New OS sets up interesting future for Apple

Apple Inc.’s preview yesterday of its updated iPhone operating system provided some insight into the company’s plans moving forward, but not enough to paint the entire picture.
The most compelling update appears to be the iAd platform that will allow application developers to insert advertisements into their products that are tightly integrated into the operating system and also hosted by Apple. The deal is expected to provide some financial incentive to developers that have been able to draw downloads from a free application, but unable to fill in the numbers needed for a sound business model.
The deal is also expected to line Apple’s pockets as the company said it will keep 40% of the revenues generated in exchange for hosting the service, as well as provide the company with a solid platform to battle the expected increase in mobile advertising dollars.
“Mobile advertising does present Apple with a potentially big revenue opportunity but in some respects it had to introduce a mobile advertising proposition to bolster its application ecosystem,” noted Ovum’s principal analyst Eden Zoller, in a report. “The price of paid applications is falling and the overall proportion of free to paid applications is increasing. Developers need new revenue incentives and this is another reason why advertising is so important to Apple. … This is classic, clever Apple marketing which pushes the company’s innovation around the user interface to the forefront of mobile adverting. Apple is a genuine leader here but this should not blind us to the fact that rich video is a costly, complex format to deliver.”
The move is also expected to prove compelling for consumers that have to this point shown a propensity to favor free applications.
“Even though consumers are not going to be excited about the possibility of more ads, they are also reluctant to pay for applications,” noted Ross Rubin. “This is also important for Apple as it knows Google is moving into its space with the pending Admob deal and does not want to be feeding a competitor’s revenue stream on its own platform.”
Beyond the iAd development, Rubin noted that the updates announced were important for Apple as they keep the company up-to-date in the increasingly competitive smartphone landscape.
“Clearly the competition between the iPhone and Android is heating up,” Rubin said. “Some of the features Apple announced are on Android today, as well as on other operating systems. However, with Apple, it’s not just about specific features; it’s more about a holistic approach to the whole experience. … I don’t think from what we say yesterday that Apple has reestablished the gap between the iPhone and other smartphones to where it was when it debuted in 2007. But, it shows that Apple is quickly able to match any advances being made by its competitors.”
Rubin hinted that instead that gap could be pushed this summer when Apple is expected to unveil an updated version of the iPhone. Details on that update are for now confined to the rumor mill, though one rumor Rubin is not biting on is the one involving Apple unveiling a model compatible with a carrier beyond its current domestic agreement with AT&T Mobility.
Rubin explained that Apple’s tightly integrated approach to marketing the iPhone also includes the wireless network. By opening up the platform to other technologies, that integration could deteriorate and leave consumers with different experiences on their devices depending on their carrier.
“If you want to open the device up to all of the U.S. carriers Apple would have to create four different versions, or five if you include WiMAX, to take advantage of all the domestic carriers’ network,” Rubin explained. “One of the strength of the iPhone is the stability and continuity of the platform.”
Rubin added that both Apple and AT&T Mobility have recently been hyping the advantages of the carrier’s network, including the higher network speeds available through HSPA, as well as the ability for the network to handle both calls and data sessions at the same time.
“These are important advantages and ones they are both willing to put marketing dollars behind,” Rubin said.
Rubin noted that he sees Apple sticking with its current domestic carrier partner for at least another year, if not two.
“Once Verizon moves to LTE and has a strong enough footprint, than that will remove some of the technical barriers to expanding the carrier base,” Rubin said. “But, then Apple has to decide if it waits for AT&T to get enough scale with its own LTE deployments before unveiling a LTE version of the device or again be in the position of having customers with potentially different iPhone experiences.”