Will HTML 5 Break Apple's Stranglehold on Apps?

appstore_iconIt’s no secret that the iPhone App Store is a walled garden. Mobile platform developers like Apple (s aapl) have several ways to control what can run on their devices: Prohibit plug-ins like Flash, cripple the Java they run, or simply limit the installation process. But HTML 5, the next big standard for the web, will dramatically reduce this control by creating a new generation of web sites that look and feel like they’re iPhone apps.

Limiting what can run on a phone requires some degree of collusion among the device maker (Nokia (s nok), HTC), the phone operator (T-Mobile (s dtk), Canada’s Rogers), and the application store itself. Many other mobile device makers have policies that are similar to, though less obvious than, Apple’s: Android doesn’t support Flash (but it’s coming), for example, and has a special application for YouTube videos; and some carriers block Skype, location functions and streaming TV. The problem becomes much more noticeable when one company, like Apple, is both a platform and a service provider and co-develops features (like Visual Voicemail) with a single carrier.

HTML 5 is poised to change this. It’s rich enough to do all kinds of things within a browser that once required dedicated applications or plug-ins. Available in Firefox 3.5, and soon many other browsers, it allows advanced graphics (to rival Flash), real-time two-way streaming (including binary data) and audio. Every new feature in browsers chips away at the walled nature of the App Store because it makes web sites behave more and more like dedicated iPhone applications.

So when Apple removes an application, the affected company can rebuild on a web site using HTML 5, and deliver similar functionality. Just look at what Google (s goog) said it would do when Voice was pulled from the App Store. This is one reason why the search giant is a strong proponent of HTML 5: As browsers get more powerful, mobile platform developers lose their stranglehold on the application market.

Apple and others face a difficult choice. They can embrace HTML 5 on mobile browsers, and lose their ability to constrain what applications can do. Or they can cripple their browsers, controlling what runs on their devices but delivering a second-rate surfing experience.

To keep up with the resulting arms race, mobile devices will have to inspect web page content or blacklist specific sites — rather than just blocking a plug-in or removing an app — in order to exclude certain applications. That’s a net neutrality nightmare: If the iPhone blocks, the Federal Trade Commission is sure to come calling. As a result, richer browsers may well tear down the garden walls — and chip at the enviable revenues — of companies like Apple.