Will Apple boot Kindle from its App Store?

@CNNMoneyTech June 15, 2011: 5:16 AM ET
The Kindle's

The Kindle's "Shop in Kindle Store" button breaks Apple's new App Store rules.

NEW YORK (CNNMoney) -- Apple and Amazon are barreling toward a showdown -- and neither side wants to talk about it.

In less than three weeks, Apple plans to begin enforcing new iTunes App Store rules prohibiting apps that include "external mechanisms for purchases ... such as a 'buy' button that goes to a web site to purchase a digital book."

That puts Amazon's (AMZN, Fortune 500) Kindle application -- which prominently features a "Shop in Kindle Store" button -- directly in Apple's crosshairs.

Apple (AAPL, Fortune 500) unveiled its new App Store rules in February, and it set a June 30 deadline for app makers to get compliant. Its goal is to steer more of the revenue stream for content purchases through Apple's own in-app payment system, which typically nets Apple a 30% cut of the sales.

Content companies balked. As originally written, Apple's rules would have forced Netflix (NFLX), Rhapsody, the New York Times and others that sell content through subscriptions to offer subscription sales from within their iPhone, iPad and iPod Touch applications -- and give Apple a slice of those fees.

With the June 30 deadline fast approaching, Apple quietly revised its rules last week. It struck down the most controversial provisions, and now gives content companies a choice about whether or not to sell their wares from within their Apple apps.

That mollified many publishers. Some that were previously staying on the sidelines -- including Conde Nast and Time Inc. (part of Time Warner (TWX, Fortune 500), the parent company of CNNMoney) -- recently struck deals with Apple to make subscriptions available to some of their magazines.

But digital booksellers are still caught in a logjam. Clicking the "shop" button in Amazon's Kindle app, or in Barnes & Noble's (BKS, Fortune 500) rival Nook app, currently takes shoppers out of the app and fires up a Web browser, through which they can search for and purchase e-books.

It's a workaround that avoids Apple's in-app payment system, and lets the bookseller keep all of the revenue from the sale.

Under Apple's new rules, those "shop" buttons would be verboten. Amazon and other merchants would have to strip them out of their apps in order to stay in the App Store.

Amazon, Barnes & Noble and Borders did not reply to requests for comment about their app plans. An Apple spokesman declined to discuss what will happen to the apps when Apple's deadline hits.

It's an issue Apple has gone to the mat on before. In February, it blocked Sony's Reader app because it routed purchases through a Web browser. 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.

Why Amazon is in the crosshairs: While Apple's guidelines affect all content publishers, Amazon has the most to lose. The Kindle app is perennially in Apple's top 100 list of the most downloaded free apps available in its App Store.

Amazon's Kindle strategy is to make its content -- and its digital bookstore -- available everywhere: on its own Kindle e-reader devices and on rival platforms like Apple's iOS and Google's (GOOG, Fortune 500) Android.

While the company doesn't break out details on which platforms have the most user adoption, e-book sales are a fast-growing part of its business. Amazon said last month that Kindle e-books now outsell print books on Amazon.com.

The Kindle-vs-Apple showdown is one "no one is talking about but I believe everyone should have their eye on," Forrester Research analyst James McQuivey wrote in a blog post this week.

If Amazon wants to keep steering customers using its Apple apps toward buying new Kindle books, no one is quite sure what workarounds Apple will allow. Industry experts and publishers are getting tied up in Apple's thorny language; they don't agree on what counts as an "external mechanism" for purchases.

Richard Stephenson of YUDU Media, which has developed mobile apps for magazines including Reader's Digest, says he's "pretty certain" that Apple wouldn't block a link that simply says "visit our website."

"[The problem] is really when you say, 'buy subscriptions from us direct' and there is a clear button to click," Stephenson said in an e-mail to Fortune. "If it's 'visit our website,' then [Apple] will not be able nor wish to block that."

Apple spokesman Tom Neumayr said he could confirm only that the App Store terms were recently updated, and wouldn't comment on specific apps or whether a "visit our website" link would be blocked.

Even Rhapsody, the online music subscription service that blasted Apple's original terms as "economically untenable," said it wasn't ready to release a statement on the updated terms.

"We're in the camp that's still only 80% sure of what this all means," said Rhapsody spokeswoman Jaimie Steele. "It appears to be a step in the right direction, but we need to clarify some things."

Forrester's McQuivey hopes Amazon cops "a little attitude" if it has to alter its app.

"Amazon should release an app that complies with Apple's new rules but with no Buy button at all," he suggested. "Instead, it should be positioned as a Kindle reading app where people who have purchased Kindle books elsewhere can read them on an iOS device. And the company should just let these readers know that although it would like to help them shop for and buy books, it is not allowed -- as per Apple's policy -- to do so.

Room for rivals to cut in? 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 is making its own bid for content publishers. On July 1, two days after Apple's new terms go into effect, HP's (HPQ, Fortune 500) 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.

The specter of losing content to those rivals is likely part of what spurred Apple to soften its rules, RBC Capital Markets analyst Mike Abramsky said in a note to clients last week.

The new rules avoid giving an edge to Google, Abramsky wrote, and they "rebalance" Apple's "heavy-handed" original terms.

"Apple plays a fine line between maintaining control," he wrote, "but also not alienating the very content partners that give its platform its distinct advantage."

Forrester's McQuivey thinks Apple's App Store obstinance could backfire.

"All of this uncertainty is pushing more companies to develop an HTML5 strategy that bypasses Apple," McQuivey said. "Our data show that iPad users spend at least as much time on their browsers as they do with apps, which means there's plenty of opportunity to serve them browser-based experiences, as long as they are connected to the Internet in some way."  To top of page

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