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The iPhone Economy

It’s hard to argue Apple's success at creating the iPhone platform, or how well it designed the hardware or its mobile OS. Apple has the ability to create a "sexy" product and make it chic with its advertising, packaging, design, and its retail channel.

From the time you walk into an Apple store, to the time you finish signing the contract, the whole experience is manicured. Apple also has a amazingly loyal fan base that offers free personal product endorsements to all their friends and family.

To me the most amazing thing about the whole platform is Apple's ability to monetize just about every aspect of it. Any company would love to have the ability to control all the aspects of their products ecosystem similar to the one that Apple has.
  • Retail: Apple doesn't have to depend on other retailers to sell its products; it also has its own successful physical and online stores.
    • I am not sure if companies like Walmart, Best Buy, etc. have to pay Apple for the rights to sell its products.
  • Hardware: Apple has exclusive ownership of the iPhone, iPod, and iPad hardware. They also have a proprietary dock connector that hardware manufactures pay a licensing fee to make devices for it (see MFi licensing program).
    • Apple now designs its own CPUs for all its mobile devices, it’s easy to speculate that it might get into manufacturing other critical components.
  • Service: When the iPhone was first released, AT&T paid for the exclusive right to be first to distribute the iPhone.
    • There was no information that I could find on how much other carriers have paid for the right to carry and distribute the iPhone.
  • Applications: Every application that is sold in the iTunes store Apple gets a percentage of the sale. If the application is free, Apple has agreements with the developers to get a percentage of any subscriptions or in-application purchases that are sold.
    • Apple has exclusive control of what goes into the iTunes Store, it reviews and approves all applications for distribution. It has created guidelines for developers on what it considers to be appropriate.
    • Developers are also trying to get around this restriction by creating HTML 5 only applications.
  • iAds: Apple offers its own ad platform for distributing of advertisements in applications on iOS devices.
  • Developers: If you want to develop application for the iPhone or iPad, it requires that you have to own an Intel-based Mac, and to join the iOS Developer Program for $99/year.
  • Media: Apple gets a percentage of the media (e.g. music, video, ring tones, books, magazines, etc.) that is distributed through the iOS Devices.
    • Apple has created an application called Newsstand (included with iOS 5) to allow people to buy and read magazines and newspapers on an iOS device..
    • Apple has created an application called iBooks that allows people to buy and read ebooks on an iOS device.
    • Most of the media distributed on the iPhone is DRM protected to prevent it from being copied illegally.
  • iCloud: Apple included the iCloud service in the iOS 5 operating system update. The service gives you 5GB of storage for free to backup data on your iPhone or store your documents and music in the cloud. If you need more storage it can be purchased when you need it.
    • Apple will also soon offer its iTunes Match music service for storing your music in the cloud.
  • AirPrint/AirPlay: I am not sure if hardware manufactures have to pay to use Apple's AirPrint or AirPlay technology.
    • AirPrint allows wireless printing from any iOS device that supports this feature.
    • AirPlay allows wireless playing of music from an iOS device that supports this feature.
  • Photos and Videos: Apple has also learned how to monetize the improved photo and video features of the latest iPhones.
    • The Cards application allows you to send a picture based postcard from your iDevice for $2.99 in the US, or $4.99 for anywhere else
    • The iMovie application ($4.99) allows for video editing right on the iPhone or iPad.

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