iPhone: joining the subsidized pack

While the masses praise Apple for the new iPhone 3G, one should remain mindful that this release is actually a giant step backwards for the US cellular industry. Let me be clear, the iPhone 3G is another stunning design encapsulating new, cool features into a superior form factor. The problem is not the handset itself. The problem is the way that the handset will be marketed and sold.

Previously, Apple garnered praise for championing the movement to a more open mobile ecosystem. But, since that time, Apple has continuously acquiesced to the pressure from AT&T to play by the carrier-centric rules of the game. Yes, as has been explained in an earlier posting, the carriers in the US rule the mobile world with an iron fist.

While professing to support consumer-benefiting progress, the carriers have no intention whatsoever of actually loosening their tight grip on consumers. But, let’s not let the consumer off the hook too easily. US consumers are suckers for anything “cheap” or “free”, to their own peril. This deadly combination results in the continued practice of carriers subsidizing handset sales in exchange for consumers signing up for long-term contracts. From that point on, the consumer has no real option to switch carriers and therefore the carriers have no real incentive to improve their offerings, or provide new and innovative services.

Remember the old rhyme:

For want of a nail the shoe was lost.
For want of a shoe the horse was lost.
For want of a horse the rider was lost.
For want of a rider the battle was lost.
For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail.

Except, in our case, for the want of a free cell phone, the whole US mobile kingdom is lost.. or, at least, is 2 generations behind mobile service in Asia.

Apple has seen the light

Wow! Who woulda thunk it? A tiger can change its stripes.

Apple has announced that it is opening the iPhone and iTouch to third-party applications. Yes, believe it. This is the same company that lost the PC wars to Microsoft and Intel because it refused to allow the Mac to be cloned or to license the Mac OS. This is the same company that only allowed iTunes songs to play on the iPod and only allowed the iPod to play songs bought through iTunes (or open source MP3 files). And, this is the same company that released a software patch and turned any “unlocked” (read: hacked) iPhones into useless bricks.

Suddenly, Apple has reversed itself on over 20 years of business strategy. Steve Jobs has all but admitted that that business strategy was wrong. The poster child for tight control has seen the light of open-market economics.

Why now? Why has Steve Jobs had this epiphany at this particular time? Two reasons: Facebook and MySpace. That’s right, Apple didn’t learn from the Mac debacle in its own history. Apple is reacting to what’s happening in the Web 2.0 world right now. And, the analogy is an apt one. Apple sees that Facebook is rapidly gaining on MySpace and that the reason for it is that Facebook opened its platform to third-party application developers. MySpace got so scared by Facebook’s growth that they could only counter by opening up their platform as well.

Apple understands that to maintain its position atop the cell phone world it has to do more. Other manufacturers are introducing touch-screen cell phones. The iPhone runs the risk of being just another handset in a crowded market. So, Apple pulled out its trump card, the one thing that Apple has that no other handset manufacturer has: the upper hand in the handset manufacturer / wireless carrier relationship. Through its deal with AT&T, Apple secured the power of self-determination. And, contrary to what both parties must have believed at the time, Apple decided to share that power with the rest of the world.

But, does Apple understand the ramifications of this decision? This has done so much more than just open up a platform for developers. What Apple has done will send shock waves throughout the wireless industry. By striking the iPhone deal with AT&T, Apple put a chink in the armor of the wireless carriers. Before that agreement, the carriers maintained a stranglehold on the device manufacturers and forced them to comply with a telephone-book sized list of requirements and constraints. The chink in the armor was that Apple negotiated the power to control the device, and even forced the carrier to create service plans specifically for their device.

By opening the iPhone platform to third-party developers, Apple has not only set the device manufacturers free from the carrier’s control, but has also now ushered in the age of Wireless Net Neutrality. Since all iPhone service plans include unlimited data plans, Apple has now created a world where any person anywhere can create a mobile application and not have to negotiate with the carriers for the privilege of deploying the application.

In over 20 years of trying, Apple was never able to overcome Microsoft. But, in less than one year, Apple has thwarted Verizon, Sprint, and AT&T.