The iPhone Prosperity

THE iPHONE PROSPERITY By Michael S. Malone

To appreciate the sheer volume of frustrated entrepreneurial energy in the United States that is being bottled-up by the economy and Washington, you need only look at the Apple iPhone. To me, it is emblematic of what is both right and wrong in America right now.

As you may have read, last Thursday at 5 pm Apple announced that somewhere out there in the world one of its customers had just downloaded the 1 billionth iPhone software application. That’s an astounding number, especially when you consider that the Apple App store only opened in July of last year. It means that iPhone users downloaded an average of more than 5 million apps per day during that interval . . .and number that climbed to more than 5.5 million per day during the final run-up to billionth.

In other words, not only is that pace being maintained, it is actually accelerating as the installed base of iPhones grows (it is now more than 15 million units in the U.S.), the number of application developers grow (there are now thousands), and iPhone users continue to increase the number of applications they wish to load into their devices.

These figures absolutely swamp the nearest competitor, smartphones featuring the Android operating system by at least ten-to-one. However, Android phones are still relatively new, with an installed base in the U.S. of less than 2 million devices, so the gap shouldn’t be surprising. And we can assume, as the numerous other Android phones now in development – such as Motorola’s – hit the market that will we see a Land Rush for applications in this business as least as great as the one for the iPhone.

The implications of this flat-out race for supremacy in smart phones is the topic for another column. What I’m interested in right now is the larger cultural meaning of this explosion in iPhone software.

Sure, the iPhone is terrific device, with a lot of breakthrough features – and some obvious weakness. It is targeted at a customer base that is legendary for its emotional commitment to Apple products and willingness to expend enormous amounts of intellectual capital designing new products and applications for Apple products. And the device has enjoyed the usual high-media coverage of an major, Steve Jobs hosted, launch followed by a classic Apple marketing/advertising campaign.

In other words, it should be surprising that, with a product as revolutionary as the iPhone, Apple has sold 15 million units in the U.S. market in less than two years. Nor, given the cultural cachet Apple fanatics award each other for varying levels of loyalty to the company and its products, is it surprising how many iPhone users have loaded up their phones with scores of new applications, most of which are little more than novelties that will be used once or twice and forgotten.

No, what I think is stunning about the whole iPhone phenomenon is how many individuals and small teams are busily at work right now developing ever-new apps for the device. There are 35,000 of these apps available from the App Store right now, and the list grows by the hour. Some of these applications are junk, most are dumb, some are outright evil (like the controversial baby shaking game) and some are very useful – MultiPhoto, Tweetie, etc. – if not quite yet essential. I have no doubt that somewhere out there waiting to be developed is that killer app that will take the iPhone even higher into the stratosphere.

If, like me, you live in a place like Silicon Valley, the iPhone app industry regularly touches your life, even if you don’t own an iPhone. As I’ve mentioned in the past, everywhere I look these days – especially in coffee houses – I see small teams hunched over their laptops creating businesses. And most of those businesses revolve around iPhone applications.

Why? Because despite the so-called “Collapse of Capitalism” being trumpeted about (actually more like the Failure of Government Interference in Markets) the fervor for that most basic form of capitalism – entrepreneurship – is stronger than ever. Nobody seems to want to work for a big company these days, except as a not-so-safe harbor from economic downturns, and absolutely nobody wants to stick around for a gold watch. In our fast-moving, increasingly unpredictable world, the only viable survival strategy is to live by your wits and take control over your career. And for most people, that means starting your own company.

But how? Thanks to regulations that keep most new start-up companies from going public anymore, the venture capital industry is in extremis, unable to pay back its past investors and unwilling to invest now in anything but sure-things (and there aren’t many of those in high tech). Angel investors, already hurt by the economic downturn and fearful of increased capital gains tax rates, are hunkered down as well, wary of making any investments. As for banks . . .well, you know about them.

In other words, there’s no money out there right now for investing in new companies – and given the direction of the Administration and Congress, there won’t be for a long time to come.

So, what is this new generation (and these days that includes everybody from teenagers to senior citizens) of entrepreneurs to do? With no investment capital available, what outlet do they have for their creativity, ambition and desire for economic freedom?

Enter the Apple iPhone.

The smartest move Apple has made in the last few years is not the introduction of the iPhone, but the company’s historic break with its past, ‘We control everything’, philosophy of keeping its products buttoned up to all but carefully licensed developers. With exquisite, and partly lucky, timing, Apple’s decision to make the iPhone platform open for outside developers has had the singular effect of giving millions of entrepreneurs a low-cost, potential high impact, target for their ‘animal spirits.’ And the result has been — not surprisingly given that ours is the most innovative, and most entrepreneurial, society in human history – an explosion of new products.

For creating this opportunity, Apple deserves all of the credit (and revenues) it is getting. But just imagine if Washington was as smart as Apple and Google. Just imagine if all of this intellectual capital was being applied to the creation of breakthrough new products and fast-growing new corporations . . .rather than iPhone applications that make burp noises. How long do you think this recession would last?

And why, if a company as arrogant, cocky and set in its ways as Apple can learn to get out of the way and trust the creativity of its customers, can’t the Federal government do the same for its citizens?