Dogfight: How Apple and Google Went to War and Started a Revolution (19 page)

By 2010 many consumers in the United States were buying Android phones just so they didn’t have to have AT&T as a carrier. Jobs had been leaning on AT&T executives to speed up its network upgrades since the iPhone had launched in 2007. But he had limited leverage until the start of 2011, when the exclusivity period with AT&T expired and Verizon could also offer the iPhone. He’d considered dropping AT&T and switching to Verizon more than half a dozen times, but concluded the move was too risky. It would have required redesigning the iPhone, because Verizon phones used bigger cell radios than AT&T phones, and there was no additional room in the iPhone case. Verizon cell radios were well known to be battery hogs. Lastly, it wasn’t clear at the problem’s peak in 2009 that Verizon would be able to handle the iPhone traffic any better. “There were plenty of conversations along the lines of ‘Why are we sticking ourselves with this boat anchor [AT&T],’” Bob Borchers said. “But every time we had that conversation, it always came down to the fact that the technology challenges were too high to warrant doing the work.”

*   *   *

Jobs did little to hide his fury at all these problems in 2010. He was
so
vocal that by the fall he was starting to sound defensive, petulant, and pedantic. By then he was not only trashing Android as bad for consumers but publicly questioning the veracity of Google’s sales and activation numbers. It wasn’t just that he felt Google had stabbed him in the back or that maybe he was embarrassed for having misjudged Android’s appeal. He felt that if Android wasn’t stopped, the future of Apple itself was in peril, he told executives. One executive who heard Jobs talk about the issue described Jobs’s feelings this way: “It [Android] was an existential threat. Apple’s business depended on it selling its devices for a lot more than it cost to make them, and then using that money to develop new products. Android’s approach was completely the opposite of this. Google was about growing the platform, without regard to the cost or profit on the devices. It made money off advertising, not hardware.” In Jobs’s opinion the two approaches could not coexist.

Jobs had launched the iPhone in 2007 thinking he’d not only created a beautiful, revolutionary device, but that he was leveraging the dominant content platform in the world, iTunes. Because of the iPod—which by 2007 had sold more than 100 million units—virtually everyone with a computer managed and purchased their music through that software. There was little incentive to use any portable music player other than an iPod, with huge incentives for families to buy more than one. Apple had three different iPod models that came in a variety of colors and capacities. And Apple made sure it was a pain to use competing hardware or software. The only easy way to get music onto an iPod was through iTunes. The best music selection was in the iTunes store, if you didn’t want to rip from your own CDs. And many non-Apple devices wouldn’t connect to iTunes and wouldn’t play all songs purchased through the store.

The iPod-iTunes symbiosis was a powerful thing to behold. Like Microsoft Windows in the 1990s, it was self-reinforcing and in 2007 seemed to be an unassailable fortress. Apple effectively had a monopoly in music players—in excess of 70 percent market share—because of it. Everyone at Apple knew the dynamics of the global cell phone market were different from those driving music players. It was many times larger, and it was dominated by some of the biggest corporations in the world. But when iPhone sales took off, it was hard for Jobs and the rest of Apple not to wonder if history was repeating itself—if the iPhone wouldn’t quickly become just as dominant as the iPod.

For years Apple had worried about every potential competitor in the marketplace—RIM, Nokia, Walmart, Amazon, Dell, Microsoft, and various wireless carriers—breaking the iPod’s dominance. Instead, the reverse had happened. Every competitor made a run at Apple and failed. Meanwhile, the iPhone made Apple even more dominant. It had tied consumers to the iPod by sucking all their music into iTunes. Now something similar was happening because of iPhone owners’ love affair with the app store. Before long, many users had shelled out $50 to $100 in apps, meaning they would have to spend all that money again if they wanted the same applications on Android or another smartphone platform.

But by 2010 it was also clear that Rubin and Android were playing a much more sophisticated game than Apple’s previous competitors. To them the hub wasn’t the laptop or the desktop computer, but the millions of faceless machines running 24-7 in Google’s giant network of server farms—now often referred to as the cloud. Connecting and syncing with a personal computer—the way iTunes was set up—was necessary when devices didn’t have wireless capability or when wireless bandwidth was too slow to be useful. But in 2010 neither was true, prompting Rubin and the Android team to ask, Why tether users to one machine when the Wi-Fi and cellular chips inside smartphones are fast enough to let them have access to their content on
any
machine?

Android now wirelessly synced with virtually all mail, contact, and calendar servers—whether stored at Google, Microsoft, or Yahoo!, or at a worker’s company. Music and movies could be downloaded from Amazon in addition to the iTunes store. Spotify and Pandora offered music subscription services for small monthly fees. Developers were scrambling to make sure that all of the programs inside the Apple app store could be found inside the Android app store too. As for all that content trapped inside iTunes, Google and the rest of the software industry were writing programs that made it easier and easier to get it out and uploaded to Google—or anywhere.

With many new ways to download and enjoy content on Android devices, the penalty for using a non-Apple device that wouldn’t connect to iTunes was diminished. Freed from this control, users were choosing Android devices in droves, and Jobs was desperately worried this trend would accelerate, Apple executives at the time recalled. The monopoly power of iTunes as a content hub had begun to evaporate.

It all exposed an often overlooked component of Jobs’s genius: his basic worldview about technology had not changed since he started Apple in 1976 and built the Macintosh in 1984. While most high-tech executives struggled to adapt to a world that was in constant flux, Jobs had never faltered in his belief that consumers would gravitate to the best designed and most beautiful products. He continued to believe that he alone knew what this incredibly subjective thing was. And he continued to believe that the only way to ensure his vision’s success was to control the entire user experience—the software, the hardware, and the content users accessed. But Android’s rise was now calling all that into question.

*   *   *

Jobs said he never saw the similarity between his fight with Android and his fight with Bill Gates and Microsoft in the 1980s. But just about everyone else inside and out of Apple did. Android and iPhone were in a platform war, and platform wars tend to be winner-take-all contests. The winner ends up with more than 75 percent of the market share and profits, and the loser ends up scrambling to stay in business.

In the Microsoft/Apple fight, Microsoft won by more widely distributing its software, which created a bigger selection of applications to buy, which attracted more customers. Once customers had spent hundreds of dollars on applications that ran on only one platform, it was much harder to get them to switch. Ultimately, everyone started using computers running Microsoft DOS and then Windows because everyone else was doing it. This wasn’t lemminglike behavior but completely rational. Computers were only useful if work performed on one machine could be used on another machine.

This was almost precisely the Android strategy. In 2010 the Android ecosystem was still far from robust. The Android app store was badly organized, and developers had a tough time making money there. Apple’s three-year head start had allowed it to sell nearly 60 million iPhones, create a store with more than 200,000 applications, and establish a developer ecosystem that had been paid more than $1 billion over two years. But because any phone manufacturer could make an Android phone, the size of the Android platform was exploding. By the end of 2010 it was as big as the iPhone’s. And it seemed like only a matter of time before Google fixed the problems with its app store.

More worrisome to Apple was that Rubin could succeed without having to convince many iPhone customers to switch. The number of people worldwide switching from cell phones to smartphones in the coming years was going to be so enormous that he just needed to focus on that group—not necessarily on iPhone customers—to get a dominant smartphone market share. It seemed unfathomable that Jobs would lose two battles the same way a generation apart. But with so many similarities between the two dogfights, it was hard not to think about it.

There have always been good reasons to believe that the Apple/Google fight might not play out like Apple versus Microsoft. Developers seem more capable of writing software for two platforms than they were in the 1980s. The platform-switching costs remain much smaller too. Back then PCs cost more than $3,000 and each software title cost more than $50. Now the costs are less than a tenth of those. A new phone with a carrier subsidy costs $200, and each app costs less than $3 and is often free. Also, third parties—the carriers—continue to have a vested interest in making sure consumers have as many ways to connect to their network, and pay them money, as possible.

But what Google and Apple executives have always understood is that if the battle turns out that way—if somehow their mobile platforms can harmoniously coexist—it will be a historical aberration. Because of the press coverage surrounding the Microsoft antitrust trial fourteen years ago, a huge amount of analysis has been done on how Microsoft built its Windows monopoly in the PC business: if you get enough people using your technology platform, eventually it creates a vortex that forces almost everyone to use it. But these economic forces have not been unique to Microsoft. Every major technology company since then has tried to create the same kind of vortex for its business.

It was, of course, how Jobs had dominated the music-player business with the iPod. It was also how Google in 2004 started to embarrass and challenge Microsoft for dominance in high tech and pushed Yahoo! to the brink of implosion. Google’s top-quality search secured the most search traffic. That gave it the best data about user interests. That data made its search advertisements appearing alongside the search results the most effective. That virtuous circle encouraged more search traffic, more data, and even better search ads. No matter how much Microsoft and Yahoo! tried to attract traffic with lower ad rates and improved search results, Google was always able to offer a better deal.

eBay did the same thing to the roughly two dozen other online auction companies, such as OnSale and uBid. By allowing buyers and sellers to easily communicate and rate one another, it built a self-policing community. That fueled a rapid growth in bidders. The more bidders eBay acquired, the more reliable its prices became. The more reliable eBay’s prices became, the more new bidders wanted to use it. The more bidders wanted to use eBay, the less they wanted to use competitors’ sites. Facebook’s social media platform is the most recent example of the power of platform economics. Its superior technology allowed it to offer users better features than competitor MySpace. Better features made Facebook more useful. The more useful it was, the more data users shared. The more data users shared, the more features Facebook could offer. Soon people were joining Facebook just because everyone else was joining Facebook.

As the mobile platform wars go forward, Google’s and Apple’s ecosystems might be able to coexist long term and generate big profits and innovation for both companies. But given recent history, they will have to fight it out as if it
won’t
happen that way. “It’s like the battle for the monopolies that the cable guys and the phone guys got thirty to forty years ago,” said Jon Rubinstein, the longtime top Apple executive and former CEO of Palm. “This is the next generation of it all. Everyone—Apple, Google, Amazon, and Microsoft—is trying to build their walled garden and control access to content and all that. It’s a really big deal.” In other words, it’s not the kind of thing Apple or Google can afford to be wrong about.

7

The iPad Changes Everything—Again

Jobs’s solution to Google’s Android-everywhere strategy was simple and audacious: he unveiled the iPad. If Google was going to try to win the mobile-platform war on breadth, Jobs wanted the world to know that he was going to win it on depth. Maybe more people in the world would own Android phones than iPhones. But the people who owned iPhones would also own iPads, iPod Touches, and a slew of other Apple products that all ran the same software, that all connected to the same online store, and that all generated much bigger profits for everyone involved.

Only someone with the self-confidence of Jobs would have the guts to set such a high bar. But then, that was what made him so captivating to watch. All Rubin had to do to expand Android was to get it on more and more machines. Like Gates with Windows, he didn’t care which products were hits and which were not as long as in the aggregate the Android platform was growing. For Jobs to make Apple’s strategy work—to grow the iOS platform vertically—he needed to hit it out of the park every time. Every new product Apple released needed to be a success, along with every update of its older products. Indeed, when executives inside and outside Apple wondered if Jobs was making the same mistake against Android that he made against Microsoft—if he was keeping his platform too rigid—it seemed that, if anything, Jobs was
increasing
its rigidity. Starting in 2010 Jobs had more and more Apple products assembled with special screws to make it difficult for anyone with typical screwdriver heads to open the cases of his machines. It seemed like a small thing, but to those inside Silicon Valley its symbolism was large: One of Android’s pitches to consumers was the flexibility of the software and the devices. Jobs was making it clear that Apple was not interested in customers who were tinkerers.