What Apple Knows That Facebook Doesn’t

What Apple Knows That Facebook Doesn’t.

Business week has an interesting article on the economics of platforms. Interesting, but flawed. They compare two platforms (Facebook, and Apple’s mobile platform). The argument goes roughly as follows: Apple is using it’s platform to create a new market by being open and Facebook is using traditional methods of using the market as a control point. Apple is creating an open market and Facebook is making an open market more closed. The author even goes as far as to associate the keywords good and evil here.

The article is flawed because in fact Apple is not creating an open market. They have been removing applications that don’t fit their business model (e.g. anything VOIP related) and are still keeping people from writing about the APIs because NDA has not been lifted yet. Apple is acting as a dictator here. That it is a mostly benevolent one doesn’t matter. It doesn’t sound very open to me in any case. Or very new.

Sure, their platform is pretty nice and their online shop pretty usable. That’s definitely disruptive to the mobile industry, which is not used to good quality platforms and well designed use-cases such as online shops for applications. However, there’s a pretty big market for mobile applications and most people writing for the iphone don’t do so exclusively and instead target multiple mobile platforms. You can download several VOIP applications for S60 or mobile windows and other platforms, as well as numerous games, productivity apps, etc. Then there is J2ME of course with a few billion phones in the market right now. You might say it is crappy but it has a huge reach. Incidentally, Apple also blocks components from their shop that would enable people to run J2ME applications since an open source Java platform has in fact been ported long before Apple even ‘opened’ up their platform. That’s right, a good old case of reverse engineering. Apple’s platform is quite unique in the sense that people were developing for it long before Apple decided to hand out developer kits.

Facebook indeed is also not very open but they were first to a market that they created, which is pretty big by now. As a viral way of spreading new services to users it is pretty much unrivaled so far. It is Google that has created a competition for more openness with their Open Social platform, which is in many ways similar but has open specifications and may be implemented freely by other social networks. Both Google and Facebook have a very similar centralized identity model that is designed to lock users into their mutual platforms (Google Friends Connect & Facebook Connect). Google is maybe being somewhat more smart about it but they are after the same things here: making sure trafic flows through their services so that they can sell ads.

So, Facebook’s model is advertisement driven and Apple’s business is operator driven. Apple makes most of their money from deals with operators who subsidize iphones and give Apple a share of the subscription revenue. That’s brilliant business and Apple protects it by removing any application from their shop that has conflicting interests with this revenue stream.

However, the key point of the article that the platform serves as a market creation tool is interesting. Apple managed to create an impressive amount of revenue (relative to their tiny market share of the overall mobile market) and Facebook has managed to create a huge market for Facebook applications. Both are being challenged by competitors who have no choice to be more open.

Interestingly, Google is competing on both fronts and can be seen as the primary threat to both Apple and Facebook’s platforms. Google could end up opening up the mobile market for real because it is not protecting any financial interests there but instead are trying to spawn a mobile internet market. Android is designed from the ground up to do just that. It needs to be good enough for developers, users and operators and Google has worked hard to balance interests enough so as to not alienate any of these.

All three are fighting for the favours of developers. Developers, developers, developers! (throws chair across the room & jumps like a monkey). That too is not new although Microsoft seems to have forgotten about them lately.

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