Death Star

I’ve been thinking about Apple’s App Store and the industry paradigm shift it represents. Apple loves to change the game like this, simultaneously unseating previously entrenched adversaries while building for itself a defensible system for the future. The trick to making it work is to not appear to be too greedy and I think Apple is accomplishing that. They are greedy, of course, but as Fernando used to say, “It is better to look good than to feel (or be?) good.”

Apple’s original App store was for the iPhone — a portable and for the most part cloud based method of distributing and updating iPhone apps. This was followed by Apple’s App Store for OS X, which did much the same for Macs. Both are being extended fully into the cloud next month with the release of OS X 10.7. For users the App Store lowers the cost of applications, keeps them updated and synced, and allows their deployment across several computers. For Apple, the App Store destroys shrink wrapped software, eliminates product serial numbers, vanquishes piracy, and punishes competitors like Adobe.

Software goes from being a box of bits to a cloud of electrons. Remember Larry Ellison railing against the box of bits metaphor in my show Nerds 2.01: A Brief History of the Internet? That was back in 1998. None of us, even Larry, knew it would take 13 years for that vision to be realized.

With the App Store prices are lower because costs are lower, but also because Apple wants prices lower to gain market share for both its devices and the associated ecosystem. That’s an important but little recognized part of this paradigm shift. The old question used to be whether Apple was a hardware company that sold software or a software company that packaged its products in hardware. The new reality is that Apple is an ecosystem in which hardware and software are important but then so is the cloud that lies behind both.

At the same time that the App Store allows you to run one $299 copy of the new Final Cut X on all your computers, it becomes nearly impossible to pirate that software without first hacking Apple’s data center in North Carolina. This is huge and its effects will be profound, keeping legit customers honest at little cost while pushing pirates toward other solutions, especially Open Source.

But what about Adobe or Microsoft or Symantec? They can sell their software through Apple’s store, accepting lower prices and sharing 30 percent of the money with Apple. Or they can stick with serial numbers and piracy. Or they can roll their own app stores, but in doing so forgo the power of the Apple ID or risk infringing Apple IP by somehow reverse engineering it.

It’s a tour du force that will have painful consequences for competitive products like Adobe’s Creative Suite. Apple to Adobe: we win, you lose.