There is a passage in “The New New Thing,” Michael Lewis’ biography of Jim Clark, founder of Silicon Graphics, Netscape & Healtheon, where before the dawn of the web, Clark’s zeal leads the entire cable industry to chase after a proprietary, cable-centric vision of the Information Superhighway.
Following a serendipitous meeting with Marc Andreessen, Clark realizes that in fact, cable is not the on-ramp to online nirvana, but rather, a web browser-based Internet is. So unceremoniously, Clark simply veers left, leaving the rest of the industry heading off to a road that would be dead-ended for years to come.
Lewis refers to this moment as the greatest unintentional head-fake in tech history, as Clark’s willingness to completely switch gears when new data presented itself left a bunch of industry titans chasing windmills when they could have secured the gold that Clark ultimately laid his hands on.
One wonders if the second greatest unintentional head-fake was the revenue sharing and exclusivity deal that Apple did with AT&T in rolling out the iPhone.
Based on Jobs’ presentation at Apple WWDC, where he unveiled iPhone 3G, the App Store and MobileMe/Me.com (near and dear to my heart), Apple is now starting to give up revenue sharing to gain subsidized pricing and moving away from carrier exclusivity (read: cheaper iPhones to secure the mass market).
What’s the head-fake here? Namely, that by setting the bar so high for what a mobile phone could be (thanks, in part, to Apple’s ability to dictate integration requirements with the carrier’s network) and extracting rich financial terms from AT&T (and the first wave of international partners), Apple seriously baited the hook for carriers hungry to get into the excuse-free mobile Internet game today but looking for more traditional economics (i.e., a heavily subsidized phone but no revenue sharing).
The wait is (almost) over, and consumers get a $199 3G iPhone, which has historically been a mass-adoption pricing sweet spot.
For Apple, this is about three things:
- Reach; namely, growing its unit volume and global footprint coverage with a 2.0 offering at a time when the rest of the market is struggling to get to 1.0.
- Halo Effect acceleration; iPhone sales beget Mac sales, and vice versa.
- Heralding the dawn of a new platform; a core part of the SO WHAT here is that the iPhone SDK is driving apps and application developers to the Apple universe. Not only will many of these apps encourage consumers to lock themselves into the platform, but as Apple stands to capture 30 cents on every dollar generated by these apps, the proverbial ATM machine will be incessantly throwing cash until the end of time.
Net-net: the game now becomes about growing unit volume (the flat fee side of the business) and growing AppStore revenue per user (the annuity/variable income side of the business).
As we used to say back in my days in the embedded device space, "Secure the Design Win; Protect and Grow the Run-time Revenue."
Related Links:
- iPhone SDK: Mobile Reasons for Optimism: why the iPhone Universe is a big deal.
- Holy Shit! Apple's Halo Effect: how Apple has turned gravity into its friend.
- Sub $200 Wi-Fi Touchscreen iPods by Fall? iPod touch goes mainstream.
