Apple's iPhone Restrictions Are Good For Consumers

| About: Apple Inc. (AAPL)

By Carl Howe

Dave Winer of Scripting News and RSS fame takes Apple (NASDAQ:AAPL) to task for locking the iPhone to Cingular and not allowing third-party applications.

I don't believe for a minute that Jobs's closed-box approach to cell phones is the right one. Growth is driven by choice. The Internet grew because, for the 80th time, it was the platform with no platform vendor. The Apple II won, the Mac won, the PC won, even Windows won, because you could install any software you wanted on them. The iPod is a wonderful product, but damn it's time we made one that could run our software, could run any software, so users have choice, and so you don't have to buy new hardware to get software features, and so the market can grow at the rate of innovation, not at the whim of one marketer.

Apple is now bidding once again to become the total control platform vendor that they have always been inside. When they introduce the phone software to the Macintosh (seems inevitable, doesn't it?) will they shut down developers there too? I am writing this on a Mac, because it's much better than Windows. Apple didn't need any patents to get me to buy their system. I don't even like the company, I think they're brats, small thinkers. Even though I don't have to, every year I spend thousands of dollars on their products. That says all I need to know about what kinds of locks you need on users. The only lock you need is to create a better product. The rest of it is nonsense.

Winer's last two sentences indicate that this is his model of product marketing:

1. Introduce great new product.
2. Profit!

The reality that Apple has had burned into them over the years is actually a lot more complicated. In Apple's case, it has gotten hammered for a bunch of problems in between those two steps, with the original iPod mini, the story was:

1. Introduce great new product.
2. Make too few to satisfy demand
3. Deal with lots of dissatisfied would-be customers who claim there is a massive conspiracy.
4. Grumble about missed profits

In the case of the iPod nano, it was more along the lines of:

1. Introduce great new product.
2. Discover that some customers don't believe in buying cases for their products and therefore believe the product is fatally flawed because they scratch
3. Deal with lots of lawsuits claiming there is a massive conspiracy.
4. Profit anyway.

Do you see a theme here? Any flaw, any blemish, any mistake in estimating demand is fair game for consumers to state that Apple isn't living up to its brand promise. So what do you think goes through Steve Jobs' mind next time he has what he sees as a killer product? He thinks, "I've got to do everything I can to control the consumer experience and make it a good one." The result: Apple's release process looks a lot more like this:

Negotiate a carrier deal in secret so that you have a place to sell your new phone.
2. Set a goal of reinventing the consumer experience for your phone. Test extensively.
3. Spend two and a half years developing a great new product in utmost secrecy.
4. Announce the actual device when you are forced to reveal the details to the FCC.
5. Work on controlling the phone design and parts to ensure the phone can be manufactured in the millions.
6. Restrict applications and add-ons to guarantee to FCC that phone will work as advertised and to Cingular/AT&T that the phone will have no negative effect on their revenues.
manufactured in the millions. Spend millions marketing your product to high-end consumers.
8. Release product.
9. Discover what falls short in the consumer experience (manufacturing? network owner and restrictions? sales channel? GUI?) and fix issues (this step may be repeated in some circumstances, although Apple hopes not).
10. Spend millions refining your marketing to align with actual consumer experience.
11. Receive sales (and profit!) validation from the market (or not) for the product
12. Create guidelines for software that won't degrade the user experience or regulator approvals and develop certification program.
13. Develop and announce third-party software program.
14. Profit finally (whew!).

Why wait so long to open it up to third parties? Because Apple wants market feedback on its design principles and details so it can develop better devices in the future. If it allows third party software from the beginning, it won't get clean feedback from ordinary consumers on the phone. And worse, bad third-party software -- say, a nice little Mac OS X app that simply spams you address book via email -- would sully its brand value, which is one of the highest value brands in the world.

There's no guarantee of success in the phone market for Apple. Yes, they are being conservative. But this is a multi-hundred million dollar bet in both product development and marketing spend.

For those for whom third-party software is an absolute must, another large software company uses this development model:

1. Develop a phone OS based upon other existing products.
2. Launch third-party software developer program.
3. Struggle to get phone makers interested in their phone OS.
4. Struggle to get phone makers interested in their phone OS.
5. Struggle to get phone makers interested in their phone OS.
6. After five years in the market, continue to lose money with single digit market share.

Why does this development model work for Microsoft (NASDAQ:MSFT) and not for Apple? Because the brands that get tainted by bad consumer experiences are the phone brands like Samsung, Motorola (MOT), and Palm (PALM), not Microsoft directly. It has insulation from the consumer experience and likes it that way.

There are plenty of Windows Mobile smart phones out there that allow third-party development. For developers for whom HSPDA and third-party software are an absolute requirement, target a Palm 700w or a Samsung Blackjack, and call it a day. Or better yet, develop your own phone platform to compete with the iPhone. After all, if this is key attribute for consumers, they should flock to your device. But because Apple bears all the responsibility for the iPhone consumer and brand experience, its conservative approach to add-ons is just good, smart marketing. And at the end of the day, it's that marketing, not the attitudes of a few developers, that will spell the success or failure of the product.

One final note. The fact that the iPhone runs Mac OS X widgets is significant and may mitigate many concerns about third-party apps. Mac OS X 10.5's (Leopard's) widgets allow any piece of a Web page to be used as a widget. And since Leopard comes out before the iPhone is released, my bet is that the iPhone widgets will be Leopard-compatible. So if you want to develop great apps for the iPhone, the right approach might simply be to put your unbelievable mobile application on a Web page.


If you want more dispelling of myths associated with the iPhone, Roughly Drafted does an excellent job of it, including the myth that the lack of third-party apps will doom the platform. Further, Scott Karp accurately notes that Apple is in the business of selling experiences, not platforms, and that has been the essence of its success, not third-part applications.

Disclosure: author is long Apple.