Blog Post

Bottom Line On iPhone 3.0: Mostly For Developers, Not Consumers

This morning at Apple’s headquarters, just off Infinite Loop in Cupertino, Calif., reporters, analysts and developers arrived early to snack on bagels and sip coffee, eagerly awaiting juicy details on the iPhone’s latest software update. At similar events in the past, we heard industry-shattering news, like the advent of the Apple (NSDQ: AAPL) App store and the iPhone 3G. For consumers, today’s presentation was something of a letdown. The user features are nothing new and, in fact, amount to Apple playing catch-up with other smartphones. Far more significant were the announcements aimed at developers, who will now be able to create an array of cool new applications for the iPhone.

Among the standard consumer features announced today are: copy and paste, the ability to search emails and other content on the phone, and the capacity to send a photo via text message. Let’s contrast that with the tools that Apple unveiled for developers: Starting this summer, it will allow developers to sell subscriptions in the App store. So, for example, magazines can charge a monthly recurring fee, and game companies can sell more levels once a player has completed a certain stage. Although carriers have supported subscriptions for some time, this is new to the iPhone and other open-application markets, like Nokia (NYSE: NOK), Google (NSDQ: GOOG) or RIM (NSDQ: RIMM).

The company also announced peer-to-peer connectivity, meaning that multiple people can link their phones together to play a game, or swap business information (See the Smule example here.). Developers will also now have the ability to integrate their applications into third-party accessories, ranging from a pair of speakers to a heart monitor.

Electronic Arts (NSDQ: ERTS) demonstrated how it might use some of the new features in the virtual-world game called TheSims. The company showed how a character could pay real money for something in the virtual world, like a home stereo to add to a virtual house. It wasn’t possible to sell things within apps before. In addition, the virtual character would be able to connect that stereo to an iPod and listen to music on the device. You can see how an app could easily make incremental revenues.

Clearly, Apple has prioritized making tools for thousands of developers, rather than using the limited resources it has in house to make applications themselves. In general, Apple’s internal development of applications has been very limited — and frankly, unimpressive. Leveraging developers is a not a unique strategy. In fact, Microsoft (NSDQ: MSFT) is famous for it on the the PC. One can argue that this may be the first mobile ecosystem successfully built and operated with the developer and consumer in mind. But there are companies close on Apple’s trail, so there’s no saying whether it will be the last.

7 Responses to “Bottom Line On iPhone 3.0: Mostly For Developers, Not Consumers”

  1. The chattering class has a fetishistic indulgence with smartphones bordering on techno-porn.
    While analysts and competitors were busy making feature-level comparisons (of mostly hardware), Apple consolidated its platform lead and laid the foundations of a new growth engine the likes of which the mobile industry has neither yet seen nor fully comprehends.
    While [the iPhone OS 3.0] garnered a collective yawn from the features-fetishists, barring a product introduction disaster, the iPhone OS 3.0 will do to iPhone-killers what it did do to iPod-killers half a decade ago. Apple consolidated its gains, marked its territory of 30M users+25K apps+800M downloads and built a very deep and wide moat around it. A moat so formidable that there’s not a single smartphone player capable of overcoming it.
    By the end of 2009, we expect the virtuous cycle to kick in and the moat strategy to reveal just how difficult it will be to compete with Apple’s touch platform, thereby ushering in consolidation in the rest of the smartphone industry.

    iPhone OS 3: The moat strategy vs. features-fetishism

  2. Hi Tricia,

    I think part of the flame-age is that your post seems to focus on the tail and not the dog. I wouldn't disagree with a single fact that you raise; it's more that in terms of "SO WHATS" your conclusion is soft. Yeah, copy/paste is a yawner from yesterday (although desperately needed).

    You note that this seemed to work for Microsoft in the past, almost as a descriptive aside.

    Uh, no actually, the PC wars, one of the seminal events of the technology age was SPECIFICALLY won by Microsoft because they built a deeper, wider, more engaged developer ecosystem than Apple. It was the game changer.

    Apple seems to have read the tea leaves from history and not only is currently rocking (30M units, 25K apps, $1B revenue momentum on App Store, 800M app downloads), but as yesterday suggests, they are going to run up the score, lest any developer devote serious resources to other platforms.

    Net-net: they firmly grasp that the winning the mobile market is going to come down to who wins the hearts and minds of developers, and if you agree with that logic, yesterday was a big deal for developers and consumers alike.

    Remember: customers don't buy features. They buy outcomes.

    Here's my analysis on yesterday:

    Analysis of iPhone 3.0 SDK Developer Preview

    Check it out if interested.


  3. Tricia Duryee

    Hey guys, thanks for all commenting. I got a little heat on this over at mocoNews, as well. So, I'll repeat here what I said. I guess I'm a little surprised that everyone read my commentary as a "negative" thing. What I was trying to say is — if anyone was unimpressed with Apple's press conference yesterday because the consumer stuff they announced — like copy and paste — is not new or sexy enough, then just wait. Instead of focusing its time and attention on creating stuff for the end-user, Apple has been diligently working behind the scenes to make great tools for developers. The developers will be the ones who will make the next 10s of thousands of cool apps (not Apple, which has made "unimpressive" apps like voice record). But it will take a few months, or even a year….It's a smart strategy and one that's worked for others in the past (Microsoft). And sure, some of the things they announced yesterday, like copy and paste, will make consumers happy, but they are not gee-wiz new…not like the things they've done in the past that have revolutionized the industry (touchscreen, full Internet browsing and visual voicemail, etc…). Make more sense? It's ALL open for discussion!

  4. I could not agree with jmmx more. The first thing is that the presentation was for DEVELOPERS. So of course the focus of the discussion of the new os would be geared toward how to make their lives better. If you know anything at all about what contributes to the success of a platform, you know it's about the amount and quality of the software available for it. The Nintendo DS is an inferior machine to the sony psp yet sells far more units because of the software available for the platform. Today was a big day for iphone primarily because it enabled developers of the platform to be more successful in more varieties of ways. If developers can create applications for the iphone and make lots of money then more developers will create applications for the platform and more apps make the iphone infinitely more useful to the consumer. That's why all these companies are creating app stores because a smartphone is only as useful as the applications available for it. Apple has learned hard fought lessons from it's wars with Microsoft and it's success with the ipod that uniquely position it to succeed in this space in a way that no other company can match and to say there are companies close on Apple's trail is naive at best.

  5. Oh yes – as to "…unimpressive." the whole cell phone world is trying to emulate the iPhone, they have sold 30 Million units (including iPod Touch). Is that unimpressive?

  6. I am afraid that your comments in "Bottom Line iPhone 3.0" are ridiculous, and show a complete lack of understanding of the industry and software development as a whole.

    Many items were for developers, but every one of those also will impact users. The ability to purchase "new levels" such as books for a book reader is a clear example. It is the end-user who will see this!

    Then you say: "Clearly, Apple has prioritized making tools for thousands of developers, rather than using the limited resources it has in house to make applications themselves. In general, Apple's internal development of applications has been very limited—and frankly, unimpressive."

    Like DUH!! That is what the maker of an OS does! Apple makes the core functionality, and leaves the applications to applications developers. That is how the Software industry works. Apple has always developed only a few core apps that it deems will be critical to their vision (the iLife suite specifically). Do you think it is easy to develop what they have done? Their SDK is is truly a marvel of software engineering! And it ain't easy to do.

    Finally, as to "catch-up" on things such as cut and paste: did you see the comments in the Q&A session? When asked "Why so long" the reply was: "We wanted to get the right UI and security." The average user does not think about security in cut & paste, but their are real issues that, once again, are not trivial. So they took their time, and they did it right.

    If you are going to comment, please have an understanding of your topic.