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The first rule of Apple's (Nasdaq: AAPL) App Club is: You do not talk about App Club. Any developer who writes an app for the App Store is forbidden from making any public statements about the iPhone Developer Program Licensing Agreement.
Second rule of App Club is: Said developers also can't sell their apps to other app stores, even if that app is eventually rejected by Apple. Third rule of App Club: You can't reverse engineer anything having to do with the App Store software development kit (SDK) or the iPhone OS.
Fourth rule: Apple retains the right to remove your app from the App Store at any time, for any reason. (Hello, Hottest Girls app; goodbye, Hottest Girls app.) Fifth rule: If you're sued because of your app, or if Apple screws up the app to the point where you lose money and/or customers, Steve Jobs' company is liable for only a whopping US$50 in damages -- an Apple self-insurance deductible, as it were.
With Jobs playing the role of Tyler Durden, these are the rules that application developers have had to live by if they want a shot at the largest, most successful smartphone app store out there, and by extension the audience of 40 million iPhone users. The contract details have been some of the closest-held secrets in Silicon Valley -- until this week, when the Electronic Frontier Foundation, using a Freedom of Information Act request on taxpayer-funded NASA (hello, NASA iPhone App), got the agency to give up its first copy, and then the latest version of the Licensing Agreement. EFF then posted it to its Web site, along with a stinging Deeplinks blog post from senior staff attorney Fred von Lohmann, who posits a dark scenario of Apple mobile domination that could include the forthcoming iPad.
"If Apple's mobile devices are the future of computing, you can expect that future to be one with more limits on innovation and competition than the PC era that came before," von Lohmann wrote. "It's frustrating to see Apple putting shackles on the market it (for now) leads. If Apple wants to be a real leader, it should be fostering innovation and competition, rather than acting as a jealous and arbitrary feudal lord. Developers should demand better terms, and customers who love their iPhones should back them."
MacNewsWorld requested comment from Apple about EFF's action. We had not received an answer by press time.
Putting a Contract on Developers?
Wait a minute. More than 100,000 developers have signed on under these conditions. iPhone customers are crazy about the store's offerings, to the point where the iPod touch has become an avenue for those who want to roam the App Store's aisles without dealing with phone contracts. Sure, Apple has iron-fisted control, but that also means relatively secure and trouble-free apps. What's wrong with that?
"I find that argument to be completely bogus," von Lohmann told MacNewsWorld. "The point here is that if you want to try a different application like Google (Nasdaq: GOOG) Voice or Skype and other things that were initially refused by Apple, you should have that freedom as well. And app developers should be able to cater to that market if they choose to. It's all about choice."
Those arguing on Apple's side of the story should think about the automobile industry, von Lohmann urged. "If you own a car, you can get serviced from the dealer, using genuine factory car parts, and nobody says you can't do that. But if you want to go to an independent repair shop and use other kinds of parts to modify your car, that's your business too, and those shops are allowed to service those customers. All we're asking here is the same level of choice."
Von Lohmann also argues against the prohibition on talking about App Club, saying it appears to be a freedom of speech violation -- and not even one that has any kind of material impact on Apple's competitive standing. "This obviously has an important social and technological issue that deserves more discussions. I would hope a court would say that there's no legitimate reason for Apple to try to contractually silence more than 100,000 developers. It's not as though the terms of this agreement are secret once you've signed up more than 100,000 people to it. I don't think you can argue that this is a sensitive trade secret anymore," he said.
The attorney is expecting some legal pushback in the future regarding the agreement, and not just from dissatisfied developers. Government agencies like the FCC and FTC, which have already shown some interest in how Apple's approves iPhone apps, may take this on in court. Also, von Lohmann points to AT&T's (NYSE: T) recent move to introduce an Android phone that will have access to the carrier's own app store as a sign that the app marketplace may be moving toward a variety of closed gardens controlled by mobile industry players. "That would be a shame for competition and for consumers."
One Developer's Perspective
Corey Dangel, cofounder of Seattle-based Detonator Games, is knee-deep in the process of developing games for social media and smartphones, including (hopefully) the iPhone. He's not that surprised that agreement terms would be considered confidential or privileged, or that the power right now lies with the licensor/publisher/platform.
"The harsh reality is that those who control the platform really control the terms of the contract. If developers don't like the terms, they don't have to sign, although good luck getting the contract amended unless you have some amazing leverage," Dangel told MacNewsWorld.
"Personally, I hope that Apple will consider more developer-friendly terms, especially in regards to collecting revenue through micro-transactions in freemium games," he said. "The limitations currently in place prevent both Apple and the developer from maximizing the revenue potential of freemium titles. I'm pretty sure this is an area that will evolve as Apple realizes the kinds of money they are missing out on."
The Impact on the Development Community
For Apple, the nature of the agreement also means they have ultimate control over the consumer, said Chris Hazelton, research director for The 451 Group. That has its advantages for developers. "This definitely creates a channel that is very restrictive, but it's also a very large channel," Hazelton told MacNewsWorld. "It's like eBay (Nasdaq: EBAY). You have a huge number of users out there, and it's very easy to target them because it's one device, it's one operating system version, and you have high uptake in terms of devices that are kept current in the OS."
Google may be having some success with its open source Android OS, but "if you look at who is really successful in mobile, it's device vendors who control a large portion of the experience," he said. Research In Motion (Nasdaq: RIMM) is a prime example, Hazelton added: It controls the messaging servers, infrastructure network, the device and the operations system. Apple has just mirrored that with iPhone OS and iTunes with its App Store.
Is Apple's agreement keeping any developers from making money, or names for their startup companies? "You can make money, but can you interact with your customers?" Hazelton asked. "I would argue no. It takes you a week to push an update out, and if there's a critical update, you don't have an HOV lane to get your app approved. Also, customers who post reviews? You don't have a way to interact with those reviews either.
"It's very hard for developers to try to own the customer, and owning the customer is huge in mobile," he continued. "Right now carriers own the customer via the subscriber model and billing relationship, but Apple has stepped in and done amazingly well in pushing out the iPhone."
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