By Prince McLean

Published: 06:00 PM EST

At least three groups are working to syphon cash from Apple's river of revenue between iPhone users and third party developers. Accomplishing that will require inducing more jailbreaking of iPhones, ensuring contention from Apple itself.

Following its existing iTunes game plan, Apple originally set up the iPhone App Store primarily to create a rich software library to attract the attention of potential phone shoppers rather than to make money on the software itself. The company proposed charging developers much less (a 30% cut rather than the more typical 40% to 70% of other online software stores) and handling all their promotion, updates, and sales transactions in the hope that an attractive market for mobile software would induce development.

The resulting success of the App Store has been a surprise even to Apple's executives. Mobile software downloads for the iPod touch and iPhone have been growing at a rate at least double that of the launch of iPod music sales, which had been a blockbuster event in itself.

On its six month path to the first half billion software downloads, Apple struggled to keep up with application requests from interested developers and wrestled with policy issues over the rejection of certain software titles based on content offensiveness, user privacy issues, and interference with the company's own goals, such as an attempt to build a copy/paste system using undocumented APIs.

Jailbreak wars

Those restrictions have resulted in a very successful App Store full of mainstream content without much that could offend anyone or result in spyware problems or piles of shoddy software that might significantly ding the iPhone's image. But it also results in complaints from groups that want to sell porn, or to access features that are not yet open to development. That includes video recording, Bluetooth features, and anything that wants to talk to external hardware peripherals through the Dock Connector.

Getting around Apple's restrictions means jailbreaking the iPhone, a step that bypasses its code signing security system to allow the device to run any software. That step complicates system software updates for Apple and opens the device to the spyware and adware business models familiar to Windows users that Apple worked hard to prevent from taking root in its new platform.

Apple has challenged attempts by the EFF to open up an exemption in the DMCA that would make it much harder for the company to stop the copyright infringement of its firmware and possibly even result in widespread iPhone software piracy that could topple the success of the App Store entirely, just as casual file trading gutted the music business.

Jailbreak stores

At the same time, some developers who got started on the iPhone prior to the release of its official Software Development Kit have sought to find funding sources for continuing their efforts. To most users, the jailbreak scene is now obsolete. However, there are still some types of apps that can't be delivered using Apple's official tools and store. Those developers can only give their tools away; they naturally want to sell their work, too.

Jay Freeman, the creator of Cydia, graphical wrapper for APT (Advanced Packaging Tool, a freeware software download tool for Debian Linux), wants to sell unofficial software in parallel with Apple's App Store for the same 30% cut, but without security code signing and without the quality control and content restrictions Apple imposes.

That would allow Freeman to sell his Cycorder video recording app, something Apple won't carry in the App Store because it accesses hardware features outside of the official APIs. It would also enable Freeman to earn a cut on sales of titles like PdaNET, a tethering app that would enable users to hog 3G mobile bandwidth to get a network connection on their laptop, a violation of Apple's service agreement with AT&T and forbidden under Apple's "no networking hogging" clause in its third party developer contract.

A Wall Street Journal article also cited two other attempts to similarly market unofficial software, one called Rock Your Phone, similar to Cydia, and another hoping to specialize in adult games. The key issue in each of these stores is Apple's right to run its own platform.

Who owns the iPhone platform?

"The overworking goal is to provide choice," Freeman told the Wall Street Journal. "It's understandable that [Apple] wants to control things, but it has been very limiting for developers and users."

Also writing on the subject of unofficial app sellers, InformationWeek complained that "developers continue to have applications rejected for things like ridiculing public figures, censorship that wouldn't be tolerated in print or other traditional media."

However, Apple isn't censoring speech by limiting what software it chooses to sell in its store or on its platform, any more than it is censoring speech by not stocking porn mags and political tracts in its retail outlets. Anyone can publish their opinion on the web, which is fully available, unfiltered, in the iPhone's web browser. The real issue is whether Apple has the right to build a platform it manages and secures as a competitive alternative to the unmanaged, unsecured mobile software platforms that already exist.

How Apple lost its Mac platform

In the early 80s, Apple gave up control over the emerging Mac platform to third party developers. The first step was that third party developers demanded that Apple not build its own office apps for the Mac as it had for the Lisa, thus providing them with greater opportunities for selling Mac software.

Apple's closest third party software partner, Microsoft, then took Apple's unique ideas (for a standardized graphical environment that was far more usable than its Xerox predecessors) and tied them to the existing IBM DOS PC monopoly, choking off Apple's hardware sales.

Microsoft then shelved support for its Office apps on the Mac in the early 90s, leaving Mac users without access to modern productivity software, despite the fact that Office had originated on the Mac as an Apple-allowed success story to appease third party developers rather than offering its own Mac office apps as it had for the Lisa.

Third party developers then got Apple to officially sanction their practice of patching the Mac's low level system software, which resulted in System 7's "Extension conflicts," which caused instability and crashing as well as throwing up complications to Apple's own ability to advance its software platform.

Successful platforms require leadership

Apple's failure to lead the classic Mac platform destroyed it within a decade. Palm similarly destroyed its Palm OS mobile platform by failing to aggressively incite developers to move with it, and instead simply bogged down and became irrelevant instead.

With Mac OS X, Apple accommodates new features as carrots to induce developers to stay current on its latest releases. It maintains a rapid pace of development and keeps users excited, ensuring that developers have an healthy audience to sell their products to.

Microsoft's Windows did the same thing in the 90s, pushing developers to adopt new features that would tie them closer to the platform. Microsoft's huge audience of users kept developers coming even as the company devoured them as competitors as it expanded its Office suite and moved into new markets from media playback to development tools to browsers to server products.

Jailbreak stores no threat?

Meanwhile, analyst Charlie Wolf for Needham and Company has issued an investor note stating that the risk of jailbreak vendors "cutting into Apple’s software sales" as suggested by the Wall Street Journal "misses the point on two counts."

"First, the rogue stores will be limited to selling applications the iTunes App Store won’t sell," Wolf argued, "largely offensive apps, not any of the 25,000 the Store has approved and is selling. So the App Store should experience no loss of revenues from the sale of rejected applications by competing stores.

"Second, as the story notes but fails to emphasize, the only purpose of the iTunes App Store is to lock iPhone owners to the iPhone and hopefully sell more iPhones to application-centric customers. As such, Apple manages the App Store as a breakeven operation." Wolf also wrote that "Third-party application stores could actually benefit Apple to the extent that they attract and lock in additional customers to the iPhone."

As noted in its comments on the EFF case, Apple doesn't necessarily see things that way, viewing jailbreaking as a threat to the iPhone's security model and an expensive support issue that generates millions of crash reports the company has to wade through. Additionally, because "rogue stores" are not seeking to build a platform but rather just to make a quick profit, they have no real interest in preventing software piracy. One of the main features of jailbreaking is that cracked phones no longer respect FairPlay DRM, enabling them to run stolen programs from any App Store developer rather than supporting the platform with micropayments of a dollar or two.

That threat to Apple's wild success in selling mobile software among so many failed previous attempts raises the stakes significantly, ensuring that the company will fight to keep jailbreaking out of the commercial mainstream. There's no doubt that iPhone 3.0, due for release this summer, will play a major role in that effort to make the App Store too attractive for competition.