History Says That Now Is The Time to Unbundle the iPhone OS

Lee Lorenzen — Tue, 15 Jul 2008 03:08:30 +0000

Full Disclosure – The iPhone had me at hello…

Apple has a huge winner on its hands with the iPhone 0S 2.0. The iPhone’s App Store integration with iTunes is going to allow software developers to once again make money selling software to consumers. For some period of time, the only business model that seemed to work was creating compelling content and then having Google sell ads on top of it. However, Apple has changed that and the world is about to see what can happen when a great OS with a great UI is unleashed on a great piece of proprietary hardware.

I stood in line last year and bought one of the first iPhones sold for around $700. I’ve been a very happy customer since that time and have loved getting to know the 16 apps that came bundled with the first iPhone. I bring this up to say that iPhone 1.0 has been awesome. Or, more specifically, the iPhone SOFTWARE is awesome.

From a hardware and connectivity perspective, the iPhone could do better. First of all, my screen cracked about 9 months ago (due to one to many falls from my shirt pocket) and there are still about 3 spots on my 15 minute drive home where I have to warn folks that I will lose them shortly. However, the iPhone OS 1.0 and the 16 initial apps running on the OS were simple to learn and use and this has made it impossible for me to consider buying another phone.

iPhone OS 2.0 + App Store + iTunes == WOW!!!

iTunes (on my PC) just auto-magically upgraded my iPhone to OS 2.0 and I’ve now spent the last 15 minutes adding 10 new cool apps from the App Store to the original 16 apps that I fell in love with more than a year ago. While I’m not an iPhone app expert yet, just seeing the Texas Hold’em app deal the cards blew me away. It is amazing how creative the software developers are that have jumped on this new platform.

Software Survival Lesson #1 – Always Unbundle the OS from the Hardware

Apple’s enviable position reminds me of when I first saw the Mac OS with the Finder running an app like PageMaker that connected to an Apple Laserwriter. This combination of Apple’s OS innovation (with more than a little borrowing from Xerox) plus a great group of internal and external software developers plus an expensive piece of no-compromise hardware resulted in a wonder to behold that single-handedly created the entire Desktop Publishing Industry. From 1985 when this occurred to 1992, Apple had seven fat years of dominance in the graphical user interface area which they milked for as much profit as their substantial OS advantage would give them.

During this same time period, Microsoft launched Windows 1.0 in 1985 (under Steve Ballmer’s leadership) and had seven lean years to slog through before the release of Windows 3.0. It wasn’t until 1992 that Microsoft’s graphical OS and some OEM’s generic PC hardware worked well enough together for app developers to create apps that were almost as good as what was available on Macintosh. However, with the profits from DOS fueling their long-term investment in Windows, Microsoft soon eclipsed Apple in graphical software sales and by the time of Windows 95, people around the world were lining up before dawn to be the first in their city to buy an OS!

So, this brings me to my point…

Now is the Time for Steve Jobs to Unbundle the iPhone OS

I don’t mean unbundle in the sense of working on phone networks other than AT&T. I mean unbundle the OS from Apple’s proprietary hardware. If they don’t do this then either Google’s Android or something similar from Microsoft, will eventually eat their lunch. It is clear that Apple has the right OS for a phone and an army of software developers who will build a suite of killer apps over the next 12 months. Apple may be inclined to leverage this advantage for seven fat years and make tons of money on the hardware and their cut of the phone company’s monthly connectivity revenue and the App Store’s share of all iPhone app revenues. However, this would be a mistake.

The reason not unbundling right away is a mistake is that someone else will take Apple’s good ideas and build them into a more ubiquitous offering. On the other hand, this alternative 3rd party OS platform will never have a chance to gain traction if Apple’s iPhone OS (and its App Store and iTunes monetization platform) are opened up to support any licensed phone hardware maker. Whatever Apple might lose in hardware sales will be swamped by the extra OS licensing and App Store commissions they will be in the position to collect on everyone’s else hardware and applications for decades to come.

Will Steve Jobs learn the lesson that Bill Gates and Steve Ballmer taught him 23 years ago? I’m confident that Eric Schmidt has learned this lesson. You can see it in Google’s blocking move on the proprietary Facebook Social Operating System that has now established Open Social as a viable platform. Facebook’s response a month or so ago to open up their OS has probably come too late to stop Open Social from retaining a place in the software developers’ minds. You can also see it in Google’s launching of Android.

If Steve Jobs acts now, he can ensure that every smart app developer will put all of their effort on only one phone OS — the iPhone OS and ignore everything else that might be developed. The reason this strategy will work is that every hardware maker will beat a path to Apple and license the OS that is currently powering the phone that is eating their lunch. If Steve fails to unbundle the OS from Apple’s proprietary hardware, he may enjoy seven fat years of hardware revenue but this indulgence will guarantee that a competitive OS will emerge and ultimately be widely adopted.

So, what do you think?

Will Apple unbundle the iPhone OS in time to block any competitors or not?

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History Says That Now Is The Time to Unbundle the iPhone OS