The reasons might be many, but I’ve come to believe that there are just a few key overlapping issues which separate Adobe and Apple on the issue of Flash …
User Interface (UI): Adobe is developing its own cross-platform graphical user interface (GUI) for their applications which is different from Apple’s standard. Its a laudable and sensible thing for Adobe to be doing for end-users, but something which dilutes the value of Apple’s unique and easy to use interface. If the application UI between Wintel, Linux and Apple boxes are essentially the same there is less incentive to pay a premium for Apple hardware. Apple can’t like that much. There’s not much they can do about that on the Mac but they sure can spoil it spreading to the iPhone.
Bypassing the App Store: Since entire web applications and games can run in a Flash player inside a browser there will likely be fewer applications sold via the App Store — and less revenue for Apple. Worse though, since Flash would run those same apps on other phones and computers, this would dilute the uniqueness of the iPhone. Let’s face it, given the choice most developers would prefer to develop cross platform than for a single platform only.
Adding those two things together I can better see why Apple is pushing back on Flash — but of course I wish that they wouldn’t!
Suggested reading: Two years later the Wall Street Journal comes to a similar conclusion “Flash would also allow iPhone and iPad users to consume video and other entertainment without going through iTunes. Flash would let users freely obtain the kinds of features they can only get now at the Apple App Store.” To bypass WSJ’s paywall — at the time of writing — just Google “The Microsofting of Apple?” (with parenthesis) and you’ll find a link to the full version at WSJ’s site.