Following my May 9th post, it seems things have turned worse for some heavy weights. What’s broiling with hedge funds!?
read more.. Bear Stearns bails out hedge fund
Posted by Amr Ismail on June 22, 2007
Following my May 9th post, it seems things have turned worse for some heavy weights. What’s broiling with hedge funds!?
read more.. Bear Stearns bails out hedge fund
Posted by Amr Ismail on June 20, 2007
Europe’s employment rate is almost 10 percent lower than that of the United States. A report published this month by Princeton University Press and written by an international group of leading labor economists suggests, after a two-year research project, that examined data from France, Germany, the Netherlands, the United Kingdom, and the United States, these economists argue that Europe’s 25 million “missing” jobs can be attributed almost entirely to its relative lack of service jobs. The jobs gap is actually a services gap. But, “Services and Employment” asks, why does the United States consume services at such a greater rate than Europe?
Posted by Amr Ismail on June 20, 2007
Two news items caught my eye recently. The first was the report from the Home Depot annual meeting contrasting this year’s investor-friendlier tone set by the company’s new CEO, Frank Blake, with last year’s, led by then-CEO Robert Nardelli. It’s hard to tell how much of the investor-friendlier tone was created by the fact that Blake is earning about 70 percent less in base pay than Nardelli, totally aside from the fact that the latter also took home a nine-figure package in incentives. Home Depot’s stock has had lackluster performance under both CEOs. But there are those who say that Nardelli’s task of leading a transition from a highly decentralized, founder-led organization to one more reliant on shared services and central direction was enormous and that he was making good progress. How much is that worth?
The second item was a report of the decision by Moody’s Investors Service to begin taking into account the spread in pay packages between the top two executives in the organizations whose bonds it rates. Presumably, the larger the spread, the lower the bond rating, reflecting the higher implied risk associated with a large spread. As Mark Watson from Moody’s put it, “We are rating the company, not the person. A bus might come by and knock the (top) person over.”
There are several assumptions implicit in these two items. First, there are limits within which pay can elicit performance. Above a certain amount of incentive, does pay provide an incentive for or even influence performance? The Moody’s decision might suggest the assumption that pay reflects value to an organization, and possibly also potential performance. In other words, one’s pay in relation to the leader reflects one’s value (or even likelihood of being promoted) if the leader were to get hit by a bus today. A third assumption is that good leaders are very hard to find and are worth every penny they are paid, regardless of structural imperfections in the ways that compensation packages are negotiated and determined.
There are a number of reasons why pay may not reflect performance. First, many of the larger pay packages are negotiated by those being hired from outside the organization. Most often, an outside hire is prompted by poor performance by insiders. So in a sense, the bargaining power of the outsider is increased, regardless of the performance that may be delivered later. It is one of several reasons for the careful planning of executive succession. Further, many pay packages are determined on the basis of what others in comparable jobs, regardless of performance, are being paid. This creates a natural disconnect between pay and performance. Third, current pay often reflects past performance, not current or expected performance.
And to what extent does substantial pay for performance elicit short-term decision making that can even exacerbate management turnover? Does it encourage playing the “roller coaster” earnings game, in which executives in an organization can make enormous performance-based incentives in the odd years and none in the even years (ironically, when the large performance-based pay is reported to the public), thus netting a substantial performance bonus while producing little long-term benefits for owners? Is it even fair to ask those lower in the organization, who may be less able to afford it, to put part of their pay package on the line?
If pay is linked to performance, should it be to past, present, or expected performance? Or should pay be linked more closely to past, present, or expected value to the organization? Or are these differences academic? Do cross-company comparisons confuse the matter even further? Just how should pay be linked to performance? What do you think?
Copyright © 2007 President and Fellows of Harvard College
Posted by Amr Ismail on June 20, 2007
It’s a stunning box, a wizard object with a passel of amazing features (It’s a phone! An iPod! A Web browser!). But for all its marvels, the iPhone inaugurates a dangerous new era for Jobs. Has he peaked?
He saunters out onstage, and the first thing you think is, man, Steve Jobs looks old. The second thing you think is, no, not old: He finally looks his age. Well into his forties, Jobs appeared to have pulled off some kind of unholy Dorian Gray maneuver. But now, at 52, his hair is seriously thinning, his frame frail-seeming, his gait halting and labored. His striking facial features-the aquiline nose, the razor-gash dimples-are speckled with ash-gray stubble. A caricaturist would draw him as a hybrid of Andre Agassi and Salman Rushdie. The senescence on display is jarring, but it’s also fitting. After three decades as Silicon Valley’s regnant enfant terrible,Jobs has suddenly, improbably, morphed into its presiding éminence grise.
The stage in question is at the Four Seasons in Carlsbad, California, where Jobs has come this afternoon in May for The Wall Street Journal conference “D: All Things Digital.” Dressed in his customary uniform-black mock turtleneck, faded 501s, running shoes-Jobs sits across from Journal technology columnist Walt Mossberg, who commences with a simple question: Having recently changed its named from Apple Computer to Apple Inc., exactly what business is the company in?
“We’ll very shortly be in three businesses and a hobby,” Jobs replies, projecting the mildest affect he can muster-yet still the crowd is goggle-eyed, as if Bono were in the house.
The cliché of Jobs as rock star is, of course, hoary to the point of enfeeblement. From the start of his career-which is to say, for his entire adult life-he has radiated a mesmeric presence, his “reality-distortion field.” But as Jobs makes clear today, Apple’s reality is no longer in need of much distortion. On the back of the first two businesses he names, the Mac and the iPod-iTunes tandem, Apple racked up $21.6 billion in sales in the last twelve months, and $2.8 billion in profits. Its stock price has doubled in the past year; last month, AAPL was named to the S&P 100, making it a bona fide blue chip. With what Jobs dubs a “hobby,” Apple TV, the company has invaded the sanctum sanctorum of living-room entertainment. Then there’s that third, impending business, which revolves around a gorgeous sliver of palmtop gee-whizzery that you may have heard about: the iPhone.
Ten years ago, when Jobs retook the reins at Apple, the suggestion that the company would be where it is today would have seemed a fantasy-or a joke. Apple was bleeding cash, bleeding talent, bleeding credibility. Its laptops were literally bursting into flames. Its war with Microsoft had devolved into a self-lacerating pathology. Today the Mac is, albeit slowly, gaining ground on Windows. And the iPod, which in less than six years has sold north of 100 million units, has Microsoft choking on its dust.
Mossberg notes this astonishing achievement and inquires of Jobs how many copies of iTunes software are in circulation. At least 300 million, Jobs answers, prompting Mossberg to follow up: “Does the scale of this surprise you?”
Nodding sagely, Jobs responds, “The scale of a lot of things we’re doing surprises me.”
The Steve Jobs story is one of the classic narratives-maybe the classic narrative-of American business life. Its structure has been rigorous, traditional, and symmetrical: three acts of ten years each. Act One (1975-1985) is “The Rise,” in which Jobs goes into business with his pal, Steve Wozniak; starts Apple in his parents’ Silicon Valley garage; essentially invents the personal-computer industry with the Apple II; takes Apple public, making himself a multimillionaire at age 25; and changes the face of technology with the Macintosh. Act Two (1985-1996) is “The Fall”: the expulsion from Apple, the wilderness years battling depression and struggling to keep afloat two floundering new businesses, NeXT and Pixar. Act Three (1997-2007) is “The Resurrection”: the return to Apple and its restoration, the efflorescence of Pixar and its sale to Disney, the megabillionairehood, the sanctification as god of design and seer of the digital-media future.
The consistent thread running through all three acts is Jobs’s singular persona. His messianism has been present from the start: “He always believed,” says Wozniak, “he was going to be a leader of mankind.” Yet the most common descriptor applied to him, by friends and foes and even Jobs himself, is “asshole.” (Running neck-and-neck for second are “genius” and “sociopath.”) His abrasiveness is legendary and omnidirectional. Asked by a writer from Wired, “If you could go back and give advice to your 25-year-old self, what would you say?,” Jobs erupted, “Not to deal with stupid interviews-I have no time for this philosophical bullshit!” Given an early glimpse of the Segway high-tech people-mover, he bellowed, “I think it sucks,” then later called the company’s founder, trashed his CEO as a “butthead,” and said his marketing chief “should be selling Kleenex at a discount store in Idaho.” Implored by the government to take part in the federal antitrust lawsuit against Microsoft, he snapped at the United States assistant attorney general, Joel Klein, “Are you going to do something serious? Or is it going to be dickless?”
And yet the respect accorded Jobs is nearly universal. The employees he’s flagrantly abused later concede that he inspired their best work. The fellow bigwigs he’s derided later admit that he was right. His obnoxiousness, Robert Metcalfe, the founder of 3Com, has said, “comes from his high standards … He has no patience with people who don’t either share those standards or perform to them.” What’s maddening about his mammoth self-regard is that, all too often in Acts One, Two, and Three, it has been justified.
Now, however, Jobs is departing from classical structure and undertaking an Act Four. With the iPhone, in particular, he is hurling Apple into foreign waters. His motivations for doing so aren’t difficult to discern. Somewhere in the neighborhood of a billion cell phones are sold worldwide every year; in terms of scale, ubiquity, and relevance, it’s the mother of all consumer-electronics markets. The chance to upend this sprawling industry, bend it to his will, is one that Jobs, being Jobs, finds irresistible.
Apple’s competitors, by contrast, find the prospect of the iPhone terrifying. “The entire fucking Western world hopes that it’s a case of imperial overstretch,” says the CEO of one of the planet’s largest communications companies. “But everybody is quietly saying, er, what if people want to buy a $500 phone? What if, er, people have been waiting for a device that does all these things? What if this thing works as advertised? I mean, my God, what then?”
The emerging consensus, in fact, is that the incumbents’ dread is warranted. That Jobs is about to do it again-to unleash another object of overwhelming, consciousness-drenching, culture-shifting desire. That Apple’s past is merely preface to a period of increasing and metastasizing dominance.
But what if that consensus is wrong? What if Jobs and Apple have peaked? What if, in terms of power and influence, it’s all downhill from here? These suggestions might seem incredible, but half a century of high-tech history indicates otherwise. What that history imparts is that it’s precisely when the mighty seem invincible that their humbling is close at hand. For proof, just ask the folks at Sony. Or ask Bill Gates. Or, for that matter, ask Jobs himself-although his memory, at this moment, may be a bit cloudy on the subject.
Ten years ago, on an August morning in 1997, I boarded a plane in San Francisco for Boston, where, at the summer MacWorld trade show, Jobs would make it apparent that he was, in effect, running Apple again. I was doing a piece about him and had been laboring mightily, futilely, for weeks to get him to agree to see me. I trundled onto the plane, took my seat, and, whoa, discovered Jobs sitting directly in front of me-being interviewed for six hours straight by a journalist for Time. When the plane touched down at Logan, I introduced myself and asked if he might have time to chat in the next few days.
Jobs: “Sorry, man, I’m not doing any press right now.”
I don’t imagine he much cared for the story that I eventually produced, not because it was especially harsh toward him-it wasn’t-but because of its pessimistic view of his prospects for rescuing Apple. “Years of gross mismanagement, infighting, and mounting losses have gone a long way toward erasing what was left of the Apple myth,” I opined. “In all probability, Apple is destined to become, at best, a break-even company.”
This view, it should be noted, was far from unique, even among Jobs’s admirers. Jean-Louis Gassée, a raffish Frenchman whom Jobs had enticed to Apple and who rose to be its chief of product development, informed me that Jobs was “the most powerful person I’ve ever met. The word charisma-in the true, Greek sense-applies. He has the power to open up your chest and put his fingers inside you.” (Gassée also related a story about going shopping with Jobs years earlier at Hermès in Paris for a gift for Brooke Shields: “He asked if I could tell him how to keep his hair from falling out.”) But when I pressed Gassée on whether he believed that Jobs could save Apple, he answered glumly, “No.”
With the benefit of hindsight, it’s clear that the mistake we skeptics made wasn’t overestimating the depths of Apple’s problems; Jobs told friends the company was 90 days away from bankruptcy. Our error was underestimating him. But it’s worth pointing out that Jobs’s genius, his handle on the warp and weft of American consumer culture, hadn’t been much in evidence the previous ten years. His post-Apple computer venture, NeXT, had built a high-end machine, the design of which was pure Jobs: a stone-smooth ebony cube. But the NeXT box was astronomically expensive and sold in numbers so small they could be tallied on an abacus. (I exaggerate, but only slightly.)
The truth is, we were right to doubt him. The truth is, he was lost. With NeXT, Jobs was extending a stiff middle finger to his myriad critics. They said that he was just a salesman, a slick-talking marketeer-so the NeXT cube would be the most technically advanced computer anyone had ever seen. The critics said that Jobs’s pride, the Mac, hadn’t conquered the world because big business rejected it-so NeXT would target corporations. He abandoned his consumer instincts in favor of a strategy that amounted to, I’ll show you. Recipe for disaster.
But in coming back to Apple, Jobs also returned to his instincts. The first thing he did was launch the Think Different ad campaign, featuring an array of iconic faces: John Lennon, Gandhi, Picasso, Muhammad Ali. The campaign was infinitely narcissistic-the main criterion for the selection of the subjects was that they were Jobs’s heroes-but no less brilliant for it. And, in orchestrating this marketing blitz, Jobs displayed a degree of chutzpa that was astonishing even by his standards. One night at a fund-raising dinner for Bill Clinton in San Francisco in 1997, I was told by an attendee, Jobs pulled the president aside and asked him for a favor: Would Clinton phone his friend Tom Hanks to persuade him to do voice-overs for the ads? (That Richard Dreyfuss ended up with the gig suggests that Clinton, this once, exercised a modicum of judgment.)
But Jobs’s instincts extended far beyond the realm of marketing. His penchant for simplicity caused him immediately to pare down Apple’s product offerings-the roster of which had swollen to include nearly a dozen computers, plus such devices as the handheld Newton. “I met with him shortly after he came back, and he went to the white board and said, ‘Look, our company’s too complicated,’” recalls Sky Dayton, the founder of EarthLink. “He said, ‘We’re going to do just four things,’ and then he drew this grid: laptop, desktop, consumer, business. That was it. And I was, like, ‘Beautiful!’”
When Jobs prepared to launch the first iMac, he was confronted by underlings who told him he was crazy: Every shred of market research had concluded that consumers wouldn’t buy an all-in-one computer. Jobs shot back, “I know what I want, and I know what they want.”
He was right about that, and also in his hunch that, for a growing number of customers, computers that looked as if they’d been hatched with MoMA in mind would be a tantalizing prospect. With the rise of the Web, the computer revolution was, for the first time, becoming genuinely personal. No longer were people using their machines just for serious stuff-documents, spreadsheets. They were using them for purposes that were purely recreational. E-mailing. IM-ing. Downloading purloined music. Devouring online porn. And once the PC entered the realm of fun, it became a province of fashion.
The Mac’s survival depended on more than design and innovation, however. It required something counterinstinctual from Jobs: the putting of old enmities aside. The most glaring example of his corporate statesmanship was the peace pact he signed with Microsoft, but equally important was the mending of fences with microprocessor giant Intel. The embitterment here ran back to a meeting between Jobs and Intel’s Andy Grove in 1977. In a negotiation, Jobs demanded that Grove give Apple, then just one year old, the same price that Intel reserved for its largest customers. Grove indignantly refused. “I thought they were going to be a niche player-I was condescending to him,” Grove tells me. “From then on, in his view, Intel was a piece of shit and nothing we did could change his mind.”
Until 2005, that is-when Apple announced that henceforth all of its computers would run on Intel chips. Today, Mac sales are growing three times faster than the PC market as a whole, a spurt that Jobs puts down primarily to Apple’s switch to Intel. That a dispute so petty, so personal, could fester inside of Jobs’s head for nearly 30 years says a great deal about him. But that he finally let it go says something, too.
The nascent rejuvenation of the Mac naturally brings joy to the hearts of Apple cultists (of which, let me state for the record, I am one). But any cultist claiming that the Mac’s revival is what’s behind the stratospheric ascent of Jobs and the company must be on drugs. The rocket fuel propelling that development has plainly been the iPod.
Launched in October 2001, the iPod was obviously, from the get-go, a wicked piece of gear. At the launch at Apple’s headquarters in Cupertino, California-for which the invitations teased “Hint: It’s not a Mac”-Jobs deployed his best P.T. Barnum juju. “This amazing little device holds a thousand songs and fits in my pocket,” he said. “This is a major, major breakthrough.”
Not everyone was so wowed. In the wake of the collapse of the tech bubble and 9/11, the economy was reeling. Every prior digital-music player-and there had been a bunch-had been pathetic. Apple’s previous dabblings with diminutive devices had all been flops. Expressing a view held by many industry pontificators, an analyst at Technology Business Research declared, “What kind of money is to be made in these products? … [R]ight now it’s a tricky time to be introducing new hardware.”
Even inside Apple, the initial hopes for the iPod were modest. It was conceived as simply another part of the company’s “digital hub” initiative: an assortment of features (iMovie, iDVD, iPhoto, etc.) intended to make the Mac as mediacentric as possible. At the launch, Jobs touted the iPod’s functionality as a spare disk drive. The notion that it would transform Apple from an also-ran computer outfit into a consumer-electronics powerhouse never occurred to anyone.
That “anyone” included Jobs was clear from one decision: his refusal, at first, to make the iPod compatible with Windows-based PCs. By doing so, Jobs was limiting its potential market to 15 million Mac owners-and blowing off the 500 million-strong PC universe. According to Steven Levy, author of the iPod history The Perfect Thing, some members of the iPod team disagreed. But when they argued the point, Jobs exploded. “I remember that day,” an Apple executive told Levy. “He said, ‘I’m never taking this to the PC!’”
But as the iPod attained escape velocity, Jobs relented; by mid-2002, it could be coupled with Windows. The about-face signaled not only that Jobs grokked its implications for Apple’s business. It hinted that his ambitions were in flower-that he saw an opportunity to reshape the entire music business.
Since the advent of the pioneering start-up Napster, the record industry had been waging a fierce rearguard action against the burgeoning file-sharing insurrection. But Jobs, with his cred in Hollywood, thanks to Pixar, believed he could bring the record labels around to online music sales. He approached them one by one, shucking, jiving, promising that Apple would implement technology-digital-rights management (DRM) software-restricting the ability to copy tracks willy-nilly. But the resistance of the labels was intense. “They were concerned about letting tracks out into the wild based on their experience with peer-to-peer [file-sharing],” explains Alan McGlade, CEO of the online software firm MusicNet. “It took them a while to get over it.”
But get over it they did-in no small part, ironically, because of Apple’s piddling computer-market share. “We only convinced them to let us do it on the Mac at first,” Jobs told Levy. “We said, ‘Well, if, you know, if the virus gets out, it’s only going to pollute 5 percent of the garden.’”
The iTunes music store went live in April 2003, hawking 200,000 tracks for 99 cents apiece. Six months later, Jobs persuaded the labels to let him sell songs to Windows-connected iPods. The labels were jubilant that people were actually paying for music on the Web. Sweeter still, they were getting two thirds of the revenues from every iTunes download.
The iTunes store has now sold over 2.5 billion songs-and directly contributed next to nothing to Apple’s bottom line. But Jobs never intended to make a bundle by retailing music. The purpose of the iTunes store was strictly to sell more iPods. To that end, the DRM on iTunes songs keeps them from being played on any rival music devices, such as Microsoft’s Zune or Sony’s digital Walkman. And tracks downloaded from rival services such as Rhapsody or Sony Connect cannot be played on iPods.
Jobs is unrepentant. “If you look at the total number of iPods we’ve sold and you look at the total number of songs we’ve sold on iTunes, it’s less than 25 per iPod,” Jobs argued at the D conference. “And the average iPod user has hundreds of songs on their iPod. So they’re clearly not getting the majority of their songs from iTunes; it turns out they’re not even getting a medium-sized minority from iTunes. And so this whole notion that somehow … iTunes is locking people into buying iPods is ridiculous.”
Is it ridiculous? Certainly, Jobs is correct when he says that the reason people buy the iPod is that it’s the best portable music player out there. But the link between the iPod and iTunes is also a barrier to entry for competitors. It’s designed to limit consumer choice, to foster reluctance among consumers who own iTunes tracks to switch to other devices. It has prompted complaints by European governments to the European Commission-which so far have come to naught.
More broadly, though, the resentment over the DRM on iTunes is only growing. In certain quarters of the music industry, Apple is coming to be seen less as an enabler than a gatekeeper. And among some consumers, including this one, the fact that iTunes tracks can be copied to only a limited number of computers, and are of sub-CD quality, is a deal killer. Together with myriad other factors, some economic and some technological, these cavils are stirring up a second online music revolution-one portending nothing good for iTunes or the iPod.
‘Apple turned the tide,” Shawn Fanning was saying as we consumed a copious lunch at my favorite taqueria in Austin, Texas. This was two years ago, at the South by Southwest music festival, where I’d come to talk to Fanning, the renegade progenitor of Napster, about his next venture, a start-up called Snocap. “What Jobs showed the labels was that people were willing to pay for music, even though they could get it other places for free. It changed the environment from where the industry was hostile to where people saw the opportunity.” Fanning leaned backed and adjusted his Red Sox cap. “But the music business doesn’t want just one or two retailers to control the entire market. And the à la carte, 99-cent model isn’t the only way to go.”
Two years later, Snocap is handling the technology for one of the key players in the online music world: MySpace, the social-networking colossus owned by Rupert Murdoch’s News Corp. The system the companies have concocted allows bands to sell their music directly from MySpace pages. Unlike with iTunes, the songs are sold at whatever price the bands decide. And they’re delivered in the MP3 format, which has no DRM, letting consumers stick them on any music player, including the iPod.
MySpace and Snocap are not alone. Last month, Amazon.com announced it would, at long last, dive into music retailing and open up a download store by the end of the year that will offer DRM-free MP3s. At the outset, the Amazon storefront will be stocked only with tracks from independent labels and one major, EMI. But the widespread expectation is that other majors will soon hop on the bandwagon. Universal, for one, is already experimenting with unprotected files in Europe. And the company is reportedly talking with Google about a deal to sell MP3s.
Any movement this conspicuous would never escape Jobs’s attention. Seeing a parade about to pass him by, he raced out it front of it and promptly declared himself grand marshal-first penning an open letter to the music industry calling for an end to DRM and then, last month, launching a DRM-free service called iTunes Plus, selling unprotected tracks for $1.29 each.
But DRM-free is only one cannon shot in a fusillade of digital-music developments. There’s the proliferation of Internet-based subscription services such as Rhapsody, Yahoo Music, and the reincarnated Napster, all of which let users stream millions of songs for a monthly fee. (They can download, too, just not to iPods.) Then there’s the wave of music-discovery Websites, including Pandora (personalized Internet radio), the Hype Machine (music-blog search and listening), and Last.fm (social networking), which was just purchased by CBS for $280 million.
“All this stuff is Apple’s blind spot,” says Fred Wilson, the New York venture capitalist and rabid music buff. “Right now, the download model is necessary because I want to take music in the car or to the gym. But once we have true mobile broadband, the streaming model is going to take off. Then there’s never really going to be a need to own files at all. It’ll all just be there in the cloud.” As for music discovery, Wilson says, “I’ve never found one single artist or song on iTunes … It’s an online version of Tower Records, only worse.”
MusicNet’s McGlade, whose products compete with iTunes, agrees. “The issue with download purchases is that every time you want to hear a track, you’ve got to make a buying decision,” he says. “I gotta tell you, once you put people on a subscription service, they can’t go back.”
What does all this mean for iTunes? The impending end of its hegemony. The success of iTunes has been built on being a stupid-simple, aesthetically pleasing way to buy music online-and the carefully cultivated perception that it’s unique in providing that experience. But iTunes is rapidly being eclipsed, rendered ordinary, even antediluvian. As Martin Stiksel, a founder of Last.fm, told me last month in London, “Apple served their purpose already. They validated the space. Thank you very much, Steve, for that, but now we don’t really need you anymore.”
The ramifications for the iPod are less dire, but still grim. In a world of abundant, unprotected MP3s, in which the leverage from iTunes is diminishing, the iPod is likely to confront a more competitive landscape. “They’ll still be the biggest fish in the pond, but their margins will get squeezed,” says a Silicon Valley pooh-bah who counts Jobs as a friend. “It’s Economics 101: When there are no barriers to entry, prices fall to equilibrium. But that level won’t be interesting to Steve. MP3 players will be like CD players-cheap commodities.”
This person adds, “I think that we passed the high-water mark for iPod profitability about six months ago. I don’t see it going anywhere but down. All of which is why the iPhone is so important for Apple.”
It took half an hour, no more than that, after Jobs unveiled his gleaming new toy for the bloggers to dub it the Jesus Phone. Here was the gizmo we’d all been pining for lo these many years: a music player, camera, e-mail tool, Web browser, and cell phone, all rolled into one impossibly seductive package. After watching Jobs enact the ta-da moment with typical brio-”I didn’t sleep a wink last night”-even cynical observers were smitten. “What a weird fucking day Tuesday was,” Josh Quittner, the editor of Business 2.0, remarked. “It was as if we were all participating in a shared consensual hallucination … All these supposedly hard-bitten tech reporters wandering around like they were getting laid for the first time.”
The panting over the Jesus Phone must have satisfied Jobs no end: Every product he crafts he regards as a sacred object, the primary aspiration of which is to incite naked lust. And in the months since then, the breathing has only gotten heavier. At the launch, the sales goals Jobs set forth were demure: 1 percent of the world market, about 10 million units, by the end of 2008. But industry analysts are less bashful. Piper Jaffray’s Gene Munster forecasts sales of 15.6 million units in that time-and 45 million in 2009. “Apple has been so good at executing these different multimedia elements with the Mac and iPod that they might be able to take over with their phone,” says a London-based telecom investor. “Nokia and the rest of those guys are absolutely shitting themselves.”
Jobs has done little to dampen either the giddiness or the panic. “It’s the best iPod we’ve ever made,” he says of the iPhone. “It’s an incredibly great cell phone … And it’s the Internet in your pocket for really the first time. If it was any one of those three, it would be successful … but it’s all three!”
Rarely has Jobs’s reality-distortion field emanated such potent vibes, obscuring the gaping potholes into which the iPhone could tumble. The first is price: $499 or $599, depending on storage capacity. “Five hundred bucks for a phone?” Microsoft CEO Steve Ballmer recently said to an audience of high-school students. “I wouldn’t want my kids carrying it around. Anybody here ever lose a cell phone besides me?”
Next on the list is one of the iPhone’s ostensibly slickest features: its touch-screen virtual keypad. When Jobs was asked in Carlsbad how much debate there was inside of Apple about eschewing an actual keyboard, he replied, “Uh, none.” None? “We actually think we have a better keyboard,” he said. “It takes a few days to get used to … Once you learn how to trust it, you will fly.”
But for serious e-mailers-the sort of businesspeople likeliest not to blanch at the iPhone’s price-the absence of a keyboard is hugely problematic. Sky Dayton, whose latest start-up, Helio, sells a rival smart phone called the Ocean, points out that touch-screens on electronic gadgets have a pretty miserable history. Helio considered and rejected using one for the Ocean, Dayton says, because of “the fundamental need for tactile feedback when you’re typing-it’s like, ‘I’ve got thumbs and I want to use them.’?”
Dayton goes on to enumerate what he sees as the iPhone’s other shortcomings: “No removable battery. No removable memory. No GPS,” he says. “It has a bigger screen, so watching a movie on it will be better-but with no removable battery, you’re not really going to want to do that and make phone calls. So you’ve got the houseboat problem: It’s neither a house nor a boat, it’s both, and it’s not particularly great at either.”
It’s only fair to note that many of the doubts about the iPhone are being conjured by Apple’s adversaries. But that doesn’t mean that their contentions should be discounted automatically as bogus-though Jobs, no doubt, would argue vigorously to the contrary. Indeed, the scorn he heaps on his foes is scathing and total. “The usual suspects will try to copy the [iPhone] hardware, and it will take them some time, and maybe they will and maybe they won’t be able to,” he maintains. “But the software is at least five years ahead of anything we’ve seen out there. And it’s really hard to do.”
Nobody sensible would deny that Jobs is right that the software on cell phones and wireless e-mail devices is almost comically bad. But maybe not forever. For the past two weeks, after meeting Dayton at Helio’s offices in Los Angeles, I’ve been demo’ing an Ocean. Its design isn’t as quite as snazzy as the iPhone’s, but it’s pretty cool-and maybe more functional. The device is what’s called a dual slider: Push the face of it upward, there’s a phone keypad; push it sideways, there’s a keyboard. And its software is smart, intuitive, and impishly graphical, with an aesthetic that nods toward anime.
The point here isn’t that the Ocean is a serious threat to the iPhone; Dayton’s start-up has fewer than 100,000 customers so far. The point is that Apple is entering a crowded and quickly changing sector-one populated not only by massive companies such as Nokia, Motorola, and Samsung but also with scrappy, innovative upstarts.
And all these companies have one distinct advantage over Apple, which is that they already understand and are accustomed to coping with the biggest albatross around the neck of the cell-phone business: the carriers. Making matters worse for the iPhone, the carrier Jobs chose to deal with exclusively-for the next five years, no less-is the “new” AT&T, formerly Cingular, which is widely seen as having the slowest network and the worst technology of the major players. (It’s safe to assume the terms of the deal were the most favorable on offer.)
Some critics have wondered why Apple didn’t release the iPhone as an “unlocked” device that could be used with any carrier. “No way,” says a venture capitalist who knows the cell-phone market inside out. “The mobile business is the best business in the world, and the operators are not going to be willing to let any device manufacturer take on their subscribers. Nokia has been trying to establish a direct relationship with the customer for twenty years, and they haven’t been able to do it. You have no choice but to do a deal with the devil. And you know it kills Jobs to have to do that deal.”
Undoubtedly. For 30 years, Jobs has hewn to the conviction that Apple’s strength is that, as he puts it, the company makes “the whole banana”-hardware, software, and everything in between. This approach is no small part of the reason that the Mac was trounced in the PC market by Windows. On the other hand, it explains why Apple thumped everyone with the iPod. Whatever its virtues and demerits, however, the whole banana has been Jobs’s ideological touchstone. And now he is entering a business where success or failure will depend on the efficiency and savvy of not just another company, but of AT&T. Oy vey.
Yet the whole banana isn’t the only shibboleth that Jobs is jettisoning with the iPhone. Another is the company’s laserlike focus, which is being sacrificed at the altar of both the iPhone and Apple TV-Jobs’s attempt to put the company at the intersection of the Web and television. At the D conference, Jobs announced a deal to deliver YouTube via Apple TV. He also said that, though initially he thought of the product as a next-generation set-top box, his strategy had changed: “One day we realized, wait a minute, there’s a lot more DVD players out there than there are set-top boxes … We just want to be a DVD player for this new Internet age.” Some hobby.
The risks for Apple of being stretched too thin by wading into two gargantuan markets simultaneously are already becoming apparent. For years, one of the company’s greatest strengths has been its ability to improve the Mac operating system at a staggering pace. But, in April, Apple was forced to delay its next OS upgrade from June until October-because it needed to shift engineers over to the iPhone project.
“He has no idea of the difficulties he’s bringing on himself, trying to do so much, so fast,” says the CEO of a conglomerate for which overstretch has always been a problem. So what advice would he offer Jobs?
“I wouldn’t give him any advice,” comes the reply. “Because he’d never take it.”
A few hours after Jobs’s conversation with Walt Mossberg at D, the crowd started lining up for what was billed as a historic reunion: For the first time in eons, Jobs and Bill Gates would be appearing together on the same stage. Naturally, the hope was that they would pound furiously on each other-verbally, that is; actual fisticuffs seemed a dream too far-and there was reason to believed that such prayers might be answered. Earlier in the day, Jobs had quipped, in answer to a question about the popularity of iTunes on Windows, “It’s like giving a glass of ice water to someone in hell.”
Gates was apparently furious about the crack. And not surprisingly, for it touched a nerve that had been raw since 1996, when Jobs had uncocked a scorching and widely noted critique of Gates’s company in the PBS documentary series Triumph of the Nerds. “The only problem with Microsoft is that they have no taste,” Jobs said. “They have absolutely no taste, and I don’t mean that in a small way. I mean it in a big way-in the sense that they don’t think of original ideas and they don’t bring much culture into their products.”
The Jobs-Gates onstage duet lasted nearly 90 minutes and was mostly sweetness and light. But then, at the end, a question from the audience elicited an outpouring of sublimated rage: What had each man learned from the other?
Gates stroked his chin for a long moment, then smiled a mischievous smile. “Oh,” he said, “I’d give a lot to have Steve’s taste.”
Jobs stared down, shooting daggers at the floor. Then, when it came his time to answer, he said wanly, “Because Woz and I started the company based on doing the whole banana, we weren’t so good at partnering with people … Bill and Microsoft were really good at it.”
The joint interview was revealing on other levels, too. Whereas Gates came across as entirely at ease, almost avuncular, Jobs was coiled as tight as a spring. Whereas Gates spoke happily about the marks, technological and philanthropic, he would leave on the world, Jobs squirmed at the notion of bequeathal, with its intimations of mortality. “I don’t think about legacy much,” he said. “I just think about being able to get up every day, and go in and hang around these great people, and hopefully create something other people will love as much as we do.”
Maybe Jobs’s queasiness with thinking about legacy comes from the pancreatic-cancer scare he received, and eluded, a few years ago. Or perhaps it comes from another sort of brush with death-the Apple stock-option backdating scandal that embroiled him recently-which he also has managed to survive. Some of his friends say these close calls have mellowed him. “I see him around the neighborhood,” says one. “He looks different than he did a few years ago. I think he may want to do something else.”
Say what? “I think that Google is going to buy Apple,” this person says. “It would be a victory for Apple; they’d get major-league partners, money, and engineers. And it would be a victory for Steve-a huge win that lets him leave the stage.”
The speculation about Google has a ring of plausibility. Google CEO Eric Schmidt is now on the Apple board; engineers at the two companies are collaborating on Google Maps for the iPhone; and then there’s the YouTube deal for Apple TV. But is there any reason to think that in such a merger Jobs wouldn’t wind up as CEO-or, at least, chairman of the board?
No, there isn’t. If anything, it seems to me, Jobs’s vaulting ambition, his sense of omnipotence, have only been enhanced by his recent triumphs-and traumas. He has beaten back death, literally and metaphorically. He has returned to his first love, repaired the broken marriage, and made the bond more intimate than ever: Jobs and Apple are one, indivisible. Now, with Gates soon retiring from Microsoft, and with Grove and so many other Valley potentates of his generation having left the scene, Jobs stands alone atop the high-tech heap. This is the position he has longed for all his life. The likelihood of his surrendering it voluntarily is vanishingly close to nil.
Of course, if the iPhone is a runaway success, Jobs won’t have to surrender anything-and it very well may be. Less than two weeks from now, when the phone hits the streets, the consumerist pandemonium will likely be hysterical. Once again, Jobs may have fashioned a totemic object that will capture the culture-and cause rival CEOs to have coronary events. No one else in history has pulled of this kind of coup, as Jobs has, with four different products. The Apple II. The Mac. The iPod. The computer-animated feature film. Betting against a track record like that would be a dangerous wager. Especially when you know, deep down, that you want an iPhone. Bad.
But Jobs has been wrong before. And if the iPhone proves a disappointment, his reputation will take a precipitous tumble: from unerring visionary to just another overreaching mogul. What’s at stake for Jobs, then, isn’t money or power-for no matter how the iPhone fares, he’ll still have both in abundance. What’s at stake is the thing that now must matter to him above all: the ending of his story.
Source: New York Mag