RSands Consulting

At the Mobile Monday event in Cambridge last… Monday, of course, it was mostly all iPhone, all the time. This with Rich Miner from Google Ventures, formerly (last week) the head of their Android program, and Jeremy Wright from Nokia on the panel, and the whole event sponsored by Microsoft Research. Windows Mobile, Microsoft’s handset platform, was mentioned once during the whole event. And Mr. Wright had to fend off questions of Nokia’s relevance in the face of the iPhone’s impact, even though Nokia is the leading handset manufacturer in the world.

Is the iPhone really that compelling? Why were most of the 400 attendees at this event so focused on a single smartphone device and ecosystem? Its not like there is no choice – there’s Symbian and Windows Mobile and RIM and the new Palm Pre and Google Android… the list goes on. What makes the iPhone the juggernaut of the mobile world, turning business models and established wisdom upside down?

All along, mobile platforms have been built by and for carriers and OEMs, to maximize their returns. Carriers have been intent to lock down applications and content on their offered devices so that consumers purchase nearly everything through the carrier – from apps to ringtones to music to additional services. Each carrier has its own mobile software, method to deploy applications, collection of devices each with different capabilities, even within a carrier. This fragmentation of the market and complexity of development and access has served carriers well up until now, concentrating market power and control in their hands.

Apple came along with their unique perspective on this market, and demonstrated that the real power in the mobile industry, as in most other consumer-focused markets, is with the end-user consumers themselves. Apple built a device that consumers wanted. Their design sense is so strong that even with the iPhone having been on the market for several years, only now are other handset makers rolling out new products to rival its sex appeal and ease of use. If you bring to market a product that is easily seen to be superior to its competition, you force change. Consumers needed the iPhone example to let them see the value of having the Internet in their pocket. Now that they see how useful it is for their personal mobile device to have access to all the world’s digital information, their expectations have changed. This is not dissimilar to what happened to walled-garden information services like Compuserve, AOL, and Prodigy when the World Wide Web burst on the scene. Once people experienced the breadth of content available outside the wall, they became dissatisfied with what any one service could bring them, no matter how comprehensive.

But Apple didn’t stop with bringing the Internet to people’s pockets and palms. The iPhone has revolutionized things for application developers as well. There is only one API, one device to target, and by all accounts, an exceptionally simple and high-level programming model with Objective C. None of the fragmentation across devices and carriers seen with other mobile platforms. And getting your application onto the phone, and getting paid for it is just as revolutionary and easy. Apple eliminates negotiations with carriers, establishes a set percentage of revenues, handles quality control, billing, deployment, and pretty much everything else a developer needs to deliver powerful applications directly to consumers, with minimal muss and fuss. Bottom line – it is much less expensive for a developer to create a showcase application for iPhone and get it in the hands of customers than on any other smartphone platform.

Consumers love it. Developers, and content creators love it. Apple surely loves it. But carriers are rightly spooked, because this new model cuts them out of the content business and accelerates their inevitable slide into the abyss of commoditized, dumb data pipes, where price and low cost are the only things that matter, and margins get razor thin. But the carriers should have seen this coming. No matter how much control carriers exert, if what they deliver is more about their profits than satisfying end-users, they’ll eventually be attacked by someone who understands that consumers have the ultimate power, and that developers and other content creators are the source of most of the value to those consumers. The iPhone was inevitable. Or rather – a consumer and developer friendly platform that beats the carrier-centric approach was inevitable. Given Apple’s consumer electronics savvy, its not a surprise that they saw the opportunity and ran with it.

At Monday’s event, Google’s Rich Miner highlighted the biggest perceived weaknesses in Apple’s strategy – Apple’s “control freak” grip on application approvals and closed-source black box platform, and touted Android’s solution – a consumer-driven rating system that will let people filter out junk, virus-laden adware, and other scourges, while giving developers free rein in approvals, and code to hack. I’m as big a believer in open development as anyone, but in this case I think Google is missing the point. Fragmentation is extremely costly for developers. The Java ME platform has run aground largely because of it, and other mobile platforms have significant fragmentation. Android, as an open source code base, will likely see as much or more fragmentation as any of the other platforms out there. And consumers don’t want to shoulder the burden of doing their own quality control – they just want stuff to work. Miner pooh-poohed fragmentation as an issue, but… he has to. Developers are just sick and tired of it, and are jumping to iPhone as a result.

Sure, developers are going to grouse about Apple’s heavy-handed slow approval process. But the alternative is the chaos they’ve grown to loathe with other platforms. They’ve spoken with their fingers – 25,000 applications for iPhone, and growing fast. And now everyone is scrambling to match the App Store’s simple model and instant deployment. Carriers are headed down a one-way path toward commoditization. The iPhone demonstrates where things are headed. Consumers and developers are gobbling up market power that carriers have hoarded for a long time. This trend bodes well for the public, but it will force a complete reset in business models and strategies in the mobile marketplace. A good friend and very knowledgeable expert in mobile business told me on Tuesday not to count out the carriers just yet. I think this shift will take time but I also think it is one of those inevitable, unstoppable shifts that are more a consequence of how the global economy works, than the doing of any one company, even Apple. This was going to happen. We just didn’t know how it would really start, or the details. Now we know more.