Apple’s iPhone and the Applications Barrier to Entry

Scoble has a great piece on why he thinks Apple’s iPhone isn’t going to be pushed aside anytime soon: 85,000 reasons why Apple’s iPhone isn’t going to be disrupted.

The availability of large numbers of applications valued by users is one of the arguments that was used to support the finding that Microsoft had market power in the US and EU antitrust cases.

In the US, the District Court’s findings of fact discusses the applications barrier to entry starting at para. 37:

Consumer interest in a PC operating system derives primarily from the ability of that system to run applications. The consumer wants an operating system that runs not only types of applications that he knows he will want to use, but also those types in which he might develop an interest later. Also, the consumer knows that if he chooses an operating system with enough demand to support multiple applications in each product category, he will be less likely to find himself straitened later by having to use an application whose features disappoint him. Finally, the average user knows that, generally speaking, applications improve through successive versions. He thus wants an operating system for which successive generations of his favorite applications will be released — promptly at that. The fact that a vastly larger number of applications are written for Windows than for other PC operating systems attracts consumers to Windows, because it reassures them that their interests will be met as long as they use Microsoft’s product.

For the EU, see the confirmation in the CFI’s Microsoft judgment of September 2007 (at para. 1088) upholding the Commission 2004 Microsoft decision finding of abuse of dominance and the importance of the applications barrier to entry: at paragraph 458, the Commission concluded that:

the dynamic between the Windows client PC operating system and the large body of applications that is written to it is self-reinforcing. In other words, applications developers have a compelling economic incentive to continue writing applications for the dominant client PC operating system platform (that is to say, Windows) because they know that the potential market will be larger.

I suspect that Apple understands – possibly through having learned the hard way – the importance of having a critical mass of applications available for the platform.  This may be why they have opened up in-app purchasing for iPhone applications: Apple may be less interested in the revenue from selling applications, than they are in ensuring that there are a lot of applications available for the iPhone.

This does not in itself mean that Apple has market power – it is simply a recognition that the more applications available for a platform such as the iPhone, compared to its competitors, the more consumers are likely to get locked in to that platform.

Nor does it mean that any advantage Apple gains from these 85,000 apps is permanent.  Apple’s own experience in recent years shows that, at least to a certain extent and for certain consumer groups, the barrier can be overcome.  Apple’s OSX (for the desktop rather than the iPhone) now has “enough” applications to attract a great many users – you do not necessarily need to have a comparable set of applications as that which is available for Microsoft Windows, provided you have enough to meet “enough” of your users’ needs, and / or if you have interoperability – such as file formats – between applications on the different platforms.  Many Windows users switch to OSX without any great problems, because OSX now offers them the applications that they need and use regularly.  (And some, like me, switched to OSX because some applications like DevonThink Pro are much better than anything available on Windows.)

What it does likely  mean is that Apple benefits from some network effects, in the same way as Microsoft does on the desktop, which will help solidify the iPhone’s position.  Of course, having a strong position isn’t a problem: Microsoft was sanctioned, in the US and the EU, for its abusive behaviour, not for its market power.