The iPhone Software

Development Kit:

A Critical Element for Both Recreational and

Business Wireless Communications Convergence

Presented to Apple Executive Committee

Scott Leslie
530-448-6430
P.O. Box 2466
Truckee, CA 96160

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 Table Of Contents
STATEMENT OF PURPOSE 3

EXECUTIVE SUMMARY 3

CONCEPT HISTORY AND BACKGROUND 3

DESCRIPTION OF PRODUCT 4
IDEA HISTORY 5
SUMMARY OF EXPERIENCE 6

GOALS AND OBJECTIVES 6

MARKETING PLAN 7

CONSUMERS AND DEMAND 7

COMPETITION 8
GEOGRAPHIC MARKET 9
PRICING POLICY 9

LEGAL REQUIREMENTS 10

FORM OF OWNERSHIP 10

FINANCIAL PLAN 10

INITIAL CAPITALIZATION 10
PROJECTED INCOME STATEMENT 11

ORGANIZATION, MANAGEMENT, AND STAFFING PLAN 13

SPECIAL CONSIDERATIONS 13

SOURCES 14

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Statement of Purpose
This report sets out to provide both qualitative and quantitative proof that
illustrates just how profitable it would be for Apple to combine its already revolutionary
iPhone hardware interface with an open source software development kit that would
allow third party developers to create applications that suit both their professional and
personal needs. A software development kit of this nature would allow the iPhone to
become the ultimate mobile computing solution, ideally aimed at businesses worldwide.

Executive Summary
The iPhone is a revolutionary piece of hardware. Matching simplicity with power,
it is the epitome of what Apple does well and will certainly appeal to the company’s
longtime faithful customer base. However, Apple must be careful that it does not waste
an incredible chance to effectively access the wireless smartphone industry with the
iPhone. Currently, there is no hardware interface superior to the iPhone, and Apple must
ensure that its accompanying software flows along the same vein. So, it is imperative that
Apple capture a substantial portion of the rapidly expanding smartphone industry if it is
to truly bring wireless communication convergence to the world. While Apple has
currently made deals with several movie studios, it must also ensure that the iPhone
serves as a practical solution for businesses. While it is important that the iPhone provide
entertainment, it must also be a functional business tool, and an open source software
development kit will assure that developers will have the freedom to make sure that the
iPhone realizes its full potential. If Apple does appeal to businesses in this way, it is a
very realistic assumption that the company could capture at least a 30% market share and
increase its net profits by many times.

Concept History and Background

Since its initial release, Apple’s iPhone has garnered an incredible amount of
excitement throughout the world amongst both computer enthusiasts and technophobes
alike. The iPhone, Apple’s first foray into the extremely competitive wireless telephone
market, has captured attention with its revolutionary user interface. With one face
composed entirely of a touch screen, the iPhone is able to provide its user with both a
convenient and familiar “qwerty” keyboard, or a widescreen cinema display, all at the
touch of a finger. Furthermore, Steve Jobs recently announced during Apple’s 2008
Keynote that the company has signed contracts with several large name studios including
Disney, Paramount Pictures, and Warner Brothers, allowing it to provide iPhone users a
vast catalogue of on-demand movie rentals.

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 However, while Apple continues to offer consumers new and innovative products
that provide an experience ever closer to mobile communications convergence, the
computer manufacturer must keep in mind that entertainment is only a portion of the
information that consumers process each day. While the iPhone has been marketed as a
“smartphone,” it does not include many of the functional business applications used by
both the Microsoft Mobile and Symbian operating systems, and therefore does not always
justify its $400+ price tag for many consumers. This, primarily, can be held to blame for
Apple’s current weak demand dilemma (it has been estimated using AT&T’s year-end
report that 18% of the four million iPhones Steve Jobs claimed to have sold at the 2008
keynote are still sitting on shelves at AT&T stores as ending inventory).i In order to fully
appeal to the vast public, Apple must provide a way for iPhone users to not only enjoy
their favorite movies and music, but also access and manipulate documents in order to be
useful in the professional realm. In order for Apple to penetrate the smartphone market, it
must combine its incredible distinctive competency, the iPhone’s tactile and streamline
user interface, with practical and functional applications.

Description of Product
The ideal companion to the iPhone’s revolutionary hardware interface would be a
software application set that would utilize the integrative features of the iPhone that make
it as comfortable and familiar as a home computer. Already, the iPhone has been
applauded for its user-friendly operating system based on Mac OS X, a system that has
made Apple computers increasingly popular for the last few years due to both its
aesthetic qualities and its ability to perform advanced operations using a very simple
interface. The most widely touted iPhone application running within this operating
system has been Safari, Apple’s native web browser that has been converted to the
iPhone in order to create an internet experience that is more computer-like than any other
mobile browser yet developed. As Dan Frakes of Macworld Magazine notes, “If you've
ever browsed the Web on a PDA or a mobile phone, Safari on the iPhone will be a joy to
use.”ii A significant issue that arises, however, is that while browsing the web and
watching movies are very popular consumer activities, the iPhone stands little chance
competing within the smartphone market if it does not develop applications that
transcend vehicles of entertainment. In order to compete against the most popular
operating systems used by smartphones (Nokia’s Symbian System and Microsoft’s
Windows Mobile), Apple must develop applications that integrate two of its applicable
distinctive competencies: its ability to create user-friendly, yet powerful software and its
already popular hardware interface.
The ideal product that would allow Apple to reach its goal of attaining a 1%
smartphone market share by the end of 2008 would be the release of an iPhone software
development kit (SDK) that would allow third party developers a chance to write
applications that would effectively work with the most popular document formats of the
business world including Microsoft Word (.doc), Excel (.xls) and PowerPoint (.ppt).
While it is true that Steve Jobs has repeatedly announced that an iPhone SDK will indeed
be released at the end of February, 2008, Apple’s commitment to the project has been
widely in question for some time. Much of this apparent hesitation to provide developers
an SDK stems from deep concerns regarding security. If an SDK is released before Apple

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has adequately addressed iPhone security issues, all iPhone users could be at risk from
malicious applications. Furthermore, for reasons of Apple’s own marketing strategies, the
manufacturer’s current progress of working out iPhone security issues and the exact
nature of the forthcoming SDK have remained highly classified. So, given the assumption
that the vast majority of iPhone bugs will be solved by the end of February 2008, I have
created the theoretical framework for an SDK that would allow third party developers the
chance to create the necessary applications that will enable Apple to acquire and maintain
smartphone market share in the long run.
While security is indeed very critical, it is crucial that Apple release either an
open source SDK (an SDK that would allow program writers full freedom over the
applications they write by providing them with the full source code that was used to
create the operating system) or at least a pseudo-open source SDK that would allow
program writers to write applications but not let them see the entire source code
(currently utilized by Google’s Android Platform). However, as a late entrant in the
smartphone market, an open source SDK would be the most appropriate and powerful
tool to allow writers to quickly create truly effective applications. Therefore, I insist
(given that the aforementioned assumptions are valid) that Apple release an open source
SDK that will allow it to effectively contend with the various competitors in the
smartphone market.

Idea History
The idea of developing such an SDK came from the observation that there are
many parallels between the smartphone market of 2008 and the personal computer
market of 1984. As Daniel Eran Dilger of Roughly Drafted Magazine notes, smartphones
are now at a decisive crossroads, much like the climate of personal computers in 1984.
As Dilger notes:
• Palm OS is the new CP/M, a bit past its prime as a holdover from the last decade.
• Windows Mobile is the new DOS, struggling to clone and conquer yesterday's
standard.
• Apple's OS X is the new Mac, an intelligent rethinking of how things should work.
• Linux is the new Amiga, a tinker fantasy that will ultimately go nowhere until it
finds a driver.
• Symbian is the new Unix: the commercial standard currently powering the majority
of mobiles.iii

While it is virtually impossible that the current market is exactly the same, it is still
important to pay close attention to the relevant similarities. In the late 1980s and through
the 1990s, as the personal computer market matured, the competitive forces of the
industry eventually created an environment that could support only two operating
systems: Mac and Dos. While many believe that this historical perspective is good news
for Apple as the company is now, in 2008, an extremely profitable computer
manufacturer, this perspective is not necessarily valid. As a product manufacturer
targeting a niche market of artists and creative types, Apple struggled through the 1990’s
and operated at a loss from 1995 to 1998.iv Inversely, Microsoft established market
dominance by becoming an integral part of the professional world. It has only been

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through the iPod phenomenon that Apple has been able to regain its strength in the last
few years (a point reinforced by the fact that the company changed its name from “Apple
Computers” to “Apple” in 2007). So, as Apple is now again a strong organization thanks
to the iPod, it is important that it does not fail to heed the lessons learned in its youth. If
Apple desires to provide a product that truly achieves mobile communication
convergence, it must be sure to target the market sector that originally fed the Microsoft
giant, the professional realm, rather than focus all efforts appealing to internet surfers and
movie renters. While a sophisticated entertainment vehicle is indeed alluring, the iPhone
must also become a device integral in both the professional and recreational lives of its
users in order to achieve true convergence.

Summary of Experience
Apple’s resume indicates that it is clearly poised to capture a vast majority of the
smartphone market. With an already stellar reputation captured by its sales of over 100
million iPods in only five and a half years, consumers look to Apple as a capable and
dependable electronics manufacture. Furthermore, as Steve Jobs has noted in his 2008
keynote address, the iPhone runs on a converted version of the operating system
supporting Apple computers, meaning that it has a very solid foundation to create
functional applications in a much shorter amount of time than if it were creating a new
operating system from scratch. Furthermore, while relatively unknown, Apple and
Microsoft have actually had a longstanding relationship in software development for the
Macintosh platform. In an article out of Wired magazine, Leander Kahney outlines the
two companies’ relationship, explaining that Microsoft’s past support for Apple has been
critical for Apple’s survival, and that “Office is so important to the Mac, without it the
platform would have withered away.”v So, while die-hard Apple enthusiasts often curse
the name “Microsoft,” it is clear that a very dependable alliance does indeed exist. This is
one of the most crucial factors in the iPhone’s destiny to become a successful
smartphone. This alliance between the two companies will enable developers access to
the crucial Microsoft Office formats, affording application writers the opportunity to
allow the iPhone to transcend the perception of “crafty gadgetry” and earn respect
throughout the industry as a truly powerful and vital business utility.

Goals and Objectives

Steve Jobs has already projected from the device’s initial release that he intends
for the iPhone to capture a 1% share of the smartphone market by the end of 2008.
Assuming that Jobs was honest about the amount of iPhones actually sold in his keynote
speech (as previously mentioned some analysts are skeptical on this point), Apple has

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already accomplished 40% of its end of
2008 goal by selling 4,000,000 out of the
10,000,000 unit target. Furthermore,
according to market research firm
Gartner, the iPhone has actually captured
20% of smartphone sales during the third
quarter of 2007, a market share surpassed
only by long established Research in
Motion (RIM) BlackBerry, a powerhouse
that still maintains a commanding 39%
share.vi These results indicate that iPhone
has already surpassed quarterly sales of
Motorola, Nokia, and Palm, an incredible Arstechnica.com/news

feat in itself, and now has a whole year to sell only 150% of what it sold in just six
months. Furthermore, if Apple is able to keep demand for the iPhone high through the
use of an aggressive pricing strategy and the creation of new applications, Apple will be
able to maintain its unprecedented growth through the decade. Given these staggering
numbers, I project that with a SDK that would allow developers a chance to tailor the
iPhone to suit the needs of the business realm, the iPhone could very likely capture a 30%
market share by the end of 2010. While there are indeed many obstacles and uncertainties
that Apple will need to face and overcome by this time (the possibility of a recessed
economy, consumer price sensitivity, a widely unpopular contract with AT&T lasting
until 2009), I forecast that a sophisticated application set, combined with an effective
pricing strategy, will allow Apple to take a commanding lead in the smartphone market.

Marketing Plan
Consumers and Demand
Because the iPhone is actually much more than a typical smartphone, functioning
as both a video and music player, it can be difficult to project consumer demand as it is a
product that spans several different markets. To solve this problem, however, my forecast
will ignore the personal music and video player markets as they are already highly
saturated with Apple products (100,000,000 iPods sold to date) and will likely be
cannibalized by the iPhone, an issue that Steve Jobs has dismissed saying, “If anybody is
going to cannibalize us, I want it to be us. I don't want it to be a competitor.”vii So,
assuming that the demand for the iPhone will essentially be linked with the demand for
smartphones I will assess the future of the smartphone market in order to substantiate
projections for the iPhone.
Even in the presence of an impending recession, the smartphone market looks to
rapidly expand beyond its current state. The International Data Corp. research firm
projects that the worldwide mobile worker population will expand to 878 million by
2009, a 30% increase from 2004. Furthermore, this population will then compose 27% of
the world’s work force.viii This staggering number measures workers that have no
physical office, and thereby require an instrument that allows them to complete their
work remotely. While laptops have long been the standard for mobile workers, this

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workforce will undoubtedly move to lighter and more compact smartphones once these
devices become capable of performing the necessary computer-like operations.
Another way that smart phones are being practically integrated in Japan and
elsewhere is through an inventive new system of online banking called contactless
payment. In Japan, there are currently payment chips embedded into internet-capable
smartphones that not only permit users to transfer money between various bank accounts,
but also actually allow them to use their smartphones as debit and credit card substitutes.
This system has tremendous advantage over traditional plastic cards as users of this
service can simultaneous check their various balances while making purchases. So, using
this system, it is virtually impossible to overdraw an account without realizing it. Arthur
D. Little, a management consulting firm, now projects that cumulative payments using
this system will grow from an infantile $3.4 billion in 2003 to over $37 billion by the end
of 2008.ix
It is clear just from these two examples that the existence of a smartphone that is
powerful, user-friendly, and flexible enough to run a wide range of applications would
create immense demand in both the consumer and business realms. An open source SDK
would allow flexibility of the iPhone platform to support various functional applications,
creating greater demand for iPhones in nearly every industry as technology is further
adopted by businesses to bring about higher levels of efficiency.

Competition
The smartphone market is incredibly competitive, and Apple’s remarkably
powerful initial market entry will undoubtedly cause it to be the target of various
competitive attacks. Furthermore, the manufacturer’s peer group is also vast and many
have already begun making moves to counter Apple’s competitive strategy. Apple’s
competitive peer group consists of a broad range of companies including most notably:
RIM BlackBerry’s Smartphones, Pearl and Curve, Hewlett Packard’s iPAQ Messenger
and Pocket PC series, Motorola’ MOTO Q series, and Nokia E, N, and Tablet series.
Because most of the previously mentioned competitors have been in the industry for a
longer period of time than Apple, they are largely run on open platforms, often catering
to large businesses by allowing them to run their own, internally created programs
perfectly tailored to suit the individual needs of each organization. Also, with the average
product price for the industry coming in at just under $249, the iPhone’s $399 price tag is
perceived by many, especially cost-conscious businesses, to be extravagant.
As mentioned earlier in the report, Apple faces the most intense competition from
the smartphone market leader, RIM Blackberry. With prices ranging from $99-$499,
Blackberry has a far wider line of products than Apple, making it a viable option for a
broader range of consumers. Furthermore, with a daunting 39% market share, a figure
nearly 20% greater than the second ranking Apple, Blackberry will be a very difficult
competitor to oust from the top position.
Furthermore, many companies have already aimed their sights on Apple, trying to
publicly exploit its competitive weaknesses. Nokia, as one example, has recently run an
advertising campaign aimed at differentiating its open platform from Apple’s currently
closed system. In the ad, Nokia presents two opened padlocks, side by side, accompanied
by the slogans, “The best devices have no limits” and “Phones should be open to

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anything.”x This ad can be taken as both a negative critique of the weakness inherent in
Apple’s closed operating platform, as well as a jab at the fact that an estimated 20% of
the more tech-savvy iPhone users have
illegally “hacked” their phones so that
they can be used with any carrier, an
issue that severally impacts Apple’s
revenue streams. Generally, however,
this advertisement is a perfect example
of the inevitable competitive attacks
Apple will continue to face in the wake
of its unprecedented market entry.
Furthermore, as the proposed SDK
allows developers to write more and
more applications for the iPod, these programs will also undoubtedly be attacked using
similar competitive campaigns. In all, because of the iPhone’s incredible hardware
interface, combined with the superior Mac OS X applications that will be written using
the SDK, contenders will likely continue to wage a more vicious competitive war as time
goes on.

Geographic Market
Because iPhones have only recently debuted outside of the United States, it is
likely that the applications written using the SDK will be tailored to suit the needs of
various domestic businesses. However, iPhones were introduced in Europe in late 2007
and are projected to be offered in Japan in the near future, making it likely that the iPhone
will eventually become a global product. Because each country has very specific needs
and issues, especially pertaining to communications, it will be necessary to tailor the
iPhone to suit the tastes and regulations of each respective region.
One very interesting, and perhaps the most technically difficult, region that Apple
wishes to enter is Japan. Because of these qualities, I will use Japan as an example of
how Apple will have to tailor the iPhone operating system and applications to meet each
country’s various needs. First off, all of Japan’s mobile phones run on 3G networks, a
format that supports much higher speeds than that of the U.S. and Europe. In order to be
successful, the iPhone must be 3G capable. Furthermore, because internet phones have
been widely popular in Japan for many years, several websites are actually written in c-
html, or compact html. This means that any browser installed on a Japanese iPhone
would have to be able to process both types of code in order to be perceived as useful for
the internet. Furthermore, Japanese rarely send emails without “emoji” (similar to
American’s smiley faces). Any Japanese email program would be very unpopular without
a feature that could insert these objects. So, while many of these issues seem minor, they
serve as an example of just how much market research will be required of Apple for each
additional geographic region it wishes to penetrate successfully.

Pricing Policy
Apple would not be advised to impose a pricing strategy for the proposed SDK.
To best stimulate the creativity of the iPhone developer community, Apple should offer

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the SDK to third party developers for free. However, a pricing strategy that is closely
linked to the SDK is the amount Apple will charge for the various applications created
from the kit. Similar to the way video game system and the T-Mobile Sidekick
manufactures have done, it would be best to take a cut from the applications that are
written for the iPhone. Currently, Apple uses a price lining strategy for its iPod games at
a flat rate of $4.99 per application. In this way, Apple is able to simplify the process of
buying games for consumers. However, as more and more sophisticated applications are
released for the iPhone, Apple will have to price these programs more carefully, as a
mobile version of Microsoft Word would clearly constitute a higher price than a calendar
plug-in. Thankfully, as with many aspects of the iPhone, Apple clearly has an advantage
in pricing due to its twenty-five year experience releasing software and will likely use a
pricing mechanism similar to that of its computer applications since it has continually
marketed the iPhone as a mobile computer.

Legal Requirements
Although the legal requirements for releasing an open source SDK would be
minimal, Apple must be careful in a few areas. First off, while Apple will not have to
secure copywrites on its third party developed software, it will need to be very careful to
secure its own internally developed intellectual property as the competitive climate of the
market will surely entice contenders to take whatever advantage they can to oust Apple.
The best way to go about securing Apple’s own intellectual property would be to follow
the same model that Apple has for the past twenty five years developing its own
computer software.
Although an aspect that is not closely related to the SDK, Apple will also need to
be cognizant of the fact that as it expands iPhone distribution to other countries, many of
these countries have more stringent antitrust agencies, and do not favor Apple’s current
practice of forcing consumers to sign two-year contracts with one company (ie. AT&T).
Already, both France and Germany have outlawed Apple’s practices of tying with only
one phone company.

Form of Ownership
Apple has been a publicly traded company since December 12, 1980, a status that
will likely remain unchanged by the iPhone.

Financial Plan
Initial Capitalization
Because Apple prefers to keep much of its internal operations highly classified, it
is difficult to forecast the costs that Apple will assume in the creation of its SDK and
other iPhone software related products. However, as a benchmark, Google has put $10
million into the development of its open source platform, Android. So, using this as a

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(crude but still useful) benchmark, Apple would be able to easily match or exceed this
figure as it holds over nine billion dollars in cash on its balance sheet for 2007.
ASSETS 2006 2007 % Assets
Cash & Cash Equivalents 6,392,000 9,352,000 1.50%
Short Term Investments 3,718,000 6,034,000

Projected Income Statement

As shown in the table below, the iPhone’s various revenue streams would make it
an extremely profitable segment of Apple’s product portfolio.

2007 iPhone Sales (six months) 2007

iPhone Sales Revenues (Initial Purchases) Qty Sold Total Revenues

Sales at Original Price ($599) 864,000 $517,536,000
Sales at New Price ($399) 2,886,000 $1,151,514,000
Total 3,750,000 $1,669,050,000
Estimated Ending Inventory 670,000
Percent Ending Inventory 18%
Provision for Cracked Phones (20%) 750,000
Actual Phones Activated 2,000,000
Estimated Phones Activated at Apple Stores 900,000
Activation Fee Revenue $157,500,000
Apple Monthly Revenues Provided by AT&T $180,000,000
Total Estimated Revenues Realized $855,036,000

In 2007, it has been realized that although Steve Jobs claimed that he had sold 4,000,000
iPhones, AT&T has only activated 2,000,000 phones. So, assuming 20% have been
“cracked” for use with other carriers and 670,000 iPhones remain as ending inventory, it
is still clear just how profitable the iPhones are. Apple collects revenues in three streams,
as shown: initial sales, an activation fee that, and a $15 monthly payment from AT&T per
subscriber. It is clear then, that even as Apple has not receiving the ideal amount of
revenue due to unsubscribed phones, it still is collecting high revenues.
2008 Projections 2008
iPhone Sales Revenues (Initial Purchases) Qty Sold Total Revenues
Industry Total 957,000,000
Projected Apple Market Share 1%
Projected Sales 6,250,000 $2,493,750,000
Estimate of Phones Activated at Apple Stores 2,812,500
Activation Fee Revenues $492,187,500
Software Revenues $112,500,000
Cumulative iPhone Subscribers 10,000,000
Apple Monthly Revenues Provided by AT&T $1,800,000,000
Total Estimated Revenues Realized $4,898,437,500

2009 Projections 2009

iPhone Sales Revenues (Initial Purchases) Qty Sold Total Revenues
Industry Total 1,129,260,000
Projected Apple Market Share 15%
Projected Sales 169,389,000 $67,586,211,000

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 Estimate of Phones Activated at Apple Stores 76,225,050
Activation Fee Revenues $13,339,383,750
Software Revenues $3,049,002,000
Cumulative iPhone Subscribers 169,389,000
Apple Monthly Revenues Provided by AT&T $30,490,020,000
Total Estimated Revenues Realized $114,464,616,750

2010 Projections 2010

iPhone Sales Revenues (Initial Purchases) Qty Sold Total Revenues
Industry Total 1,301,520,000
Projected Apple Market Share 30%
Projected Sales 390,456,000 $117,136,800
Estimate of Phones Activated at Apple Stores 175,705,200
Activation Fee Revenues $30,748,410,000
Software Revenues $7,028,208,000
Cumulative iPhone Subscribers 390,456,000
Apple Monthly Revenues Provided by AT&T $70,282,080,000
Total Estimated Revenues Realized $108,175,834,800

Further projections show that as time goes on and Apple’s subscriber base and market
share increase to 15% in 2009 and 30% in 2010, this lucrative revenue structure only
becomes more and more profitable with total revenues surpassing $100 billion in 2010.
This clearly will affect the income statement also. To forecast, I will assume a $20
million increase in research and develop costs per year to maintain the platform, as well
as a very conservative 20% increase in cost of goods sold per year. Also, I will assume
that Apple will accomplish its goal of achieving 1% market share by the end of 2008 (1
million phones). Furthermore, for convenience, I will assume Apple’s other products will
remain stagnant and its future growth will be based solely on the iPhone. Given these
assumptions, the forecasted income statement follows:
Forecasted Income Statement
For the Year Ended 12/31/07
($000's)
2006 2007 2008 2009 2010

Total Revenue $19,315,000 $24,006,000 $28,904,438 $143,369,055 $251,544,890

Cost of Goods Sold 13,717,000 15,852,000 19,022,400 22,826,880 27,392,256

Gross Margin 5,598,000 8,154,000 9,882,038 120,542,175 224,152,634
Operating Expenses

Research Development 712,000 782,000 792,000 802,000 812,000

Selling General and Administrative 2,433,000 2,963,000 3,099,298 3,241,866 3,390,992

Earnings Before IT 2,453,000 4,409,000 5,990,740 116,498,309 219,949,642
Income from Continuing Operations

Interest Income, Non-Operating 394,000 647,000 905,800 1,268,120 1,775,368

Other, Net (29,000) (48,000) (76,800) (122,880) (196,608)

Net Income Before Taxes 2,818,000 5,008,000 5,161,740 115,353,069 218,370,882

Provision for Income Taxes 829,000 1,512,000 1,548,522 34,605,921 65,511,265

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Net Income 1,989,000 3,496,000 3,613,218 80,747,149 152,859,618

Assumptions:
COGS 20%
G&A 4.60%
Int Income 40%
Other 60%
Effective Tax 30%
Rate

It is clear just from these basic assumptions that if Apple is able to gain 30% market
share in this rapidly exploding smartphone industry, the chances for higher profitability
are enormous. In this forecast, Apple will have increased its net income 7600%. Clearly,
it is imperative that Apple do all that it can to capture at least 30% of this market.

Organization, Management, and Staffing Plan

Because the release of the iPhone SDK will be largely based on independent third
party developers, Apple will be at an advantage as it will be able to reap the benefits of
not needing to manage these employees. However, there are many issues that Apple will
need to face. One such issue is the infighting of developers. Most of the third party
developers are hackers, self-employed as independent contractors. These hackers thrive
within an extremely competitive culture that often breeds vicious rivalry. Although the
SDK has not even yet been released, there has already been a rift within the developer
community. After extensive disagreement over the process and nature in which iPhone
software was to be developed, a group of hackers split apart from the iPhone Dev Team
to form the iPhone Elite Team. Now, the iPhone Elite Team creates “unbricking” codes
to try to thwart the efforts of the iPhone Dev Team.xi If Apple is to successfully stimulate
its developer community, it will need to effectively manage the volatile developer
community.
Aside from the aforementioned issues, Apple already employs a solid foundation
of employees to develop its own computer software. However, most of the employees
involved in cutting edge products are required to sign confidentiality contracts, so it is
difficult to estimate just how many employees it currently has working with the iPhone.
Either way, Apple has a long track record of being a well-managed company and will
likely stay that way.

Special Considerations
Because the iPhone platform is very closely based on the Mac OS X operating
system, there is really very little that Apple will need to do in order to turn its iPhone into
a mobile version of its already successful computer line. While research and development
and facility needs will assuredly increase due to the increased strain of producing more
and more goods, Apple will undoubtedly be able to apply its current computer

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manufacturing business model to the iPhone, and make it the ultimate mobile computing
system.

Sources
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Veverka, M (2008, January 28). In Search of the Lost iPhones. Barron's, Retrieved January 28, 2008,
from http://online.barrons.com/article/SB120130794713218339.html?mod=googlenews_barrons
ii
Frakes, D. (Sept 2007). Internet Features: many phones can access the Internet; few do it well. And no
phone has come close to approximating the experience you get on your computer. But that's the iPhone's
lofty goal. Here's a look at the programs that aim to deliver that experience. (Meet the iPhone)
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iii
Dilger, D, E (2008). Inside the iPhone: Mac OS X, ARM, and iPod OS X. Retrieved January 27, 2008,
from Roughly Drafted Magazine Web site:
http://www.roughlydrafted.com/RD/RDM.Tech.Q1.07/081A0C60-AD28-40EE-89EE-
D54F1024FDBB.html
iv
Markoff, J (1998, October 15). COMPANY REPORTS; Apple's First Annual Profit Since 1995. New
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