Does iPhone Need The iFund?

[qi:111] So those rumors about the iPhone SDK delay were right after all: it won’t be until June 2008 till you get to put new apps on your iPhones. But that’s enough time for John Doerr & the venture firm he leads, Kleiner Perkins Caufield & Byers to set up a $100 million iFund. (Does anyone know about the performance of KPCB’s Java Fund?) Is KPCB compensating and desperately trying to get ahead of what it thinks is a hot trend? After all they failed to board the Web 2.0 train and of course missing out on Facebook.

“A revolutionary new platform is a rare and prized opportunity for entrepreneurs, and that’s exactly what Apple has created with iPhone and iPod touch,” said John Doerr, Partner at Kleiner Perkins Caufield & Byers. “We think several significant new companies will emerge as this new platform evolves, and the iFund will empower them to realize their full potential.”

The hot selling iPhone — over 5 million units sold so far — on paper it seems like a good idea that they want to invest in companies and developers that are going to create apps for iPhone and iPod Touch platform. I am not convinced that that an iFund is necessarily a good idea. Why do I say that?

First of all, Apple will need to sell a lot more than 10 million phones it projected in first 12-months. And even if it exceeds expectations, there are many challenges that make the iFund a high risk proposition. A question that instantly comes to mind is: why isn’t Apple putting its own vast cash reserves to work and encouraging app development. Say what you may, Google didn’t need a third party fund to get attention for its Android platform. Now lets look at the kind of companies iFund will invest in.

The iFund is agnostic to stage and size of investment (from seed stage to established products with revenue), but targets companies with long-term standalone potential. Focus areas include location-based services, social networking, mCommerce (including advertising and payments), communication, and entertainment.

Much of the iPhone-iPod Touch platform activity is going to involve apps cooked up by individual developers, small operations that won’t need to funding to grow their business. If Apple’s event reports are to be believed then it seems like the development of these apps is going to be fairly easy, smooth and inexpensive, making it easy for one-to-two developer teams to unleash their creativity.

In exchange for 30% of their application revenues, Apple is going to provide hosting, perhaps some promotion, and other sundry services. The free apps will be offered up for free, or so it seems from various reports that we have heard. Not that there is any chance they can sell outside of the AppStore, since iPhone will continue to remain a close commerce platform. (The iPhone platform is actually more draconian than the iTunes Store where Apple added DRM to keep competition out but consumers had a choice to rip the CDs and playback their own MP3 files.)

In other words any start-up or developer will have its destiny controlled by Apple. As shown by Microsoft, Facebook or Apple itself, a successful App (or an iPod accessory) can be replicated and introduced by the platform owner. I am just trying to understand how a big standalone company will emerge when Apple is going to be gatekeeper.

There are some who have thrown caution to the winds, proclaiming that iPhone and iPod Touch are going to be this humongous sellers and will crush everything over next two decades. Pour souls with little understanding of mobile ecosystem. Does anyone believe that rest of the mobile industry and yes that includes the carriers is going to curl up and get ready for a beat down by Apple.

Carriers are going to want a piece of the action from this application business or Apple will find itself facing some tough times. Unlike the showdown with the record labels, the carriers know their spectrum makes them king, especially in the US. From that perspective, it seems iFund is fraught with risk. But then betting on trends is always a risky.

… it’s particularly touching to be here today with the supreme commander of the rebels, Steve Jobs …Steve started the whole personal computer industry — when he left Apple it went downhill fast. He return and resurrected Apple, and even ran Pixar — please join me in a salute for the World’s Greatest Entrepreneur, Steve Jobs. John Doerr speaking at iPhone SDK event via Macworld