Tomi is Wrong about iPhone Economics

The whole universe seems to be buzzing about Tomi Ahonen’s post about iPhone economics, which is unfortunate cause it’s completely incorrect. First of all let me say I like Tomi. He’s helped out with the Mobile 2.0 events in the past, I’ve had a few chances to have conversations with him, he’s a good guy. Even smart people can be wrong however, and in this case there are definite issues with the analysis laid out.

Unfortunately, I’m not a pundit though. I’m a programmer, and I have programming to do. So my response is going to have to be far more terse than the original post:

  • The first glaring and obviously horribly mistaken point is the one everyone brings up first – that there are so few iPhone devices out there compared to other platforms. That one is somehow “abandoning 97% of an addressable market” by developing for iPhone. Like I’ve mentioned in the past, that numbers argument is a great bit of FUD. But its only FUD. The simple fact is that those other 97% probably don’t and won’t give a crap about your mobile service. Anyone who cares about mobile services goes where the mobile services are, and the mobile services rightly go where the active users are. And that’s not to feature phones. Will people please stop using this huge base of inactive mobile phone holders to try to scare us off the actual users? It’s beginning to get really annoying.
  • The second giant issue is with the cost of accessing the market. Put your app up on the App Store and you potentially have access to a few tens of millions of users. Now, sure most apps never see those kinds of numbers. But take a look at the alternative model you’re proposing. Does no one else remember trying to get carrier distribution, or even distributing yourself on the web without app stores? I’ve been directly involved in two startups that managed to run themselves into the ground trying to appeal to that “mass market” we should all be going after. I had a first hand seat to the issues that others had with it at AdMob as well. iPhone might be a lower ceiling on the user base, but man, they’re almost infinitely easier to reach. And I would say it’s easily 100x easier to get people to pay for something in the App Store than it is out in the world of Java apps and the mobile web. Show of hands from all the folks who have implemented a wide-web based mobile play and had it work out? It’s never worked out for me.
  • The cost of developing an application based on SMS or multi-architecture platform like Java is way higher than developing for the iPhone. First off all there’s the problem of education. The world of SMS and MMS is way more complex, and generally carries a per-transaction cost. Then there’s all the issues like aggregators, and trying to get an SMSC backend connection so that your SMS service can actually do interesting things. (good luck getting that on multiple carriers!) And the cost of doing Java development should be a beaten enough horse that I don’t need to walk through that one right? If you want to hit that supposed “2.1 billion featurephones” how many different ports do you actually need to make? (hint: it’s not 1)
  • Then there’s this stupid American Idol model! You can make half a billion dollars off an SMS service. Yes, granted, you can do that. However, one of the prerequisites is that you also have a prime time show on national television to drive that service. So drop it. Irrelevant to the average mobile developer.
  • Finally, there’s the implication that somehow just “realizing” that there are tons of lower capability phones out there means that trying to go after them will yield more profit for a service. If this were even a tiny bit partially true shouldn’t Nokia be crushing it? They’ve been trying over and over to turn their lead in handset deployment into a market advantage, and it doesn’t seem to be going so well. Shouldn’t the folks who were working on general platforms be raking in money hand over fist instead of gradually and begrudgingly moving to iPhone and Android? Shouldn’t Handango have the highest market capitalization in the US? So why should I, a struggling startup founder with limited resources, be expected to go after a market that keeps crushing firms and spitting them out? Just about the only group I know that would take the risk/reward tradeoff of going after a broader global mobile market rather than an iPhone app are the VCs. It doesn’t make sense for a developer to start out heading straight for the open global environment unless some special situation is giving them worldwide distribution, existing partnerships, and free porting.

So no, there’s nothing wrong with you for thinking about writing your app for the iPhone if you’re looking to startup a business in mobile. If you eventually want your business to grow into a billion dollar enterprise, yes, eventually you’ll have to figure out how to move outside the App Store. But the store is a great place to start with a ton of advantages for the developer when compared to all the other channels out there.

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8 Responses to Tomi is Wrong about iPhone Economics

  1. Jason Devitt says:

    Amen.

    I hope that no developer wastes time and money following his advice, and if they do I hope they’re my competitors.

    Jason

  2. Good words. Insightful too.

    Nice work.

  3. Terence Eden says:

    While I will agree with most of your points, I have to disagree with “The simple fact is that those other 97% probably don’t and won’t give a crap about your mobile service.”

    I ran one of the world’s biggest mobile websites – our number one phone was…. the Nokia 6300. This feature phone drove more traffic that several smartphones added together.

    The feature phone market is fragmented and tricky – but it is huge. To write off the users who can’t afford the £500 for an iPhone is misguided.

    I’m not quite saying “Build It And They Will Come” but I do know that feature phone users are just as eager to browse the web and download apps (mostly games – but that’s probably because they’ve got a higher dev budget).

    T

  4. Jason Delport says:

    Finally some words of sense! I was starting to think I lived in some alternative reality when that post was retweeted across the Twittersphere without comment.

  5. Allen Smith says:

    Glad to hear a counterpoint from someone who was in mobile before the iPhone.

    Anyone who complains about Apple’s lack of transparency when approving apps and their 30% revenue share never tried getting an app on a carriers crappy deck

  6. I’ll also disagree most vigorously with “The simple fact is that those other 97% probably don’t and won’t give a crap about your mobile service.”

    Try researching some of those 97%. An example I can repeat any time I want
    “Do you use browse the internet on your phone?”
    “Oh… no.”
    “Do you ever look up the weather?”
    “Yes.”
    “Do you access facebook from your phone?”
    “Yes.”
    “Do you check out sports scores?”
    “Yes.”
    Etc. Not every time, for everyone, but a lot. And a lot of analytics packages are poor at understanding the market also, so you have to understand how the aggregated data is gathered to get to the real numbers as well.

    In short, and I am pretty sure core to everything Tomi says, is that mindshare is not marketshare. Just because bloggers, pundits and analysist use something doesn’t make it universally true. As Bryan Rieger recently said “My backyard doesn’t have elephants, space shuttles or Indonesians surfing the mobile web… that doesn’t mean they don’t exist.”

  7. miker says:

    @steven I’m not saying that folks on those other platforms don’t use services at all. I’m saying they’re a bad initial user base to go after. Lots of folks have destroyed their businesses trying to go after those users, do we really need to encourage more folks to do so? Or do we let the rate of progress be the rate of progress, and try to push out where we can, but remain realistic about how large the addressable market is for any service?

  8. Leon Yeh says:

    I am working building iphone apps everyday. I disagree with Tomi assessment on iphone trend and direction.

    At first I was giving him the benefit of doubt, but after seeing the demand on number of iphone projects on my backlog. I think he is wrong on this one.

    I am originally from Asia, Indonesia. Even blackberry and featured phone (BREW) start to get some competition from iphone and ipad. Android pushed down the cost of the handset.

    Future will be between Android and iPhone. Smartphone all the way.

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