"Are writers an endangered species?
If apps like this work, the market will be thinned:
Genre and children's book authors are most at risk for this kind of work. The benefit is that it will make obvious fiction unsellable, because (sorry Apple) there will be an app for that.
My mother would love a mystery version of this. It would also be easy to make one for Star Trek fiction. That hurt to admit, but those are fairly cookie cutter stories.
There will still exist a market for writers. Like with other industries that automated the manufacturing process the authors will have to forge out a niche of quality and craft. This way those who want cheap will have automated stories and those who want "hand crafted" stories, they will pay a premium price for artfully crafted stories.
It will be interesting to see how this shakes out.