There's a widely held (but mistaken) belief that, for every type of computer software application, there is a single "winner" and then a bunch of worthless competitors.
For example, you have Photoshop, and then you have a bunch of headlines like "Will Product X be a Photoshop Killer?"
Of course the real world is not binary like this. Naturally, being the market leader is a comfortable place to be, but you don't have to "kill" the market leader to make a decent living.
My current hypothesis is that there are at least three positions of prominence in each segment -- three ways to be number one, if you will: The First One, The Free One, and The Good One.
What got me thinking about this in the first place is the iPhone SDK. I've heard the words "gold rush" several times, and there's a bit of truth to that. There'll no doubt be a couple hundred to-do list applications, and a couple hundred RSS readers. But only one can be first and, simply by virtue of being first, it will receive a lot of attention.
If the First One is "good enough", it has the potential of sticking around for a very long time. This is what is traditionally referred to as "first mover advantage".
But does that mean you're out of luck if you're the second, third, or hundredth released? Certainly not.
The second "number one" position is the freeware alternative. Or, in some cases, alternatives. A free program need not be glamorous or even completely bug-free. It can garner a respectable following simply by not costing anything.
I've seen many times people struggle and struggle on with a clunky freeware app just because they're not willing to pay $20 for a significantly better alternative. There's nothing wrong with that particular brand of masochism. People prioritize differently, and money is more valuable than time to a whole lot of people. It's Capitalism in action.
The people who are most tenacious about exclusively using freeware whenever possible are usually incredulous that anyone would buy a commercial product when a free alternative is available. I've heard many times, "how can you guys make a living when FREE command line file transfer clients are INCLUDED with the OS?" Well, the answer is simply that not everyone weights the price factor vs. the user experience factor in the same way.
Corporations in particular are hesitant to buy into an application that has no legal business entity to back it up. No guaranteed source of support. No full-time team dedicated to working on the product every day. Nobody to sue if something goes wrong. You also never hear the classic "I'd buy it if it were $10 less" from a corporation -- your software either performs a useful function at an acceptable price, or it doesn't.
It remains to be seen how or if freeware will work on the iPhone. Will the application fee be an obstacle to a freeware developer? Will it be worth Apple's time to accept iPhone freeware onto the App Store, when 30% of zero is zero? I guess we'll find out.
If you're neither first nor free, there is still a way to carve out a niche for yourself: have a better application than everyone else.
Quality is the third leg of the axis. A free app may not be worth what you paid if it doesn't work right, or works so clumsily that you have to re-read the help file every time you use it. The first app may be OK, but resting on its laurels of first-ness and not moving forward.
If Web 2.0 has taught us anything, it's that for any segment leader you can have 20,000 imitators, 2 or 3 of which will be good enough to gain a pretty respectable user base. Will you win the magical check from Google this way? Probably not. But that's not the only possible satisfying outcome.
Where you can really dominate is by combining two or more of these properties. If you are first AND best, you'll be doing quite well for a very long time, as long as you stay the best. If you're the best and free, it's going to be very hard to compete with you -- although those two lines don't intersect just every day.
I have mixed feelings about the iPhone App Store. How do I feel about the 70/30 split? It's OK. Would I prefer it was 80/20 or 90/10? Of course. However, let's not undervalue a centralized, Apple-branded software repository that is bundled on every unit of the hardware.
Whenever one of our apps hits the Mac Software page of Apple's site, we get a tidal wave of traffic. Forget VersionTracker or MacUpdate, you want to be on the Mac OS X Software page. Assuming this extends to the iPhone app store, I say you re-think Apple's 30% cut as your marketing budget, and suddenly everything makes a bit more sense. They aren't just taking your money and giving you nothing back -- they're putting your apps directly in front of EVERY SINGLE person who can possibly use your product. If you can't see the value of that, then I don't know what else to tell you.
I also have mixed emotions about Apple being the gatekeeper of all iPhone applications. Would the Mac be as good if Apple got to approve or deny every third party application? Would Apple approve, for example, CandyBar? I have my doubts.
On the other hand, a crap filter is desperately needed. When Palm OS or Windows Mobile boasts "tens of thousands of applications" what they actually mean is "about 10 really good ones and a tsunami of effluvia". I don't like having another company decide what is and isn't good for me to put on my iPhone. But if I have to live with it, I'd rather it was Apple than any other company, because I have (so far) faith that they'll not be unnecessarily restrictive. Hopefully they don't squander that faith over time.
The iPhone software distribution model is as disruptive as the iPhone itself, and I'm very interested to see how it all works out, and what ripple effects it will have on the software industry as a whole for the next ten years. It's definitely a fun time to be in this business.