Apple is looking like what Microsoft was 10 years ago—a Bigfoot that squeezes smaller competitors.
A former lieutenant of Steve Jobs's once told me something surprising about his ex-boss. "Steve is a monopolist at heart," he said. "He's just like Bill Gates. He just hasn't been as successful." Well, Jobs is getting there. This summer, Apple's market capitalization surged past Google's, making it the financial king of Silicon Valley. True, Apple still holds only 11 percent of the U.S. consumer PC market, according to researcher NPD, but its influence is far greater than that market share suggests. The iconic iPod dominates its market, and the iTunes music store has sold more than 5 billion songs, making it the No. 1 music retailer in America, ahead of Wal-Mart, according to IDC. Apple's iPhone is the No. 3 smart phone in the United States, according to NPD.
Not long ago Apple was just a niche PC maker selling to diehard fans who were quick to forgive (or even celebrate) Apple's quirks and foibles. But Apple is no longer an underdog. In fact, Apple has started looking like what Microsoft was 10 years ago—a company that so controls certain market segments that smaller competitors can survive only by living on its scraps or staying out of its way. (Apple declined to comment for this story.)
A year ago a small company called Vudu was winning rave reviews for its dynamite little box that attaches to the TV and downloads movies from the Internet. Vudu had advantages over Apple TV: it had a larger catalog of movies, you could rent movies instead of buying them and you didn't need to download the films to a PC first before watching them.
In January Apple struck back, introducing a vastly expanded catalog of movie titles, which it started renting, as well as selling. And it came out with a new, cheaper version of the Apple TV box that matched most of Vudu's features. Now Apple is selling or renting more than 50,000 movies a day, and Vudu is laying off staff. A spokeswoman for Vudu says the company is doing fine. I will point out only that this is what Microsoft's victims used to say, too.
The really scary thing about Apple is that it doesn't just make hit products—it controls entire ecosystems. Just as Microsoft controls both the operating system and the applications that run on top of it, Apple owns popular hardware platforms (iPod, iPhone) and operates the only store that can sell music, movies and software programs for those platforms. Apple sets prices and takes 30 percent of the money.
With iPhone, Apple decides which independent applications will be allowed, and it can pull the plug on any application at any time, without explanation—as happened in July to several developers of iPhone apps. "I spent four weeks trying to get through to Apple via e-mail and phone calls, and they wouldn't return my messages," says Cyrus Najmabadi, developer of an iPhone application called Now Playing, an online movie-theater guide that Apple yanked in July after receiving a complaint about the program. (Najmabadi persisted and finally got Apple to put his application back online; Apple declined to comment on the matter.)
With its retail stores, Apple controls another ecosystem—the market for iPod and iPhone accessories, like speakers and cases. Apple determines when accessory makers can announce new products, and charges them a variety of fees, including one for putting a MADE FOR IPOD sticker on the items. One iPod accessory maker—who insists on anonymity, as he fears reprisal from Apple—gripes that Apple takes up to 75 percent of the sales price, leaving him with zero profit on some of his products when he sells them in Apple stores. This guy plays along because having his products on display in Apple stores builds awareness of his brand, and he can make a profit selling his speaker systems through Best Buy, Target and Circuit City.
Apple's tactics might seem like smart business: why not squeeze every penny out of every deal? The problem is that if Apple squeezes too hard, some partners may go out of business, harming the ecosystem. Bully behavior also invites backlash, as it did for Microsoft when that company rose to power in the 1990s. In the U.K., a regulatory board has banned an Apple advertisement that claimed its iPhone gives you "all the parts of the Internet," when the phone won't display information created using Flash or Java, two popular Web software programs. In Alabama, a woman has filed a class-action lawsuit because her new 3G iPhone won't always attach to a 3G network, which provides faster wireless Web downloads. In July customers howled when Apple rolled out MobileMe, a new online service for synchronizing personal data to the iPhone and iTouch that wound up having some pretty serious glitches. Apple offered three months of free service to subscribers as a form of appeasement.
In the old days, stuff like this didn't matter. Apple was such a fringe player that nobody really cared how the company behaved. I wonder sometimes if Apple misses those days.
Apple chief executive Steve Jobs unveiled a new touchscreen tablet computer on Wednesday dubbed the "iPad," seeking to carve out a niche between the laptop and the smartphone.
"We want to kick off 2010 by introducing a truly magical and revolutionary product," said Jobs, who underwent a liver transplant last year and was making just his second public appearance since September.
The long-awaited iPad has a 9.7-inch (24.6-cm) color screen and resembles an oversized iPod Touch or iPhone. It is 0.5 inches (1.3-cm) thick, weighs 1.5 pounds (0.7 kilograms) and comes with 16, 32, or 64 gigabytes of flash memory.
The cheapest iPad model, with 16G of memory, is 499 dollars while the most expensive -- which includes 3G wireless connectivity and 64G of memory -- costs 829 dollars.
Apple said it would start shipping the iPad, which features a virtual touchscreen keyboard, within 60 days, making them available worldwide in late March.
Dressed in his trademark blue jeans and black turtleneck, Jobs demonstrated some of the features of the iPad, which include browsing the Internet, playing games, listening to music from iTunes and watching high-definition video.
Jobs, who appeared thin but healthy, said Apple was launching an online "iBookstore" for the iPad and touted its abilities as an electronic reader of books, newspapers and magazines.
"You can have black-and-white, color, video in your books -- whatever the author wants," he said. "We think the iPad is going to make a terrific e-book reader, not just for popular books but for textbooks as well."
"We've got five of the biggest publishers in the world supporting us and will open the floodgates for the rest of the publishers starting this afternoon," Jobs said.
Some technology analysts expect the iPad to pose a challenge to other e-readers on the market and Jobs made a reference to the e-reader market leader, Amazon's Kindle.
"Amazon has done a great job of pioneering this functionality with the Kindle," he said. "We are going to stand on their shoulders."
Apple said that besides serving as an e-reader, the iPad runs most of the popular applications for the iPod and iPhone which are available through Apple's App Store. Related article: Apple's cult tech inventions
Jobs said he expected the new iPad will successfully carve out a place between the laptop computer and the smartphone.
"Do we have what it takes to establish a third category of products in between a laptop and a smartphone?" he asked. "The bar is pretty high. We think we've done it."
Jobs said the iPad is "so much more intimate than a laptop and so much more capable than a smartphone."
He said it has about 10 hours of battery life. "I can take a flight from San Francisco to Tokyo and watch video the whole way on one charge," Jobs said.
The iPad is Apple's first major product release since it came out with the iPhone three years ago.
Apple shares were trading 1.78 percent higher at 209.61 dollars on Wall Street at 2000 GMT.
Yet for all his hanging out with copywriters and industrial designers and musicians -- and despite his anticorporate attire -- make no mistake: Jobs is all about business. He may not pay attention to customer research, but he works slavishly to make products customers will buy.
He's a visionary, but he's grounded in reality too, closely monitoring Apple's various operational and market metrics. He isn't motivated by money, says friend Larry Ellison, CEO of Oracle. Rather, Jobs is understandably driven by a visceral ardor for Apple, his first love (to which he returned after being spurned -- proof that you can go home again) and the vehicle through which he can be both an arbiter of cool and a force for changing the world.
The financial results have been nothing short of astounding -- for Apple and for Jobs. The company was worth about $5 billion in 2000, just before Jobs unleashed Apple's groundbreaking "digital lifestyle" strategy, understood at the time by few critics. Today, at about $170 billion, Apple is slightly more valuable than Google.
Its market share in personal computers was plummeting back then, and the cash drain was so severe that bankruptcy was a possibility. Now Apple has $34 billion in cash and marketable securities, surpassing the total market cap of rival Dell. Macintoshes make up 9% of the PC market in the U.S. today, but that share is increasingly beside the point.
With 275 retail stores in nine countries, a 73% share of the U.S. MP3 player market, and the undisputed leadership position in innovation when it comes to mobile phones, Apple and its CEO are no one's idea of underdogs anymore.
In 2006 Disney paid $7.5 billion to acquire Pixar, the computer animation film studio Jobs had nurtured and controlled. Jobs, in turn, became a Disney director and the blue-chip company's largest shareholder. His net worth, solely based on his stakes in Apple and Disney, is about $5 billion. Other executives have had stellar decades but none can compare with Steve's.
With Jobs back at the helm of his company, plenty of challenges lie ahead. Will the Goliath role suit him nearly as well as playing David clearly has? How will he respond to the competition he has awakened, particularly in smartphones, even as the personal computer fades in relative importance? Has he fashioned an organization that can succeed him? Can he possibly be as dominant in the decade to come as the one that is ending?
The "decade" of Steve actually began in 1997, when he returned to Apple after having been ousted a dozen years earlier. That was a year of triage, of a humbling investment from Microsoft, of paring Apple's product line to a bare minimum of four computers.
How's this for a gripping corporate story line: Youthful founder gets booted from his company in the 1980s, returns in the 1990s, and in the following decade survives two brushes with death, one securities-law scandal, an also-ran product lineup, and his own often unpleasant demeanor to become the dominant personality in four distinct industries, a billionaire many times over, and CEO of the most valuable company in Silicon Valley.
Sound too far-fetched to be true? Perhaps. Yet it happens to be the real-life story of Steve Jobs and his outsize impact on everything he touches.
The past decade in business belongs to Jobs. What makes that simple statement even more remarkable is that barely a year ago it seemed likely that any review of his accomplishments would be valedictory. But by deeds and accounts, Jobs is back.
It's as if his signature "one more thing" line now applies to him as well. After a six-month leave of absence in the early part of this year, during which he received a liver transplant, he is once again commanding a 34,000-strong corporate army that is as powerful, awe-inspiring, creative, secretive, bullying, arrogant -- and yes, profitable -- as at any time since he and his chum Steve Wozniak founded Apple in 1976.
Superlatives have attached themselves to Jobs since he was a young man. Now that he's 54, merely listing his achievements is sufficient explanation of why he's Fortune's CEO of the Decade (though the superlatives continue). In the past 10 years alone he has radically and lucratively reordered three markets -- music, movies, and mobile telephones -- and his impact on his original industry, computing, has only grown.
Remaking any one business is a career-defining achievement; four is unheard-of. Think about that for a moment. Henry Ford altered the course of the nascent auto industry. PanAm's Juan Trippe invented the global airline. Conrad Hilton internationalized American hospitality.
In all instances, and many more like them, these entrepreneurs turned captains of industry defined a single market that had previously not been dominated by anyone. The industries that Jobs has turned topsy-turvy already existed when he focused on them.
He is the rare businessman with legitimate worldwide celebrity. (His quirks and predilections are such common knowledge that they were knowingly parodied on an episode of "The Simpsons.") He pals around with U2's Bono.
Consumers who have never picked up an annual report or even a business magazine gush about his design taste, his elegant retail stores, and his outside-the-box approach to advertising. ("Think different," indeed.)
It's often noted that he's a showman, a born salesman, a magician who creates a famed reality-distortion field, a tyrannical perfectionist. It's totally accurate, of course, and the descriptions contribute to his legend.
By the following year Steve's regime had kicked into gear. Jobs completed the hiring of a new management team, which included several executives from his previous company, Next. Those top players would form the nucleus of the Jobs brain trust for nearly 10 years.
Then came the first Macintosh after Jobs' return, the iMac, a breakthrough all-in-one computer and monitor that heralded Apple's return to health. The success of the pricey iMac, coupled with drastic cost cutting, allowed Jobs to build a cash cushion. By repairing Apple's balance sheet, he prepared the company for big investments to come, a shrewd business move if ever there was one.
Jobs laid the foundation for Apple's leap from stable to stratospheric when things looked darkest. In 2000, Apple missed its financial targets in a September earnings announcement, sending its stock price plummeting in subsequent months to the equivalent of $7 in today's prices. Yet Jobs by this time had set in motion the key elements of Apple's rejuvenation.
Over the course of 2001, as global markets fell and the world headed into recession, Apple launched the iTunes music software (in January), the Mac OS X operating system (March), the first Apple retail stores (May), and the first iPod (November), a 5GB model that Apple bragged would hold 1,000 songs.
The market didn't catch on quickly to the significance of those events. iTunes was just music-playing software embedded into Macs and lacked an online store that sold music. The new operating system, though impressive, powered a niche product. The iPod was a snazzy MP3 player in an established market.
As the company's stock languished, takeover rumors appeared from time to time. What was never reported was that Jobs seriously contemplated taking the company private with the help of newly formed buyout group Silver Lake Partners. An Apple buyout would have been the deal of the century, but according to people familiar with the talks, Jobs ultimately shut them down.
That was actually the second serious proposal to buy Apple. In 1997, Jobs' friend Ellison, later an Apple board member, lined up financing to take over the company on the assumption that Jobs would run it. In a recent interview Ellison said Jobs didn't like the idea of being "second-guessed" if it looked as if he'd returned simply to make money. "He explained to me that with the moral high ground, he thought he could make decisions more easily and more gracefully," says Ellison.
For those paying attention after Jobs' return, the CEO was telegraphing Apple's trajectory. "I would rather compete with Sony than compete in another product category with Microsoft," he told Time in early 2002. "We're the only company that owns the whole widget -- the hardware, the software, and the operating system. We can take full responsibility for the user experience. We can do things that the other guy can't do."
Jobs was convinced that the masses would turn to Apple, but only if he could speak directly to them -- and not just to faithful Macintosh users, a club that included mainly artists and students. The strategy of building company-owned retail stores, so integral to Apple today, was derided at the time as a risky cash drain.
"He did this with a nervous board," says Bill Campbell, a former Apple executive who went on to become chairman of Intuit and an Apple board member. "He knew that this is what customers wanted." What's striking looking back is how little there was to sell in the original Apple stores. Jobs knew how he'd fill them.
Jobs made it his business to know everything about Apple. "He's involved in details you wouldn't think a CEO would be involved in," says Ken Segall, a former Chiat/Day creative director who has worked with Apple on and off for years. Jobs commissioned the iconic "Think different" campaign, says Segall, well before any of Apple's new products were introduced -- or even described to the ad team. "He'd say, 'The third word in the fourth paragraph isn't right. You might want to think about that one.' "
The rare pairing of micromanagement with big-picture vision is a Jobs hallmark. Early in his return to Apple, he recognized that gorgeous design was a differentiator for Apple in a computer industry gripped by the successful blandness of Dell, Microsoft, and Intel.
"I cannot count the number of clients who have marched in and said, 'Give me the next iPod,' " writes Tim Brown, CEO of product-design consultant Ideo, in his new book "Change by Design." "But it's probably close to the number of designers I've heard respond -- under their breath -- 'Give me the next Steve Jobs.'"
Jobs also has a knack for pouncing at the right moment. The music industry had failed repeatedly to develop its own digital-music sales site before Apple came along with iTunes, which was by then prepared to become a store for buying music.
Jobs cleverly made his pact with the record labels when iTunes worked only on Macs, which in 2002 had a personal-computing market share in the low single digits. Apple's humble position -- before iTunes became compatible with Windows, expanding its potential market share to nearly all PCs -- was a virtue. This made iTunes an experiment rather than a destructive paradigm shift.
"I don't understand how Apple could ruin the record business in one year on Mac," said Doug Morris, the head of Universal Music, according to "Appetite for Self-Destruction," a new book about the record industry's ills by Rolling Stone writer Steve Knopper. "Why shouldn't we try this?" Writes Knopper: "By the time Steve Jobs came around, he was the last resort. He was merely smart enough to know it. He played tough, but not any tougher than any lawyer for a major label who had negotiated an artist contract in recent decades."
A key Jobs business tool is his mastery of the message. He rehearses over and over every line he and others utter in public about Apple, which authorizes only a small number of executives to speak publicly on a given topic.
Key to the Jobs approach is careful consideration of what he and Apple say -- and don't say. Harvard professor David Yoffie estimated that in the months between announcing and selling the first iPhone in 2007, Apple received $400 million in free advertising by not making any public statements, thereby whipping the media into a frenzy.
Jobs himself is careful to avoid overexposure, preferring to speak only when he has products to promote. He didn't disclose his 2004 cancer surgery until after it occurred, and then only in an employee e-mail that was strategically released to news outlets. Similarly, he told the world of his recent leave in another employee missive, with no additional comment from him or anyone else at Apple.
Nobody in Jobs' sphere speaks without the permission of the company's media relations team, which reports directly to Jobs. Apple declined to make Jobs available for an interview for this article. It did bless the participation of some people in Apple's orbit to speak about him, while nixing requests for others.
The secrecy has rankled corporate governance experts, who insist the health of such an indispensable CEO warrants greater disclosure.
Jobs was initially mum as well about a stock options backdating scandal that embroiled the company's former finance chief and general counsel. In an eventual SEC filing, Apple said Jobs was aware that the company had adjusted option grant dates so that the grants were more profitable for employees. Jobs apologized for the backdating, calling the episode "completely out of character for Apple."
Jobs manages the money, the message, the deals, the design, and more. Consider the case fairly made that the long-ago enfant terrible of the computer industry has built up impressive business chops and that his company is peerless. But if nothing else, his recent illness is a reminder that Steve Jobs is mortal. When he's gone, how long will his company thrive without him?
Apple's future.
This past September, when Steve Jobs made his triumphant return to the public eye, he thanked precisely one Apple executive by name: Tim Cook, Apple's chief operating officer.
At an event to introduce a new line of iPods, Jobs first informed a crowd of journalists, analysts, and Apple developers that he now possessed the liver of a "twentysomething liver donor who had died in a car crash." Then he thanked Cook and the rest of the management team for "ably" running Apple in his absence. Cook, in turn, led a standing ovation for Jobs, his arms raised over his head from the front row of a San Francisco auditorium.
With Jobs back at work, the conversation has been postponed as to whether Cook, or anyone else, is prepared to fill Jobs' shoes. "At Apple the hierarchy is determined by who Steve calls," says a former Apple executive. "There's a lot of value in 'Steve said.'"
Larry Ellison, a CEO known to dislike the topic of succession, says of his friend, "He's irreplaceable. He's built a fabulous brand. He's got a wealth of products. Whenever he leaves, I hope he retires in good health and he's sailing off in his yacht in the Mediterranean. But they're going to miss him terribly, because it's a consumer products company. The product cycle is so fast."
There are signs that Jobs has inculcated the troops enough to last awhile without him. "The organization has been thoroughly trained to think like Steve," says someone with contacts among the Apple executive team. "That's why the six months went so smoothly. People could envision, 'This is what Steve would do.'"
Jobs, in fact, inspires far beyond Apple. Larry Pag
Apple has agreed to purchase the innovative, streaming music service LaLa, according to multiple reports (updated). LaLa fills a big hole in Apple’s digital music strategy and could bring streaming down music from the cloud into iTunes-ready devices everywhere.
Integrating Lala’s ad-free music service — which stores music collections online and sells streaming songs at a deep discount — would mark the first major step forward for iTunes since its music download store launched in 2003.
Lala recently announced a deal to play free songs on Google, but Apple is reportedly particularly interested in the engineers who built Lala’s “payment and fulfillment system[, which] could save Apple millions of dollars a year,” according to a CNET source. Lala sells music fans pre-paid chunks of music credits, rather than individual songs — an approach could help iTunes cut down on its credit card transaction costs and sell songs as streams and as downloads.
The deal is pretty much done, according to the New York Times and All Things Digital. Lala did not respond for request for comment.
This Lala acquisition could also help iTunes increase its revenue-per-user. Steve Jobs admitted in 2007 that the average iTunes user had only bought an average of 22 songs. By contrast, Lala CEO Bill Nguyen told us in October that its paying customers spend an average of $67 on Lala music, which is available both as 10-cent streams and normally-priced downloads (buying a stream is a down payment on the download).
Lala sells batches of credits for songs, saving it money on transaction fees.
LaLa also has technology that copies users’ iTunes music collections into the cloud servers, so that users can play back the songs on internet-connected devices. This feature would ease an Apple transition from locally-stored to cloud-based music.
That’s attractive to Apple because the iPhone and iPod Touch use flash memory, which is limited in its capacity compared to the hard drives in earlier iPods. In addition, that scarce memory gets shared with video, photos, apps and data associated with apps, whereas the hard drives in iPods were used mostly or even exclusively for music.
And as a bonus, Lala can play the last few hundred songs from a cache when there’s no internet connection which lets it play cloud-based music in subways, highways and remote locations.
This wouldn’t be the first music start-up Apple has purchased. In 2000, it bought a music player application called SoundJam MP. It formed the core of the first version of iTunes, and its developers helped build subsequent versions of that software. Nor would it be the first time Nguyen has sold a company. In 1999, he sold his first company, OneBox, to Phone.com for $800 million — one reason he was able to experiment so much with Lala’s business model before arriving at its current iteration.
If this deal goes through, the next version of iTunes could introduce more music fans to the idea of buying cheap music streamed from the cloud and listening to a huge catalog on a device with limited memory.
Apple’s iPhone App Store may be a resounding success. But Google says app stores are a dead end.
Sour grapes? Maybe. It’s no coincidence that Google has placed its money on web-based applications, for its mobile Android operating system as well as its forthcoming Chrome OS.
Vic Gundotra, Google’s engineering vice president and developer evangelist, said on Friday at the Mobilebeat conference in San Francisco that the future of the mobile industry lies in web-based applications, rather than native software coded to run on specific smartphone operating systems.
“Many, many applications can be delivered through the browser and what that does for our costs is stunning,” Gundotra was quoted in a Financial Times report. “We believe the web has won and over the next several years, the browser, for economic reasons almost, will become the platform that matters and certainly that’s where Google is investing.”
Ever since Java emerged in the 1990s, the tech industry has debated whether software would shift from native programs sitting on a hard drive (like Microsoft Office) toward web-based applications accessible through a browser (like Google Docs). Developed by Sun Microsystems, Java is a cross-platform environment that many web-based applications use today, albeit “in the cloud” — on central servers — rather than in the browser. One big benefit of cloud-based, web-centric applications is that users can access the apps and their personal data from any computer using a browser.
However, while Google’s internet software suite is certainly popular, web-based apps are far from winning, said Michael Gartenberg, technology strategist of Interpret. He noted that Apple’s App Store, which serves 65,000 third-party apps and has attracted over 1.5 billion downloads and 100,000 developers, is a testament for strong consumer and developer interest in native applications.
“It’s odd that Google feels the need to position as one versus the other,” Gartenberg said. “That’s last century thinking.”
Gartenberg pointed out that many iPhone apps are native and web-based at the same time. That’s because a lot of the apps download or share data via the internet. And it’s beneficial for the apps to be native, because that way they’re programmed to specifically take advantage of the iPhone’s processor, graphic accelerator and other hardware features.
“It’s not about web applications or desktop applications but integrating the internet in the cloud into these applications that are on both my phone and the PC,” Gartenberg said. “Ultimately, it’s about offering the best of both worlds to create the best experience for consumers — not forcing them to choose one or the other.”
Gartenberg highlighted social networking service Twitter as an example. The Twitter service exists on the internet, and yet most users prefer reading their feeds and posting tweets with a native application rather than visiting Twitter.com in a browser, Gartenberg said.
Raven Zachary, an analyst and president of iPhone strategist firm Small Society, also disagreed with Google’s assessment. He said that the App Store makes it clear that native apps are proving a better experience for consumers. When Apple released the original iPhone in 2007, the company offered no software developer kit for the smartphone and told developers to make web-based apps. However, web-based apps proved unpopular among developers, and the iPhone didn’t explode in popularity until its App Store and the second-generation iPhone 3G launched in 2008.
“It’s pretty clear that native apps and on-phone distribution are by far the most efficient and compelling ways to have consumer apps,” Zachary said.
And speaking technically, Zachary pointed out that there will always be fundamental challenges with coding apps purely for the web: Not all hardware will be optimized to run the software. Different phones possess different screen resolutions, for example, meaning some apps would load better on certain phones than others. And other than that, a web-based app can’t take full advantage of a specific phone’s powers if it’s coded to work in a cross-platform environment.
Loren Brichter, developer of the popular iPhone Twitter application Tweetie, can vouch for the technical challenges lying ahead for web-based mobile programming. He said he’s been trying to code apps using the Palm Pre’s webOS software development kit, which involves programming in JavaScript and CSS.
“The Pre’s SDK is painful to work with because JavaScript is so clumsy,” Brichter said.
He added that web technology is not improving quickly enough to fulfill Google’s prophecy of web apps winning in the near future.
“The progress of web technologies is going so slow,” Brichter said. “With HTML5, they can’t even decide on a video format…. It’s just moving at a snail’s pace.”
What do you think about the future of mobile? Web apps winning? App stores surviving? Both native and web co-existing? Vote in the poll below.
A funny thing happened on the way to the mobile Web. Suddenly it's no longer about the Web browser.
Ironic, considering that the World Wide Web and the Web browser, created in 1990 by Tim Berners-Lee, are now eating desktop applications alive. The Web has become the vehicle for our consumption of everything from video clips to news to messages from friends and family.
Start-up Mint, a Web site that helps organize its customers' financial lives, is thriving. Microsoft ( MSFT - news - people ), by contrast, is pulling the plug on Microsoft Money. Salesforce.com's ( CRM - news - people ) Web-based business applications have gone from unorthodox to mainstream. Even Microsoft's ever mighty Office software franchise is being challenged by Google ( GOOG - news - people ), Zoho and others hawking Web-based word processors and spreadsheets.
It has become easy to forget, however, that the Web and the Internet are two different things. A Web browser is just one of many ways the Internet can be put to use. And Apple ( AAPL - news - people ) has reminded us of that by tearing off a small piece of the very big universe that is the Internet and creating a very different set of rules than those that apply to the Web. And lately it is that parallel world, rather than the Web, that has begun to matter most to the future of the mobile Internet.
That's because Apple Chief Executive Steve Jobs has done more than just slapping a Web browser on the iPhone--Apple has created a rich set of tools for delivering and monetizing content and services. Then it has paired them with rules that tear control away from the companies that have dominated the Web for so long.
Unlike the Web, for example, Apple has put the ability to charge small amounts of money at the center of its system for distributing iPhone applications, linking its App Store to the billing system in its iTunes digital media store. The result: Developers can charge as little as 99 cents for an application without the need to invest in a serious billing infrastructure.
This month's release of Apple's iPhone OS will take that idea further, allowing developers to charge for small slices of digital content, such as city maps for navigation applications, virtual weapons for online games and extra content for digital publishers. Suddenly, a lot of people whose content and services had been commoditized by the Web have a shot at getting back in business.
And Apple, of course, has placed itself at the center of this little world, approving which applications can be distributed through its App Store and how they can behave. Last August, Jobs said Apple was already doing $30 million a day in sales via the iPhone, with Apple pocketing a 30% cut of each sale.
It is undoubtedly doing much more than that today. Apple now offers more than 50,000 applications for the iPhone and iPod touch through its App Store. In April, Apple announced iPhone users had downloaded 1 billion applications through the App Store.
So who loses? Some of those who won big on the Web, for starters. The App Store takes power away from portals such as Yahoo! ( YHOO - news - people ), Google and MSN, which aggregate information from around the Web.
Suddenly, content owners had the tools to create interfaces more closely tailored to what they had to offer. The result: A newspaper publisher's iPhone application could offer a better way to read its articles than the Web--or even print.
Certainly the Web is a powerful force on the iPhone. Traffic from the mobile edition of Safari, Apple's Web browser, is one of the largest contributors of traffic to Web sites from mobile devices. Many more sites will create slimmed-down versions of themselves tailored to the iPhone's screen. Google, meanwhile, has turned its Gmail e-mail service into a showcase for the power and responsiveness of Web-based mobile applications.
The problem, however, isn't that the Web can't be made to work well on a mobile device. It's that Apple's mobile devices show that tailored, Internet-connected applications can be better than what the Web can do on its own--whether it's served up on a small screen or a big one.
Apple has agreed to purchase the innovative, streaming music service LaLa, according to multiple reports (updated). LaLa fills a big hole in Apple’s digital music strategy and could bring streaming down music from the cloud into iTunes-ready devices everywhere.
