Fortress Apple

By Lyons, Daniel | Newsweek, May 3, 2010 | Go to article overview
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Fortress Apple


Lyons, Daniel, Newsweek


Byline: Daniel Lyons

The company needs to open up.

Apple's new iPad is more than just a gorgeous consumer electronics device. It's also a kind of challenge to the Internet itself--or at least to the conventional wisdom of what the Internet is supposed to be all about.

Since the dawn of the Web we've been told that this brave new world came with brave new rules, one being that everything must be free and open. Force people to pay a subscription fee to read your news? You'll be doomed, the pundits tell us. You'll be left behind, eclipsed by all the smarty-pants companies that know enough to give their work away.

So everyone played along, and with a few exceptions, nobody is making any money. Funny, that.

Now along comes Apple with a walled garden. Not only does it produce the iPad's processor, its operating system, and the device itself, but Apple sells its content, via iTunes, and keeps 30 percent of the money. It also operates the App Store, the only place selling applications to run on the iPad, and it keeps a 30 percent slice there, too. This summer it will start selling ads that run inside the apps and will keep a 40 percent slice of that revenue.

Apple does not explain its strategy. But my interpretation of what it's thinking goes as follows:

The first two decades of the World Wide Web have been a huge mistake. The Internet is not a philosophy. It's a distribution mechanism. The laws of physics did not change when the airplane was invented, nor have the laws of economics changed because the Internet exists. You make money on the Internet the same way you do everywhere else--by having something that people want and forcing them to pay for it. There is a reason a circus takes place inside a tent, and it's not to keep you dry when it rains. They want to charge you to watch the big show.

Part of me is glad Apple is doing this, because someone needs to buck the "everything is free" trend and see what happens. But I think the company is taking things to an extreme, exerting a degree of control that may ultimately undermine its own success. If you own an iPad or an iPhone, you're aware (and no doubt frustrated) that it won't run videos created in Adobe's Flash software, which accounts for half or more of all the videos on the Web.

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