Apple’s Ultimate Platform Strategy

I have written about the Platform Strategy before, a remarkably potent strategy if you can get it right. Linux and Microsoft Windows are both platforms because they allow others to build on top. The web browser is also a platform. Facebook became a platform when it decided to allowed third-party applications to be built on top of it.

It’s possible to build a platform on top of other platforms, and occasionally the platform that sits on top gets the upper hand. Web browsers for example, sit on top of operating systems. The web browser platform, over the years, has evolved considerably enough to threaten the underlying operating system platform. Email, chat and document authoring all work quite well within the browser but were once primarily in the operating system domain. As browsers continue to advance in capabilities (video, offline mode, built-in storage) they can usurp even greater chunks of functionality originally provided by the operating system.

Since browsers work across all popular platforms, users may not ultimately care whether their laptop is running Windows or Mac, so long as the browser works fine and allows them to conduct their daily activities. This is a threat that Microsoft has long recognized and some might even say, is the reason for stifling the Internet Explorer browser.

A platform like Adobe Flash sits even higher atop the browser platform. Flash is capable of doing more than the browser can do on its own. That’s why a lot of games are built on Flash with complex physics engines and animations. Most video is still served using Flash, which the new HTML5 standard hopes to remedy by providing its own video decoder. Java also had similar ambitions of becoming the platform that sat atop all other platforms. Had it executed well, it would have been possible to write applications once in Java and then run them on all other platforms. And it was hoped that if all applications were written in Java then the underlying platform wouldn’t even matter any more.

And so it is with Apple’s iPhone and iTunes platforms. ¬†Currently, Apple does not want its platform to be displaced by another platform that sits on top. That’s the reason why Steve Jobs so vehemently rejected Adobe Flash. If Flash were enabled on the iPhone, it would be possible to download applications written in Flash and run them on the iPhone. In fact, Adobe Flash already has thousands of games waiting to flood the iPhone if only it were possible. Applications sold on iTunes would face some serious competition if Flash were allowed on the iPhone. Adobe could then build its own store and its own music and video download services. The same holds for Java which is also banned on the iPhone.

Similarly, with Amazon’s Kindle bookstore application and Raphsody’s music application, Apple fears that applications of this nature threaten the iTunes music, books and videos business by building a secondary retail platform for digital content. In fact, since Jail Breaking the iPhone has been deemed legal in the U.S., it is possible to sell all sorts applications for the iPhone without ever going through the AppStore (though for now, there are many technical hurdles preventing this from happening).

Apple has acted strategically to strike a balance in what it does and does not allow iPhone applications to do. It also exercises full control over which applications are allowed on the AppStore, through an approval process which can take weeks. This sort of regulation does not have much precedent and is fairly unique to the iPhone. Facebook doesn’t have an approval process. Windows doesn’t either, nor does Google’s Android platform. In fact the latter two allow complete freedom which is probably why they need an antivirus to protect naive users from downloading malicious applications.

Apple’s ambition is to build a platform that is self-sustaining and free of long term threats to its core digital retail business including books, music, videos and applications. In its recent announcement, Apple gave the likes of Kindle and Raphsody until June 30th to share 30% of sales revenue from digital content with Apple, as is already the case with iPhone applications. This stipulation applies to all digital content sales including magazines, newspapers, video, music, etc. Apple would rather that all transactions happen through its own platform or marketplace. If not then iTunes could soon be disrupted by other stores sitting atop the iPhone.

Apple is currently facing anti-trust scrutiny from regulators since this restriction limits the competition to Apple’s own iTunes business. ¬†However, if Apple is able to pull this off (and for the moment, that is a big if), its platform will become one of a kind. It will be a platform that is completely regulated and well protected from the pitfalls of most other platforms. It will be a platform that is open to development and creativity but closed to disruption–a game that Apple knows all too well.

The next few months should bring a lot of drama and excitement to the mix.

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