Features April 22, 2010, 5:00PM EST

Apple's Endless Expanding App Universe

(page 2 of 3)

Browse Issues

Story Tools

Plenty of companies fancy themselves contenders, including Microsoft (MSFT), Nokia (NOK), Research In Motion (RIMM), and Google (GOOG). All have certain competitive advantages. RIM continues to be the choice of the e-mail-addicted, while Google's search profits allow it to fund free Android software, and possibly free mobile hardware in the future. Yet Apple's head start in apps may be too great to overcome. More than 185,000 apps are available in the App store, compared with 38,000 in Google's online store for its Android mobile software platform. Thirty-five thousand new iPhone apps have been produced since February, even as many developers have been working on offerings for the iPad. "That's a lot of developer attention that's not going to Android," notes Bart Decrem, CEO of Tapulous, which makes music-themed iPhone games that are played by 8 million iPhone owners every month.

That means Apple's future growth is as much a matter of managing its collaborators as beating its competitors. At a public interview in 2007, in which he shared the stage with Bill Gates, Jobs noted that in its early days, Microsoft was much better at forging partnerships than Apple. "I think if Apple could have had a little more of that in its DNA, it would have served it extremely well," said Jobs. "I don't think Apple learned that until, you know, a few decades later."

How well Apple has learned the lesson is evident in the ways it has encouraged app development. Developers keep 70% of the retail price of each app sold by Apple. This summer, Apple will roll out iAd, a mobile advertising platform that lets advertisers make inventive messages appear inside apps. Developers will keep 60% of the revenue.

Strings are attached, however. In the fine print of the new developer contract are strictures that could hurt or even kill many developers' plans. Apple has always banned apps built with Adobe's (ADBE) Flash technology because it views Flash, the program that animates some 75% of video on the Web, as buggy and battery-draining. While many software experts agree, it's also true that banning Flash means that apps developed for the iPhone won't work with non-Apple devices. The new contract takes Apple's war on Flash even further: Apple outlaws any software that translates Flash-based apps into iPhone-approved ones. "Apple has gotten better at working with developers the same way a chess master gets better at playing with pawns," says David Howell, CEO of iPhone app maker Avatron Software.

The tougher terms for developers could also hurt companies that make money through data gathered from iPhone users. Because Apple knows so much about users—from what songs they like to where they are at any time, thanks to GPS—its devices present a unique opportunity for targeted ads. At the moment, ad network operators worry Apple may soon decide it wants to keep that data to itself. "We don't believe we're affected by the new rules, but man, they're volatile," says Wade Beaver, CEO of DoApp, a small app developer in Rochester, Minn. "It makes me wonder whether I want to build my business around a company that could decide to change its business model at any time. That could put me out of business."

Google would be one of the biggest losers if Apple continues to raise the wall around its garden. The search giant snapped up mobile advertising market leader AdMob last fall for $750 million when Apple mistakenly let a no-compete period lapse on its own roughly $600 million AdMob bid, says a source with knowledge of the deal. Google CEO Eric Schmidt was so intent on buying AdMob that two people with knowledge of the deal say he agreed to pay a "kill fee" of around $700 million if the deal failed to close for some reason, such as an antitrust motion from the Justice Dept. Google spokeswoman Jane Penner declined to comment on the terms of the deal.