Apple vs. the world: App Store showdown looms

@CNNMoneyTech June 29, 2011: 6:06 PM ET
Apple's new App Store rules outlaw links to external websites for puchases -- like the one prominently featured in Amazon's Kindle app.

Apple's new App Store rules outlaw links to external websites for puchases -- like the one prominently featured in Amazon's Kindle app.

NEW YORK (CNNMoney) -- Big changes are coming to Apple's App Store on Thursday -- and they could mean big trouble for e-book sellers like Amazon and Barnes & Noble.

June 30 is the deadline for app makers to get in compliance with Apple's strict new rules for in-app payment and subscription links. Apple laid out the first version of its controversial new rules in February, then quietly softened them this month after massive blowback from content companies.

But everyone's still confused about how to interpret the rules -- and as written, the guidelines could get big-name apps like Amazon's Kindle booted from Apple's iTunes App Store. The new rules explicitly prohibit apps that include "external mechanisms for purchases ... such as a 'buy' button that goes to a web site to purchase a digital book."

Amazon's Kindle app prominently features a "Shop in Kindle Store" link, which takes shoppers to Amazon's website. That's verboten under the rules set to take effect Thursday.

The issue is that Apple wants content sellers to use its own in-app payments system, which gives Apple a 30% cut of all sales. Many merchants consider that a dealbreaker -- online music service Rhapsody said it couldn't survive that kind of hit.

Apple (AAPL, Fortune 500) backed down from its initial demand that all publishers who sell digital subscriptions make them available for purchase within their Apple apps -- and give Apple a sales cut. That mandate could have forced Rhapsody, Hulu, Netflix (NFLX) and others to withdraw their iPhone and iPad apps.

Instead, Apple's revised rules give merchants an "all or nothing" option: They can either use Apple's payment system, or include no mechanism at all for subscriptions and other purchases.

That's not ideal for publishers, but most can live with it. Hulu updated its iPad app last week to remove a link to its website. The app's opening screen used to feature the line: "Not a Hulu Plus subscriber? Visit hulu.com/plus to learn more and sign up." That line -- and the website link -- are now gone, bringing Hulu into compliance with Apple's rules.

But digital booksellers rely on customers buying a steady stream of new e-books to read. Removing all links from within their apps to make new purchases is pretty user-unfriendly.

Just hours before the new rules are slated to kick in, app makers in the crosshairs are staying silent.

Amazon (AMZN, Fortune 500), Barnes & Noble (BKS, Fortune 500) and Borders (BGPIQ) did not reply to requests for comment about their e-reader app plans. Hulu said queries about the changes it made to its app should be directed to Apple. Apple did not respond to repeated requests for comment.

No one seems certain about what exactly the rules now forbid -- and no one wants to talk publicly about it. Even Rhapsody, which slammed Apple in February for going too far, didn't respond to requests for comment for this story.

One scary precursor has publishers on edge: In February, Apple blocked Sony's Reader app because it routed purchases through a Web browser -- the exact same thing Amazon's Kindle app does.

At the time, Sony posted a note to its site that said: "Unfortunately, with little notice, Apple changed the way it enforces its rules." That notice is gone, but Sony's Reader remains unavailable through Apple's App Store. A Sony (SNE) rep declined to comment on the issue.

Meanwhile, Apple rivals are banking on publishers getting fed up. One day after Apple announced its original in-app purchasing rules, Google (GOOG, Fortune 500) unveiled Google One Pass, a service that "lets publishers set their own prices and terms for their digital content." A Google spokeswoman told Fortune the company will take only 10% of the revenue.

Hewlett-Packard (HPQ, Fortune 500) is making its own bid for content publishers. On July 1, one day after Apple's new terms go into effect, HP's TouchPad tablet goes on sale. It will launch with a subscription offering for four of Time Inc.'s titles: Time, Fortune, People and Sports Illustrated. (Time Inc. is part of Time Warner (TWX, Fortune 500), the parent company of CNNMoney.)

Other developers are evading Apple's clutches by eschewing mobile apps altogether and building around an emerging Web standard called HTML5.

HTML5 supports video, offline reading, touch and gestural interaction -- all functions that, until recently, were only available for mobile devices on native apps. The Financial Times and ESPN each built new mobile apps in HTML5.

That lets them connect with customers directly through the mobile Web -- no app store required.  To top of page

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