We thought that the winners and losers in mobile were already clear. The biggest winners were the hardware manufacturers, with Apple and Samsung raking in $53 billion in smartphone profits last year. Mobile operating systems, while not quite as profitable yet, are also a proven profit machine: Apple now reaps nearly $2 billion a year in commissions from its mobile-app store, while Google hopes to match that soon with advertising and app sales on Android. Meanwhile, the one part of mobile that so far has flopped is the app itself.
Indeed, app-making looks like a sucker's game: With more than 1.4 million apps available, typically selling at $2 or $3 a pop, it's incredibly hard to make real money. According to a recent survey by the tech site GigaOm, the typical mobile developer takes in just $45,000 a year.
So ever since 2010, when it was first rumored that Facebook would make a major mobile play, smart observers naturally figured the social giant would try to get in on one of those first two wildly profitable categories. Zuckerberg's social giant was going to manufacture its own device, some journalists whispered. No, it would forge its own OS, argued others. In April, when the company finally unveiled its secret project, the reality was a big letdown for both camps. The product, Facebook Home, was merely a set of apps that run on top of Android. "It's just a home screen," the gadget site Gizmodo lamented.
But Facebook Home is a whole lot more than that. Think of it as an "apperating system"—a software platform that sits between the operating system and the apps, capturing an enormous share of the user's attention. Facebook isn't the only big company to develop one; Amazon and Dropbox, among others, have created platforms that put them, not OS makers, at the center of the user's smartphone. And that changes the whole calculus of mobile as a business. Apperating systems will help smartphones and tablets reach niche audiences, allow people to use their mobile devices more efficiently, and serve as labs for new operating system features. Above all, they should make Apple and Google—both of which have made huge bets that owning the OS is the best way to own the customer—very nervous.
Facebook Home is built on top of Android, but it's really a full-scale makeover of the platform that puts social connections—i.e., Facebook—first. Users get a never-ending river of photos and status updates right on their lock screens, plus "chat head" instant-messaging avatars that let them text people without interrupting other apps they're running at the time. Techno-clutter like launch trays and status bars is relegated to the background. And it's not just the geeky stuff that gets pushed back: The homescreen is reserved for Facebook content, Facebook Messenger, and some basic app navigation. Google's app store and most Android apps are banished to a spot multiple taps and swipes away.
It's brilliant business jujitsu: Google has spent billions on Android, and now Facebook comes in and takes over the customer experience.
With Facebook hogging the top billing, users are less likely to turn to competing apps like Google+ and Google Voice. So while Facebook Home is, on one level, just another Android app, it also represents a hefty dose of anti-Android. It's a brilliant bit of business jujitsu: Google spent billions of dollars on Android, between the software and the hardware, but now Facebook has swooped in and stolen the customer experience right out from under it, adding a software layer that will put Facebook's ads front and center while pushing Google's to the bowels of the system.
Amazon has taken this sort of guerrilla warfare a step further with the Kindle Fire e-reader. In fact, Facebook Home looks downright Google-friendly compared with the Fire's apperating system, which evicts Google's digital store, browser, and email client from Google's own OS, replacing them with Amazon alternatives. Amazon even modified Android so the user can't install all standard Android apps, only a tiny subset available in the Amazon Appstore. Google loses out on both ad revenue and the cut it takes on sales in the Google Play store.
The apperating system model has appeal even on iOS, a locked-down platform that Apple bills as an out-of-the-box solution to all conceivable needs. It turns out that even a device for which "every detail has been considered" can stand improvement—which is where Dropbox is carving out a big niche for itself.
Before Dropbox, it was cumbersome for iOS apps to write data anywhere other than to a sandboxed portion of the device's local flash storage, making it tricky to share data with other devices or even just different apps. With Dropbox on board, your other apps can sync their data over the Internet to a shared folder and then read back data from that same folder. That means you can start a document on your iPad at home, tweak it on your iPhone from the train, and finish up on your Windows PC at the office—without having to email copies of the file around. If you're a graphic designer, you can snap a picture on your iPhone, brush it up in Photoshop on your laptop, then import it into a touch-based drawing program on your iPad. If you're a musician and you meet a producer at a party, you can pull out your iPhone and share a file from your home computer.
Once installed, Dropbox becomes a huge part of what you do on your phone; it can't take over the homescreen like Facebook Home, but it creates its own routing system for all your files, which would normally be shared using built-in apps. Dropbox also makes it as tempting as possible to remain inside its app, which has its own photo album and can natively open Microsoft Office documents, PDFs, and even HTML files. And Dropbox clearly plans to become an even beefier platform: In a recent three-month span, the company bought an email startup, a photo-organizing service, and an online music locker, putting to work some of the $257 million it has raised from venture capitalists.
Apple has launched a competing service called iCloud and built it into every iPhone and iPad. But it hasn't managed to dislodge Dropbox. Instead, developers, who have embraced Dropbox, are complaining about iCloud's complex and glitchy syncing protocols, and Apple customers keep forking out $99 a year for Dropbox subscriptions.
Because apperating systems undermine the goals of the host OS, it's possible that Apple and Google will eventually crack down on them. The day Facebook Home launched, Zuckerberg was asked repeatedly whether Google might try to block the software. "It is theoretically possible that they go back on their commitment to openness, but I don't think they will," he said. "It would have to be a complete 180 in their philosophy."
Lost profits do tend to undermine corporate principles, so it's possible that Zuckerberg might someday find Home to be homeless. But the Dropbox example shows how hard it can be for even a tightly controlled platform to stop well-designed apps from gaining a beachhead. Users want phones and tablets that they can remake in their own image, that will respond to their needs. They expect to have apps that can do anything they desire and expect to download them instantly. When those apps exploit shortcomings of the OS, and do it well, they can become the cornerstone of the user experience.
Apperating systems aren't going to put Google or Apple out of business. But they do represent the most intriguing path for companies that aren't Google or Apple—from the likes of Facebook and Amazon to startups—to build a real business in the shadow of the mobile giants. With the apperating system, apps are a sucker's game no longer.
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