Apple’s walled-garden offering is beating the operators at their own game

You have to hand it to Apple. Although it was late to market on mobile, it is the industry outsider that has most wowed the mobile space since its debut a year ago.

It first created a sensation with the iPhone, which has become the handset that many veteran mobile-device makers are eager to copy. And it is now trying to claim a stake in the mobile-content and -applications market, through the launch last week of its App Store, alongside the new 3G iPhone.

Apple is eager to avoid the mistake it made in the desktop space, where it set the standard in computer design but saw Microsoft race ahead when its Windows operating system became the de facto platform for developers designing PC applications.

In the media-player arena, Apple married groundbreaking device design with an application – iTunes – that has become the web’s leading premium music- and video-download store, and it is that marriage that has ensured market dominance of the iPod.

The first version of the iPhone, launched last year, came installed with numerous applications that showed off the device’s cool capabilities, such as its touch-screen interface, rich graphics and motion-sensitive accelerometer technology. But it surprised and disappointed many observers by barring users from downloading applications to the device.

Apple never gave a satisfactory explanation as to why it did that. One reason appears to have been the fear of causing bugs on the iPhone operating system. Some believe, however, that Apple was trying to assuage operator fears that it wanted to compete with them on the mobile content front.

But no such scruples have held back Apple with its second iPhone offering, which not only enables downloads through the App Store but appears to have cut out operators from the value chain completely by billing downloads via iTunes, not users’ mobile bills.

Operators’ billing relationship with mobile users is seen as their strongest guarantee of customer ownership. So Apple is treading on sacrosanct territory by imposing an alternative way of paying for content and apps on its phones.

The possibility that Apple might have agreed to pay operators a small share of the revenue it will be making from App Store sales cannot be entirely dismissed – neither Apple nor operators have commented on the issue – but it looks unlikely.

Apple has a long way to go to catch up with other players in the mobile handset business – not least its old rival Microsoft – to become a leading magnet for mobile application providers. For example, about 18,000 applications have been developed for Microsoft’s Windows Mobile operating system. By comparison, the App Store featured only 500 applications when it was unveiled.

Nokia’s devices, meanwhile, are the handsets that developers most often design applications for. The Finnish giant’s huge share of the handset market ensures that content and application providers targeting the mass market put Nokia phones at the top of their list.

Nokia has also been the most aggressive of the traditional handset players on the content front, exemplified by the unveiling last year of its Ovi mobile Internet offering, combining music, games, location-based services and more.

But neither Nokia nor Microsoft – nor any other traditional player – has the head start that Apple has in digital-content downloads and payments, in the shape of iTunes. Nokia is hoping to bill for Ovi content through the operators. This is one of the things it is looking to secure in its Ovi partnership deals with the big carrier groups – not always successfully. Orange, for example, is enabling access to Nokia’s music store alongside its own on Orange-branded Ovi handsets but won’t allow downloads from the store to be charged on users’ phone bills.

Getting users to pay for content on their mobile via credit or debit card has proved difficult.

The iPhone, and iTunes for that matter, are still very niche compared with the market reach that cellcos and their billing systems have across the globe. But if iPhone sales continue to pick up pace, and if the handset continues to draw the interest of mobile-data-services enthusiasts, Apple could capture a large slice of the mobile content market – and all within its own walled garden.


  1. Avatar richard 30/07/2008 @ 5:15 pm

    “Apple never gave a satisfactory explanation as to why it did that. One reason appears to have been the fear of causing bugs on the iPhone operating system. Some believe, however, that Apple was trying to assuage operator fears that it wanted to compete with them on the mobile content front.”

    Way to miss the most obvious reason. iPhone OS X was nowhere ready to be opened up. Listen to what iPhone jailbreaking hackers said about the original OS. You don’t release an SDK unless the foundation of a platform is solid. Otherwise, Apple is constrained by the need to support backward compatibility with third party applications when improving the OS or break the compatibility which makes releasing an SDK for 3rd party developers pointless.

    “For example, about 18,000 applications have been developed for Microsoft’s Windows Mobile operating system. By comparison, the App Store featured only 500 applications when it was unveiled.”

    This metric is meaningless unless you also look into the quality and types of the apps. I’d take 500 mostly solid apps over 18,000 mostly buggy apps any day. 18,000 apps are also meaningless if they are of the garbage variety (not to say that the type doesn’t exist for iPhone apps, like the light saber app). What is important is not the numbers, but the trends you find in those numbers.

  2. Avatar Synthmeister 30/07/2008 @ 6:25 pm

    Things move quickly in the internet age.
    There are already over 1000 apps available for the iPhone now.
    Also note that iPhone owners have already made 30 million downloads from the app store.

    Funny how we haven’t heard any download figures from MS or RIM or Nokia. In other words, there may be 18K app available but how many have they actually sold? Who even cares if the apps are good, bad or indifferent? Does anyone even use these things?

  3. Avatar James Katt 30/07/2008 @ 8:39 pm

    The Mobile Operators were never in the game in the first place.

    They were never as successful as Apple in selling music and movies. They priced their products so high above Apple’s prices, hardly anyone bought from them.

    They are also not very successful in regard to selling applications. The apps they did sell were crappy small ones.

    Apple had to make sure the ground rules for making apps was completed before releasing the SDK. For example, the rules about what parts of the hardware were accessible to software developers needed to be clarified. What parts of the OS could be used, whether or not Apple’s own applications could be used, etc. had to be clarified.

    Apple did a great job with its SDK. It isn’t whether it was late or not. It was whether it was well done and ready for prime time.

    Sure, Microsoft has 20,000 apps for Windows Mobile and Palm as over 50,000 apps for the Palm OS. But finding them, installing them, and using them are much more difficult than with the iPhone.

    So far, the iPhone user experience has been fantastic. The glitches have been very few and minor. The App store is very addictive. I and other users want more, more, more. The profit for developers on the App store is a greater percentage of total revenue than for other platforms. Buying from the App store is like buying from a candy store. The number of downloads per iPhone is one metric one can use about how successful the App store is compared to any other dealer of mobile phone applications – such as Handango. 10 million downloads in the first three days is a fantastic number.

    The iPhone enables each user to more easily buy and use applications than for any other smartphone. It is so much fun to buy applications. Compare this to the pain that occurs when installing applications for Windows Mobile or Palm.

    Developers should realize that the App store means buy, buy, buy from users.

  4. Avatar TheGadgetStylist 04/08/2008 @ 7:53 pm

    I’ve worked for in Mobile for years, buying and marketing devices for two of the biggest operators in Europe. In my view Apple’s success has been down to the fact that they’ve put the customer’s needs and experience at the heart of the design of their product and they’ve built a device from the ground up to meet them.

    The old guard have constrained themselves since day one with a ‘technology push’ approach that tries to push new, often poorly conceived features at customers to encourage sales and regular upgrades. Who could live with last year’s out of focus 2 megapixel camera with single LED flash when a new out of focus 3.2 megapixel camera with 2 LED flash is now out!

    The operators also did their best screw up the party by pushing only services that would directly boost their revenues.

    They’ve taken so long to relax their data tariffs that they’ve slowed the market to a crawl. They have only supported handset innovation that pushed their data deity of the month – the service graveyard includes video conferencing, 3G mobile TV, and many other services that barely reached the market. This shortsightedness has held back the industry for many years.

    The biggest indicator that Apple have delivered what the public wants is that so many people are willing to pay a premium for buying the phone and the tariff.

    Apple deserve their success because ultimately “The customer is always right.”

  5. Avatar CAT 05/08/2008 @ 3:50 pm

    Of course, many of those 1000 apps for the iPhone right now are simply Web Apps 😉

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