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March 06, 2008

Market Reaction AAPL's iPhone SDK Release - Not too hot

Apple Computer released their Software Development Kit (SDK) for the iPhone today. This is something that a lot of my coworkers have been waiting for, for months now. The idea of being able to create applications that will run natively on the sexiest phone currently available in the US is incredibly appealing to many developers. And Apple didn't just release the tools to create applications, they also laid out the details of their plan to build an ecosystem for developers around the iPhone. How did the markets react to this news? By pushing AAPL stock down nearly 3%.

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I have to admit, I don't get it. Third party applications are the life blood of devices like the iPhone. Think about it, does Apple run the phone network? No, that's a third party service/application provided by AT&T. Does Apple pay artists to put out albums that people can listen to on their iPhones? No, that's what the record companies do. Does Apple provide mapping software to help people find their way their way to obscure clubs where super-hip bands are playing? No, Google does that. Apple provides the hardware and the OS, third party developers provide the killer apps.

To put it another way, Apple's competitors are always going to be trying to match or best the functionality and usefulness of the iPhone. If Apple finds a way to constantly add to that usefulness, it will extend the life of the device. Having hot new applications run on the same old hardware allows Apple to put off investments in new designs. This adds dollars to Apple's bottom line over a period of years and was, I think, a really canny move. But I guess the stock markets don't think the same way I do.

Two years from now the iPhone will be a freebie thrown in with any 24 month AT&T contract. At that point the only reason consumers will have to choose this old model over equivalent models from competitors will the applications that run exclusively on the iPhone. With AT&T splitting revenue from users with Apple more applications and more users means more profit even if they're no longer able to charge a premium for the hardware.

Hmmm, of course the other tech stocks I watch were also down today so perhaps market sentiment was just off, and this announcement just didn't have enough impact to keep Apple from being driven down along with everyone else.

Posted by ashusta at March 6, 2008 09:00 PM

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