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Summary:

What this fundamentally did was change the dynamics of whose customers were they first. The carrier’s or the device manufacture’s? The point that Apple was making, was that consumers would choose Apple products before they would choose a cell phone carrier.

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How quickly we forget our very recent history. On January 9, 2007 Steve Jobs announced the iPhone at the Macworld convention. The original iPhone was to be serviced exclusively by Cingular. Also in January of 2007 we learned that Cingular, originally a joint venture between SBC and BellSouth, would be re-branded as AT&T. We then slowly learned as the iPhone’s official release date drew closer, that the iPhone would continue to be exclusive to AT&T, would not be subsidized by AT&T, and you could purchase phones directly from Apple Retail Stores.

As the layers of this onion were pealed back even further, we learned that Cingular (or was that AT&T?) agreed to pay Apple nearly eighteen dollars per month per subscriber for the privilege of being exclusive. Apple was also in control of the activation process which required an iTunes account. Moving forward Apple was also responsible for distributing all updates to the iPhone, not the carrier, not AT&T. Apple was completely in charge, completely. Oh, and there was one more thing, no third-party native apps, only web apps. In fact, Steve Jobs was at that time quite adamant that there would never be natively developed applications for the iPhone and that web 2.0 applications would be all that developers would ever need.

Who Owns the Relationship with the Customer?

What this fundamentally did was change the dynamics of whose customers were they first. The carrier’s or the device manufacture’s? A question that, until this point in time, was never asked. The point that Apple was making, was that consumers would choose Apple products before they would choose a cell phone carrier. And Apple was right. For the first time, a device manufacturer was in control of the relationship with the customer ahead of the carrier. If you owned an iPhone, you belonged to Apple first, then perhaps to the cell phone carrier. This change in the fundamental relationship with the consumer was cemented by large numbers. Very large numbers. Some of the largest numbers in the history of mobile computing.

App Store Downloads

Then it happened, the App Store opened on July 10, 2008 and the next day the iPhone 3G was launched with iPhone OS 2.0. All existing iPhones and iPod touches were able to update to iPhone OS 2.0 as well. A new player was introduced into the equation, the third-party developer. Apple may have won the battle with the carrier in establishing its position with the customer, there was no question there. Apple came first in that relationship. But where does this third wheel fit in? A distant fourth place in line would be the manufactures of development tools and technologies that third-party developers choose to use. Companies like Adobe that manufacture these tools and technologies are even further removed from the mobile customer. Their focus is on making life easier for developers, not better products for mobile customers. It only makes sense since their customers are the developers. But just how important would this new iPhone development platform be to third-party developers and companies that build solutions that these third-party developers use? As only time would tell, and that all depended on what was at stake. And in the beginning, what was at stake was not yet known. That is, not until the numbers started rolling in. Quarter over quarter record-breaking sales of iPhones and iPod touches, and quarter over quarter record-breaking sales of Apps and unimaginable download statistics. Now everyone wants to own the customer. The only player that was clearly out of the race was the carrier, they were just along for the ride.

This is all well and good for the device manufacturer, cellular carrier, and third-party developers. But there was another quite player out there whose battle was already over. The music and movie industries. What everyone seems to have missed was that the explosion of the iPhone into the hands of consumers was more of a play of convergence than its ability to surf the web, respond to e-mail and play games. A cell phone, and an iPod in one device (not just a phone with iTunes installed). Forget everything else. Everyone had a cell phone, and everyone had an iPod. And in June of 2009, when the price dropped to $99, absolutely everyone started thinking about using their iPod to answer phone calls. This is an important factor to consider. Everyone who had (or still has) an iPod is utilizing iTunes to manage and even purchase their music. Once you have a sizable music library in iTunes, and you have grown accustomed to purchasing musing from the iTunes Music Store, you are pretty much hooked. And the numbers on this side of the equation are not too shabby either. In April of 2008, Apple finally passed Walmart and iTunes became the #1 Music retailer currently representing more than 25 percent of all music sales in the U.S.

Loving Their Music

Consumers have a relationship with their music, not their device and certainly not their cellular carrier. What has always defined the relationship has been the music. And Apple was and still is in control of that. It really had nothing to do with how great the iPhone was or was not. The fact that the iPhone is great only strengthens the bond, but it did not create the bond. That bond between consumers and Apple began with the iPod and remains intact due to the consumers owning and maintaining sizable music libraries via Apple’s software, hardware and online services. Every so often the music industry has tried to wrestle control of the customers away from Apple, but has thus far been unsuccessful.

So now we can come to understand why developers are flocking to the iPhone platform and developing applications for Apple’s iPhone. There is a huge install base of customers purchasing apps that seems to increase quarter over quarter. And these customers have proven time and time again that they are willing to pay for music, movies, apps and connectivity. Focusing on the Apps, for the most part, since its debut on the market, Apple has maintained a single platform. The variations between the iPod touch and iPhone has remained subtle. Each being able to host the latest version of the iPhone SDK. Making the current total of units an astounding 50 million units. 50 million units all on basically the same device, running basically the same OS, and all able to access the same software from the same App Store. With the device manufacturer owning the relationship, and in control of software updates and distribution of third-party applications. What’s more is the length of time that this particular situation has been stable. Three years running on a stable platform (which also includes iPod touch devices) to a growing number of users that now totals 85 million customers. Never before has such a consistent mobile platform been available to as many users for this length of time.

Multi-Platform Investment

That brings us to the value proposition. There is a cost associated with supporting additional platforms when developing mobile applications. And that cost will be balanced against the total opportunity there is to be gained. Each splinter in the platform, be it screen resolution, device capabilities, of operating system difference all increase the cost of targeting and maintaining software on that platform. These costs are not only related to writing code specific to each platform. The way that a Blackberry user expects to interact with an application is different from that of an Android user and different again from an iPhone user. Each platform has its own Human Interface Guidelines. This requires modifications in the design of the application as well as the support of variations in the testing cycle. And depending on how great the variances between devices are within a given platform, the approach to on device quality testing may vary as well.

Facebook not Blackberry

Looking at the current competition, RIM may still outnumber based on the total number of units sold to date, but if one takes a closer look, one will quickly discover not only a seriously fragmented collection of device profiles to test against, but also some rather low numbers of individuals downloading and using third-party applications. The “Crackberry” does one thing better than any other device on the market, and that is e-mail. The problem is that times change and most consumers are not utilizing e-mail as their primary means of electronic communication. Twitter and Facebook are replacing SMS and e-mail. So much so that in a recent survey, 40 percent of all existing Blackberry owners claim that they will switch over to iPhone when they replace their current device. What would be interesting to know is how many of those same Blackberry customers already have an iPod and an established iTunes music library. RIM’s only fault is that they have been a player for a long time. And over time, a device manufacture’s will ultimately start to splinter, and their customer base will fragment making the maintenance of applications for third-party develops across all fragments more and more expensive.

Android

Then there is Android. Can anyone honestly deny that Google will help Android become the dominate licensed operating system across portable devices? The problem that third-party developers face is that right out of the gate Google fragmented the market. With the OS divided into almost equal thirds presently (1.5, 1.6 and 2.1), the number of new Androids coming to market is mind numbing. Buyers remorse with a locked in two-year contract has become par for the course. The support costs for third-party developers on the barley one year only Android platform is that it is actually in worse condition than Blackberry. The number of variances based on-screen resolution, device capabilities and operating system versions is a nightmare to manage. And at the rate to which new devices are coming out, it is impossible to test on device across all variations, simply impossible. What is worse still is that each device manufacture can decide whether or not to include the “Google Experience” with their device, and decide on their own when to provide updates for the carrier to push out to the carrier’s customers. This will prove to be problematic for those responsible for identifying testing scenarios, budgeting time, and scheduling regression tests to ensure consistent quality.

Android Platform Versions

Android Platform Versions

Return on Investment

What will the ongoing development costs be and what is the potential gain? For iPhone the overall support costs are currently low as the platform is not too terribly fragmented. Another thing that Apple has going for it is the predictably in which it operates. Almost like clockwork year after year. Original iPhone released June 2007, iPhone OS 2.0 announced March 2008, iPhone 3G released June 2008, iPhone OS 3.0 announced March 2009, iPhone 3GS released June 2009, iPhone OS 4.0 announced April 2010. Developers can plan for it, and business investors that fund third-party development can budget for it. A very stable platform with extremely predictable release cycles. Can the same be said for Android after just one year? Who knows when the next device will be making its way to consumer, what version of the OS it will have on it, and which manufacture will produce it. We don’t even know if it will be a phone or a television set! Not only does Google not own the relationship with Android customers, neither does the device manufacture. The carrier is still in control of the relationship following the old school paradigm of cell phone carriers. With RIM, the majority of users are hanging on to older devices that are not capable of running a modern mobile application. Certainly nothing on par to what can be developed on the most recent Blackberry OS, or even on Android or iPhone. And will RIM have its Blackberry 5.0 out of beta and on enough devices long enough for any sort of return on investment before Blackberry 6.0 is released? While RIM may in fact have a model more closely resembling Apple in the fact that they own the customer relationship first, not the carriers, RIM suffers from its long running legacy.

Conclusion

The point being is that the iPhone is a very well-managed, barely fragmented (as of today) platform with a huge customer base that can’t seem to get enough apps to satisfy their need to make mico-purchases at the app store. The iPhone has effectively replaced the candy rack at the checkout aisle for impulse purchases. Under the guidance of Steve Jobs, and since October 2001 with the introduction of the iPod, Apple has been earning its right to own outright the relationship it has with its customers. Through rigorous engineering best practices, and the ability to deliver a quality product like clockwork year after year, the consistent stability of the platform has made the iPhone a safe haven for third-party developers. Developers that are interested in developing high quality solutions to a well-groomed customer base that is willing to pay for that experience. What could possibly be a justifiable reason for the government to step in and take all that away?

  1. Thank you for the excellent article. Your observations and analysis is spot on.

    I did notice one misspelling “… developers on the barley one year only Android platform …” barley should be barely ;)

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  2. There’s never been a better time to buy Enron stock. Really.

    An iPhone is still the thing to get if you absolutely must have a phone and an iPod in the same device. The rest is just a tradeoff for something else, and if you need any more evidence how little people care, just look at how many BlackBerry users don’t want to switch, despite the obvious difference.

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    1. Matt Liotta Friday, May 14, 2010

      There is a difference between wanting to switch and planning on switching. Specifically, 40% were PLANNING on switching. Given that at&t has less than 40% of all BlackBerrys, the number is actually quite telling.

      The at&t exclusive is the ONLY thing holding the iPhone back.

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      1. Except they don’t. Changewave’s proposed to actual conversion rate is about a third, that is only one in three actually move.

        As for the iPhone, yeah, it’s nice and it’ll be around for a while I suppose.

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  3. Can you cite Steve telling developers that they would never be able to produce third party apps? When you start reading too much in to what people say, it starts revealing your own desire to overdramatize – further evidenced by the cliche “then it happened”

    please, stick to the facts and let the story tell itself.

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    1. I was searching everywhere for a direct quote prior to posting. I do distinctly remember at that time thinking it was absurd to think that there would be no native apps by third-party developers on the iPhone. At that time I was a Treonaught with a considerable inventory of Palm apps on my 650. One in particular, Splash Data, was the reason I held out and did not purchase an iPhone until the 3G was released. I may have to go back and watch the keynotes again. There was considerable push early on to focus solely on Web 2.0 when targeting the iPhone. There certainly was no hint at it’s release that there was ever to be any sort of SDK on the horizon.

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      1. “When Apple unveiled the iPhone in January, Jobs hinted that Apple would be the only game in town for iPhone application development. He seemed concerned that a rash of third-party applications could create security and reliability problems that could derail Apple’s first attempt at cracking the smart-phone market.”

        C|Net – Apple opens iPhone to developers–kind of
        http://tinyurl.com/29u6z69

        “This is an important tradeoff between security and openness. We want both. We’re working through a way… we’ll find a way to let 3rd parties write apps and still preserve security on the iPhone. But until we find that way we can’t compromise the security of the phone. I’ve used 3rd party apps… the more you add, the more your phone crashes. No one’s perfect, and we’d sure like our phone not to crash once a day. If you can just be a little more patient with us I think everyone can get what they want.”

        engadget – Steve Jobs live from D 2007
        http://tinyurl.com/ypn3qk

        “You don’t want your phone to be an open platform,” meaning that anyone can write applications for it and potentially gum up the provider’s network, says Jobs. “You need it to work when you need it to work. Cingular doesn’t want to see their West Coast network go down because some application messed up.””

        Ars Technica- Steve Jobs knows best
        http://tinyurl.com/378dvzw

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  4. Patrick Christiansen Sunday, May 16, 2010

    Fabulous article. This is why I always read theappleblog. The depth of the articles and the thought put into the stories. Thanks for providing a place that is not just news and rumor mill

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  5. You have precisely identified why I do not and never will own an iPhone. I’ve been an Apple fan since I bought my first Macintosh in 1987. But the company has started to put its profits and desire for total control ahead of the best interests of the customer.

    In this equation you have described, Apple comes first, then the service provider, then third-party application designers. The customer is locked into Apple’s stores for product, software and media. At that, a customer doesn’t really own the media as he cannot copy it, share it, or convert it to another format.

    Furthermore, media can be remotely deleted if Apple determines (thinks) it’s interests have been violated.

    So long, Apple, it’s been a nice ride, but we’re through. Hello Android and Linux.

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    1. Ok, so you proved you’re an idiot with the last sentence in your comments. But I’ll go ahead and reply anyway.

      Apple keeping total control IS in the best interests of their customers. That’s what tech pundits don’t seem to “get.” By and large, most users could care less about the “openness” of Apple’s business. They just want a computer, phone, music player that works. Every time. Easily.

      The customers is locked into Apple’s stores, software and media? Huh? I can put ANY video, movie or TV show I want on my iPod touch. I can convert any song to MP3 no matter where I bought it – including from the iTunes store – which means I can share it, convert it, and copy it.

      Apple’s products aren’t nearly as “closed” as tech journalists and geekoids would have you believe. You have to be smart enough to look past the B.S.

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  6. I’m an idiot? You are a coward hiding behind your keyboard tossing out insults you would never dare say to m face.

    You deny what I said but offer no real contrary proof. You didn’t prove Apple is not trying to control all access and media sources. Apple does want everyone to be tied into their stores for content and applications. The fat that they have not totally succeeded doesn’t change their intent. I doesn’t mater what a company does, there are always people that can find a way around it.

    Until you can offer real proof of what you say, stop looking like a bullying fool yourself.

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    1. Actually, I’m not hiding behind anything. You can click the link to my site and see who I am.

      And perhaps idiot was the wrong word to describe your comments. Ignorant, full of hot air, troll-bait… any of those might work to describe someone who is willing to throw away thousands of dollars worth of Macs, iPhones or iPods simply because they don’t like the way Apple does their business – after they’ve already purchased said items.

      I think I offered proof that your comments are misguided at best. You CAN in fact, convert, share and copy media that runs on Apple products. I do it all the time, as do many other people I know. I’m not going to give you lessons on how to convert a song from MP4 to MP3 format, but if you spend all of 2 minutes searching for it, you’ll find the instructions.

      The proof that consumers DO want a somewhat closed development/sales business model are the sales figures for iPods, iPhones, iPads and other Apple hardware. Apple is making money hand-over-fist. That’s coming from people who don’t care about tech geekery and just want their phone, computer and music player to work as advertised without viruses, malware, and apps that don’t do what they claim, or drain their battery after 20 minutes of use.

      Apple didn’t START putting “profits and control” AHEAD of their customer’s best interest – they’ve ALWAYS placed profits and control as a main focus of their business. That IS in their customer’s best interest – that’s why they’ve been so successful.

      I fail to see why it’s so hard to grasp the fact that as long as Apple maintains control over what and how an application finds its way onto my iPhone, iPad, iPod or Mac, it by-and-large will work as advertised. I don’t have to worry about viruses, malware, spyware, and cruddy apps that bring the entire device to its knees.

      I could care less what software a developer uses to create the app, or how easy or hard it was to do, or whether or not he has to jump through hoops to get it to work on other platforms. All I care about is if it works on MY APPLE DEVICES.

      It’s not a perfect world. But if you’re so put-out that some developer has to learn a new coding method to bring some app to the iTunes Store that you’re willing to throw away your investment over it… send it to me, I’ll gladly take it off your hands (since you’re “finished with Apple” anyway. Good luck running MS, Adobe and Apple software on Linux!

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  7. Either you are unable to read or you have a comprehension deficit as wide as the Grand Canyon. Exactly how have I thrown away any money on Apple products? How have you proven anything, either what you have said is right or what I have said is wrong?

    I say again, you are an intellectual coward. You evade the questions and continue to say things behind the safety of your keyboard that you would never say face-to-face.

    So, either back up what you say with some verifiable facts, or do yourself a favor and just STFU.

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  8. “The number of variances based on-screen resolution, device capabilities and operating system versions is a nightmare to manage”

    It will be interesting to see what the 4th gen iPhone is like. According to the infamous lost prototypes, it appears to have a different screen resolution. We’re trying to develop future sites and apps to be more ppi agnostic and let the device scale things as appropriate.

    “What could possibly be a justifiable reason for the government to step in and take all that away?”

    AFAIK, the app store submission process and restrictions are certainly more open than, say, Wiiware for the Wii, or the PS3′s online store. Interestingly, there happens to be roughly the same number of Wii’s as iPhones sold in the world (about 50 million each).

    Anyways, say Walmart said they didn’t want to stock shelves with floor lamps that use a particular bulb type because they are suspected of causing house fires and because of that could tarnish the Walmart brand? Would the government jump all over them and force them to stock those lamps? Doubt it. Would that bulb manufacturer that has a vested stake in selling those bulbs (and which has a monopoly) put up a big stink and scream that Walmart was taking away choice from consumers to drum up support for their side? Perhaps.

    The cross-compiling brew-ha-ha that Adobe and Apple are having a spat over is mostly just drama, imho. I mean, it’s not like Adobe has an open and standard language governed by a consortium that they want developers to have access to for the ‘greater good’. They control the definition of what Flash ‘is’ and what Actionscript ‘is’ at any given moment and exclusively sell the development tools for it. Adobe has said they don’t want to release Flash control to a consortium (the way they did PDF and Postscript) because they don’t want it to be “designed/managed by committee”, which is obviously a loaded argument.

    Adobe’s “choice” campaign is misleading. They are talking about developers’ “choice”, not end-users. The two are mutually exclusive, if you allow developers to make Flash apps, then you have to force the end-users to have Flash to use those apps. It goes so far as to if there was Flash browser support (even if just opt-in) that content providers would find it hard to justify the cost of using more efficient open standards to alternatively deliver content if they can simply say “you need to install Flash to view this content, click here to download!”

    In any case, the Flash ‘battle’ should have been 3 years ago when the iPhone came out. The truth is that many (everything I’ve tested so far, except Hulu because they want to force people to watch ads and to ‘secure’ the content from download) have since then migrated away from Flash for mobile devices. The result is less battery drain, better security, and less crashes than the regular desktop cousin’s browser that has Flash.

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  9. the whole flash thing is crap. Apple says they don’t want to endorse proprietary formats, and Flash definately is one, however they endorse h.264 which is another proprietary format….

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    1. Micah, I agree. But I think if we examine what will make the most profit for Apple (or any other company for that matter) motivations will become very clear.

      “If you wonder why something is the way it is, find out who is making money from it being that way.” Cynical? Yes. Accurate? Even more so.

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  10. As usual, reality reigns supreme. I was a BlackBerry user in need of an upgrade, needing more from my PDA/Phone. Because of long seeded bias, I had avoided the iPhone, until I began to see friends and family sporting theirs around, getting to websites quicker, running better apps, etc. I was almost sold, until I remembered one key principle in life…history is destined to repeat itself and Apple is the poster child of this stark reality. Truth be told, I was about ready to march down and get an iPhone, but wait…I can’t own one without jettisoning my carrier Sprint? Here we go again…you can’t own a “mac like” computer without buying a Mac from Apple, you can’t run Mac software without owning an Apple Mac, you can’t buy an iPhone without buying an Apple product and switching your carrier to AT&T.

    Well Stevie Jobs, I didn’t follow you in search of your comet some 30 years ago and I’m not going to now. Nope, I’m happy with my Android and current carrier Sprint. Now with today’s announcement that Android phones have surpassed the iPhone, history again has repeated itself. Like always, Apple is too late to the dance and all of the eligible boys and girls are taken! Will he ever learn?

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    1. “you can’t own a “mac like” computer without buying a Mac from Apple, you can’t run Mac software without owning an Apple Mac,”

      Good news, Historian. You can get a “Hackintosh” that will be a Mac in all but name and appearance. You can either get the necessary bios mods from the internet or even buy one ready-made at a local computer place that builds their own hardware. These can be desktops, laptops or even netbooks.

      Even here in Brazil, there is a small computer parts and repair facility a couple of blocks from me that will either convert a system you own or sell you one ready-made.

      I’m sure that many of these places do not advertise their offerings to evade he perennial threat of lawsuits from a predatory Apple. (doesn’t that sound a lot like Microsoft of a few years ago?)

      A converted system looks exactly like a Mac to on-line checks and will accept upgraded software such as OSX 10.6.2 to 10.6.3 and run any Mac application. Does Apple hate this? I’m sure they do. Does anyone really care? Not I, nor anyone else I know.

      Google “Hackintosh”. Have fun and place safe, children. :)

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