iPhone and the demise of the BlackBerry/Exchange duopoly

The big news this week for Apple wasn't the new 3G iPhone. It was the business model behind the next-generation iPhone, and the threat it poses to Research in Motion (RIM). Apple's model depends on developers. RIM's model depends on devices.

If history repeats itself, the developers will win. Just ask Microsoft.

More on that in a minute. For now, consider the superior TCO (total cost of ownership) argument that Apple now has for both developers and end-users. Many enterprises are going to find the cost/benefit analysis of RIM vs. iPhone favoring the iPhone. RIM's BlackBerry Enterprise Server (BES) solution costs $5 to 10 per mailbox per month (for Exchange), plus an additional $10 per mailbox per month for BES, which includes a combination of licensing plus the cost of administering BES. Not so cheap.

The iPhone? It's still going to cost $5 to 10 per mailbox per month (for Exchange or Zimbra or whatever your mail service happens to be), but the extra $10 charge is wiped away. Gone. This leaves the enterprise with a two-times price advantage for the SaaS/iPhone world, which doesn't even include the cost of the device, which also continues to plummet.

Again, RIM's business model depends on extracting maximum value from each device/user, and it does so to good effect. Apple's business model is shifting to be about ubiquity of devices, and then the monetization of the applications.

Which will be better? Well, that depends on how one feels about developers and their impact on markets.

Microsoft's success stems, in large part, from cultivating a worship of developers. Back when Microsoft was firmly grounded as a platform company, it drove the vast majority of its revenue through partners. The company has lost its way a bit in the past few years with regard to developers, but one can still attribute its long-term success to a focus on developers/partners.

Let's go back to Zimbra, given that it stands to benefit enormously from a switch to the iPhone, even despite its support for the BlackBerry.

Zimbra supports a wide range of devices (Windows Mobile, Symbian, BlackBerry, Palm, iPhone, etc.). Now, while Zimbra will support iPhone 2.0 as soon as Apple releases its 2.0 iPhone software, the company is mobile device agnostic. The company prefers standards-based protocols, but works with a variety of phones.

Even so, Apple is going to create real challenges for the RIM business model because it makes RIM's insensitivity to developers so glaringly obvious. For a company like Zimbra (or Oracle/Alfresco/Name your favorite ISV), developers have a choice: Support BES (which requires an upfront and significant cash outlay on their parts, a new Windows-based server, partnership, etc.), or support the iPhone. Requirement for iPhone support? A free SDK and an iPhone. That's it.

Now, it's likely that Zimbra et al. will support both. This is business, after all: Corporations exist to make money, and will do whatever is legal and necessary to do so. But I'm betting that iPhone support will happen first to an increasing degree. That's not good for RIM.

It's also not good for RIM just how cumbersome and costly it is to set up employees with BES support. Many will chafe at the burden of introducing a new Windows-based BES server with a bunch of new licenses and administration required. Companies will discover that the iPhone may well be cheaper, easier to administer, and offers a comparable feature set through ActiveSync plus the iPhone.

There's a duopoly of Exchange and RIM today, but the iPhone promises to crack that wide open. With the iPhone, we can finally have choice in messaging servers and an awesome new enterprise-class device. Now we just need Apple to use an open standard for sync...but that's another blog post.

[sapphir8]

The virtual keyboard is the glaring problem for the iPhone for the older executive. Older people don't usually have the dexterity of a younger generation and need that tactile feedback.

[Matt Asay]

While I'm not "older," I think I disagree. I started off hating the lack of tactile feedback, but you quickly discover that the soft touch on the screen is actually a nicer feel than a Blackberry/Treo keyboard. Really.

[cbazza]

You are way off with your remarks as you mix messaging (email) success with application development success. As a developer I don't see how both are related because when it comes to developing apps RIM also has a free SDK and all you need to run your apps is a Blackberry device. The huge advantage with the Blackberry is that developers are free to distribute their apps to end users as they see fit, with Apple that is not the case because you can only get apps from Apple and the developer has to pay Apple a 30% tax. No freedom whatsoever so I don't see how history is going to repeat itself in Apple's favour. Just like when the first iPhone came out, Apple tried to rob early adopter, now they are trying to rob early developers. Lots of suckers will fall for this but just a tiny percentage, Apple will hit a wall and will then change terms as they did with the price of the iPhone. Most developers will stand aside under better terms are available, just look at the quality and sophistication of the apps that were demoed on Monday with what was demoed by Google on Android... and Android is not even available yet. Google (with Android) is going to eat Apple's lunch soon :)

Carlos.

[Huaryong]

Interesting point about the business model approaches.
The model differences stem from the philosophy of each device. BB was developed as messaging machine and it is very good at it. Good security, etc. That model didn't need too much developers since the main focus is messaging and making sure that the message is delivered fast, secure and reliable. Any added 3rd pary app introduces possible loss of reliability.
As for iPhone, this is a browsing platform. This is not a phone. It happens to allow you to make a call, but the main purpose of this phone is for a user to browse and get information from the net. This is next evolution of PC.

Having said that, Matt I think the point you are missing out on is the security.
I am not sure how battle tested iPhone platform is. Also, I still haven't seen reliable way to get push email on iPhone. I would want my email to be just there. Rather than me going to look for it.
And all that "developer" for iPhone won't add much value in terms of enterprise if the enterprise cannot be 100 % comfortable about the platform overall.
Even if you have a rock solid email and other enterprise apps - say Sales Force, etc - on iPhone, if a rogue app can be installed - i.e. FaceBook plug in - that can compromise iPhone device, then the enterprise will not allow their users to have iPhone. Period.

So, the point about having open platform where developers can create numerous app can turn out to be a double edge sword if Apple cannot address security point.

[qquidd]

Matt:

Desperately trying to believe that iPhone will capture the enterprise and the consumer market, eh?

What does iPhone 1.0 and 2.0 do better than what my Blackberry and Windows Mobile devices don't do today? Oh well "Made by Apple, Brainwashed by Steve Jobs, White is pretty" doesn't count, of course.

[T!mac]

30% Apple Tax?

This is not a tax, this is mark up for selling software programs for the iPhone. Rather than trying to find an application on some obscure website like you would for the Blackberry, Apple will market software for its developers with an iTunes Store type site where Apple will handle the entire transaction and only charge 30%. I think most software developers will jump at the chance to have 70% of gross receipts for every sale.

[wazzafab]

I think the Apple IPhone will definately serve a purpose in the general market, but I think it's wishful thinking if people are to think it is going to enjoy the same success as the Blackberry. There is a very real reason it is referred to as the "Crackberry": It's ease of use and integration as a mail tool first is far superior to anything out there, and the fact that I can load Yahoo Messenger, MSN Messenger or any other popular messaging tool, and the Sat Nav apps etc, makes it a real winner. I wouldn't change it for an Apple at all.

But I'd still buy the iPod. My personal opinion is that the iPod rules the roost in the portable music division.

Go Crackberry.

[cbazza]

"I think most software developers will jump at the chance to have 70% of gross receipts for every sale." ... what a joker !!! You see the problem with these web app stores is that they don't guarantee any revenue for developers, they just sit there and collect the tax if there is a sale. If Apple were to pre-purchase a certain number of licenses for the software, this would be a different story. Very few developers make a lot of money on it and most can't survive with them. Just look at the success on Handango and other similar sites. If the user wants to get software from the site fine but the choice and freedom should be with the user and not the tax collector. I think most seasoned mobile software developers know the scheme and have been burned by it before so they will certainly pass on iPhone development until it is opened. It is not as if you can easily port to iPhone, since it uses Objective C and Cocoa, it is a complete rewrite to support it and you have absolutely no options to sale your software, this is totally unlike Android which being Java based with similar APIs is a breeze to port over other mobile software.

Carlos.

[philip.walsh_dotmac]

"they just sit there and collect the tax if there is a sale"

That's not exactly true is it? I doubt you'll hear complaints from many developers about App Store. Apple's getting a fair percentage in my view for inventing, developing, maintaining and marketing the distribution system - plus giving up a piece of that priceless brand equity.

If I were a small developer, the prospect of gaining that kind of leverage and the sort exposure I'd have little-to-no-chance of on my own; I'd be in clover!

[sassafrastic]

Matt, you're right. RIM has to change. The problem there is that it is using antiquated technology, and knows it. RIM doesn't even yet have an API. That's coming, supposedly. But seriously, what other enterprise application do you know that doesn't have a standard published on how to work with it? Look, ActiveSync as a standard is not too great, really, it's not much of a standard. There are quite a few implementations that don't work too well with Exchange, or Zimbra for that matter. We'll see how Apple's will work soon enough. I'm hopeful though because frankly iTunes and Safari on Windows are quite good maiden efforts. What I can't figure out is why Apple chose ActiveSync, given that their own freaking server doesn't (yet) support it. So they are going to have an iPhone that works with Exchange and Zimbra, but not with Apple OS X Server?? And also, frankly the RIM Blackberry works better than ActiveSync to sync devices. I know at least one Zimbra provider, http://www.01.com , is experimenting with direct BES support. We'll see if they support the new iPhones soon enough.