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An iPhone is only as good as an ecosystem of apps. In your hypothetical, the only apps launched on iPhone would be those that are either paid apps or which have significant gating via in-app purchases. Many apps would just not develop for iOS if the business model doesn't work. Very quickly, Android would become the platform with a better ecosystem of apps. If 3 or 4 very popular apps are suddenly unavailable on iOS (let's say Snapchat, for instance), the next phone for many people will be an Android device. If Apple starts losing the high end of the device-sales market, they are finished.

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