The real brilliance of Apple’s product development process is that it doesn’t just produce new gadgets; it produces entirely new markets from which it can earn money.
Take the iPod for example. Cool product, but the real brilliance was the accompanying iTunes store, which helped Apple become one of the biggest music retailers in the world. They get cash for selling iPods and revenue from selling songs through iTunes.
Then take the iPhone. Another cool product, but the real revenue source was the App Store. Apple gets a sale each time an iPhone walks off the shelf, and then takes 30% of the revenue generated when an application is sold through the App Store.
With today’s release of the new operating system for the iPhone, OS 4.0, Apple chief Steve Jobs might just have done it again.
While iPhone users will love the multitasking function and the addition of universal mail, the real news is the launch of iAds, a new function that will allow application developers to put ads in their apps. Generous old Apple will let you take 60% of the revenue generated by the ad and will keep 40% for themselves in return for selling, hosting and delivering the ads.
Apple is trying to sell this as a way for developers to make money from free apps, and a way to make the crappy ads currently seen in iPhone apps look better.
But commentators have quickly pointed out this is a great way for Apple to create another revenue stream from the iPod and iPhone.
It’s also a way for Apple to take a bit of a swipe at Google, which is currently trying to strengthen its own mobile ad presence through the acquisition of AdMob.
There are still lots of questions about how iAds will actually work, how Apple will actually sell the ads (this is not something they’ve traditionally done) and even whether or not Apple will be able to convince big advertisers that the iPhone and iPod will provide good enough reach to make advertising worthwhile.
But the growth in smartphone use and popularity of Apple’s products means that it is well placed to try and make this a success.
And besides, products with “i” in front of them always work, don’t they?
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
