How Startups Can Cash In On the iPad’s Weaknesses

Apple’s iPad has been dissected every possible way since hitting stores on Saturday. Is it good? Bad? Fun? Usable? Does it represent the future of computing? Or is it merely hubris from Steve Jobs and his team?

While arguments over whether the iPad is good or bad for the world have merit, they are largely an exercise in theory. Instead, to the smart entrepreneur, all of this coverage shows one thing: there are people crying out for solutions to the well-documented issues presented by the iPad and by Apple’s iTunes ecosystem in general.

So what are the problems, and how can startups capitalize on them? Here are three major issues presented by the iPad: see if you can come up with some creative ways of fixing them.

1) Apple controls the creation of apps.

You can only build official applications if you pay to join the developer program — which requires signing an agreement described as the work of a “jealous and arbitrary feudal lord” by the Electronic Frontier Foundation.

It’s certainly restrictive, but while it charges people for the right to start creating apps, Apple doesn’t actually exercise complete control over how they choose to create. That leaves a huge — absolutely huge — opportunity for somebody to build a great business from authoring tools.

This gap in the market has pointed out by others — most recently over on O’Reilly Radar by Dale Dougherty, the editor of MAKE Magazine. It’s a point worth re-stating: developing a suite of tools that will make app development — as well as other forms of next generation web development — as easy as Hypercard or Director could prove a huge payday for some wily entrepreneur.

2) Apple controls the official distribution of apps.

Once you’ve made your app, how do you get people using it? That’s another area of conflict with Apple.

From Cupertino’s point of view, the amount of control it exercises over the iTunes Store is perfectly logical. After all, don’t retailers decide what to stock on their shelves?

Using the retail analogy works to an extent, but there are obvious issues. Software hasn’t traditionally been sold in this way, and Apple’s decision-making process is notoriously opaque.

Then you have to remember that iPhone developers sign over distribution rights to Apple. According to the developer guidelines, anyone building apps using the iPhone SDK can only distribute their apps through iTunes. They cannot sell it through any other competing iPhone app store that may emerge – even if Apple has rejected the app (for reasons it may not choose to share with the creator).

This is clearly a recipe for trouble — but all is not lost, because there is one avenue for distribution that Apple does not control: the browser.

Even if the iPad and iPhone can’t run Flash, their built-in version of Safari offers all kinds of possibilities to entrepreneurs. The panoply of standards support, Ajax and the growing use of HTML5 make the web an incredibly powerful platform for running apps — or at least app-like experiences.

That’s where clever startups can short-circuit Apple’s awkward processes, bypassing the store and getting their product into the hands of eager iPad and iPhone users.

Of course, you will have to find a way to draw new users to your product without the App Store’s easy shop window. Even that can be a lottery, but careful branding, targeted marketing and perhaps even a promotional iStore app can push users in your direction.

3) Apple controls the monetization of apps.

The real lock that Apple has over all of this is that everybody wants to get paid. Its control of the distribution channel gives it control of the money. After all, iTunes is where people will pay for their apps and the web — despite its growing power — is largely free.

That’s where the third opportunity presents itself.

Is it true that web consumers don’t generally like paying for access? Ask 37Signals, which makes good business out of web apps. Ask those who have experimented with “micropatronage,” like Jason Kottke. (Related research: Paid Content Market, 2010)

Perhaps the real problem here is in replicating the low threshold that iTunes offers users by linking their device, their intent and their bank account together.

The truth is that nobody has come up with an easy way to conduct small payments online. It’s one area where PayPal, so dominant in the online payment space, has failed to come up with a viable system.

There are interesting experiments taking place in new models for patronage: systems like Kachingle and Flattr, which effectively offer to take a monthly subscription fee and divvy it up between the media you most enjoy (a sort of micropayment intermediary based on your actual consumption habits). But these are, still, experiments — meaning there is still a great opportunity for somebody to corner this evolving market.

In the end, the problems people really have with the iPad and the iPhone are not actually with the devices themselves. Instead, the real issues at the heart of it all are about the same ones that lie behind everything: money and power — and tapping into those is always a step towards success.

Question of the week

What are the other parts of Apple’s system that are ripe for startups to exploit?