Why Apple Needs to Loosen Up

Paul Sakuma / AP

Apple's new iPad is more than just a gorgeous consumer electronics device. It's also a kind of challenge to the Internet itself—or at least to the conventional wisdom of what the Internet is supposed to be all about.

Since the dawn of the Web we've been told that this brave new world came with brave new rules, one being that everything must be free and open. Force people to pay a subscription fee to read your news? You'll be doomed, the pundits tell us. You'll be left behind, eclipsed by all the smarty-pants companies that know enough to give their work away.

So everyone played along, and with a few exceptions, nobody is making any money. Funny, that.

Now along comes Apple with a walled garden. Not only does it produce the iPad's processor, its operating system, and the device itself, but Apple sells its content, via iTunes, and keeps 30 percent of the money. It also operates the App Store, the only place selling applications to run on the iPad, and it keeps a 30 percent slice there, too. This summer it will start selling ads that run inside the apps and will keep a 40 percent slice of that revenue.

Apple does not explain its strategy. But my interpretation of what it's thinking goes as follows:

The first two decades of the World Wide Web have been a huge mistake. The Internet is not a philosophy. It's a distribution mechanism. The laws of physics did not change when the airplane was invented, nor have the laws of economics changed because the Internet exists. You make money on the Internet the same way you do everywhere else—by having something that people want and forcing them to pay for it. There is a reason a circus takes place inside a tent, and it's not to keep you dry when it rains. They want to charge you to watch the big show.

Part of me is glad Apple is doing this, because someone needs to buck the "everything is free" trend and see what happens. But I think the company is taking things to an extreme, exerting a degree of control that may ultimately undermine its own success. If you own an iPad or an iPhone, you're aware (and no doubt frustrated) that it won't run videos created in Adobe's Flash software, which accounts for half or more of all the videos on the Web. An Apple spokesman says Flash is "closed and proprietary" and that Apple supports other development tools that are "open and standard." But banning Flash also pushes customers to buy movies and TV shows from iTunes rather than watch them on a free Web site. It pushes developers to write apps that get distributed through Apple's App Store, rather than through a Web browser.

The company is taking a similarly hard-nosed approach with the iAd system it will launch this summer. Tucked away in the small print of Apple's developer agreement is language that seems to prohibit other ad networks from collecting personal data needed to measure the effectiveness of ads, which makes those networks all but useless. Developers aren't required to choose Apple's iAd service to sell their ads; they can still use other ad sellers. But those ad sellers will be at a huge disadvantage.

It's one thing for Apple to pull stuff like this with a mobile phone. But the iPad is pitched as a replacement for your regular laptop. Future versions will be even more capable. Basically, Apple is reinventing the personal computer, supplanting the current way of doing things with a business model in which Apple controls everything and everyone—customers, developers, advertisers.

Never in the history of computing has there been a device over which one company has exerted so much control.

We've seen this movie before. A quarter century ago, Apple got a jump on everyone else when it introduced the Macintosh computer in 1984—another gorgeous product. Microsoft didn't have a credible alternative until 1990, when it introduced Windows 3, and really caught up five years later, with Windows 95. By then Apple was toast. The reason? The guys at Apple were control freaks; the guys at Microsoft were more open, and left more money on the table for others. Apple is a stronger company today than it was in the 1980s. And controlling all the pieces lets Apple deliver a more seamless experience. It's hard to argue with the results. The company's sales grew nearly 50 percent in the last quarter, and profits nearly doubled. But will Apple still be booming in five years? Or 10? My sense is that unless Apple can loosen up, it'll be left behind once again.

Daniel Lyons is also the author of Options: The Secret Life of Steve Jobs and Dog Days: A Novel.