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.”

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