Even after the 1.0 release Apple went back into death march development mode to polish up a usable SDK. Even that first SDK had a tiny surface area compared all the frameworks available on the OS. It wasn't until iOS 3 that the SDK felt fully functional and not polished until iOS 4.
Web apps were a stopgap. Early iOS was just barely above an advanced demo in terms of quality and functionality. A lot of frameworks didn't even have stable APIs to release for third party developers.
Also, like, the forced carrier apps on every generic phone before the iPhone either ruined or crippled the experience of using the phone, locking you into their shitty ad-laden applications or forcing you through their terrible browsers and web portals.
To me, and several people I knew at the time - It was one of the big appeals of the iPhone that Apple had drawn a hard line at not allowing any of this.
It was 100% actually better for the consumer.
Once it became clear the phone was desirable enough for telcos to leave it alone, he pivoted to what would give him even more control.