TechCrunch’s Erick Schonfeld lays out an argument that is becoming common place after the Flash Kerfuffle I spoke about yesterday.  His basic point is that Steve Jobs is making the same mistake that caused the Mac to lose out to the PC in the '90s and should instead be more open. 

Here’s a quote from the article…

The iPhone faces a growing threat from Google’s Android phones, which are the PCs of the mobile world. Only Apple makes the iPhone, but many phone manufacturers make Android phones just like many PC makers produce Windows PCs. Slowly but surely, those Android phones are getting better. And already Android sales are collectively catching up to iPhone sales.

Of all people, surely he sees what is coming. Is he ignoring his own history, or does he know it so well that this time he is going to try to rewrite it by changing the outcome? As long as the iPhone remains the leading smartphone, he can try to lock out Google’s ads and lock in developers with their apps (and, by extension, customers who want those apps).

Still, it seems like history could repeat itself, with the rest of the industry closing the innovation gap with Apple fast. With Google subsidizing the mobile OS, other phone manufacturers have an economic advantage as well.

A few corrections to the above quote before I make my point…

1.  The PC never fully “closed the innovation gap” with the Mac (as far as some are concerned). 

Mac’s are still simpler BECAUSE Apple maintains such control of them.  That’s what Mac users like about them.  They want their computers to “just work” and they believe Apple has done that for them (and they’ve rewarded the company with consistently high customer satisfaction ratings in return).

Beyond that there’s an argument to be made that Microsoft wouldn’t have gotten as far as it did with Windows if Apple hadn’t become so backwards after Jobs left.  The Classic Mac OS didn’t really grow between 1985 and 1995 (see Copland for more details) 

2.  Did Apple “lose” the PC wars?

Look at the actual numbers.  Microsoft’s making somewhere in the area of $20 to $40 off each copy of Windows (depending on the edition).   Dell makes less off every PC.  While Apple’s cheapest model, the Mac Mini, makes the company $213 per sale (at least when it’s bought directly from Apple which is most of the time). 

If they’re making that much off their low end model just imagine what a Macbook Pro brings in.  Given that who cares if Apple only controls 6% of the market?   If they’re making 10 times more than their competitors what does it matter?

3.  Apple doesn't need to dominate the mobile market to keep people building Apps. 

Let’s keep things in perspective here.  If Apple could capture as much of the mobile market (roughly 6%) as it does the PC market they’d have no problems.  Worldwide Cell Phone use is flirting with 5 billion while Apple has sold a mere 50 million iPhones so far. 

So they have a long, long way to go before they need to worry about anything close to market domination.  All Apple has to do is keep growing and they’ll be fine.

With those points laid out let’s look at the Smartphone industry. 

When you look at the iPhone remember every cent of profit coming out of that device is going to Apple.  The 3GS has an estimated cost of $178 and that’s almost certainly high (given bulk discounts on parts).  While the the device itself is not only subsidized by AT&T(actually costing around $599) but they actually get AT&T to give them a kick back on each subscriber (and people wonder why they stay exclusive). 

While Google can’t figure out how to make a profit off Android itself and admits it’s not making money off the Android Marketplace

Finally keep in mind that it’s probably impossible for Apple to dominate the mobile market completely.  It’s simply too big and too lucrative for any one company to control.  So the smart strategy is to make as much money off your piece of the market as you can.  That is exactly what Apple is poised to do.

Addendum: For the record, Google's goal with Android is to extend their lucrative ad business to the mobile market.  So if they never make money off Android directly but manage to get it on a lot of phones I suspect they'll be perfectly happy.