Much has been written since the launch of the 3G iPhone, about the proliferation of iPhone applications and their analogy to Facebook apps.
Flying Toasters Anyone?
Will the iPhone platform help anyone make money? The underlying questions are 1) What is a platform and 2) Is the iPhone a platform or just a fun piece of hardware. Last year Facebook evolved from an application to a platform enabling a gold rush of investment in application vendors and new venture funds focused on monetizing the new platform?
Presumably being a platform is better than being an application, as anybody old enough to remember the Flying Toaster screensaver can attest. After near-ubiquity in the PC era, Wes Boyd and better half Joan Blades (who would later go on to found MoveOn.org) in 1997 sold Berkeley Systems — including its Flying Toaster application — for a reported $13.7 million. In 2008 dollars, this would be a Series A. Applications were not a way to make money in the 1990s.
$15 billion for your platform
Facebook’s march towards platformness should provide the answer, although whether or not Facebook can make this transition remains highly debated. That said, when Facebook goes public, the rush of attention and dollars to the space will swallow in its wake any doubts about its position as either application or platform. Facebook (we collectively hope) will quickly begin to trade its newly minted currency for the leading Facebook apps vendors around. By then (circa 2010), Facebook’s only competitor for acquiring these app vendors might be Google. Yahoo will long be dismantled or absorbed by its Redmond nemesis. Of course, Facebook itself may be absorbed by its Redmond investor who, backed into a corner full of real greenbacks and unable to find anyone else to acquire may find $15 billion a small price to pay for expanding its employee base in Silicon Valley. Mr. Ballmer might, in the end, acquire both Facebook and Yahoo for less than it was willing to pay for Yahoo alone.
Idle FB speculation aside, the real question before us is whether the iPhone has created a “real” platform on which third-party developers can build real businesses and not, as some have argued, loss leaders that help fuel completely different business models. Put another way, is the iPhone apps platform a viable, long-term development platform which can encourage a real set of profitable businesses. Or is it just about Apple?
The answer is a categorical YES…and YES.
Full disclosure: I am neither an Apple, Macintosh, or iPhone diehard. It was only three months ago that I finally adopted an iPhone, hours after a Jiffy Lube attendant signaled his anticipation for the upcoming 3G iPhone. It was time, he said, to trade in his first-generation iPhone for the iPhone 2.0. It was time, I noted, not to be the last person in Silicon Valley to get an iPhone.
I spent the first few months appreciating the hardware’s design, ease-of-use, and intuitive interface. I thought briefly about the phone’s ability to capture market share from titans like Nokia or Samsung and concluded that the device’s market share would easily break past one percent in Palo Alto, Cambridge, SoMA and Tribeca but probably not far beyond. iPhone in one pocket and Blackberry in the other, I reached quickly for my RIMM device when I needed work done. My iPhone would be useless in the twitch gameplay which enterprise email required. Its battery life would hardly outlast that of my surgically-implanted Bluetooth headset. The conditioning came quickly: browsing and talking on the iPhone, but working on the trusty BlackBerry.
And then the Apps Store came.
Suddenly it was May 1990 and Windows 3.0 was released. Suddenly it was ‘the app, stupid’. Sure I had seen it before, when my high school idol Mitch Kapor made the klunky old PC-AT a must have device with a real purpose. Finally, the PC had a real use and Lotus 1-2-3 was it. There is no Lotus 1-2-3 on the iPhone. There are thousands of Lotus 1-2-3s. That’s the power of the Application Long Tail in 2008. For some, it could be a game. For others (like myself) a 99 cent application with a dozen animal sounds which can turn the most fussy infant into valium-induced complacency within seconds. Or perhaps Shazam, a free application which allows the iPhone to instantly recognize the name and composer of any song playing on the radio, in the car or in a store.
It is perhaps in this context one can consider the definition of a platform in the context of the iPhone or Facebook. For almost 30 years, the computer industry has anointed those who created killer apps and those who created the platforms in different ways, often merging them as Microsoft did with its windows and office platforms. The iPhone has delivered an infrastructure that allows killer-applications to flourish and possibly profit. Those apps will quickly drive adoption of the iPhone to people or enterprises that care only about those apps.
It is premature to conclude whether any iPhone apps developers will become large dominant software companies. They probably won’t. But one thing is clear. Apple has created a dominant application platform that will take over the wireless world. Which means only one thing: This is not a flying toaster but one platform that won’t just MoveOn.
Bart Schachter is a managing director with Blueprint Ventures, an investment firm that focuses on capital efficient technology start-ups and Corporate IP Spinouts. He may be reached at email@example.com.