Today is a good day to code

The Case For Apple In Five Parts : A Rebuttal

Posted: August 12th, 2009 | Author: | Filed under: Apple, Companies, iPhone | Tags: , , , , , , | No Comments »

After reading Jason Calacanis’ “The Case Against Apple-in Five Parts” I had been thinking about a response.  I have found myself on the same side of his argument time and time again, more so over the past few years, but I don’t agree with him, and here’s why:

About 8 years ago, I switched from PC to Mac.  I bought a Bondi Blue iMac.  I wish I could say that I have never looked back, but that just wouldn’t be true.  There are some very great things about Windows, and the PC market in general.  I have, from time-to-time thought of switching back, and I have even tried a few times.  What happens is that it always looks better from the outside in.  When you actually start using that stuff and running into the problems and confusion, you realize why you chose Apple in the first place.  It is really like cheating on your significant other, and realizing that the grass is always greener, then coming back to find a challenging but still rewarding relationship.

Jason’s point #1: Destroying MP3 player innovation through anti-competitive practices

Jason Calacanis asserts that Apple is killing innovation in the MP3 player market because they don’t allow other devices to sync with iTunes, and they prevent the iPod / iPod Touch / iPhone from syncing with other music programs.  I would heartily disagree.  I think that Apple has made their store DRM-free over the past few months, yes after intense pressure from their customers, but they did it.  You can pay your fee of $0.30 per song to get out of iTunes jail if you wish, then use whatever music organization software you like.  You can even put the now liberated AAC files on your Zune if you want, or you can convert them to MP3 and use them as you would.

You can’t sync iTunes with other music players.  Apple does not want to encourage that behavior for several reasons.  First of all, it goes against their business model.  Apple does not sell software for profit, they sell hardware.  If they were to allow you to sync your cheap $20 MP3 player with iTunes, the development team and the IP that went into iTunes wound net them $0 back for their investment with each user that did that.  Apple only makes software to sell hardware.

Apple does nothing to stop someone from creating their own awesome music organization solution and portable music player.  No one else has done it. What all of the other options in the market are, is hodge-podge crap cheaply thrown together with no attention to detail.

Apple is dominant because everything else is the suck.  As soon as you try to use other music organization software with an MP3 player that installs crap drivers that crash their PC and music program, or they get only half a song, or only half of their play-lists copy over  onto their device and it reboots constantly, they realize their mistake and go back to iTunes and iPod.

Jason’s point #2: Monopolistic practices in telecommunications

Come on, Apple didn’t pick AT&T to be the only carrier that would get the iPhone, they approached the carriers around the world that they thought were the best.  Those carriers didn’t want to accept Apple’s terms, and passed on the iPhone.  Apple had no choice but to go with the carrier that gave them the best business upside.  Apple signed whatever contract had to be signed and moved on.  You can bet that neither Apple, or clearly, AT&T thought the iPhone was going to be this successful.  AT&T got caught with their pants down in the middle of a credit crunch.  Building out towers and pulling backhauls is horribly capital intensive, it isn’t something you can fund by scrounging around the couch cushions for change.  Jason should know this.

Does AT&T’s service suck? Yes. will it get better?  It had better.  Apple knows that there are bags of money waiting for it in Sprint, T-Mobile, and Verizon in the US and so does AT&T.  I am sure they don’t care who carries the iPhone as long as they support the experience well and they get money off of the hardware.  As soon as Apple is able to, you will see the iPhone on every carrier that delivers visual voicemail, agrees to the free-for-all AppStore, and will pay Apple its hardware subsidy.

Think about how it was before the iPhone, you had to listen through all of your voicemails just to get to the important one.  There were 9 stores you had to go to for apps, and could only install ones the carrier approved.  Verizon still doesn’t like Wi-Fi on its handsets for some inane reason, could you imagine an iPhone without Wi-Fi and the AppStore?  It would destroy the experience, so until Apple can deliver the experience on these other carriers they won’t.  Period.  Can you imagine that Steve Jobs is happy that the 3GS still doesn’t have MMS, tethering, decent  service, and the full 7.2 Mbps HSDPA downloads that the device supports? No, he can’t be, it is screwing up the experience.

Jason’s point  #3 : Draconian App Store policies that are, frankly, insulting

I can’t, and won’t try to defend the AppStore’s policies, they don’t make any sense, and it is currently crippling the platform.  But again, you have to remember several things.  Apple doesn’t sell software to make money, and they don’t care how much applications in the app store cost.  They only care that they are there.  If each and every application in the AppStore were free, and the AppStore were costing Apple millions of dollars a year, they still wouldn’t care.  They are making the money up on the hardware side.  There is little incentive for Apple to change the AppStore right now until the actual end users, not the developers start complaining.  As a consumer there isn’t much to complain about except for organization. There are plenty of games that are pretty awesome.  The market has shown that is what end users want.  That is not to say that there isn’t a market for productivity and business apps on the iPhone, some of my favorite apps are productivity apps, but customers have indicated that they don’t want to pay for them.

Look at their competition.  Pre, Android, and BlackBerry are no match really, all of those AppStores are no better than the iPhone AppStore, they just have fewer problems because there are so many fewer developers and software.

When I think about how I would solve the problems, I don’t know how I would do it.  Especially when constrained by Apple’s business model.  Apple needs to move phones and iPods.  That means very low prices for applications, and applications that appeal to the widest audience possible, hence the bizarre puritan regulations on the types of applications in the store.  They also have to adhere to the language of whatever their contract is with AT&T, that they signed 2 years ago when there was no AppStore, there weren’t thousands of developers, and billions of applications downloaded.

The agreement was likely myopic, but who could predict this type of success?  Again, does the AppStore submission policies, rating system, and application exposure suck?  Sure.  Will Apple fix it?  They had better, and they know it.   Things will drastically improve after they have had some time to think about it, which they have, and when they can re-negotiate the contract with AT&T, which they are about to, using Verizon as leverage.

One final point, while it is irritating to developers, there are around 20 million iPod Touch / iPhone customers out there.  That is one hell of a market, so while complaining remember that Apple is enabling you, after jumping through a few hoops, to directly address a market that you wouldn’t have had a prayer of addressing two-and-a-half years ago.

Jason’s point #4 : Being a horrible hypocrite by banning other browsers on the iPhone

I grudgingly have to defend Apple in this.  I agree that it would be better if they allowed other browsers on the iPhone.  The problem is with the T’s & C’s of the AppStore and their ban on other non Apple provided scripting languages.  Something like V8 is really powerful, if Apple allowed other scripting engines like that one, it would break their security model ( which I agree has already been broken by the jailbreaking community ).  Apple can’t cave on this, or they would have a hard time explaining why they don’t allow the Ruby VM, or the Python VM, or allow you to download one app from the AppStore, and have it change around on the user once they have downloaded it.  Imagine you download an application that has a G rating, and then it downloads X content.  With in-app purchase, the application could circumvent parental controls and allow kids to buy porn on their parents’ credit cards.

Apple doesn’t want this so they prevent any scripting engines, and unfortunately browsers are caught up in this net.  I can’t really think of a good method of preventing this other than mechanical turk, I think if someone can, there is a powerful business opportunity for them.

Jason’s point #5 : Blocking the Google Voice Application on the iPhone

AT&T may not control what applications Apple approves or disapproves for the iPhone, but it is hard to believe that Apple would care if someone created a google voice application for the iPhone.  While AT&T may not approve applications, there is almost assuredly language in the original distribution contract with them that prohibits any  applications that simulate voice calling functionality over AT&T’s 3G network.  These applications would run afoul of the guidelines.

As an example, there are many file hosting / ftp / uploading / mobile office programs on the AppStore.  When Apple launched its own MobileMe iDisk application, they didn’t force everyone to remove any application with uploading and downloading functionality.  They are allowing the market to decide which is the best application / service, which is the right thing to do, and feeds into Apple’s business model.  Whatever it takes to move units.  The rejections reek of AT&T either directly or indirectly.

Jason’s Questions:

1. Do you think Apple would be more, or less, successful if they adopted a more open strategy (i.e. allowing other MP3 players in iTunes)?

I think that if Apple were to allow other MP3 players in iTunes it would undermine their core strategy of using their software to sell Macs or now mobile computers.  In the short term, it would boost their sales of music, but in the long term it would eat away at their hardware business.

2. Do you think Apple should face serious antitrust action?

No, Apple has not behaved anti-competitively, or limited consumer choice in any material way.  This situation with AT&T may be violating some sort of law related to the breaking up of the Bell System, but there are plenty of choices for customers out there in computers, mobile devices and applications, they just all suck, which is not Apple’s fault.

3. Do you think Apple’s dexterity and competence forgive their bad behavior?

Look, at the end of the day, Apple is a business.  They need to protect their bottom line and their shareholders, not make a bunch of programmers and technorati feel good.  They need to build and sell good hardware.  Software is an important part of that, but to continue to provide value to their shareholders, in their estimation, they need to control the experience end-to-end.  If that were a problem, their board would let them know, otherwise they are building awesome products that deliver that the mainstream consumer wants, as long as they have the majority of the market with the customer freely choosing their “locked down” solution, they will make the rules.  So I don’t think Apple needs to ask forgiveness.

As a bonus, for Michael Arrington I gave up on the iPhone about 8 months ago and went with a G1 exclusively.  I wanted to love it, but after a while with the slowness, and having to remove applications just to get email and the browser working properly I gave up and went back to the iPhone.  Android is OK, it doesn’t integrate with anything and after a while users will find that those rough edges add up to “not the iPhone.”  I went back to my iPhone with the 3GS and I am very happy with it, happier than I was before switching.  I am still not happy with AT&T, but what can I do?

I don’t regret switching away, and switching back, it made me realize how truly revolutionary the iPhone is.  I am confident that Apple will fix these issues, because ultimately it jeopardizes their hardware business.  I don’t think they will do anything until they believe they can fully address the issue.

I still think that Windows Mobile, and Android will ultimately have more units sold worldwide, but I think that the iPhone will remain the most profitable.  I would always want the most profitable 5% of the market over the least profitable 95%, and I think if I had a startup my shareholders would agree.