Apple is betting its future in the smartphone market on a control-freak business model. Where other smartphone platforms let anybody build applications for them, Apple demands to be the gatekeeper for what goes on the iPhone, to protect users from inappropriate and dangerous content, and to generate additional revenue for itself. But developers might decide that Apple's business model is too much hassle and give their business to competitors instead. And Apple needs third-party developers to ensure the ongoing success of the iPhone.If developers and customers decide they value freedom of choice more than Apple's great design, then Apple may find that history will repeat itself -- and not in a good way. In the '90s, Apple became a niche player in the market for PCs with graphical user interfaces, a market it helped create and drive. Apple may find itself becoming a niche player in the market for powerful, easy-to-use elegant smartphones -- a market that it currently leads.
Engadget's Ryan Block capsulized the discussion by asking whether Apple would allow developers to distribute SIM-unlocking software through the AppStore. Apparently, Block got flack from the Mac community for wasting time with a dumb question during one of Steve Jobs' rare Q&As with the press.
But Daring Fireball's John Gruber defended Block, noting that if Apple wants to be the gatekeeper with approval over all apps, it needs to make the rules explicit. He asked whether Amazon will be allowed to make an app allowing users to download media from the Amazon MP3 store in competition with Apple's own iTunes store. "I'm not saying it's outrageous if the answer is 'no,' but if that's the case, it's only fair to get it on the record as to whether Apple plans to disallow any app that impedes on an Apple revenue stream," Gruber said.
Apple needs to explain what the rules are, and the company just hasn't done that yet. The only restrictions Apple has described so far are pretty broad. Apple won't distribute programs considered pornographic, malicious, illegal, or that might use up too much network bandwidth.
Apple needs to do better than that, according to Paul Kafasis, CEO of Rogue Amoeba, which publishes Mac audio software. In an interview published in Macworld, Kafasis said Rogue Amoeba is considering bringing Radioshift, an OS X application for listening to Internet radio, to the iPhone, which might hurt iTunes music sales. Kafasis wondered if that application would be considered malicious by Apple. What Kafasis didn't say is that such a program might also be considered a bandwidth hog.
And how are developers going to know if their applications are legal before investing enormous amount of time in development? Do they invest the work and time needed to develop an application, and then hope at the end of the process that Apple doesn't find the app objectionable? Do developers go to Apple and describe the application in advance? What assurances do developers have that Apple won't then steal the idea, or the idea will leak, and the developer will get beaten to market? What if the developer decides to change the features of their application midway through the development cycle? Does it then have to go back to Apple to ask permission to make the change? How much time will all this discussion with Apple take?
Developers don't just need to pass Apple's purity test to get their apps out to iPhone users. They also have to fork over cash. Apple will take a 30% cut of the revenue of all applications running on the iPhone. Gruber, himself a Mac developer, said developers can live with that: "Apple's 30/70 split with developers is steep, but initial reaction from the developers I follow on Twitter seems to be positive. Paul Kafasis of Rogue Amoeba told me via IM, '70%? That's … that's … livable,' which seems to sum up the consensus sentiment."
Macworld talked to several developers and found them unenthusiastic about the size of Apple's cut. Macworld quotes Ken Aspelslagh, an iPhone specialist at ECammm network, which makes the iPhone companion program MegaPhone for the Mac, as saying Apple's cut is high, and he's concerned larger companies might negotiate better deals, disadvantaging smaller developers.
In addition to a cut of the revenue, developers must pay Apple $99 up front to write apps for the iPhone. Said Gruber: "The $99 fee for getting your app listed in the store is a no-brainer. A bummer, perhaps, for the student set, but I suspect it's intended as a bozo filter to keep the process from being inundated with glorified do-little 'Hello World' apps. (I'm almost certain even freeware apps require the $99 listing fee -- although that fee is per-developer, not per-app.)"
But the $99 will also restrict diversity. The volume of free and dirt-cheap programs for the iPhone will be vastly diminished if the people writing those programs have to pay $99 to get them out to the public. Apple is basically pricing the hacker community out of iPhone application development, leaving only the pros.
To enforce its restrictions, Apple is requiring that developers must distribute applications only through the AppStore that Apple will build.
So what do developers get in return for living by Apple's rules, paying Apple's tax, and restricting themselves to Apple's channel? Well, because of the way the AppStore is designed, developers will find their customers can easily install their apps, buy with one click, and Apple will give the developers' products exposure.
The iPhone is formidable technology. The iPhone had 28% market share in the last quarter of 2007, a respectable second to RIM's 41%, made even more impressive by the fact that the iPhone had only been available six months by the end of that period. And the iPhone accounted for 71% of U.S. mobile browser usage.
I was one of the first people to buy it when it went on sale June. 29, and I like it a lot. But what smartphone will I, and other users, buy when it's time to replace the iPhone in a year or two? Will we upgrade the iPhone, or go with something more open next time? That's a question Apple is betting its future on.
Update, just prior to posting: Great minds think alike -- just before clicking the "PUBLISH" button on this blog post, I find that my colleague Alexander Wolfe looked at similar points a few hours ago. Both our posts look at how restrictions on the SDK might alienate developers, but Alex looks at different issues than I do.