Control of the App Store

Apple is in the enviable position of deciding which native mobile apps get approved and which do not for the iPhone, right? Maybe, but before answering this, we need to understand the significance of Apple’s role and responsibility in the ecosystem of native mobile applications. Let’s start with a little history…

In the early days of consumer Internet usage, the online world was split principally between two consumer experiences: AOL and the World Wide Web. AOL subscribers liked that they were receiving an edited version of the Internet. Everyone else recognized that while the unedited Web was both a mystery and ungoverned, it was far more interesting.

Then Yahoo! and other search engines emerged to catalog websites, which made navigating the Web far easier. These search engines reduced the value proposition of an AOL subscription. As broadband access emerged from cable and telecom companies, free instant messengers like ICQ and free email like Hotmail became popular, and more interesting dot-com companies appeared that were not reliant on AOL for eyeballs, consumers increasingly chose “web surfing” over the closed AOL model.

The Web’s open ecosystem essentially developed absent of regulation or taxation, despite several well-intentioned, but misguided attempts by governments and activists. The global impact of this open ecosystem has been profound and has transformed the way we live, work and communicate.

Fast-forwarding to today, Apple’s iTunes App Store has become the gateway to the mobile web for iPhone users, and so far this platform is driving innovation within the whole mobile web ecosystem. Market share is small but growing for the iPhone (1.5% of all mobile handsets and 10.8% of smartphones). What is even more impressive is over one billion mobile apps were downloaded to those iPhones within the first nine months of launching the App Store. Yet in the midst of this great consumer technology success story, Apple is contending with bad publicity, some frustrated customers, and many angry developers. This is a direct result of Apple’s so-called “enviable position.”

I do not believe Apple wants to be in the business of providing an edited and sanitized version of the mobile application universe, and clearly their customers and developers do not want that either. Every time Apple either bans or approves a controversial mobile app, they are risking a negative reaction from some group. As long as Apple maintains control of the iTune’s App Store approval process and even the functionality of the App Store itself, they risk losing customers to devices that work with applications not approved by the App Store and that work with application stores with better search and review tools. In other words, trying to be like AOL is a dangerous strategy.

Nevertheless, Apple must contend with maintaining carrier relations and a robust user experience, so it may not be so easy to abdicate control. Also Apple’s revenue from the App Store is beginning to look significant, and it is hard to imagine giving that away. AOL enjoyed years of profits and market dominance by taking an early lead; however, they eventually lost their relevance to consumers. Can Apple build enough market share in the mobile ecosystem and then chart a different course? Maybe. At least they understand the competitive forces at work within the mobile industry and have the benefit of history to consider their strategic options; whereas, AOL experienced several sea changes in the competitive landscape when online business models were brand new and untested in the marketplace.

Whether or not Apple is successful long term at sustaining a competitive advantage with the iPhone, they are currently driving consumer adoption of this new interactive medium—much like AOL drove consumer adoption of the Internet—and this new medium will alter how (and where) we use the Internet in our daily lives.