Apple locked us in, but how long will the jail sentence last?

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Vodafone 360 takes on the Mobile App stores

This is a guest post by Paul Fisher a Venture Capital investor with Advent Ventures in Europe Portfolio companies include, Qype, Adeptra and DailyMotion. Paul blogs at The Coffee Shops of Mayfair and Twitters at @paulfish.

I have watched with interest as the Apple backlash intensifies* (see below). It seems the App Store has broken the camel’s back. There is massive resonance here for both entrepreneurs and VCs.

This quote from Chris Messina is my favorite . He thinks that the Apple App Store is a “flash in the pan” because it is a proprietary platform and, hey, wait a minute, proprietary platforms are counter to consumers’ interests. That’s why Microsoft accrued haters. And why folks are starting to feel the same about Apple?

There are actually three intellectually fascinating points here:

1) Behavioral economists and entrepreneurs agree: Creating an emotionally resonant or “cool” product gets ’em hooked.

Fashion makes people purchase irrationally. It didn’t take a genius to realise that having all your MP3s in an Apple AAC format was locking you in. Irrational. But people did it. And they’re only just beginning to realise it. Hence rants against everything from the app store to itunes.

It is amusing to watch how the worm has turned. But it will not come as a surprise to behavioral economists who have been telling us for some time how to pull the punters in:

“Our choices are often affected by random initial anchors …The choices and trades we make are not necessarily going to be an accurate reflection of the real pleasure or utility we derive from those products…”

This was written by Dan Ariely, who has essentially written a manifesto for entrepreneurs to focus on “user love”. Some entrepreneurs need no warnings against academic over-analysis. For example, the team at Qype (interest declared: one of our investments) made a product that people just love.

A behavioural economist would say this was constructing a compelling “initial anchor”. Whatever the dev team was thinking, they were trying to build something cool. Sweet. Nice. Something with emotional resonance. I meet some very “business school drilled” management teams, who have performed deep analysis to the nth degree, but they’d do well to stop their SWOTs and spend time just making a product for us all to fall in love with.

2) Apple shows entrepreneurs how to build competitive advantage.

Apple has helped entrepreneurs (and VCs) understand how investing systematically in previously intangible product features such as “cool” and “sweet” makes for a better business model. (For example Spotify’s made the decision to invest in them significantly easier when they started by demoing such a beautiful app).

At a simplistic level, Apple get punters to buy their products because on the “way in” it has invested a little more in R&D to make the iphone beautiful or, invested a little more in community marketing to get cool designers blogging about the mac book air etc. On the “way out” (i.e. at Best Buy or Dixons) this allows Apple to charge twice the price.

For any entrepreneur interested in how this affects their business I would strongly recommend Joel Spolsky. In this video he Argues (proves?) that Apple is winning by making their products acheingly beautiful. Now geeks are having to grok aesthetics because this is the thing that can triple your margin. Or your exit value.

3) Is the iphone app store an interim “moment” in the mobile web or does it have longevity?

The iPhone app store isn’t so different from the Mobile Operator’s “Walled Garden” of 4 years ago, like Vodafone live!. (A defunct model if ever there was one, but don’t get me started on this industry peddling an over-branded data pipe).

So is it a little surprising that the “Walled Garden Mark II” actually looks like it’s working. Didn’t consumers already vote with their feet against these proprietary platforms?

Well economists would argue no. Carlota Perez would suggest a “walled garden” was the classic “development phase” of a market: it was bound to fail but a necessary prerequisite to the successful appstore market:

“The action of these pioneering agents blazes the trail, giving rise to increasing externalities and conditionings – including production experience and the training of consumers- that make it easier to follow suit.”

However, to continue this logic, it could be that the Apple store is also just another pioneering agent which is a means to an end, not an end in itself. Messina argues that just like the walled gardens, the app store is also an interim development phase and the future is a mobile browser that’s yet to be finished. Phew.

So what does all this economic theory mean for entrepreneurs?

If you’re building a company with mobile apps (which is pretty smart) there are few issues. I have met companies developing apps just for the app store. Nothing else. Not the mobile Web at the same time. Is this smart?

I have met small companies spending $$s on multi versioning for different smart phones. Is this a better strategy? Are you writing for Android and Apple? Are you assuming “discovery” is covered with GetJar, and the App Store, or are you investing in direct promotion ?

Or are you forgetting the mobile strategy for the app until a dominant mobile browser emerges? What’s the right strategy?

Of course no-one knows. It could take 1 year to find out, or 5. The problem for both entrepreneurs and VCs is that timing is everything. If you’ve raised money today to execute on a mobile strategy you need to go where the market is now. But what if that market goes away or moves elsewhere? Surely Apple has it sewn up for another 5 years right?

Hmmm…And this, dear reader, is the eternal question. Timing. As John Maynard Keynes said: “The market can stay irrational longer than you can stay solvent”.

Looking forward to hearing your thoughts.

* Here are some interesting links with people getting annoyed with Apple: Apple annoying iPhone developers here. Apple the New Microsoft here. App stores just a flash in the pan? here Are app stores just another walled garden? here .

  • Mike Pulsifer

    First of all, AAC isn’t an Apple format. It’s part of the MPEG-4 standard.

    Second, “this allows Apple to charge twice the price.” The 1990s called. They want their myths and misconceptions back.

    • Skankazoid

      You and apple, 2 douchebags in the same room

    • David Lavelle

      It’s a trade we technically inept are happy to make. We get cool and easy to use. They get lots of us locked in (not that we know it). Everybody’s happy!

    • Alyssa Myers

      I think you’re being a little pedantic about this article. AAC may be a part of MPEG-4 and labeling it as Apple’s AAC Format doesn’t mean it isn’t.

  • itsnotvalid

    Yes those are lockups. I actually haven’t bought anything from iTunes store because I am in a country where iTunes music store is not available.
    However how a walled garden is formed is dependent on the fact that if the platform is commercially owned or not. There was some sort of “internet” like web before the one we all use and it was walled garden. It is until the point that a critical mass is gather that are opposing the idea of “walled garden”, which at that point people would do things against the “walled garden”. Why iTunes music was not actively lobbied? It is because there are alternatives for the freedom lovers (yes, CD.) Also nobody is getting mad at Sony or Microsoft on PS3 and xbox 360 because people don’t see rejected game titles (and there are walled gardens.)
    The reason why people are feeling App Store is a bad “walled garden” because there is no alternative. I can’t get an app from the publisher because it is just impossible, not by technological problem but simply because it is not approved. That could make people mad.

  • Robert Oschler

    But there’s another issue. Apple has had tremendous execution. By exerting immense control over the app market and the iPhone, they have had a consistent repeatable user experience; a usability advantage akin to that of dedicated game consoles over PC games (reliability of app install and operation, homogeneous platform t develop for, etc).

    On the flip side, I couldn’t sleep at night knowing my only application was going to be subject to the whims of the App store approval department. It might never be allowed entry at all.

  • anuj

    Business is like F1 ….people loves the one who holds the pole Position but once he started blocking the road and doesnt allow anyone else to come ahead of them, they people start hating them.
    Apple no doubt was one of the finest company but now they are actually rying to crub the innovation by there market share.

  • taige Zhang

    there’s several unofficial stores for jailbroken iphones

  • Sorachi

    The nice thing about the AAC encoded music downloaded from the itunes Music Store is that you can always burn an audio CD or even an “MP3” CD. Interesting how the Walled Garden of iTunes provided the music a gate through which to leave the “Walled Garden”. Got to Love Apple iTunes!

    • Harry

      “The nice thing about the AAC encoded music downloaded from the itunes Music Store is that you can always burn an audio CD or even an “MP3″ CD. Interesting how the Walled Garden of iTunes provided the music a gate through which to leave the “Walled Garden”. Got to Love Apple iTunes!”

      Yes, if you don’t mind losing audio quality in the process. You cannot convert an AAC file to an mp3 file without losing quality – that is impossible, no matter what bit rate you use. You are compressing a compressed file. No, I do NOT have to love iTunes!

      • Marc

        MP3 is not a lossless format. So converting anything into MP3 will result in a loss in quality. Period. Now if you burn a CD, you are not loosing anything. Where is your problem again?

      • Harry

        “or even an “MP3″ CD”

        I did not say you lose quality when you burn an AAC file to CD. I said when you go from an AAC file to an mp3 file whether it is on a CD or some other media, you lose quality. In your post your infer going from AAC to mp3 by using the intermediate step of burning to CD first. No?

      • Marc

        @Harry: No, I don’t. What I am saying is that converting to mp3 will always result in a loss. This has nothing to do with AAC, but with the fact that mp3 is not a lossless format. I am not criticizing mp3 either, it’s a very good format for portable players.

        What I am saying is that you can burn a CD from a AAC file, without loosing quality if this is what you want, therefore you are “jailed” by Apple.

    • John Ellenich

      The nice thing about buying an AAC from the iTunes Store is you can play it on any device that plays AAC files.

      • Harry

        Yes, that is correct (mp3 files, of course play on everything) – unless you were an early adapter and bought all your music from iTunes in DRM laden AAC files.

      • Chris, Manchester, UK

        For the record, MP3s don’t play on the Nintendo DSi; it only plays AAC.

        AAC is the industry standard, non-proprietary successor to MP3 offering better quality at the same bit rate (and hence disk space). Nintendo might be the first to break the link with the past with the DSi but I don’t think they’ll be the last.

  • Chris Strom

    Some valid points, but I think you are blurring the lines between “cool” design (aesthetics) and usability. Sure it helps that Apple’s products are beautiful, but if the hardware and software wasn’t easy to use and reliable (at least in comparison to their competitors) they would be dead in the water.

    • Oren S.

      My thoughts exactly

    • Robert Frank

      I agree – people come for the nice aesthetic, but stay for the usability. I would go further and suggest that the bottom line isn’t that apple just made something ‘cool’ or ‘pretty’ – but they are genuinely executing most activities at a much higher standard than most the competition (Sorry but saying Qype is the same cos someone thinks it’s quite cool doesn’t cut it).

      Actually compare to Google – missing much of the cool design ethic but delivering the execution of their core products better than anyone by a mile = ridiculous success as well.

  • Bhagwad Jal Park

    I think Carlota Perez got it right – it’s an interim moment. Open markets like Google Android have better longevity than the app store.

  • Stan Orchard

    This: “proprietary platforms are counter to consumers’ interests. That’s why Microsoft accrued haters.”

    This simply is not true. Millions of consumers still enjoy Microsoft products. The haters are those who despise the belligerent, abusive, unlawful business practices of Microsoft. The firm was brutal in crushing competitors. If consumers came to hate the company it was for bloated, cantankerous products. Apple gained admirers for just the opposite – beautifully designed and engineered products. The app store is far from perfect and will change as the market dictates. Someone will come up with something better. It may be Apple. Or even Microsoft. Have faith.

    • DeviantSeev

      “Someone will come up with something better. It may be Apple. Or even Microsoft. Have faith.”

      Yeah, they already have [Android Market Place] and it was a product of Google. (Not Apple or Microsoft)

      • vladkor

        Really? Really? REALLY?

        Your comment holds no merit in reality.

        While the Apple App store is flawed, from a technical standpoint and from in it’s business practices – I have to argue that it is better than the Andriod Market at least for the time being.

        On the technical side, only with Donut will the Android Market get screenshots, proper product description sections, and a cleaner layout.

        From the business practices point of view, I would rather take a larger selection of “garden-ed” apps, rather than a meagre selection of “open” apps. Furthermore, open markets are generally buggier and beta-er in their existance. Consumers shy away from what they believe is not fully baked software or hardware, whether this holds any truth in reality or not. An open source platform that will have hunders of variations of kernels, builds, and hardware will be an incredibly hard market to support. Apps will require limitations and strict hardware specs. Having to support 2 or 3 or 10 hardware variations is much easier and more sustainable, and allows for more consistent software delivery.

        The mobile marketplace is not like the home computer marketplace where the average hardware capabilities will consistently run the same software without much variation. On top of that, the consumer has been conditioned to deal with system outages on desktop hardware. Not so, with mobile hardware. The uptime on mobiles has to be much more reliable and there is much less hardware capability wiggle room for applications on mobiles. This means that apps will have to be developed for the lowest common hardware denominator or risk excluding consumers/handsets due to incompatibilities or overtaxation of hardware.

        This is unavoidable even with Apple’s approach, but they have far more control over it that the competitors.

    • A.B.

      Slowly but surely Apple is becoming like Microsoft.

      • Duke O'Connor

        How so? To me the two companies seem like polar opposites, although MS does appear to be emulating Apple lately.

      • Marco

        Apple is like MSFT in that it learned that it needed to open up it’s (iPhone) OS to create a developer environment … few remember, but MSFT (Windows) had a better developer ecosystem than Apple.

        However, not all is ‘open’ … iPhone limits ‘competitive’ apps, and we will continue to see more apps getting rejected because they compete with Apples’ core product … or they’ll be accepted once Apple has integrated the features it into their core iPhone apps products (see case history of Excel and Lotus 1-2-3). Case in point … why won’t Apple let you build a ‘web app’ in their mobile Safari with an embedded QT player? They don’t want to allow anyone to create a competitor to iTunes!

        If you really believe the ‘walled garden’ exists to help ensure a consistent user experience, I have some land to sell you in the Florida Everglades … great stuff … no really, trust me!

  • McBeese

    I kept looking for some new or unique insight in this shallow post but I never found any. Not only that, some of the assertions are simply incorrect.

    Apple is doing a better job of delivering ‘ecosystem experience’ than anyone else. iTunes is a much better experience than any alternative (and the walls are down now). The Apple Stores have made the Mac ecosystem experience much better. The iPhone app store is pillar of the iPhone business, so I’m not surprised that Apple is very hands-on at this point.

    Microsoft and Google are building ecosystems, but both are almost completely overlooking the ecosystem experience factor and leave it up to individual app developers to deliver the biggest part of the experience on a case by case basis. BIG mistake.

  • Oren S.

    I think this article, like many others regarding Apple these days, is tainted with what Nassim Taleb had called “the winners bias”.
    Apple are an extremely control-freaked company, but the fact that they are currently on a wave with the ipods and iphone could be at least partialy COINCIDENTIAL. They have certainly failed in the past, even with some very good-looking devices.
    Reverse-engineering their success, to come to a conclusion that people should stop trying to THINK about their products and “spend time just making a product for us all to fall in love with” seems to me like ill-advice.
    How should you KNOW what people will love? What if people love Apple products just cuz they’re Apple products? should you become Apple then?

    My conclusion is slightly different: just make good products, with good usability, good industrial design and good looking UI.
    Then market them.
    Then prey.
    Then, if you become too big, people wil start noticing your flaws (cuz everyone has flaws) and some will hate you.
    But worry about that when (anf if) you get there

  • dean collins

    People forget the iPhone SDK and AppStore are less than 2 years old –

    – what was the most popular handset in the USA 2 years before that…. The Motorola Startac…. anyone remember them? nope me either :)


    • pedalpete

      I think everybody remembers the startac, but I’m not sure what your point is.
      Are you saying that Apple will fail eventually and will be remembered as the company that made the first widely adopted and praised touch-screen device and/or app store?

  • TheTruth

    I for one am rooting for Apple to continue their success. This company gets it done with style and finesse and their products work great. I say keep on the same path, but dump the exclusive ATT, lol

  • Ruth

    There is no jail sentence. No one is forced to have an iPhone.

    I remember the good old days where if a person didnt like the product, all they did was not buy it. Done.

    Now the internet is clogged up with blogs of product owners complaining about the products they have bought. If the product is so bad then you (not “You”) are an idiot for buying it.

  • Shandy Alexis

    Apple is such a guilty vice for me. They employee a business model that is designed to get all the control they can. In the mobile device market, they are becoming what Microsoft has always been in the operating system and productivity software markets.

    But I can’t help buying their stuff, because it is always gorgeous, has a quality feel to it, and always works so smoothly. OS X, runs so smoothly and predictably. You just open it and it does what you need it to do. There are almost never weird unexpected popups about some unknown service failing or weird hang ups like Windows OS tend to have.

    iPhone is similar. Every app has been tested, and you can download without worrying about anything changing the user experience outside of the app. It keeps things from getting clunky.

    The user interface is so intuitive that all you need is a one page tutorial on multi-touch, and you can use the phone for anything from GPS navigation, to web surfing, to picture taking, and of course calling. It is very straight forward and aesthetically pleasing in the way it is laid out. That might seem form over function to some people, but really an intuitive interface that lets you control a device quickly and hassle free is very much about function.

    The truth is, other companies are going to have to wake up and catch on to the trend. There are two kinds of products; those you buy for utility, and those you want to love. Think cars, as opposed to….brooms. A broom is a utility thing. You don’t care what it looks like. You just get the cheapest that does the job and go. Cars o the other hand, you shop for hoping to find something you can fall in love with; something that makes a statement about you, and that you enjoy using. Over the last 10 years, computers and mobile devices have become less of a utility device, and more like automobiles, or clothing. As consumers, we use them so much, that we want something nice, maybe even pretty.

    Companies making jippy feeling consumer electronics (and yucky black plastic laptops with ergonomics warning stickers and things all over them), need to wake up and realize its time to kick it up a notch.

  • Johnny

    The link to the Joel Spolsky is wrong.

    • Johnny

      the Joel Spolsky *video* that is… how ironic that I made my own typo while pointing out another one

  • Gear

    People pay for things that work.. period. Angry or not, the WORLD likes it when a product solves a problem, makes life better, saves time or keeps them entertained, wallets come out of pockets. Walled garden or not, open source or not, proprietary, dot-net, php, apache, iis.. blah, it just doesn’t matter as long as whatever the product works well and has reason for use. What’s an entrepreneur to do? Make good stuff that gives people a reason to use it and most of the other issues fade away.

  • Scott Fitchet

    As soon as Fennec phones are zippy enough they’ll begin to gain ground quickly due to their permissive licensing, use of common web development tools, and pre-existing extension development community.

    An iPhone app is really just a website that you’re (unfortunately) paying for.

  • George Wedding

    I am constantly bewildered by the number of so-called technology experts who don’t know what the hell they are talking about when they report on the AAC file format. This includes Mr. Fisher. Unfortunately, in this case, his lack of expertise on this topic undermines the entire point of his treatise.

    Like most people, the bulk of my iTunes music library is stored in the modern, industry-standard AAC (.mp4) file format since most of our songs were imported from CDs using iTunes. While iTunes easily can import CD files as .mp3 files, it doesn’t do this by default, and I’ve always elected to use the more capable, newer AAC format. AAC files are NOT proprietary, but rather, are an industry standard now supported by many different brands of music players, cell phones, vehicle head units (CD/DVD/radios) and even home A/V Receivers. Apple merely was one of the first companies to adopt this format that is part of the MPEG4 standard.

    iTunes designates the actual AAC files as .m4p files on computers, but the odd, official AAC/.m4p designations just confuse many people so I usually refer to them as .mp4 files to reinforce that this is a mere update on the old .mp3 standard). Originally, songs purchased from the iTunes Music Store were delivered as AAC+ files. AAC+ is not an audio format; it is merely a standard .m4p file with a proprietary, Apple DRM wrapper called FairPlay). However, Apple convinced the music labels to drop DRM from iTunes Music Store songs in 2008 and the company now is in the process of stripping the DRM wrapper from the AAC (.m4p) songs sold in the online music store. Thankfully, iTunes Music Store customers can purchase updated, higher resolution versions of their old, iTunes-purchased songs with the DRM stripped out, I think for about .30 cents (US) each.

    Once again, like .mp3, AAC (.m4p) is an industry standard. It simply uses more efficient compression to deliver improved sound quality with file sizes that are smaller than .mp3 files. AAC files even can be easily converted to .mp3 files, but it is not a good idea to do this since you’d be re-compressing a compressed file and surely notice a significant loss in audio quality.

    The only proprietary audio file format that remains in widespread use is Windows Media Audio (WMA). This non-standard audio format uses Microsoft’s proprietary DRM with Microsoft’s proprietary audio format. Fortunately, it has been marginalized with the success of iTunes and the iPod/iPhone juggernaut. This is a very good thing for all digital music enthusiasts.

    Mr. Fisher: please brush up on your knowledge of audio technology and rethink the myths your article perpetuates.

    • Harry

      You are correct in everything you say.

      “It didn’t take a genius to realise that having all your MP3s in an Apple AAC format was locking you in. Irrational. But people did”

      This is a nonsensical sentence, but I think he was referring to the old AAC files with Apple DRM on them. (You would think a writer would use spell check! – “realise”

    • Fred Grott

      someone needs to send a copy of this post to Jason Calacanis biggest supporter of that AAC Myth..

      • Scott

        You are MOSTLY correct, not 100%, and need to take a dose of your own medicine:

        AAC = An industry standard, yes. But still VERY MUCH PROPRIETARTY with small licensing fees. Just not owned by Apple.

        At the same time, iTune’s only lossless codec is (1) proprietary, (2) owned by Apple, and (3) closed source (although it has been successfully reverse engineered — without help or information from Apple)

        It would be better if Apple used FLAC and Ogg Vorbis, or some other truly free and open source standard. The reasons for not have nothing to do with quality at this point, only control, a kind of trust if you will. And it would be best if Apple would always support free and open source industry standards.

  • srw

    Microsoft Antimonopoly lawsuit sounds funny now!
    I used to use Sharepod to store mp3 on my iPhone (since if I sync with a “different iTunes” at home or work I lose my stuff) Guess what? Sharepod is not running with latest iPhone OS releases.

  • kiran

    the link to the joel spolsky video is incorrect. Goes to the stock page os appl

  • Christian Sterner

    Good post and something that’s been an internal debate with our team for long while.

    The questions being posed-for me-are most analogous to flash being supported on mobile devices. you optimize your content for the future (knowing that flash will inevitably be supported) or go to the market (H264)?

    Answer: haul ass to the market and never underestimate protectionism on the part of established ballers. Holding back on apps now thinking that you know what the future holds is flat out stupidity. Sprint to support as many apps as possible now, but do so with some new shoes (mobile browser) dangling off your shoulder and get ready to switch ’em up.

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  • Michael Gaines

    I stopped reading after the author wrote factual errors about AAC.


    Why is it that people can’t do their homework on AAC?

  • Kevin H.

    If you’re worried about losing audio quality of an AAC to MP3 conversion, you should’t be buying your music digitally in the first place.

    go to the store, buy a CD, then rip it in lossless if it’s that important to you.

    • Harry

      Except then you have to pay for the whole CD when you only like one of the songs. You can get lossless files online…

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