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Apple's Bite-Sized Apps Only the Beginning


In time, the company will get its hands on every link in the supply chain.

In typically minimalist fashion, Apple (AAPL) announced today that its App store has hit the 3-billion download mark. What's really amazing is that a billion of those downloads have come in the past two months -- meaning that Santa dropped off quite a few iPhones and iPod Touches to well-behaved children in developed nations this past holiday season.

Taking a dig at Google (GOOG), which is staging an event for its new Nexus One shampoo mobile phone today, Apple Pharoah Steve Jobs said "we see no signs of the competition catching up anytime soon."

It's likely that a huge chunk of those App Store downloads were free, but don't ignore the significance of sheer quantity. The more stuff people jam onto their iPhones and iPods, the more attached they are to the Apple ecosystem. Even if folks aren't paying for most of the apps they download, they're using their Apple gadgets more and more in everyday life for everything from checking sports scores to playing games to updating their Facebook status.

The result: stickiness.

Think about the past couple of decades in the PC industry. Despite its gains, Apple's market share is still pretty miniscule relative to the Microsoft (MSFT) Windows juggernaut.

Why? Apple PC's have been vastly superior in terms of usability, stability, and security for years, if not decades. Windows was not an ideal standard, but people were used to it because IT departments stuck with Microsoft. Mac was different, and therefore seemingly risky. It took the iPod blasting the Apple brand into people's faces AC-130-style to get them to consider switching to a Mac.

Microsoft went pretty far with a bad operating system, and Apple can go even further with the best mobile products in the business. Apple still does industrial design and software engineering like no one else, and in the case of the iPhone, customer outrage over service problems have mostly been directed at AT&T (T). Nice!

Yes, Motorola (MOT), Palm (PALM), and Research In Motion (RIMM) have all stepped up their game, but they're still falling short in matching the iPhone user experience. Apple just delivers what the French call a certain "I don't know what." It's simply an incredible platform for delivering all these useful apps, which in turn further entrench the platform. It truly is a virtuous cycle.

And these bite-sized apps are just the beginning. The video-game industry has seen a revolution in online-content delivery. What started with patches and small game updates has morphed into full games being delivered straight over the web. Mark my words, the App store will go down the same path. The free baby apps will never go away, but pretty soon it's going to add an aisle full of major software products from the likes of Adobe (ADBE) and Electronic Arts (ERTS).

Do you think Exxon Mobile (XOM) is vertically integrated? Apple's getting its paws on every link in the supply chain, and nobody's going to stop it.

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