Ip Rights and Complementary Products: the Economics of Apple’s Iphone Sdk

Lynne Kiesling

The palpable buzz around the release of the iPhone last year was exciting, and indicated some of the great design and functionality we can expect from mobile phones in the future (even if I won’t get one yet because I won’t give AT&T my business, and I haven’t seen a local vendor selling them unlocked yet for me to take to another provider). But at the same time the iPhone’s functionality was limited relative to its capabilities; it could do so much more than the web-based applications and the Apple applications installed on it.

One way to achieve that potential is for Apple to allow third-party developers to develop applications for the iPhone. Developers are chomping at the bit to do so. So yesterday Apple announced a Software Developer’s Kit (SDK) that developers can use to get the technical information they need to develop applications for the iPhone. Moreover, the venture capital firm Kleiner Perkins Caufield & Byers had established a $100 million venture capital fund for iPhone entrepreneurs, called the iFund.

The title of this PC World article about the SDK gets at the interesting economics of Apple’s decisions, from a property rights perspective.

Apple’s SDK blows open the process of creating native apps for the iPhone by letting most any would-be coder get started. Developers can sign up and download the SDK for free, which in turn allows Apple to reach out to a wider cross-section of would-be coders than they might have otherwise.

According to iPhoneDevCamp co-founder Raven Zachary, “The fear [in the development community] today was that Apple was going to constrain the ability for third-party developers to distribute apps, in the same way they did with the iPod games market.” There, Zachary notes, Apple made it very difficult for small developers to create and release a game: “You have to get Apple’s approval, have them approve the source code, and then they take a large percentage of the profits for the distribution of that app.

“What we’ve seen instead is Apple opening up the marketplace in the same way they’ve opened up the podcast directory in iTunes Music Store. They will be far more open about letting developers list their apps,” says Zachary.

Apple’s software and design are the reasons that this device is so popular, is the phone to beat in the mobile market, and will become increasingly useful in business environments (which is one of the objectives of the various iPhone moves that Apple is currently making). Apple has a long history of keeping its software, its operating system, etc. proprietary; in fact, in the 1980s one of the biggest criticisms of Apple was that IBM and Microsoft’s operating system proliferated and gained larger installed base and market share because of the extent to which they shared information about how to write software interfaces to their operating system.

So here is Apple, apparently having learned from its 25-year history of deciding how far down the property right chain they should retain use rights. And that’s exactly what an SDK does — it grants use rights to some of Apple’s property, to enable them to develop applications that Apple hopes will make that property, and the iPhone, more valuable to more possible customers. This is a far cry from the 1980s Apple approach to software development, and as the quote above suggests, is not necessarily universal across the entire Apple product line.

I think this CNET article hits the nail on the head:

To me, the most interesting thing about the development of the smartphone industry is the wide-open nature of the race. This time around, a winner is not going to be picked in the early stages of the competition. Several huge important companies–Apple, Microsoft, Google, Nokia, RIM, and don’t forget about Palm just yet–have already had an impact on the development of the product, and will continue to do so well into the future.

Despite sitting out the first few years, Apple has arguably vaulted ahead of its competition in just 12 months. The other players in this industry came into smartphones building them for businesspeople and their IT masters. Then they tried to woo the consumer.

Apple has done the complete opposite, hooking those who had never used a smartphone before with the iPhone’s interface, and now giving them the opportunity to use it for both work and play.

The first era of the mobile-computing industry was about hardware. The second part will be about software. And right now, no one is developing mobile software like Apple.

Apple is allowing developers more generous use rights in its software to strengthen the value of the iPhone, and to open the door to further innovation in mobile computing and communications. I hope they continue to turn the mobile communications market on its head: this type of creative destruction is the foundation of our economic well-being.


7 thoughts on “Ip Rights and Complementary Products: the Economics of Apple’s Iphone Sdk

  1. I’m already an AT&T customer, by virtue of Cingular buying AT&T Wireless and then adopting the AT&T name, so that’s not my problem. (Although, like you, I still cringe when I see the name of the old telecom monopolist.)

    My problem has been working up enthusiasm to spend so much on a phone, no matter how cool – I mean “useful” – it is. Also, Apple’s reputation for keeping their operating systems locked up also puts me off. Only now, maybe not.

    I’m tempted by the idea of an open standards phone, like the project Google is involved in, but maybe I’ll make the jump to an iPhone when I replace my current 2 1/2 year old beat up old cell phone.

  2. I’m already an AT&T customer, by virtue of Cingular buying AT&T Wireless and then adopting the AT&T name, so that’s not my problem. (Although, like you, I still cringe when I see the name of the old telecom monopolist.)

    My problem has been working up enthusiasm to spend so much on a phone, no matter how cool – I mean “useful” – it is. Also, Apple’s reputation for keeping their operating systems locked up also puts me off. Only now, maybe not.

    I’m tempted by the idea of an open standards phone, like the project Google is involved in, but maybe I’ll make the jump to an iPhone when I replace my current 2 1/2 year old beat up old cell phone.

  3. I don’t see how the iPhone SDK handling is unique for Apple. Apple always has made its Mac operating system SDKs available to the general public. Unlike iPods, the iPhones run complete operating systems. That’s why the iPods have restricted programmer access while the iPhone will be more open. I believe that much of the delay between the iPhone’s release last year and the SDK release now was from beefing-up the iPhone’s security and robustness so that third party add-ons will be less likely to crash or trash an iPhone.

  4. I don’t see how the iPhone SDK handling is unique for Apple. Apple always has made its Mac operating system SDKs available to the general public. Unlike iPods, the iPhones run complete operating systems. That’s why the iPods have restricted programmer access while the iPhone will be more open. I believe that much of the delay between the iPhone’s release last year and the SDK release now was from beefing-up the iPhone’s security and robustness so that third party add-ons will be less likely to crash or trash an iPhone.

  5. Kinda wierd to find so many things that are troubling me right now in confluence (at least by degrees) in your little post here.

    If you are still committed to holding your AT&T grudge (i.e., you haven’t given it up just because of the Cingular buyout) then you might wanna consider giving up airline travel, because ITT won the new navigational system contract from the FAA by virtue of pitching their system’s reliance on AT&T’s existing infrastructure. Not to get too aviation geeky here, but all the current radar systems used by U.S. air traffic control are being replaced by a GPS-based system called Automatic Dependent Surveillance-Broadcast (ADS-B) that… blahblahblah, too many acronyms and you wouldn’t care anyway… BUT the problem I have with it is that right now, the beta sites are using a software program developed at Johns Hopkins for the FAA to beta-test the ADS-B system, and it’s available free to the airports or other ground stations using ADS-B. But get this: that software is going to be pulled back in a couple minutes so that the only software available to MANAGE and UNDERSTAND all that ADS-B data will be proprietary, and users will have to pay major dollars for it. This is the FAA not competing with private industry, you see. I am still trying to find out if there is an SDK for the ADS-B because it APPALLS me that my taxes already bought it—yours too—but the FAA is going to deactivate the existing bought-and-paid-for software (which honestly is probably pretty frikken simple stuff) and let the private sector come streaming in to this ignorant and vulnerable market of techno-tards (that would be airport operators), and then my local airport is going to have to be the rape hostage of some clever proprietary tech-tyrant with a good sales pitch, all because the Feds are not supposed to compete with the private sector. That’s right, we’re basically privatizing air traffic control, and ITT/ATT got that monopoly contract from the FAA for the hardware part of the conversion, and there is currently no opensource/open standards solution available for managing the data on the ground, and this action is just going right over everyone’s heads. I’ve oversimplified it, really, but this is just wrong. Just wrong, wrong, wrong. So much more unholy than the iphone being married to AT&T, because you don’t already own the iphone or even the RIGHT to own an iphone. But it’s YOUR national air space system.

    Wow. What a freaky little rant. Sorry. But be afraid. Be very afraid.

    ae

  6. Kinda wierd to find so many things that are troubling me right now in confluence (at least by degrees) in your little post here.

    If you are still committed to holding your AT&T grudge (i.e., you haven’t given it up just because of the Cingular buyout) then you might wanna consider giving up airline travel, because ITT won the new navigational system contract from the FAA by virtue of pitching their system’s reliance on AT&T’s existing infrastructure. Not to get too aviation geeky here, but all the current radar systems used by U.S. air traffic control are being replaced by a GPS-based system called Automatic Dependent Surveillance-Broadcast (ADS-B) that… blahblahblah, too many acronyms and you wouldn’t care anyway… BUT the problem I have with it is that right now, the beta sites are using a software program developed at Johns Hopkins for the FAA to beta-test the ADS-B system, and it’s available free to the airports or other ground stations using ADS-B. But get this: that software is going to be pulled back in a couple minutes so that the only software available to MANAGE and UNDERSTAND all that ADS-B data will be proprietary, and users will have to pay major dollars for it. This is the FAA not competing with private industry, you see. I am still trying to find out if there is an SDK for the ADS-B because it APPALLS me that my taxes already bought it—yours too—but the FAA is going to deactivate the existing bought-and-paid-for software (which honestly is probably pretty frikken simple stuff) and let the private sector come streaming in to this ignorant and vulnerable market of techno-tards (that would be airport operators), and then my local airport is going to have to be the rape hostage of some clever proprietary tech-tyrant with a good sales pitch, all because the Feds are not supposed to compete with the private sector. That’s right, we’re basically privatizing air traffic control, and ITT/ATT got that monopoly contract from the FAA for the hardware part of the conversion, and there is currently no opensource/open standards solution available for managing the data on the ground, and this action is just going right over everyone’s heads. I’ve oversimplified it, really, but this is just wrong. Just wrong, wrong, wrong. So much more unholy than the iphone being married to AT&T, because you don’t already own the iphone or even the RIGHT to own an iphone. But it’s YOUR national air space system.

    Wow. What a freaky little rant. Sorry. But be afraid. Be very afraid.

    ae

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