Crushing the life out of the iPhone ecosystem

As a stockholder, I’m concerned about the command-n-control, draconian measures being exhibited by Apple around the iPhone and what that is doing to any semblance of an iPhone ecosystem. I’m also bored with a stock iPhone and was really enjoying what the ecosystem was delivering.

I also feel a push-pull: I have (thankfully) hung on to my stock for 15 years and have been well rewarded for that loyalty and have made a crapload of money off of the stock.

I have a unique perspective that concerns me about what I’m perceiving is a crushing of the energy and enthusiasm that comprises the iPhone ecosystem and how that is impacting future product launches, the current iPhone influencer base as well as any interest by developers going forward.

As I’ve written about previously, I was with a pre-Apple-salesforce manufacturer’s representative firm handling Apple in the days of the Apple II, Lisa and then the Macintosh. Even during the time that the IBM PC was gaining ground — which was ‘open’ so any third party could make boards, software and more for the box — Microsoft was beginning to execute on partnering in a way Steve Jobs has admittedly admired (see D Conference web site gives a summary/transcript and links to the various parts of an interview with Steve Jobs and Bill Gates).

One could argue that the #1 reason Microsoft has been so wildly successful and dominant is their development and courting of an ecosystem and the HUGE momentum by millions of people that were making a buck off the Microsoft space. With the latest release of the iPhone 1.1.1 update (which, while crossing my fingers, I just performed with success to my hacked iPhone), Apple has crushed any hacking which includes SIM unlocking and the development and delivery of any third party applications.

But maybe Apple had no choice? What data do we not have that could be influencing their decisions?

Almost every single (reasonably tech-savvy) person I know modified their iPhone (about 30 people I’ve talked to). I’ve been in four Apple stores in the last couple of months and have personally seen roughly 20 Apple retail employee’s iPhones which have been hacked (not the SIM unlock, but instead installed applications, wallpaper, ringtones and such).

Here’s what I think we don’t know:

  • We know that the control mobile telephony companies enjoy in their respective markets globally is unprecedented in history. What did Apple have to agree to in their partner agreements so that they could maintain some balance and control when dealing with these near-monopolists? Without distribution in various countries for the iPhone, it would be dead in the water.
  • How much of Apple’s iPhone business model is dependent upon ongoing revenues garnered from these exclusive partner agreements?
  • With Wifi built-in to the iPhone, how long do you think it would be before a true VoIP application was delivered thus obviating the incentives mobile telephony providers have (selling mobile minutes, ringtones and SMS) and killing significant future revenues?

I think it’s a crime to charge $20 for unlimited text messaging per month. These teeny-tiny text strings go into a queue at the mobile telephony provider’s servers and delivered when possible. $.99 for a ringtone? Yes…it’s cheaper but again it’s still a joke when I can easily put any sound I want to on the device (and I have libraries of sound effects and the tools to make TONS of ringtones).

Like I said above, I’m bored with my stock iPhone and I’m bummed. There were several useful applications that I’m missing already and it’s only been a half an hour! Wired Gadget did this at-a-glance chart from this post that shows a hacked vs. Apple ‘official’ version:

So remember the iPhone launch, the excitement, the instant ecosystem that popped up and the blow-the-doors-off rush of momentum toward maximizing and optimizing this new device. Then consider how the 1.1.1 update has crushed the life out of the developer ecosystem and the almost instant $200 price drop sucked the energy and enthusiasm from the rest of us.

It’s too early to tell how this is all going to play out and only a perspective a year or two down the road will tell the tale. It just doesn’t feel right with all the available data I have now.

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12 Comments

  1. PXLated on September 29, 2007 at 11:32 am

    Dealing with the phone companies is probably worse than dealing with the record and movie companies. It’s taken over six years to get the latter to come around to removing DRM, it will probably take a few cat-n-mouse rounds for Apple to convince the cell execs that this is a losing battle also. It’s only a minority that are hacking their phones for apps. You’re bored but I’d bet 99% of iPhone owners are still tickled pink with it and aren’t even aware you can hack it.



  2. Bart Canife on September 30, 2007 at 7:58 am

    So, the price cut sucked the enthusiasm out of the iPhone? What a selfish attitude. Now anybody can get an iPhone, I’m not as SPECIAL anymore. Maybe it sucked the enthusiasm out of it for you, but it sure added it for a whole lot of other people, who can now afford to buy one without skipping lunch for the next two years. Apple can’t win with people like you. If the price stayed up, they were gouging. Drop it, and the early adopters feel betrayed. Sheesh. As far as the unlock, you know deep inside that the whole iPhone thing would have never happened if Apple hadn’t been able to promise exclusivity to a single major service provider. Wake up kiddies, it’s not your little hobby computer you’re playing around with, it’s a mainstream appliance, and you AGREED to certain stipulations when you purchased it. It a legal thing called a contract. You know, one of those things honest people honor, kind of like giving your word. Oh well, nevermind, some people just have to learn the hard way.



  3. Steve Borsch on September 30, 2007 at 9:45 am

    PXLated: I’d bet the percentage is more like 70% vs. 99% if my anecdotal experiences are any indication.

    As a user of graphic design products, what if Apple only allowed you to load Apple and not Adobe applications on your Mac? You’d *have* to use Aperture and not Photoshop.

    Bart: Were you one of the first million or so that bought an iPhone? Do you own one?

    I’d recommend re-reading my post and try to take a 40,000 foot view like I did (focusing on what these moves are doing to an ecosystem) vs. a tactical view.



  4. Ken Kennedy on September 30, 2007 at 1:01 pm

    Not to be snarky, Steve…but what evidence has Steve Jobs EVER shown you that’s he’s interested in a vibrant ecosystem that he doesn’t control? The MP3 sell at iTunes is not an example; it’s vintage Jobs: marketing over substance (there were and are many smaller labels that have been selling MP3s for a long time now), not hurtful to the hardware (it’s still all within iTMS), and the writing was on the wall anyway (does anyone really think Amazon just decided to go all MP3 since Apple’s decision? I don’t think so…going MP3 lets them sell music to everyone).

    Note: I’m not an Apple user at all, and much of that has to do with the control aspect. The tech is sexy, and well-integrated, and closed…precisely b/c of the level of control. But I actually wrote about this yesterday myself, after making some music purchases this past week. I’ve finally started buying music again (at Amie Street, Magnatune, and now Amazon), after a long dry period…and it’s about control. I really think that Jobs is slowly but inexorably painting himself into a corner with his unwillingness to open up his portable devices, and it’s going to come back to haunt him in the end.

    He can point to the telcos right now as part of the problem (and they are certainly not without fault [ie, EVIL!]), but I honestly don’t think Jobs would be opening things up w/o them. A telling place to watch would be the iTouch, since it is supposedly the same binaries as the iPhone, but shouldn’t have the issues with telco licensing and such. If that market flourishes and is encouraged, that would be telling

    All that being said…nice, insightful post, Steve. Really. Like I said, I come more from the nerd/hacker/Maker side of the fence, so I know that my viewpoint is both different from yours in many ways, and also outside the “mainstream”. But your analysis is always thoughtful, and well worth reading. It’ll be interesting to see how this iPhone update shakes out. I could be wrong; the backlash could force Apple to reconsider some things, which would be great.



  5. Ken on September 30, 2007 at 1:13 pm

    Steve,

    iTunes sells both DRM and DRM-free (currently just EMI right now) tracks. iTunes DRM was set up as a compromise to music companies. If the music companies would allow Apple to sell DRM-free tracks, they would. Example again: EMI.

    Makes you wonder why Amazon gets to sell DRM-free tracks that Apple can’t?

    (iTunes tracks are AAC/mp4, so it is true that not all players can play even DRM-free tracks from iTunes. Although AAC itself is an open standard, unlike wma).



  6. PXLated on September 30, 2007 at 1:22 pm

    >> I’d bet the percentage is more like 70% vs. 99% if my anecdotal experiences are any indication. > As a user of graphic design products, what if Apple only allowed you to load Apple and not Adobe applications on your Mac? You’d *have* to use Aperture and not Photoshop. << Not the same. I 'm using a "general" computing device that traditionally allows one to load other programs on it. I bought the computer knowing this up front. I didn't buy one that had stated limitations other than it's a Mac. With iPhone, limitations were stated right up front. Would I like that? Probably not but I also bought a car that I can't really add parts (or other things) from other manufacturers to. And yes, I'm aware there are third party replacement parts so my comparison isn't perfect. It's really early in the game. Apple is going to make major updates and just can't worry about anything but a stock iPhone. I do think at some point it will open up somewhat (if not fully). They have to "prove" the basic iPhone first...walk before you run...and they can't worry about you hackers out their.



  7. PXLated on September 30, 2007 at 1:26 pm

    Hmmm, missed part of my comment…
    >> I’d bet the percentage is more like 70% vs. 99% if my anecdotal experiences are any indication << I'd take that bet if there was a way to reliably calculate. In reality it's inbetween our figures but I'll bet it's closer to mine. You hang with more geeks and early adopters than I do :- )



  8. Steve Borsch on September 30, 2007 at 1:30 pm

    Thanks for your feedback guys.

    Another thought that has appeared in the blogosphere as I’ve been trolling around on this topic.

    Seems that there is a general consensus amongst some in the Mac developer community that the current iPhone OS state was a “stop gap” measure until Leopard comes out. Many of the services, the iPhone version of Mac OS X, and future offerings are dependent upon many of the things that we’ll soon see released.

    This makes a lot of sense to me and I could go off on another whole tangent with this topic. When Steve Jobs admitted to Walt Mossberg that the .Mac service was a bit long in the tooth and that “we’ll be making up for lost time” was clear. The most recent release was NOT what I expected and would’ve been pretty cool in 2004….but not 2007. I expect that .Mac, iWeb and a lot of other Apple offerings will become much more robust upon the release of Leopard and cause HUGE incentives to upgrade to this new OS.

    Only the most basic links are now made between the iPhone, online services like .Mac (or even Google’s services) and my home/office Mac’s. I expect that the linkages and connections will be much more robust come Leopard (e.g., grabbing files off of my home machine).



  9. Louis Wheeler on September 30, 2007 at 2:14 pm

    You have not a clue as to what Apple intends to do with the iPhone. You have no knowledge of how Apple intends to manage the iPhone ecology.

    So what if you and some “technologically savvy” people wanted to wrestle control of the iPhone away from Apple and were punished for it? Your percentage of the potential iPhone user base is miniscule. Why should Apple cater to you?

    When the ordinary iPhone users start to demand third party applications is when Apple should start supplying them through the iTunes Music Store. Not before. So, stop acting so hurt. You are not a saint; you violated Apple’s rights, not the reverse.



  10. Steve Borsch on September 30, 2007 at 2:41 pm

    “You have not a clue as to what Apple intends to do with the iPhone. You have no knowledge of how Apple intends to manage the iPhone ecology.”

    Louis,

    Ahh….that was my point? That’s why I said, “Here’s what I think we don’t know:” and then pointed out just a few of the things we don’t know.

    I also didn’t say anything at all about “wrestling control” nor was I (or do I feel in any way) “punished” and I’m certainly not “acting so hurt” as you point out. In fact, re-read my post since I am a shareholder (i.e., I want them to be wildly successful and profitable) and the crux of the post was about momentum and the ecosystem. Crushing that ecosystem — or even the perception of such — will work at cross-purposes to success and profitability over time. THAT was the whole point of the post.

    If you want someone to spoon-feed you applications via the iTunes store and sanction exactly what you can-and-can-not do with a device, more power to you. But I saw the potential in the Apple Lisa (but couldn’t afford the $10k) and leapt at the Macintosh when introduced. But even a lay student of computing history will understand why Apple downtrended in personal computing market share while Microsoft and the untold number of ecosystem manufacturer’s made the IBM PC compatible market explode to >90% global dominance and Bill Gates one of the richest people on the planet.

    You know what? I’d hate like hell to see things move in that same direction, though if the iPod is any indication (intro after intro after intro after intro keeping them on top) Apple just might have an innovation cycle and product roadmap that will keep them out in front simply by out competing anyone else.

    Perhaps you’ve noticed the irony in bloggers and commenters pointing out Apple’s original “Think Different” campaign within the context of what they’re doing now? You know:

    Here’s to the crazy ones.
    The misfits.
    The rebels.
    The troublemakers.
    The round pegs in the square holes.
    The ones who see things differently.
    They’re not fond of rules.
    And they have no respect for the status quo.
    You can quote them, disagree with them, glorify or vilify them.
    About the only thing you can’t do is ignore them.
    Because they change things.
    They push the human race forward.
    And while some see them as the crazy ones,
    We see genius.
    Because the people who are crazy enough to think
    they can change the world,
    Are the ones who do.

    I’m not a saint and I’m not trying to change the whole world but rather am trying to understand what they’re doing and how that pushes them forward….or holds them back.

    Apple’s zeitgeist from its early days (and the essence of the brand even today) is all about hacking, doing things outside the norm, pushing the envelope, creativity and innovation, changing the world, and more. THAT is why I’ve been a loyal Apple user (and one could say fanatic) since 1979 and why I expect so much from the company.

    Look. The iPhone is a new and fundamentally different computing PLATFORM and Apple even talks about it in that way. It’s not a phone; not a smartphone; not just a text messager. That is why disallowing an ecosystem to flourish is puzzling at best and disturbing at its worst since it’s the collective energy, enthusiasm, creativity, magic and delight that could make the iPhone the ONLY device anyone might want. Apple simply can’t do it all nor can ANY company…that is why a robust ecosystem is mission-critical for any platform.



  11. PXLated on September 30, 2007 at 6:57 pm

    From a newly released Apple doc…
    >> Currently, developers create web applications for iPhone, not native applications. << Guess there's hope Steve...Note the word "Currently" ---------- http://developer.apple.com/documentation/iPhone/Conceptual/iPhoneHIG/



  12. Al on September 30, 2007 at 10:50 pm

    I’ve got to say this. Everyone knew it was a closed system on a single carrier when they bought their iPhone. How can anyone be upset with the present state of the iPhone knowing that?

    If anyone had bothered to read their end user agreement they would know that hacking their iPhone broke their contract, implied and actual, with Apple and AT&T. That means that the hackers were not legally entitled to download and install the update that bricked their phone and/or deleted third party apps. Apple deserves no blame whatsoever.

    Pirates get caught, hackers get screwed over, live with it.



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