The iPhone is the platform

What if "to Google" you required a Google device? Not a Google approved device, but a Google (only) device? What if to purchase from Amazon or eBay you needed a device from these companies, only?

Facebook has 800 million users. What if to use Facebook, to share and like and update and upload, you had to use a branded and controlled piece of hardware from Facebook?

The idea is not so far fetched. Indeed, we seem to be moving quickly toward just such a world. Think Kindle. Google's acquisition of Motorola. The mythical Facebook Fone.

Of course, bloggers, analysts and wannabes consider such hardware devices as, ironically enough, peripherals. A supplement to the core business. And for Google and Amazon and Facebook in particular, the core business is the same: platform.

On the Internet, nobody knows if you're a real business if you don't own a platform.

And this notion of a platform is what confuses so many -- including institutional investors and Big Money that ought to know better. This confused notion of the platform is also why $AAPL trades at such a relatively low P/E, particularly compared to Google and to Amazon (and to Facebook in time).

Money believes that if you control the platform, then you effectively own the market. Google believes this. They build out their server farms and pour billions into Android and offer more and more free services, like email, hotel listings, video, videochat and more not just to profit off your personal data. Just as important, possibly more so, is that they ensure that everything collapses inside their platform, which they own, they control and which they -- almost exclusively -- profit from.

Same with eBay.

Same with Amazon. Amazon is yet another closed walled garden web "platform" that opens itself up only enough to make sure that anything that is sold goes through their platform.

Investors have believed fervently in the notion of the digital web platform for two decades now. The platform is the network, in their view, and owning the network generates greater value and more revenues with each and every new participant. The platform, then, becomes its own de facto market -- and monopoly.

This is why Amazon has a P/E of an astonishing $135. It's why Google has a P/E of $20. 

And it's why $AAPL has a lowly P/E of $13.

Because Apple has no platform. Apple is a hardware company. Despite the fact that Apple is the biggest tech company in the world and earns the most profits of any tech company, and has managed to hold onto shockingly lucrative profit margins on its products for years and years, analysts remain convinced that such profits will eventually collapse.

Not simply because hardware profits are not sustainable. Not simply because so much money is at stake that other highly capable companies, like Samsung, Nokia, Microsoft, Facebook and Google will do everything in their power to copy Apple, limit Apple and in every way possible snatch some of those sales and profits. Rather, the notion remains fixed within the brains of even the smartest investors that hardware, per se, is not a platform. Hardware is not a network.

The idea of the "network effect" originated with the old phone companies, such as AT&T. Each new customer exponentially increased the value of the network. It was not that one more customer had a phone -- a piece of hardware. Rather, it was that one more customer, with their new phone, was now accessing and participating in the network; the platform.

But what if this is no longer the case?

What if the iPhone is the network? What if the iPhone is the platform?

What if the iPhone is able to deliver the uber-high though temporal profit margins found in leading hardware but sustains them -- even grows them -- because it is also the platform?

If so, iPhone alone could become a trillion dollar business in just a few years, as more and more of the world joins this "network". 

The idea is not crazy. 

Would Path exist without iPhone? Would Instagram exist without iPhone? How few would ever use Evernote? Of all the hundreds of millions of Android devices in use around the world, *most* Google mobile searches come via the iPhone. More and more shopping is taking place via the iPhone and iPad.

It is not necessarily because iPhone is so much better than any other piece of hardware on the market. The iPhone is becoming the platform -- for everything mobile and social.

Facebook is growing increasingly dependent upon iPhone users. Same with Twitter.

If the iPhone is hardware than no doubt its profit margins will be forced to come down, and soon. But it may not be just hardware. The iPhone may be its own platform, its own network. If so, $AAPL is likely to explode. And everything you think about the web is inside out.