Jobs: Catch the App Store if You Can

Apple CEO Steve Jobs had a simple message for all the App Store rivals trying to emulate the iPhone maker’s model: Good luck catching us.

Apple marked the first birthday of its App Store and noted the following about what is becoming a business model moat in the wireless business:

• 1.5 billion apps downloaded;
• 65,000 apps;
• An army of 100,000 iPhone developers.

You can quibble with Apple’s timing—technically the App Store tuned 1 on July 11—but that’s one helluva moat. In a statement, Jobs indirectly noted a laundry list of rivals—Research in Motion (RIMM), Nokia (NOK), Android, Microsoft (MSFT) and Palm (PALM) primarily—all trying to replicate the App Store. Jobs said:

“With 1.5 billion apps downloaded, it is going to be very hard for others to catch up.”

The App Store is one of the primary reasons that the iPhone has been a hit. Piper Jaffray analyst Gene Munster on Tuesday said that Apple is likely to deliver better-than-expected iPhone sales for its June quarter. Munster writes:

We believe upside to Mac and iPhone units could help Apple beat Street estimates for the Jun-09 quarter. Our survey of 256 iPhone buyers, along with indications from AT&T leave us confident in our iPhone est of 5 million in the June quarter vs. the Street at about 4 million.

The big picture here is that the App Store has rewritten the rules in the wireless business and Jobs knows it. Apple has first mover advantage and isn’t likely to ease up. As Bernstein analyst Craig Moffett noted Apple has been very disruptive to the wireless industry and the fun is just beginning.

The industry tug of war will revolve around devices and carriers as dumb pipes. Indeed, consumers are increasingly thinking of their smartphone as application delivery devices more than handheld for email and phone calls. The vendors that make apps easy will win. Wireless carriers see the shifts coming and some such as Verizon Wireless (VZ) are already playing around with an application marketplace, according to GigaOm.

Simply put, carriers have no desire to be a dumb pipe to deliver access. Apple’s march could easily relegate carriers to dumb pipe status. It’s an interesting development that will take years to play out.

For now, Jobs has thrown down the gauntlet to its competition. Catch the App Store—if you can.

Comments

[SiliconVall...:]

Someone has to repair the towers, the dishes, the fiber cables and the power packs sitting way on top of a remote hill. Someone has to design, implement and support the technologies necessary to handle all the "packet" switching, transfers and routing. Someone has to respond rapidly to the aftermath of a natural disaster. All that requires technological know-how and immense resources.

Carriers, if anything, has a strangle hold on the "pipes". Give them a decent piece of the pipe or they take that bandwidth to someone else and leave a device maker in the dust.

If we ever are arrogant enough to think that carriers are just "dumb pipes", we risk losing a key part of our wireless infrastructure.

All the shiny Pre, iPhone and Berries out there require a reliable and ever faster network to access an ever increasing amount of information. Someone has to design, implement and support that network.

No, carriers are not in danger of becoming dumb pipes any time soon. They are in danger of losing subscribers if their network is perceived to be slow or unreliable for multi-media data access.

I see carriers becoming eager partners with the likes of AAPL, Palm and GOOG and Nokia and RIMM.

Jul 14 10:42 AM

[Paul Zimbardo:]

In a similar fashion to the iPod strategy, Jobs reveals once again that he is a student of Michael Porter's Five Forces Model, specifically the threats of substitution and entry of new competitors.

By creating tremendous switching costs for customers (loss of applications, music, data, etc.) by switching, customers become locked into Apple's environment.

Add in Apple's tremendous brand equity and unrivaled distribution paths and you have a company that is built to keep the enemies at the gates for a long time.

en.wikipedia.org/wiki/...

Jul 14 10:46 AM

[rd4sndk:]

Carriers are already dumb pipes. Exactly what do they offer becides talk, text and internet access? All three are formated pipes that includes no content. They don't even have leverage. The vail threat of cutting off Handset providers is just that vail. Truth be told, if Apple were to compete with the telcos it could easy buy its way in and disrupt AT&T and Verizon. Both AT&T and Verizon must may soon have to get into the hardware business to stay relevant.

The only good news for the telcos is that Apples too busy disrupting the handset makers to take on the telcos. However, its just a matter of time (2 to 5 years) that it will eventually take on these blood sucking technicaly illiterate fossils.

On Jul 14 10:42 AM SiliconValleyJoe wrote:

> Someone has to repair the towers, the dishes, the fiber cables and
> the power packs sitting way on top of a remote hill. Someone has
> to design, implement and support the technologies necessary to handle
> all the "packet" switching, transfers and routing. Someone has to
> respond rapidly to the aftermath of a natural disaster. All that
> requires technological know-how and immense resources.
>
> Carriers, if anything, has a strangle hold on the "pipes". Give them
> a decent piece of the pipe or they take that bandwidth to someone
> else and leave a device maker in the dust.
>
> If we ever are arrogant enough to think that carriers are just "dumb
> pipes", we risk losing a key part of our wireless infrastructure.
>
>
> All the shiny Pre, iPhone and Berries out there require a reliable
> and ever faster network to access an ever increasing amount of information.
> Someone has to design, implement and support that network.
>
> No, carriers are not in danger of becoming dumb pipes any time soon.
> They are in danger of losing subscribers if their network is perceived
> to be slow or unreliable for multi-media data access.
>
> I see carriers becoming eager partners with the likes of AAPL, Palm
> and GOOG and Nokia and RIMM.
>
>

Jul 14 11:12 AM

[Arnold Rein...:]

It's common for one company to partner with another in the hope the partnership will bring them customers. It's less common for such relationships to actually produce the expected flow of new business. Apple has brought ATT a ton of new customers. It's up to ATT to find ways of building loyalty in those new customers. Roll over minutes are one example where ATT is doing something in that direction. But they need to do much more to keep iPhone customers when the Apple exclusivity ends.

Jul 14 02:08 PM

[Economyst:]

I would like to see exactly how many customers Iphone has provided AT&T from other networks - these figures are hard to come by. It would be interesting to see how much AT&T has made off its Iphone sales.

Every time I read "the telcos will become dumb pipes" it strikes a chord. It was these same "dumb pipes" that provided net access (the Iphone is sold with net access which you cannot remove) which made smartphones useful and sell so well, are now seemingly not important any more.

Sure the Telcos need to look at their business models but to dismiss them as becoming "dumb pipes" shows not only a lack of understanding of the business but the lack of clear analysis and love in with the current buzz words. It's Bullshit Bingo.

Jul 14 04:54 PM

[Hayweed:]

The telcos are pipes on which they collect an access toll. That pays for their pipes, repairs, etc. The idea that they get to control what you do, what internet you can see, what apps you can use, and what music to listen to is a dumb idea. Apple, the movie company the app developers control this area. This is why cable tv is a dead end biz. The internet movie delivery over tivo, amazon, apple itunes are crushing that dumb pipe as well. They need to figure out how to make money running the pipe and quit worrying about how much money apple, rimm or nokia is making.

Jul 15 12:14 AM

[vassar:]

Verizon has been trying for years to stop this movement. Rather than dumb pipes, they have dumb management who are control freaks. I think I read somewhere that 40% or more of iPhone sales came from Verizon (to ATT). That is a lot of lost customers. If ATT can shake it's (unfair) 'crappy' network image, Verizon will be dead meat!

Jul 15 08:07 AM

[brewer:]

As usual, Jobs is right. Of course the carriers are dumb pipes. That is not to say the carriers are not necessary, just that they are only pipes. That is, what pipe you are on should not determine what you can do.

Jul 15 10:46 AM