Flash has been a sticking point with many and of course Apple has laid the blame at Adobe's feet. This mantel of blame was further enhanced when Adobe's own CEO said they were responsible.
But it seems that it might not be Adobe to blame after all. According to an article at Fudzilla it is nothing less than Apple's desire to maintain control over the iPhone. If an unrestricted version of Flash were allowed onto the iPhone, Apple just might lose that iron grip it has. Although I am not sure how much control they think they still have with JailBreak apps so common and easy to use.
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HoweverIn late September and early October lots of tech sites reported comments from Paul Betlem, Adobe's director of engineering, who said that Adobe had stuck Flash on the iPhone. However he pointed out that more work was needed with Apple "beyond what is available through the SDK, its emulation environment and the current license around it to bring the full capabilities of Flash to the iPhone."
Apple has a good reason why it does not want Flash on the iPhone. It would lose control of both it and the iPod Touch as a mobile platform. Apple is even more of a legendary control freak than Microsoft and this is something it just does not want to do.
Certainly there appears to be few places that Flash developers cannot stick their software, so what is it that makes the iPhone is a "hard technical challenge". We can only guess, but the dark satanic rumour mill suggests that it might be that Apple have issued demands to Adobe that mean that it will only install Flash when it does not break the rest of Apple's controls.
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