Why not Flash? Because Flash is proprietary, closed system: "...only available from Adobe," Steve says, "and Adobe has sole authority as to their future enhancement, pricing, etc. While Adobe's Flash products are widely available, this does not mean they are open, since they are controlled entirely by Adobe and available only from Adobe. By almost any definition, Flash is a closed system." Steve goes on to say that yes, Apple has closed systems too, but it prefers open standards whenever possible. He also cites Apple giving back to the open source community through WebKit.
Responding to the claims that you can't view the "full web" without Flash (specifically video), Steve points to YouTube, which works just fine on iPhone OS devices, in addition to "...video from Vimeo, Netflix, Facebook, ABC, CBS, CNN, MSNBC, Fox News, ESPN, NPR, Time, The New York Times, The Wall Street Journal, Sports Illustrated, People, National Geographic, and many, many others. iPhone, iPod and iPad users aren't missing much video." Ouch. Of course the scantily clad elephant in the room is porn. Most porn sites distribute their video in Flash, which means that you can't view them on the iPhone. I don't have a business degree, but I wouldn't be surprised if many of these sites work to support H.264 as the iPhone and iPad continue to grow. If any of them have been waiting for the iPhone to support Flash, here's your sign: get on the h.264 bus.
Security and performance issues have dogged Flash for a long time. Charlie Miller, winner of the Pwn2Own contest, recently summarizes browser security by saying "the main thing is not to install Flash". Apple avoids the entire security mess by avoiding Flash. If security isn't important to you, how about performance? "Flash has not performed well on mobile devices. We have routinely asked Adobe to show us Flash performing well on a mobile device, any mobile device, for a few years now. We have never seen it. Adobe publicly said that Flash would ship on a smartphone in early 2009, then the second half of 2009, then the first half of 2010, and now they say the second half of 2010. We think it will eventually ship, but we're glad we didn't hold our breath. Who knows how it will perform?"
Battery life when viewing Flash video is 50% less than H.264. Ouch.
Even if Apple did ignore all those drawbacks, there's a good chance that much of the Flash content wouldn't work anyway, because they aren't designed for "touch." They're designed for "click" and "right click."
Steve definitely saved the best for last. Steve's sixth point: Adobe's track record for supporting Mac is atrocious, so why would we want to put any of our eggs in their basket? "[A]lthough Mac OS X has been shipping for almost 10 years now, Adobe just adopted it fully (Cocoa) two weeks ago when they shipped CS5. Adobe was the last major third party developer to fully adopt Mac OS X." Adobe was also one of the slowest to release Intel versions of their software suite. Now that Adobe wants to release a development tool for the iPhone, Apple doesn't want to find themselves having to wait for Adobe to update their tools to support new releases of the iPhone OS.
In conclusion, Steve sees Flash as the floppy drive of the web. It's no longer needed to watch video. There are plenty of other (and better) games in the App Store. HTML5 is open and doesn't rely on Adobe. Steve ends his letter with this final message to Adobe: "New open standards created in the mobile era, such as HTML5, will win on mobile devices (and PCs too). Perhaps Adobe should focus more on creating great HTML5 tools for the future, and less on criticizing Apple for leaving the past behind."