Divide and Conquer

The news that Apple has extended its exclusive iPhone distribution deal with AT&T until 2010 closes the loop on the subsidized price of the 3G upgrade. It seems most observers think Steve Jobs has compounded a mistake he made in limiting the market for the revolutionary device to those early adopters hungry for the advanced Web experience and elegant design.

Forget that Apple has tightened its noose around a major carrier’s neck, forcing AT&T to continue to put the majority of its marketing muscle behind the disruptive platform and its integrated use of WiFi, enhanced corporate services, and above all, the viral App Store and its reach directly past AT&T’s traditional grasp on its customers’ wallets.

You only have to watch the gyrations of the record cartel as they try and wiggle their way out of the bearhug of iTunes to know the power of this Gordian knot. Already we’re starting to see media players and social media services vie for the top of the new App Hit Parade. The New York Times app, dog-slow on release, was the first of several to quickly update with a more responsive version. The Push Notification toolkit was released to developers, auguring for a wave of social feed streaming apps in the near future.

It’s the stream of apps targeted at the disruptive platform that keep Apple out front for the next two years. What some saw as a sign of weakness – the lack of any 3rd party development platform and the apparent bandaiding of a browser app dev strategy when the phone shipped – in fact leveraged the investment in porting Safari to both Windows and the iPhone and the shifting of internal resources to those efforts at the cost of a promised OS/10 release.

Instead of an iterative OS release on a version that was under no pressure whatsoever from the catastrophic Vista trainwreck, Apple moved at least two years ahead of Android, Blackberry, Treo, and Windows Mobile with a Web experience that crossed the line from geek to usable. Now, a year later, 3G catches up in speed for Web apps while creating rich extensions behind the scenes to drive the improvement of cloud-based rich media services.

Much is made of the lack of Flash support and the inability to route around AT&T’s blocking of VoIP and other cash cows. Just today a tool for bootstrapping the iPhone’s 3G data service from a laptop was removed for good from the Appstore. But Steve Jobs realizes that Apple’s lead in the Web experience will actually force the other phone manufacturers to accelerate their adoption of WiFi, video streaming, and push notification technology, which in turn will put pressure on the other carriers to do what Apple has forced AT&T to do.

Once that occurs, it will be easy for Jobs to unleash all of the features that he’s felt constrained to provide: direct downloading of media to the device rather than through the iTunes synchronization model, WiFi as an equal partner in all services including VoIP, and access to the full range of rich media services across the whole device without the artificial partitioning of the iPod parts of the device.

In effect, by locking AT&T in to another 2-year deal, he’s given market forces enough time to eliminate the rationale for forcing a carrier into compliance with the new architecture – perhaps within the first year of the extended deal. Then the next wave of innovation will be in opening the doors on AT&T’s dime to the new paradigm, the full flowering of the device that Jobs created to divide and conquer the market.