One topic that is guaranteed to get my classes fired up is Apple. They’re great to use as an example because they elicit a strong reaction. Consequently, I’ve been giving some thought to some of the issues surrounding iPhones, particularly as they relate to other 3g phones, like Google’s Android-based phones. Whatever you might think about the technical characteristics of the iPhone, the business model that Apple is using with it represents a big jump forward for the firm.

There’s a nice post on the wikinomics blog which discusses how Apple has built an effective business platform surrounding the iPhone. The post points out that effective business platforms have a few key ingredients:

• They are not just products, they create an ecosystem surrounding the product. With the iPhone this includes all of the sub-contracted manufacturers, but more importantly it includes iTunes, the app store and app developers.
• This leads directly to the second point, which is that the business platform becomes strong through the encouragement of collaboration.
• This in turn creates a community of practice surrounding the business platform, as the collaborators learn how to make better things.

Why is this a jump forward for Apple? The way the story is commonly told these days, Apple lost the battle desktop computing because they didn’t create a collaborative business platform. Many people still see Apple as primarily a closed company, and argue that this approach stifles innovation. While Apple blocking the Google iPhone interface suggests there is definitely still a strong element of closed-ness in their approach, I do think that overall, the iPhone platform is substantially stronger than that of the original Macs.

This has several important implications for innovation. The first is that you always have to think about your innovation as being embedded within the economy. Everything is part of a business platform – and your decisions about which parts of the ecosystem you need to control are often much more important than those concerning which features to include. The second is that if you are competing against established products, the best angle to take is to compete on the business model, not on features. This is a point that Farhad Manjoo makes in discussing how to beat the Kindle in the book reader market:

The service matters more than the device itself. Every time I dismiss the Zune, Creative Zen, or some other MP3 player as an also-ran, I get letters from loyalists who insist that their gizmo far outshines the iPod. Sometimes they’re right—but what they miss is that the iPod isn’t a standalone device. It’s part of a music-delivery ecosystem, the most important feature of which is iTunes.

It’s so easy to get caught up in just making your really cool idea work. Unfortunately, it’s usually not enough just to do that – you also have to figure out how to embed that idea into the economy. Sometimes you can create an entire ecosystem around it, but a lot of the time you need to fit in with what’s already out there. Innovators that do this more effectively are the ones that are most likely to gain from their ideas.

Kevin Kelly got it right 10 years ago when he said:

Because the value of an action in the network economy multiplies exponentially by the number of networks that action flows through, you want to touch as many other networks as you can reach. This is plentitude. You want to maximize the number of relations flowing to and from you, or your service or product. Imagine your creation as being born inert, like a door nail off a factory conveyor belt. The job in the network economy is to link the nail to as many other systems as possible…. And that’s just for a stick of iron. More complex objects and services are capable of permeating far more systems and networks, thus greatly boosting their own value and the plentiful value of all the systems they touch.