iPhone 3G: Forget the phone


On my ride in to the office this morning, I noticed several blocks with people camped out on the street. Not putting two and two together, I just figured some band I’m not underground enough to know about was playing, and they were waiting for tickets. But then it dawned on me that this was for the iPhone 3G, debuting today.

My first thought: really?

Now, I’m as big an iPhone fan as the next guy. I talk about it all the time (in part for a living). But the release of the handset itself, for my money, isn’t all that big of a deal.

Don’t get me wrong: hooking this thing up to a 3G network is like dropping a turbo into a Porsche. You’re going from killer to killer-er. But the real revolution already happened on Thursday.

That’s when Apple debuted the iPhone App Store as a bolt-on to the traditional iTunes space. With more than 550 third-party applications available at launch, Apple’s new mini marketplace is poised to do for the iPhone what the open platform did for Facebook about a year ago. Except without all that fighting between pirates and ninjas.

Actually, it’s going to do more: At the App Store, there are some important barriers to entry, including a fee to join the developer program, and selectivity when it comes to the apps that wind up in the store. This means that the low-rent widgets junking up Facebook won’t ever see the light of day on the chic iPhone. Plus there’s a real business model for developers, as creators of iPhone applications can charge a self-designated fee for downloads.

Apple has said it will take a 30% cut of the sales for iPhone applications, leaving 70% for developers. But Apple CEO Steve Jobs doesn’t expect to make much money off the App Store once the costs of running it are deducted–although he anticipates it will boost iPhone sales. “I think it will generate a lot of revenue, but not much profit,” he told the Wall Street Journal. That’s not surprising, seeing as this is pretty much the same business model the iTunes store itself operates on. They more or less break even on music sales, and rack up all the cash on peddling iPods.

That should work to everyone’s benefit: “Apple has built payments directly into the app distribution model in a way that is already comfortable and familiar to over 100 million iPod users,” Eric Litman said, whose new start-up Medialets also hopes to cash in on the iPhone developer gold rush. “Buying and installing an iPhone app feels very similar to buying a song through iTunes, and that familiarity is undoubtedly going to work to the advantage of all developers on the platform.”

Vaunted Silicon Valley venture-capital firm Kleiner Perkins Caufield & Byers in March announced a $100 million fund to invest in start-ups with an emphasis on iPhone software development. Jobs also told the Journal he was aware of two other venture firms with similar plans, but declined to name them.

Investment bank Piper Jaffray wasn’t so demurring, however, estimating last month that the iPhone App Store could be a 1.2 billion-dollar business by 2009, and that nearly 90 million people worldwide could own compatible iPhone and iPod Touch devices by the end of that year. This is a bigger audience than Facebook has now. Plus the lower price point for the new iPhone 3G–just $199 for the lower-end model–means consumers will have some cash left over to start personalizing their new handsets with $5 and $10 little toys.

As a marketer, start thinking now about which apps make sense to subsidize with an add-supported model. This is going to be HUGE, and first-movers are sure to enjoy all the accoutrements that come with that position.

Here’s a quick list of apps from Valleywag to get you started. I’ll have more for you in the coming weeks. Oh, and let me know which bands you think I should be paying attention to; I realized this morning I haven’t been to a concert worth sleeping outside for since college.