Apple won the first round of what is bound to be a lengthy legal battle, spanning several jurisdictions. A regional court in Dusseldorf issued a preliminary injunction barring the sale of Samsung’s latest model – the Galaxy 10.1 – in the EU.

Samsung were caught by surprise, claiming that the injunction was filed without notice to them and that they weren’t a party to the hearing. I would imagine that this is a temporary hiccup, and the tablet, or some slight variation of it, will be on sale shortly.

In any event, this is part of a much larger battle between all the smartphone manufacturers – as well as Google, Apple, and Microsoft – about patents, that could take forever to play out. It will be interesting to see if Amazon gets drawn in when their tablet is released. One thing is for sure, Apple’s lawyers will be hovering while Apple’s engineers take apart the device.

Apple themselves were caught by a surprise legal maneuver. A law firm called Hagens Berman has launched a nationwide class-action lawsuit against them and five major publishers (HarperCollins, Hachette, Macmillian, Simon & Schuster, and Penguin) claiming that they illegally fix the price of e-books.

It’s not sure at this stage if the suit has any legs. However, that same law firm are also investigating the claims that some large publishers are under-reporting e-book sales, shorting their authors their rightful share of royalties, probably with one eye on another class action suit.

Again, it’s unclear at this stage how far this will progress, but if it does, Apple, and especially the major publishers, could be tied up in a long-term, messy, and expensive legal battle.

Interesting times.

About David Gaughran

David Gaughran is Irish, living in Prague, and the author of Mercenary, A Storm Hits Valparaiso, Let's Get Digital, Let's Get Visible, and this here blog.
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47 Responses to Apple’s Lawyers Get Busy

  1. Another fine example of why this is one of the must-read blogs of the industry.

    The Hagens Berman actions are of particular interest long term. I’ve been following Kris Rusch’s reports on the allegations of under-reported e-book sales for some while now. That the big publishers have been under-reporting seems pretty clear. Possibly this was down to incompetent accounting. Possibly a deliberate measure to defraud writers (very serious if provable). Most likely a deliberate attempt to undermine the transition to digital by pretending e-books were failing, even as they invested heavily in digital technology to take full advantage.

    Not sure how much, if at all, that has happened in the UK, but having been at the top of the charts we’ve often been asked by trad-published authors next to us how many we were selling, because they have no way of knowing. They have been pleasantly shocked when we have given them figures (the only other option, Novelrank, is wildly inaccurate and seems happy to stay so).

    Whether the official figures they will be given by their publishers bear in semblance to these remains to be seen.

    With the current Amazon sale a lot of trad-published writers in the top of the charts will suddenly be selling e-books in huge numbers because of indie-comparable pricing. If they are eventually given accurate figures, and do the maths, they may well wonder if they still need that publisher for their next books.

    • Thanks, Mark.

      Novelrank has its (minor) uses. It’s very accurate at tracking your rank – it gets that direct from an Amazon API – which is useful for tracking sales trends and seeing if you can tie them to various promo efforts.

      It’s pretty useless for sales. If you are selling a small, steady amount (say 1 to 10 a day) it will catch nearly all of them. However if you are selling slower or faster than that, it will miss most of them.

      When discussing Novelrank with other indies, every single one of them said that it under-reported sales. However, when talking to trade-published writers, they often said that it OVER-reported their sales.

      This ties in what is looking like a pretty widespread under-reporting of trade-published writers e-book sales.

      At this early stage, there is no evidence other than it was just poor accounting systems on behalf of the publishers. Perhaps more serious wrongdoing will be uncovered, but there is no (public) evidence to indicate that’s the case (so far).

      Having said that, I don’t think any writer is alleging over-reporting of sales. And when the mistakes all go one direction – benefiting the publishers – then people are entitled to be suspicious.

      As you have hinted at, trade-published writers would be less likely to jump ship if they thought they were earning so little from e-books (and the reports I have read are that the royalties they were getting were only a tiny fraction of what they should have been receiving).

      It could also explain some of the skepticism and disbelief amongst trade-published about the viability of self-publishing, and the numbers indie writers are posting.

      Personally, I think we could see another class action law suit here, which could have all sorts of long-term effects.

      • To suggest that the Big Six in publishing have incompetent accountants is nonsense! Please guys, think about this! You have multi-billion dollar international businesses making huge profits and they don’t have good accountants? Oh yes they do.
        The truth is they blatantly defraud and rip-off authors in hundreds of ways, ways which they are SURE the average author will not be able to combat or check up on. Or that the authors cannot afford to take a civil action against them cause guess what – they make sure the author is too poor to do that!
        One of the key reasons I have left trade publishing is the quite blatant under-payment of my sales vs the royalties I get. In fact if I had full royalties for all the books my publisher say they have sold, I’d be a lot better off.
        They make stupid mistakes in their accounting (which hints at the fraud being perpetuated) and here in NZ I don’t get a chance to audit their books or take a class action against them.
        Big publishers have (or had) clauses in contracts permitting the publisher to sell books at a rate at which they are permitted not to pay me ANY royalties! They still make money, but I don’t.
        And they don’t value authors enough to actually make the effort to sell our books at a rate at which they will pay us for our hard work and creativity.
        Believe me, to sell my own books and make ‘clean’ money from them is a relief and a joy.

        Give big trade publishers NO ROOM – they have been raping and pillaging authors for hundreds of years. I’d join this class action if it meant my book sales would be opened up and audited.

  2. Thanks for the post, David.

    The Kindle Cloud on the iPad is interesting. It has the same KindleStore button, when viewed on OSX machine, taking iPad user directly to Amazon, but when the Amazon Kindle site is accessed in iOS, there is an additional “Library” button on the Amazon site, allowing iPad user to toggle back and forth, so the path from one to the other is seamless.

    Got to hand it to both Apple and Amazon. Right now, they’re not total rivals since the hardware technology they use is different, and you can’t tell me that they’re not in bed together, or, at least half in bed (not the same, I know . . . ) That might change with the release of Amazon’s tablet. The first one to release a tablet with both a robust e-ink screen and great video resolution will own the top of the hill, at least for ten minutes. Both video and e-ink have a long way to go, though.

  3. James says:

    David,
    To Apple, I think books are just one part of the user story for mobile devices. They know it’s an important part, but they know something else–that there’s more to the mobile user picture than just books. Prediction: Amazon will definitely follow Apple’s lead by releasing a tablet device in the next year.

    I use an iPad. I don’t own a Kindle. Why? Because I’ve got a Kindle app on every computer and device I own, and because I use the iPad for several things, including reading books. That last part is what Apple understands better than anybody else, and it’s why iPad sales are astronomical and other companies are scrambling to imitate it.

    Let’s put it another way: if Apple were the only e-reading device in town, Amazon would still thrive. If the Kindle were the only e-reading device in town–Apple would still thrive. These two aren’t fighting for book market share. They don’t need to.

    What worries me is that people think either company “winning” is a good idea. A question I try to keep in my mind is “what happens to my writing career if Amazon changes the rules?” I know they will; it’s in their interest to do so, over time.

    I also use the iBookstore regularly, and like it. It’s no more complicated than using the Kindle app (or Amazon’s website), and I like the interface better. I ordered your Transfection title there. Total time from beginning to reading it? 26 seconds. I timed it.

    All this to say–in the spirt of your earlier “keep an open mind” post, I’m trying to do the same about issues like this. In the end, it doesn’t matter how many books sell on which device; if I’m going to publish e-books, the outcome for me is positive, no matter which device readers use to read my work. Many like the Kindle; many like the iPad. I want my work to be available on as many devices as possible.

  4. dahayden says:

    Amazon has two tablets coming out, an iPad size and a 7-inch size codenamed Coyote. The 7-inch will probably lack cameras and be more of a Nook Color type device, though with full Android capabilities and much better specs. No one knows anything for certain yet, but the parts list for the tablets did get leaked online.

    The Kindle Cloud Reader is very nice, and I applaud them. Actually think it’s more elegant than the standard Kindle app. Apple has been the biggest proponent of HTML5, which is a bit ironic in this case. But originally, they weren’t going to do an app store and they wanted web apps for the iPhone. Vudu which is a video streaming service supported by Walmart, I think, also moved to an HMTL5 app. I expect all the major players will follow.

  5. James says:

    I also think it’s better to focus on the author benefits than the publisher’s benefits. Apple offers self-publishers a higher royalty rate on those .99c – $2.98 books–70% vs. Amazon’s 30%. Same goes for books between $10 and $200–70% vs. 30%.

    Big picture, I cast a jaundiced eye towards Amazon. I’m seeing a lot of self-publishers put all (or most) of their eggs in Amazon’s basket, forgetting that Amazon is an enormous corporation that can (and likely will) change the rules at any time. They’re not a nonprofit organization seeking to help self-publishers–and “legacy” publishers are still the primary source of the e-books they distribute.

    • I agree that it’s a prudent approach to distribute your books to all the players. However, the reason I focus my marketing efforts on Amazon is that it has the greatest results. By far. My time is much, much more profitable when I do that. If that changes, I will change my approach.

      Obviously, healthy competition is best for writers. Amazon only raised their royalty rates when Apple entered the picture, and I’m sure if Amazon (or anyone else for that matter) got a complete lock on the market, the first thing they would do is cut those percentages.

      While I might not want Amazon to “win”, I definitely want them to be “winning”. All of the other retailers are hostile to self-publishers in one way or another. Apple have clearly taken the side of the major publishers, and are taking steps to reduce the visibility of indie books – just like Barnes & Noble. They are building a storefront for Harper Collins children’s books, and this is just the beginning of huge online co-op that will only be doled out to the large publishers.

      Amazon are taking a different approach. At the moment at least, they don’t have so much co-op. The algorithm is clean – it will display the book the user is most likely to purchase – and they don’t cook the bestseller list like Barnes & Noble. For me, they are the most “indie friendly”, but I’m not naive enough to think that is down to any great love for the self-publishing movement. Rather, I suspect its because our interests are currently aligned. That may not be the case in the future.

  6. I just fired up the Cloud Reader myself – looks quite good. It is especially nice because I currently have three “Kindle for the PC devices” listed on Amazon simply because I tried reading on three different computers once I installed the Kindle for PC program. To be able to read anywhere you can log in without essentially registering that computer as a “home” for your kindle books is extremely nice, and takes away one of my more annoying problems with the Kindle system.

  7. “When discussing Novelrank with other indies, every single one of them said that it under-reported sales. However, when talking to trade-published writers, they often said that it OVER-reported their sales.”

    Bloody hell. I stopped using Novelrank as it under-reported my sales by around a factor of ten. Useless, and misleading to anyone thinking they were seeing how I was doing. I feel sorry for trad authors, kept in the dark over sales. The stats are available to the publishers, who aren’t interested in them the way the author is. I’ve been asked by one author what his sales are likely to be – and the answer is, I don’t know unless we’re at about the same ranking at the same time.

  8. Rex Jameson says:

    Interesting perspective, Dave. Thanks for the article. I don’t own an iPad, but I know several people that do, and I believe Amazon’s actions will ultimately help us all by keeping pricing competitive on the iBookstore.

    • James says:

      I agree–I don’t want to see Apple control the publishing pipe–like most readers, I just want convenience; like most authors, I just want equity and access.

      • Exactly. And healthy competition should bring the best results for readers and writers, and I think this whole area will get more competitive, not less. Google haven’t even warmed up yet. They have pockets as deep as anyone, and they are also not afraid to can their own offerings and buy a competitor if it’s not working out. And Barnes & Noble has significant market share, but nothing like the same resources to fund international expansion or radical product development. But they will be bought buy somebody, and the first thing that investor will do is either sell off the print side, massively reduce the number of stores, or take away even more book racks for general goods and Nook display areas. With less of a drag from the print side, and an investor with money, they could keep themselves in the mix.

      • (Note: not suggesting Google will purchase B&N, don’t think that would ever happen. If they were to purchase anyone, I think it would be an upstart online retailer that captured market share through some innovation or other).

  9. I downloaded the cloud Kindle and it’s nice. I’ll probably jockey between the app. and the cloud for awhile, but the e-ink and brightness are nicer in the cloud.

    As far as Apple goes I’m getting that sleaze by association feeling. All I’d have to hear is they’ve gone in with Wal-Mart and I’d have to ceremoniously burn my iPad.

  10. Interesting post, David.

    I’m looking forward to seeing Amazon’s tablet. We’re not Mac people, so we haven’t invested in the iPad, but most people I know who have the iPad or iPhone use the Kindle app for reading anyway. It’ll be interesting to watch the dynamics change as more players realize the future in digital content. I agree with you – as a writer I’m not rooting for anybody to “win,” I just hope that competition will be good for writers and readers both. More control, higher royalties, and quicker time-to-market for authors and more selection and quicker delivery for readers.

    I’ve found it much harder to deal with Apple than with Amazon or B&N as an author, so I tend to mentally dismiss them as a platform. YMMV. I’d love it if they were more focused on promoting the book side of the business.

    Will definitely take a look at the Cloud Reader.

  11. Werner says:

    The Kindle Cloud Reader is a lot nicer than Kindle-for-PC.

    I’m of a like-mind with some of the other folks here in that as good and as lucrative Amazon is for indie-publishers, it’s dangerous to hedge all or most of our bets on this one entity. They’ll get to the point where they have a near monopolistic control over the e-book market and then be able to control author livelihoods as much as the legacy publisher’s do. Keeping the competition healthy among e-book distributors is the only way to continue to make sure authors continue to get a fair shake and thrive.

  12. Bill King says:

    This is definitely a fight I am rooting for Amazon to win. If Apple takes 30%, it means less money for Amazon and the indie writer/publisher. It is possible that Amazon might decide to keep it’s margins the same for iOS sales as for everything else by giving less to the creators. That could start an ugly trend!

    On another note, Cloud Reader seems to work just as well on Chromium as it does on Chrome, so easy Kindle reading just made it to Linux. As a Linux user this makes me happy.

    • James says:

      I don’t want Amazon to win–I want them to compete. Same goes for Apple. If Amazon “wins”, that means they get to set all (or most) of the rules. I just can’t see how that’s a good thing for writers. Isn’t that the fundamental problem of legacy publishing, and the main reason writers are abandoning it?

      • I think Bill may have been referring specifically to the in-app purchases spat.

        I agree with your broader point. The larger publishers operated has an effective monopoly. They all had remarkably similar terms, they had sweetheart deals with the bookstores, they had a lock on the distribution system, economies of scale allowed them to produce the product at prices that new entrants couldn’t compete with, and there were significant barriers to entry for any company that wanted to compete. This allowed them to force unfavorable terms on writers, and if any retailer achieves an effective monopoly, they will likely do the same thing.

  13. Bill King says:

    Dave is right. I was referring to the in-App situation. I think competition in general is good, and the more better when it comes to giving writers options. Apple behaves like an effective monopoly with iOS because that is what it is. It’s sound business practise for Apple. It’s bad news for anyone else who wants to use their platform. Amazon’s attempt to out-flank Apple here is good for writers because it does give us, and readers, more options.

    • James says:

      Ah, sorry. I’m with you on the in-app thing. I think Apple will be forced to modify it in the long run, but I doubt it’ll go away–one of the prizes Amazon craves is iPad e-reader users.

  14. Bill King says:

    I should add that this fight is fascinating to watch from a pure business/tech point view!

    • Very much so. I wonder what Google will do next. Part of me wonders if they haven’t fully stepped into this fight yet because they still have some legal issues hanging over them from the book scanning fiasco. Once that is finally settled, I think we will see them go to work on their bookstore and fully integrate it with search, which will start driving a lot of traffic their way.

      For now, it appears they are happy to ally themselves with Amazon, in the hopes of giving Apple a bloody nose, but that won’t last forever.

  15. Bill King says:

    I think you are most probably right about Google. I am sure they will be back in this ring one way or another.

    Right now I am just hypnotised by the spectacle of Apple and Amazon going at it. These are both very smart, very competent companies with wildly variant strategies. Of the two I find Amazon the more interesting because we KNOW what Apple are going to do and where they are coming from. Amazon has come out of nowhere to be a major player in a lot of interesting tech– Cloud computing, digital retailing, very specialised and unfashionable hardware like cheap e-readers.

    There is obviously a grand vision behind all this but its based on retailing rather than hardware and/or software which is where most tech companies come from. I am curious to find out where it will all go next.

    • James says:

      I see the Apple-Amazon competition a bit differently. I’d say that they’re competing in the mobile device market, not the book market. For both companies, books are a small minority of their profit. For Amazon, the Kindle–not e-books, but the Kindle–is 10% or more of its gross sales. E-books are a tiny-margin product; the books that genre writers are competing at (99 cents to $2.99) are almost money losers for Amazon. They’re out to sell Kindles.

      • Bill King says:

        30% of billions of anything is big, big money and that is what we are talking about here, James. And this is all content that is being created by other people. You are simply charging them to use your pipes. That is the genius of what Amazon has done with the Kindle (and Apple has done with their App store.) They don’t care whether you are selling to millions or just to your family or friends, they collect their 30% of all of it and leave you to do the marketing for them. Obviously they want the big guys but they won’t exclude the little guys because everybody’s money is the same colour to them and the extra costs on their system are very small. And it all gives 30% minus costs to their bottom line. Not many tech businesses make that. If I recall Apple’s margins are 28% on most of their stuff and that is way above the industry average. Almost nothing in the physical world can match the margins on digital– nothing mass produced anyway. I am sure there are luxury items that do🙂.

      • On top of that, we are just talking about the market in its current size. It should triple. The costs of the (digital) book side of the business must be marginal compared to the money it brings in.

        And yes, all these books sell Kindles. Amazon has the biggest selection. The store with the biggest selection (historically) wins. And the easiest way to enjoy Amazon’s selection is through a Kindle. Certainly at this early stage of the market, it’s impossible to separate the Kindle and the e-books – both feed into each other. However, when the market becomes saturated, and the only e-reader sales are to those who are replacing and upgrading, the profits from content will become more important. Most publishers haven’t even digitized their backlists. There are still a huge amount of people querying rather than self-publishing. There will be a lot more content, and a lot more profits from content down the road.

  16. Bill King says:

    I should add I am ranting about 30% of the sales price of billions of ebooks here! It’s late and I am tired.Sorry!

  17. James says:

    “The costs of the (digital) book side of the business must be marginal compared to the money it brings in.”

    I don’t think so. The main cost of delivering something like e-books is server infrastructure, and that’s Amazon’s biggest expense these days. Their net profit continues to steeply decline (I blogged about this today). Here’s an example story that mentions the “profit” of e-books for Amazon:
    http://www.mediabistro.com/ebooknewser/amazon-doesnt-need-to-profit-from-ebooks_b5289

    “30% of billions of anything is big, big money and that is what we are talking about here, James.”
    Amazon’s e-book business isn’t in the billions.

    Here’s my back-of-the-envelope estimate. So far this year, CDs, DVDs, and *all* books combined for about three and a half billion of Amazon’s near 10 billion in gross sales. DVDs and CDs are most of that. If that figure for CDs/DVDs/books *tripled*, and you called e-books a full third of it, you’d be talking about 3 billion dollars. Gross. For all books. The net on that is likely 1-2 percent, or somewhere in the neighborhood of 50-60 million dollars. Total. For all books sold worldwide, including print.

    My hope is that the purchase of e-books continues its rise, and that access to them gets simpler. To that end, I want to see as much competition as possible between companies like Amazon and Apple. The more they compete, the more options we have.

    • The global book business is estimated at $80bn.

      America’s share is around $24bn of that.

      Amazon are on their way to capturing 50% of the overall US book market in 2012.

      E-books are currently around 20-25% of the US market. That will continue to grow at a phenomenal rate, and the global explosion is yet to begin.

      There’s money in e-books.

      • Neil says:

        David,

        The only catch is that Amazon needs to look over their shoulder at Google, B&N, and Apple. Now that Google has both Android and soon aligned e-readers… There is potential there and Google is slick at getting clicks. I believe B&N scored a coup developing the Nook color about a year before Amazon; If B&N had gone international with it (could they?), the economy of scale would have pulled them to a profit.

        Which all helps indie authors. At some point books will only be a ‘gateway drug’ for Amazon to the greater Amazon store. I suspect Bezos likes the idea of how cheap book are to sell. Apple and B&N are too absorbed with co-op to be a long term competitor to Amazon’s ‘warehouse approach.’

        A big cost of ebooks is developing the distribution software. So it is a business of ‘going big or going home.’ Once written, it is a small cost, per book, to offer 1 million books or 25 million books for sale. Such a low cost it is foolish for an ebook seller not to absorb the cost.

        Because of that economy of scale and a customer base waiting for $99, then $69, then $49 ereaders… It is going to be the companies with HUGE economy of scale that win. It is going to be very interesting once ebooks break 50% of the US market. Twice as interesting when ebooks break 50% of the English language market.

        Neil

  18. James says:

    “They don’t care whether you are selling to millions or just to your family or friends, they collect their 30% of all of it and leave you to do the marketing for them. ”

    Actually, I think its free marketing is one of the best features of Amazon. They do it better than Apple, too.

  19. …and I just noticed Bill’s last comment about billions of *e-books*. Sorry, Bill. That does it–I’m off the whiskey until supper.

  20. Okay, can I just say I am loving the Kindle Cloud Reader (for Google Chrome)? I’ve been meaning to get back to your book, Let’s Get Digital, to re-read parts of it and the “cloud” just makes it so easy, while I’m working away on the computer. Whereas, before, it was on my mind to re-read the book via Kindle for several days and I could never quite get to it. Seriously!

    Your posts are always so timely! Thank you, once again, David.

  21. no comment. tech problem. sorry.

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