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Is The $100 Million iPhone iFund a Good Call?

Apple always likes to have at least one surprise when it makes a product announcement and last week was no exception. When Apple execs were done detailing the company's plans to enhance enterprise support for the iPhone, CEO Steve Jobs had his well-worn "One more thing" to announce.

John Doerr, the legendary venture capitalist and partner at Kleiner, Perkins, Caufield & Byers, joined Jobs on stage to reveal that KPCB was launching a $100 million "iFund" devoted to products and services for the iPhone.

A gushing John Doerr declared: "I love Apple entrepreneurs, who do more than anyone thinks possible with less. They're the rebels and it's touching for me to be here today with the supreme commander of the rebels and an entrepreneur who resurrected Apple to greatness."

KPCB's iFund will be led by partner Matt Murphy in collaboration with other high profile partners at the company: Bill Joy (the former chief scientist at Sun), Randy Komisar, Ted Schlein, Chi-Hua Chien and Ellen Pao. One partner not on this particular project, but who underscores the VC firm's Apple-connection, is former Vice President Al Gore, who is on Apple's (NASDAQ:AAPL) board of directors.

Doerr noted former Apple Fellow Alan Kay once said the best way to predict the future is to invent it. "We say the second best way is to fund it," he cracked.

The $100 million kitty is a lot of money, but nothing new for KPCB, which created a $100 million "Java Fund" back in 1996 with the same idea of helping to grow new companies based on a new platform. Marimba was among the better known companies the Java Fund helped spawn.

Though KPCB was the primary investor in the Java Fund, it did bring in several other large companies to help back it including Cisco, Compaq, IBM, Netscape, Oracle and Sun.

"The Java Fund had a lot of strategic partners. This is more a collaboration with Apple, though it has no direct investment," Murphy told InternetNews.com. "This is more about having the support of the company (Apple) and sharing strategic thinking and areas that are interesting."

And most of those areas will likely be consumer-related. Even though KPCB made the announcement at Apple's enterprise SDK launch, Murphy said he expects 70 to 80 percent of the applications and services the iFund gets involved with to be on the consumer side. "More broadly, the iFund might end up being a good index of where the most interesting opportunities are coming from," he said.

But he thinks most of those opportunities won't be enterprise-related for several reasons. First, he said Apple proved the iPhone can be a mainstream enterprise device by providing native support for Microsoft Exchange. As a result, he expects many established enterprise software players to follow company's such as Salesforce.com that have already announced support the iPhone. "We also want to see what Apple's going to do," said Murphy. "We don't want to do a startup that won't have Apple's support or will be subsumed."

According to a FAQ at KPCB's Web site, focus areas for the iFund include: location-based services; social networking; mCommerce (including advertising and payments); communication; and entertainment.

Apple has set up exclusive distribution of iPhone applications through what it calls its online Apps Store. Developers can submit applications and sell them at whatever price they want to starting with free. Apple said it would take a 30 percent cut of sales and handle distribution, promotion at the Apps Store site and credit card transactions.

Will the big boys play?

GigaOm analyst Om Malik voiced skepticism that Apple, or the iFund, will attract big developers given the amount of control Apple is exercising.

"In other words, any start-up or developer will have its destiny controlled by Apple. As shown by Microsoft, Facebook or Apple itself, a successful app (or an iPod accessory) can be replicated and introduced by the platform owner. I am just trying to understand how a big stand-alone company will emerge when Apple is going to be gatekeeper," Malik wrote in a recent blog post.

Jobs also noted Apple will screen out what it deems to be inappropriate applications, such as porn or anything it determines is malicious or unsafe. His presentation screen also listed "Bandwidth Hog," "Privacy," and "Unforeseen" as application types that Apple won't allow.

Doerr was bullish on the iFund's potential, noting it took far less to fund such blue chips as Google, Electronic Arts and Amazon. "We're witnessing the third great platform, the iPhone and iTouch," he said. "This is about a computer in your pocket, broadband connected all the time and it's personal. It knows who and where you are. That's a really big deal."

But analyst Malik was as pessimistic as Doerr was enthusiastic:

"There are some who have thrown caution to the winds, proclaiming that iPhone and iPod Touch are going to be this humongous sellers and will crush everything over next two decades. Pour souls with little understanding of mobile ecosystem. Does anyone believe that rest of the mobile industry and yes that includes the carriers is going to curl up and get ready for a beat down by Apple."