Bill walked the audience through an economic argument as to why the most successful app developers will target multiple platforms, not just the iPhone. He’s right – if you’ve got the money, the scale, the know-how and sophistication to manage a big porting and test matrix, a lot of partner programs and distribution negotiations. His point is that the more handsets and end users you can target, the more money you can make. But there comes a point of diminishing returns, even with automated porting and testing tools. The question is not how much revenue you can pull in, it is how much profitable revenue.

Jason Jacobs, founder of RunKeeper and a successful iPhone app developer was also on the panel. When asked about his plans to port RunKeeper to other smartphones, he said he’s thought about it but right now is quite happy with his success on the iPhone. Jacobs says that the fastest route to greater profit for RunKeeper has been to expand his existing market through community building features, global reach, and product extensions to new sports and training methods. For RunKeeper, the point of diminishing returns has already been reached with just one target platform. Jacobs did not rule out porting to other platforms in the future, but he’s focused on profitability, not just maximizing revenue.

The iPhone is different from BREW in some very important ways. BREW has always been perceived as tied to Qualcomm’s CDMA-centric focus and to Verizon Wireless in particular. The iPhone is on the most broadly deployed network technology – GSM. The BREW certification process is perceived as complex and costly, designed to facilitate operators’ “walled garden” models. Verizon Wireless’s announcement today of a Google/Android partnership points to the end of that sorry era. While the App Store approval process gets dinged for being arbitrary and opaque, for most iPhone apps it is fairly smooth sailing by comparison. And lets face it – BREW never has had sex appeal – targeted at more low-brow feature phones. The iPhone fairly reeks of it. In an earlier post, I’ve talked about some of the ways the iPhone is disrupting the mobile ecosystem. You can see that disruption in action, watching Apple and AT&T’s competitors scramble.

The iPhone adopted the best elements of BREW: nearly zero fragmentation and integrated distribution, and ditched the bad bits – narrow network, small subscriber footprint, weak marketing and branding. Android has adopted both the best and worst elements of Java ME – broad footprint, open platform, fragmentation and a “wild west” competitive landscape.

Bill Scott said that fragmentation is an inevitable cost of the mobile marketplace, and that successful developers must just learn to live with it. With over 2 billion apps downloaded, Apple is disproving this bit of conventional wisdom. Google needs to manage their platform’s “diversity” if they hope to catch Apple in this very new world.

“With MOTOBLUR we are differentiating the Android experience for consumers by delivering a unique mobile device experience designed around the way people interact today,”

Hooray! Motorola is differentiating the Android experience! Can you hear the screams of Android application ISVs? Oh yes – MOTOBLUR is a “skin” and doesn’t reimplement the virtual machine at the core of Android. Applications written to Google’s SDK will likely run. But if you want to really integrate your app with the Cliq and other MOTOBLUR phones, you’ll need to code up something special. And Motorola is gearing up to give you that rope, as Mr. Jha proudly announces in an interview with PC World:

“Over a period of time–we’re not there yet–we’ll allow the APIs to be available so people can develop many more applications than we can think of ourselves, but it’ll take us a little bit of time to mature ourselves to a place that we could open up APIs.”

And that’s just Motorola. HTC has an Android phone or two or three or four. LG and Samsung are getting in the race too. The Open Handset Alliance (what an ironic name!) has 47 members. Pretty soon Android is going to fragment into a thousand implementations. Goodie for Google, right? Android will beat that pesky iPhone through sheer diversity and market momentum!

Ah yes, the iPhone. Two versions! Black, and white. But only one API. Apple exerts absolute, iron-fisted control over their platform as the sole handset OEM, turning back all entreaties (except perhaps from China) to build variants specific to to carriers and geographies. By nearly eliminating the cost to port applications and handling deployment through a single mechanism – the iTunes App Store, Apple has dramatically improved the economics for application developers. With over 75,000 apps available, its been a huge success.

Android is already fragmenting, and fast. Google knows this, and knows it is a big obstacle to developers. It just makes it more expensive to create Android applications, and makes it likely that Android developers will target only a subset of the market. Chris DiBona, Google’s open source program manager said as much at this year’s OSCON Conference:

“We think it’s really important that we spend a lot of our time trying to reduce fragmentation from an the application stand point – so when you code the G1 it’ll also run on later platforms from Sony Ericsson and Motorola and all the rest – and that’s a huge challenge.”

Huge challenge indeed. Can Android succeed if it ends up with hundreds or thousands of different implementations each subtly different from the others, as Java ME sadly ended up? How much fun will it be for consumers to hear about the latest cool application for Android phones, visit the Android store, select their phone (which model is it again? the XV7845a or XV7845c?) and find out that the app doesn’t run or has unpalatable limitations on their handset?

The moral of the story: if you give your partners the ability to “differentiate” your platform, you had better understand the implications for developers and the end consumers of your software. Google has a lot of smart people and they’ve made the calculation that it is better to get Android on a zillion handsets across all the carriers, and that the inevitable price to pay is fragmentation, the OHA’s “non-fragmentation agreement” notwithstanding. It is a huge gamble, and history is not on their side. Is fragmentation inevitable? Is openness worth the price? How valuable is differentiation when it dramatically raises the cost of application development? Who does it benefit, anyway? Consumers? Will MOTOBLUR really help Motorola regain their mojo? What do you think?

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.