13 June, 2009

Keeping the Apple sweet

By evolving the iPhone slowly, Apple didn’t risk alienating millions of users

Ariel Tam in San Francisco, online and technology editor

THE star of this week’s Apple Worldwide Developers Conference (WWDC) was arguably the iPhone 3G S, the long-awaited third-generation model of the smartphone. But to me, and perhaps the 5,200 developers present at the annual event, what was more exciting was the June 17 worldwide release of the iPhone 3.0 software update.

090612-Apple1 Apple iPhone OS 3.0 shown during the Apple Worldwide Developers Conference in San Francisco. AP

The iPhone 3G S is, of course, very attractive, and will likely drive hordes of existing iPhone users to upgrade. But the hardware upgrade appears to be a token effort to keep up with the Joneses rather than a bona fide re-design. The improvements are evolutionary and predictable enough that it didn’t take a doctorate for industry watchers to get the details right, such as the improved camera, faster processor and more memory.

Of course, the iPhone 3.0 update is not without its critics. Some gripe that despite its admirable list of fresh features, iPhone 3.0 is little more than a bug-fixing release because many features, such as copy-and-paste, MMS and searchable emails should have been added long ago, and rivals have had them for years.

But the iPhone 3.0’s trump card is backward compatibility. The Palm Pre, launched in the United States last week, operates on the new webOS software unable to run on Palm’s older phones like the Treo. Palm can only gain as many new followers on this platform as it manages to sell Pres to. That’s an uphill task.

090612-Apple2The new iPhone 3GS being unveiled at WWDC in San Francisco, US.

By contrast, the iPhone 3.0 software will not only run on any generation of iPhone, but any generation of iPod Touch. Apple announced it has sold a total of 40 million iPhones and iPod Touch devices, which translates to an instant base of 40 million iPhone 3.0 users. Application vendors will be able to tap that vast user base to offer iPhone 3.0’s ability to make micro-payments within applications, such as renewing subscriptions or checking out an online shopping cart. That means two revenue streams: The purchase price of applications, and micro-payments within them.

The ability of developers - and Apple, which takes a cut from transactions - to instantly monetise iPhone 3.0 will mean immediate momentum, unlike competitors that might need to wait for user adoption to ramp up before it can show their developers and investors more than mere projections.

Apple’s App Store might not be as big a goldmine for the company as its iPhone and iPod hardware, but software and hardware are symbiotic parts in Apple’s business strategy. One drives the growth of the other, and both portions are profitable. Now that Apple looks like it will triumph on both fronts with its latest announcements, we could be looking at exponential growth from the company, even in this economic climate. There are already more than 50,000 applications in the App Store since its inception less than a year ago, and more than 1 billion apps have been downloaded.

From this perspective, there’s method to the madness of Apple’s slow improvements to the iPhone’s software. A more aggressive stance might have made it tough for Apple to ensure that the version of its operating system today would be streamlined enough to run on the first-generation iPhone and iPod Touch.

Apple’s latest App Store innovations come in the wake of copycats springing up, with Nokia’s Ovi Store, Research In Motion’s BlackBerry App World and Google’s Android Market all vying for a share of the pie that Apple painstakingly created. Keeping existing developers loyal while wooing new ones is crucial, and the iPhone 3.0’s micro-payment abilities could prove just the carrot to do the trick.

It should be obvious by now that while people are drooling over the new iPhone, Apple is hoping for a windfall in profits generated by apps and transactions, and hopes its developers see the same dollar signs it does so they will stay and drive the iPhone-App Store ecosystem.

From TODAY, Tech Comment – Friday, 12-Jun-2009

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