Jason Snell's article "Time for Apple to open up the iPhone" made me start wondering what exactly would happen if Apple DID allow apps to be installed from outside the app store. (Note: I'm leaving web apps out of the equation.) First, I want to say that I do think it would solve a few problems. Developers would be happy, no doubt about it. Knowing your application can be rejected is a scary thing, especially if it's going to take many hours to create. It would also open up the doors to all those apps that Apple has no interested in being associated with. That sounds like a sweet deal, right? Happy devs, and more choice for consumers …what's not to like?
Here's where the bad starts to roll in, and by roll, I mean snowball. Two immediate consequences would be malware and increased piracy. Not insignificant issues, but if you've read any forum posts on this subject you'll understand why I'm just laying those topics aside. They are obvious, and really not that important to my argument. The first real trouble I see has to do with Apple's entry barrier to the app store. Anyone can download the iPhone SDK and create applications, but you can't put them up for sale unless you pay Apple $99 for the privilege. This is a good thing! It allows anyone who wants to learn how to develop for the iPhone to do so at no cost to them, and it keeps tons of worthless and buggy apps out of the app store. Opening up the iPhone to third party installs would immediately cast a shadow over the app store. Not only would developers not have to pay to play any more, they wouldn't have to fork over 30% of every sale to Apple either. While the majority of smaller devs probably don't mind Apple taking a chunk of their profit in exchange for exposure and no-hassle money transactions, larger companies (with products that need no exposure) may decide to jump ship entirely. It would also open a window for third-party hosting companies without app restrictions to pop up and undercut Apple. If that happened, the genie would be out of the bottle. The app store would no longer be THE place to find apps, and that means the optional Android-like "Install third party apps" checkbox probably wouldn't feel optional for long.
Every advantage Apple's app store provides the iPhone is directly tied to their control over the whole widget. Take that control away and you've essentially got Android (open, with no security or quality assurance). Each model is different, with their own strengths and weaknesses. Weigh the odds and pick your poison.