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Breaking Apple's Grip on the iPhone

Firms Launch Sites Selling Unauthorized Software for Device, Posing Challenge to Official
Online Store

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By YUKARI IWATANI KANE

Apple Inc. faces a growing threat to its iPhone strategy, as renegade stores spring up online
to sell unauthorized software for the device.

The developer behind some popular iPhone software on Friday plans to open a service called
Cydia Store that will sell hundreds of iPhone applications that are not available through
Apple's official store. Users must download special software that alters their iPhones before
they can run these programs.

Another small company plans a store called Rock Your Phone for iPhone users who have not
yet modified their devices to make it easier to download and buy unauthorized applications. A
third start-up is building an online store that specializes in selling adult games for the iPhone.

The new stores take aim at one of the

underpinnings of the iPhone's success:
Apple's App Store. Launched last July,
Apple's online store sells thousands of third-
party applications -- from games to news and
entertainment features -- that customers can
easily download to their iPhones, often for
free or as little as 99 cents.

Apple, which collects a 30% commission Companies within this Article

Getty Images from sellers on its store, doesn't break out
Unauthorized iPhone software includes PdaNet, the site's revenue. Brokerage firm Piper Apple Inc.(AAPL) 88.84 -2.33 4:00p.m.
below, which makes the device into a laptop modem.
Jaffray estimates the company generated
about $150 million last year and projects App
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The renegade sites can carry software Apple Trims Some Desktop Prices
programs that Apple's official store won't,
since the company tightly controls the kinds An Apple and Microsoft Switcheroo in the Browser Market

of applications it allows. Among the

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Breaking Apple's Grip on the iPhone - WSJ.com 3/5/09 7:49 PM

of applications it allows. Among the Layoffs at Apple? Unlikely

programs that Apple doesn't allow is a free
one called Cycorder, which turns the iPhone into a camcorder. Another program, which costs
Video
$29, dubbed PdaNET lets people use their iPhones as laptop modems to connect to the
Internet.

Jay Freeman, who created Cycorder and is behind the Cydia Store, says he decided to open
the store so developers like himself have a way to make money from their efforts. Mr.
Freeman, a 27-year-old computer science doctoral student in Santa Barbara, Calif., says he
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intends to charge developers no more than the commission Apple does for the site's billing Reviews Safari 4 Reviews Amazon's Gives Real and
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A big hurdle the Cydia Store and others face is that the applications they offer typically only
work on iPhones that have been modified, or "jailbroken," to allow users to download
unauthorized programs.
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Apple maintains that jailbreaking an iPhone violates copyright laws. Mr. Freeman says
software he created to modify the iPhone has been installed on about 1.7 million iPhones.
Most Popular
The alternative stores could cut into Apple's revenue at a time when software has become an
Read Emailed Video Commented
important way for the Cupertino, Calif., company to continue profiting from iPhones, even after
consumers have shelled out $199 to buy them.
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The App Store is also strategically significant, since it keeps consumers tied to using their
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iPhones. Already, customers have downloaded more than 500 million applications from the
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But the App Store rejects some submissions, for technical and content reasons. It is also so 4. Merrill Executives Subpoenaed
sprawling that it can be difficult for a new developer to get their programs noticed, says Adam
Engst, publisher of TidBITS, a site specializing in news about Apple. "It leaves open the 5. White House Rethinks Tax Hikes
possibility that independent stores could do a better job."
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Samir Shah is one developer who plans to offer his software program through the Cydia
Store. The 25 year old, who founded Snapture Labs LLC with two college friends a year ago,
created a $7.99 camera application that lets users zoom, change photo sizes and instantly
preview photos.

"Competition is always good," says Mr. Shah. "Competition breeds innovation."

Apple appears to be gearing up for a fight.

While the company hasn't taken legal action
against any group or individuals for
modifying iPhones or building applications on
top of them, it last month filed a 27-page
statement with the U.S. Copyright Office,
which oversees patents. In its statement,
Apple made a case that the use of software
to modify iPhones is illegal, according to the
Digital Millennium Copyright Act.

Aaron Perzanowski, a professor specializing

in digital copyright law at the University of
California Berkeley School of Law, believes
developers have "a pretty good" defense
under the DMCA if Apple claims what
they're doing is illegal, though it's largely
uncharted legal territory.

Cydia Store's Mr. Freeman, who has been

on the lookout daily for email from Apple,
isn't taking any chances. He says he has
Snapture is a $7.99 camera application that lets lined up a lawyer in case Apple takes legal
users zoom, change photo sizes and instantly
preview photos. action. "The overworking goal is to provide
choice," he says. "It's understandable that
[Apple] wants to control things, but it has been very limiting for developers and users."

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Breaking Apple's Grip on the iPhone - WSJ.com 3/5/09 7:49 PM

Write to Yukari Iwatani Kane at yukari.iwatani@wsj.com

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