Hazlett on the iPhone, walled gardens, and innovation

by on September 27, 2007 · 12 comments

In his latest FT.com article, Tom Hazlett, professor of law and economics at George Mason University, points out that despite all the talk about the need for mandatory “openness” or wireless Net neutrality, Apple’s “walled garden” i-Phone model has spawned some serious innovation. He argues:

“One million customers bought iPhones in the first 79 days; analysts project 4.5m units sold in the first year. Hosting this Apple party is a curious way for carriers to lock out innovation. It is even more remarkable that critics could configure Apple’s entrepreneurship as an attack on creativity. They claim that only a device that is optimised for any application and capable of accessing any network is efficient.

They are wrong. What works best for consumers is a competitive process in which independent developers, content owners, hardware vendors and networks vie to discover preferred packages and pricing. When decision-makers compete for customers and answer to shareholders, a sophisticated balance obtains. The alternative proposition, business models voted on by regulators, is a recipe for stasis.”


Hazlett goes on to show how it benefits consumers:

“Consumers evince strong preferences for network co-ordination. Perhaps the most impressive burst of wireless innovation was launched in 1999 by DoCoMo’s iMode in Japan, enabling easy handset access to e-commerce sites. Content providers pay a cut to DoCoMo, which bills users.

The platform has been called a “walled garden”, as applications must abide by strict rules. Economist Len Waverman, of the London Business School, writes that DoCoMo initiated three significant controls never before used in wireless: limiting prices charged by independent vendors; showing customers their charges for content in real time, as incurred; and restricting bandwidth-hogging applications.

Rejecting “neutrality”, iMode proved a rousing success, attracting over 35m subscribers by mid-2003. DoCoMo’s mobile rivals responded with managed web platforms of their own. Today, customers choose from bountiful, competing gardens.

Innovators such as DoCoMo and Apple bask in the opportunity to craft custom products and business models. Liberal spectrum policies that invigorate markets intensify that creative dynamic. Regulations that foist preordained structures on consumers and suppliers do not.”

  • http://www.wbklaw.com Michael Sullivan

    The net-neutrality/open networks philosophy ultimately works best for geeks, who have the patience and ability to figure out how to take advantage of the openness. I’m a bit of a geek, so I have some innate sympathy with this.

    But I also recognize that the vast majority of people in our society are not geeks. They don’t code Java, they don’t understand IP addresses or DNS, and they don’t know what J2ME, Part 68 standards, or IEEE 802.11x variants are all about.

    These people don’t want to be given a general purpose palmtop computer with wireless capability that can have any browser installed and configured, and they don’t want to have to call the nearest geek to figure out how to view a web page, listen to music, or make a phone call.

    These people want someone to sell them a bundled solution that will do what it’s sold to do, and do it as simply and unobtrusively as possible. The walled garden and proprietary system/service approach satisfy normal users’ needs much better than fully open systems, for the most part.

    This has its downsides, which people are more or less resigned to. They can’t keep using their Mac software if they switch to Windows (and vice versa, unless they are capable of doing Boot Camp or Parallels). Likewise, they can’t keep using their Verizon Blackberry if they switch to AT&T.

    Apple has catered to people like this. Apple users (for the most part) don’t have to worry about which video cards or peripherals will work with their computers, or how to get them working. Apple offers a more-or-less closed machine that works very well. People who want to focus on graphics arts, recording music, or editing video instead of becoming operating system experts are well served by Apple’s approach.

    The Apple iPhone is a perfect extension of Apple’s largely-closed computer philosophy. It’s a very elegant, intuitive, and functional black box that does things you want to do, does them well, and doesn’t make you learn a lot of voodoo to get there.

    All that being said, I think there is a strong market incentive for companies such as Apple to open their systems up to a limited degree, without compromising the simplicity and elegance of what they offer. Apple’s computers would not be nearly so popular if they couldn’t run third-party software or browse websites on the public Internet. Likewise, I think some degree of openness will come to the iPhone through market forces, but Apple will allow this to happen only to the extent it doesn’t compromise the user-friendly nature of the device and its associated services.

  • http://www.wbklaw.com Mike Sullivan

    The net-neutrality/open networks philosophy ultimately works best for geeks, who have the patience and ability to figure out how to take advantage of the openness. I’m a bit of a geek, so I have some innate sympathy with this.

    But I also recognize that the vast majority of people in our society are not geeks. They don’t code Java, they don’t understand IP addresses or DNS, and they don’t know what J2ME, Part 68 standards, or IEEE 802.11x variants are all about.

    These people don’t want to be given a general purpose palmtop computer with wireless capability that can have any browser installed and configured, and they don’t want to have to call the nearest geek to figure out how to view a web page, listen to music, or make a phone call.

    These people want someone to sell them a bundled solution that will do what it’s sold to do, and do it as simply and unobtrusively as possible. The walled garden and proprietary system/service approach satisfy normal users’ needs much better than fully open systems, for the most part.

    This has its downsides, which people are more or less resigned to. They can’t keep using their Mac software if they switch to Windows (and vice versa, unless they are capable of doing Boot Camp or Parallels). Likewise, they can’t keep using their Verizon Blackberry if they switch to AT&T.;

    Apple has catered to people like this. Apple users (for the most part) don’t have to worry about which video cards or peripherals will work with their computers, or how to get them working. Apple offers a more-or-less closed machine that works very well. People who want to focus on graphics arts, recording music, or editing video instead of becoming operating system experts are well served by Apple’s approach.

    The Apple iPhone is a perfect extension of Apple’s largely-closed computer philosophy. It’s a very elegant, intuitive, and functional black box that does things you want to do, does them well, and doesn’t make you learn a lot of voodoo to get there.

    All that being said, I think there is a strong market incentive for companies such as Apple to open their systems up to a limited degree, without compromising the simplicity and elegance of what they offer. Apple’s computers would not be nearly so popular if they couldn’t run third-party software or browse websites on the public Internet. Likewise, I think some degree of openness will come to the iPhone through market forces, but Apple will allow this to happen only to the extent it doesn’t compromise the user-friendly nature of the device and its associated services.

  • http://techdirt.com/ Mike Masnick

    In case you missed it, I discussed why Hazlett is wrong:

    http://www.techdirt.com/articles/20070926/123156.shtml

    His historical examples are absolutely wrong.

    The thing is, when entering a new space, a closed system can be good initially, but history shows that it doesn’t last. A closed system can initially jumpstart a new market, but the open ones that encourage more innovation always win out in the end. Anyone who bets on a closed system winning will eventually lose when a more open system comes along to take away frustrated users and allow for much more free innovation.

  • http://techdirt.com/ Mike Masnick

    In case you missed it, I discussed why Hazlett is wrong:

    http://www.techdirt.com/articles/20070926/12315

    His historical examples are absolutely wrong.

    The thing is, when entering a new space, a closed system can be good initially, but history shows that it doesn’t last. A closed system can initially jumpstart a new market, but the open ones that encourage more innovation always win out in the end. Anyone who bets on a closed system winning will eventually lose when a more open system comes along to take away frustrated users and allow for much more free innovation.

  • http://www.codemonkeyramblings.com MikeT

    None of this explains why it should be legal for Apple to brick an iPhone that was bought in store, short of them making you sign a formal contract at the cash register saying that you will use it only as Apple intends. Of course, if they did something that obnoxious, I think a lot of geeks wouldn’t have bought the bloody thing in the first place. I was salivating at the thought of getting one of those babies, hacking it, and using it as a PDA.

  • http://lippard.blogspot.com/ Jim Lippard

    From what I’ve seen, there have been a bunch of third-party innovation add-ons to the iPhone because people have broken into the walled garden (it wasn’t too difficult, which may have been Apple’s intention).

  • http://www.codemonkeyramblings.com MikeT

    None of this explains why it should be legal for Apple to brick an iPhone that was bought in store, short of them making you sign a formal contract at the cash register saying that you will use it only as Apple intends. Of course, if they did something that obnoxious, I think a lot of geeks wouldn’t have bought the bloody thing in the first place. I was salivating at the thought of getting one of those babies, hacking it, and using it as a PDA.

  • http://lippard.blogspot.com/ Jim Lippard

    From what I’ve seen, there have been a bunch of third-party innovation add-ons to the iPhone because people have broken into the walled garden (it wasn’t too difficult, which may have been Apple’s intention).

  • Austin

    This is just stupid. If the mobile phone market had not been stifled by the carriers for so long this would not even be a discussion. What would people say if apple decided to brick your macbook pro’s for running unauthorized apps. Oh and you can only connect to Comcast. What’s that you say? No Comcast in your area? Sorry Charlie, we will say what you can and cannot do with your devises.

  • Austin

    This is just stupid. If the mobile phone market had not been stifled by the carriers for so long this would not even be a discussion. What would people say if apple decided to brick your macbook pro’s for running unauthorized apps. Oh and you can only connect to Comcast. What’s that you say? No Comcast in your area? Sorry Charlie, we will say what you can and cannot do with your devises.

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