Apple’s iPhone Ecosystem Lesson
As Business Week reports in this article, Apple is having major success with the iPhone AppStore. This time around, Apple appears to have learned a critical lesson about ecosystems that they ignored with the Mac. Specifically, Apple is now paying attention to the application developers who are part of their ecosystem.
From the 1980's until just a few years ago, the market share for the Mac never really got above a few percentage points. One of the key factors contributing to Microsoft's dominance was its focus on third-party application developers. Microsoft made it very easy for software developers to write applications for the PC. As a result, a huge number of applications were developed along with channel partners to sell, intergrate, and support these applications. The availability of applications made the PC more attractive to customers and pushed costs down. Developers would have to make a big investment to re-write their applications to other platforms like the Mac, and Apple did not make it easy. With such a small market share and huge hassle, few bothered.
Apple appears to have learned its lesson with the iPhone. There are now 10,000 applications available for the iPhone on the AppStore, and the average user has downloaded 15 applications. Apple has a revenue sharing approach with the developers, creating a win-win incentive. Unlike PC applications, iPhone applications also offer potential for advertising revenue.
This approach to ecosystem thinking creates positive feedback effects, or what is sometimes called "increasing returns to scale". With more potential users, developers are attracted to create more applications. With more applications, the device itself is more attractive to users, and the cycle continues. While there are no guarantees, this feedback makes it very difficult for competitors to catch up.
