Everyone is going nuts about the latest Apple iPhone ads, which feature normal people using FaceTime video chat to laugh and cry together.
As far as we're concerned, the jury is still out on whether Apple's new FaceTime iPhone video chat will be the next big thing or just another cool feature that no one uses (please weigh in with your thoughts here).
But there's no mystery as to what Apple is up to strategically.
Right now, FaceTime is a closed system: Both parties need an iPhone 4 and WiFi to use it (that's a seriously limited pool). By hyping FaceTime in its ads, Apple is encouraging both parties to get iPhone 4s, so they can use it. If the pitch works and people like the service, FaceTime will be yet another major asset in Apple's desire to build a closed system that benefits from strong network effects and a huge barrier to entry.
Closed systems with network effects are hard to build because consumers and competitors prefer the convenience of open platforms. When you can successfully build closed systems, however, they make awesome businesses. The more people who use the product, the more valuable the product gets, and the harder it is for competitors to break in and offer another viable choice. Thus, as the network effects really kick in, the leader easily gains more and more market share.
The network effect is the magic that grew AOL into a juggernaut (AIM), gave eBay an early monopoly on auctions, and has powered Facebook and Twitter to global dominance in recent years. It is also the effect that is crowning Foursquare king of the "check-in" world and turning early competitor Gowalla into roadkill.
Apple is already benefiting from network effects with the iPhone thanks to the success of apps and the App Store, which offer a platform for third parties to build on. But the wholesale success of FaceTime would take this to a whole different level.
Thus far, Apple's network effect has made the iPhone more valuable to developers and users by virtue of there being more users, more developers, and more apps on the iPhone than on any other platform. These are powerful but indirect benefits. Widespread use of FaceTime, meanwhile, would instantly make the iPhone vastly more valuable to an iPhone owner, because it would allow you to simply and easily do video chat with your friends. This would encourage whole families and workplaces to adopt iPhones and only iPhones.
Obviously, Android will soon roll out a competitive solution that is available on multiple phones. And obviously there will quickly be apps that make this possible across multiple phones. But based on history thus far, Apple's FaceTime will be far simply, easier, and more convenient that competing solutions for a long while--certainly for plenty of time to build up a powerful network effect.
So that's why Apple's hyping the heck out of FaceTime (that and the fact that, for now, it's a unique feature available only on the iPhone).
Now the question is whether anyone actually wants to use FaceTime. (Again, you can weigh in here).
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