After responding to a couple of journalists seeking his reaction via email, Mueller sent out one last tweet: “In a few years, the San Jose verdict may—I repeat, MAY—be remembered as the tipping point that sent Android on a downward spiral.”
Then he went back to bed.
14
Typhoon
Days after the verdict, Korea came under assault from the worst storm in nearly a decade. Typhoon Bolaven swept onto the peninsula with top winds of 114 miles per hour. Schools closed, flights were canceled, and coastal towns were evacuated. The storm left a trail of at least fifteen deaths and more than $350 million in damages nationwide.
Chairman Lee Kun-hee, however, did not let the typhoon stop him from showing up at Samsung’s headquarters that Tuesday at 6:20 a.m. The sky had barely turned light when he stepped out of his black Maybach car. Flanked by bodyguards, Lee entered the lobby of the company’s three-building glass complex. Samsung’s distinctive buildings stood out among the gleaming skyscrapers. Modeled after puzzle blocks, the design had been chosen to inspire creativity.
Samsung Group’s headquarters was located in a forty-four-story building that housed an enormous corporate cafeteria and two day-care centers. That morning, when Lee arrived, the building was virtually empty. The chairman walked past the reception desk and into the elevator. As he rode up to the top floor, a small LCD screen flashed the news of the day.
It had been four days since the verdict across the Pacific. Lee knew the outcome, but his shaken executives had not yet been able to face him to explain how it had gone wrong.
As the storm raged outside in the predawn darkness, Samsung’s electronics chief met with the chairman over the abysmal verdict. For two minutes, he was silent.
“Jal hara,” he finally said. Do your best.
Lee’s every syllable was parsed for meaning. This was a man who commanded attention. The same man who had consigned $50 million of inventory to the flames just to make a point to underperforming employees.
He was seventy now, and his black hair was marching toward gray. He had suffered his share of setbacks and humiliations, but he still possessed a ferocious will to dominate. To him, the battle with Apple was part of Samsung’s destiny, and he fully expected his company to triumph.
If a killer typhoon didn’t slow him down, the old chairman was not likely to be intimidated by the opinion of nine American jurors.
Apple’s lawyers had no illusions. As they checked out of the Fairmont and cleared the war room of their files and memos and slides, they were careful not to get too excited. Too much work lay ahead. The California trial was just round one. They still needed to get a court injunction that would block Samsung’s products from the U.S. market, and they knew Samsung would keep fighting. Even so, a wave of relief washed over the legal team. All their grueling hours of trial prep—the sleepless nights, the sunrises greeted at their laptops as they drafted yet another brief—had paid off at least for now.
“I can’t tell you how much of my life I spent on this,” an Apple attorney told an acquaintance.
At Morrison Foerster, the winning lawyers allowed themselves a small victory party, but it was little more than a happy hour with champagne. For many of the staff attorneys, an appreciative note sent around by Bill Lee meant more than any toast. Before the verdict was announced, Lee had written to everyone who had worked on the case, including those outside his own firm. The gist of the email was that, whatever the outcome, they should be proud that they had acted as honestly as possible and had done the best job to represent Apple’s interest.
The verdict, however, was already in danger of being outpaced by the realities of the marketplace. What seemed a triumph on the surface was edging toward irrelevance. The phones and tablets that had been part of the case had involved older Samsung models, so the latest products wouldn’t be immediately impacted by the decision. Would Apple’s win convince more consumers to buy iPhones and iPads? The answer was likely to be no.
Apple’s victory had come at a cost that went well beyond the attorneys’ fees. When Jobs declared thermonuclear war, he had wanted to paint Samsung as a copycat. Even though Jobs had not lived to see the verdict, he had succeeded. But outside of Apple, few people cared. If anything, Apple’s attack on Samsung had validated the Korean company as a worthy rival and supplied it with free advertising. Samsung was already building on its Galaxy successes and using its increased brand power to sell new, original devices such as the smartphone-tablet hybrid Galaxy Note. Samsung had sold more than ten million of the original “phablet” model. Even in the West, it was proving particularly popular among users who appreciated the larger screen but didn’t want to carry around both a phone and a tablet.
Around the world, analysts were attempting to divine the true impact of the verdict. Some industry observers worried that Apple’s big win could allow big companies to defend themselves more readily and force out smaller competitors. In the smartphone industry alone, an estimated $20 billion had been spent on patent litigation and patent purchases between 2010 and 2012. Apple and Samsung had each spent tens of millions of dollars in legal fees.
“When patent lawyers become rock stars,” said former Apple general counsel Nancy Heinen, “it’s a bad sign for where an industry is heading.”
Apple’s win also put an uncomfortable spotlight on its motivations. Why was the company wasting so much time, money, and energy protecting its older technologies if it had game-changing products up its sleeve? Could it be that there was nothing more in the pipeline? Steve Jobs was famous for never looking back. But perhaps the company now had too much to lose.
UBS analyst Steve Milunovich posited that the victory could come back to haunt Apple. “The real threat is not a competitor beating Apple at its own game but instead changing the game,” he wrote in a research note. “The likelihood of Apple being leapfrogged or a rival creating a new category is greater if they have to think outside the box.”
So far, the innovation that Apple had demonstrated since Jobs’s passing had been lackluster. Siri so far held great promise but its underperformance compared to Apple’s overhyped marketing had sabotaged its credibility. A year after the service’s hapless debut, Siri was a tangential feature at best.
Apple had been down before—in a hole much deeper than this one—only to claw its way back, ultimately proving itself more resilient and profitable than anyone could have predicted. But if the company was going to get back on track, it needed another dazzling advance—another innovation that would restore its reputation as a game-changer.
Apple was plotting another coup, this time by air. For months, a fleet of planes and helicopters had been flying around the world—above the Sydney Opera House, Big Ben in London, the Transamerica Pyramid in San Francisco, as well as numerous other locations from Europe to Asia to the United States. Operating at low altitudes, each aircraft was equipped with cameras that captured the topography below.
The empire was mapping the globe. For years, Google Maps had been a default app on iPhones and iPads. Now Apple was quietly working to supplant that feature with a mapping app of its own. In the battle for mobile dominance, control over the feature was crucial. If Apple could weave its own mapping technology more deeply into its devices and improve on the user’s experience, that advance could become a key point of differentiation. With a more sophisticated mapping function, for example, Apple’s calendar could inform users when they needed to build in more traveling time to account for heavier traffic.
Google was becoming an increasingly powerful competitor, and Apple was reluctant to rely so heavily on the enemy. Tension between the two sides had mounted in 2008 during discussions to renew their agreement over the mapping app. Apple wanted features that Google offered in its Android version, such as turn-by-turn navigation and the ability to see a photo of a location from the street. Apple was also concerned about the data that Google was gathering from the app. Location information was becoming very valuable as marketers sou
ght to target more relevant ads to consumers. By giving it away to Google, Apple was making its competitor stronger.
The breaking point came as Apple worked on an update for its iOS mobile operating system for the iPhone 5. Though more than a year remained in the contract between the two companies, Apple decided to replace Google’s map app with its own. In anticipation, the company acquired several firms, including a 3-D mapping company called C3 Technologies, based in Sweden.
Apple’s plan was to introduce the new application at WWDC that summer of 2012, but blogs and news media spilled the news ahead of time, depriving Apple of the big reveal. The first hint had come the year before when researchers discovered that iPhones were collecting location data and transmitting them back to Apple. The company’s acquisitions of mapping companies and the growing strain between Apple and Google had been reported as well.
By that June, when WWDC opened, any mystery surrounding the unveiling of the maps had been shattered—a bad omen, given Apple’s need to protect its glittering reputation. After Siri, the company needed to get this right. Cook and his team had to impress the audience with a flash of the old magic.
The moment the keynote began, though, it was clear that something was off. In a wince-inducing introduction, the company chose to open with Siri telling cheesy jokes.
“Hello and welcome to WWDC. I’m Siri, your virtual assistant,” said the familiar robotic voice, emanating from an iPhone shown on a big screen. “I was asked to warm up the crowd, which should be easy since the high will be seventy-five degrees.”
A set of drums played a rimshot. Ba-dum-tshh.
“So here we are in San Fran, the ATM of Silicon Valley. If you developers need investors to finance your app, I found three hundred ninety-six venture capital firms fairly close to you.”
The drums played again. Ba-dum-tshh.
Soon, Siri was taking cracks at Apple’s rivals.
“Hey, any of you guys working with ice cream sandwich or jelly bean,” Siri asked, naming Google’s names for its Android operating system. “Who’s making up these code names. Ben and Jerry?”
Ba-dum-tshh.
“But seriously, I am excited about the new Samsung. Not the phone. The refrigerator. Hubba hubba.”
For Apple, which always banked on its cool, the opening was jarring. In years past, the company had held itself above the competition. Now it was using Siri to make cheap potshots. The gag was painful, because it hinted at a growing desperation inside the empire. Besides, anyone with an iPhone knew that Siri was incapable of banter—even lame banter. Apple insisted on pretending otherwise.
The strained enthusiasm was still showing when Scott Forstall bounded onto the stage.
“All riiight . . . let’s talk about iOS,” he began. “I find it incredible that through the end of March we have already sold more than three hundred and sixty-five million iOS devices.”
Forstall spread his arms wide to illustrate the magnitude of the accomplishment. In talking up the demand for iPhones and iPads, he appeared to be giving himself a big pat on the back. As the lead manager of the mobile operating system, Forstall took credit for much of the iPhone and iPad’s success. Revenues from mobile devices now eclipsed that of Apple’s traditional mainstay Macintosh business.
Forstall eventually turned to the maps app.
“We have built an entire new mapping solution from the ground up, and it is beautiful,” Forstall said, boasting about how the company had done its own cartography. He showed how users could easily look up information about businesses and see where there were traffic jams. Forstall was particularly proud of the 3-D mapping feature, which Apple had dubbed “Flyover.”
“We have been flying major metropolitan areas around the world,” he said, demonstrating how you could pull up the Sydney Opera House and rotate it to see the cityscape in the background. “It is gorgeous!”
The overenthusiasm, the parade of forced superlatives, the silly put-downs of the competition—all of it seemed to betray a deeper insecurity.
Apple’s growing defensiveness was even more apparent three months later when the company unveiled its latest phone. A small rotating pedestal rose from the stage, and a tiny spotlight beamed onto the iPhone 5.
“It is an absolute jewel,” Schiller gushed. “It is the most beautiful product we have ever made, bar none.”
As reporters craned to see, he showed it on the screen so they could get a better look.
“It is really easy to make a new product that’s bigger. Everyone does that.”
The audience understood that he was taking a jab at the Galaxy Note. Again, the remark signaled Apple’s increasing vulnerability. If Samsung was such a lousy company with such inferior products, why was Apple mentioning them at all? Schiller just kept going.
“That’s not the challenge,” he said. “The challenge is to make it better and smaller.”
Sticking to the script, the marketing chief gave a loving description of the iPhone 5—how its case was made entirely of glass and aluminum, how at only 7.6 millimeters it was the world’s thinnest smartphone, 18 percent thinner than the 4S. It weighed just 112 grams, which was 20 percent lighter. Its screen size was four inches, up from three inches, allowing for an extra row of apps. The pixel count in the display was 1,136 by 640. Its width was just big enough for most thumbs to maneuver things on the screen while holding it in the same hand. Its length allowed users to see more content. The processor was twice as fast. It was compatible with LTE wireless networks, which were ten times as fast as the older 3G networks. As always, Schiller radiated enthusiasm, but his breathless litany of specs made him sound like a stereo salesman pimping another amp.
Then came a video of Jonathan Ive, talking about the creation of the new phone as though it were a holy relic.
“Never before have we built a product with this extraordinary level of fit and finish.” Ive explained how complex its manufacturing process was. The surfaces of the aluminum enclosures were machined before being polished and textured. The symmetrical sloping beveled edge of those frames, called the chamfer, was cut with a crystalline diamond to create “a near mirror finish.”
Despite the executives’ best efforts to jazz up the launch, the presentation was long on technical features and notably short of the sense of mystery that Jobs had so powerfully conjured. A Japanese newspaper reporter who used to write about Sony was struck by how Apple’s presentations now resembled the product launches of other electronics makers, crowing about details that few consumers cared about. The wonder was gone.
Apple had never been about technical specifications. It was late to integrate 4G networks, and it had yet to offer near field communications, an emerging technology that promised to allow users to easily exchange data or make purchases by putting devices near each other. Consumers bought Apple products because they seemed magical. While its rivals tried to one-up each other with the thinnest, lightest, or highest-resolution phone, Apple focused on the look, feel, and user experience, which was usually captured with a bewitching tagline designed to evoke an immediate emotional response in consumers. The original iPod: a thousand songs in your pocket. The original iPhone: the Internet in your pocket. The iPad: a magical and revolutionary device.
The iPhone 5’s tagline: “The biggest thing to happen to iPhone since iPhone.” Unless Apple was literally talking about the larger screen, it was unclear from the presentation what the big deal was. The tagline was uninspired.
Focusing on technical features invited unwanted comparisons to its competition. Several of them, including Samsung, manufactured many of the key technologies themselves. Reviewers would later line up the iPhone 5 with Samsung’s newest model. Though they were positive overall, they noted how the iPhone 5 lacked the long battery life and memory of the Galaxy SIII. Most people didn’t understand or care about the subtleties. Everything that they wanted already existed in the phones they were carrying, so these latest improvements seemed incremental and boring.
&nbs
p; That quarter ending in September, Apple’s smartphone market share fell to 14.6 percent from a peak of 23 percent at the beginning of the year. By contrast, Samsung’s share rose to 31.3 percent, more than triple its share from just two years earlier. Though analysts had initially expressed concern that Apple’s screen suppliers would be unable to keep up with demand, the opposite turned out to be true. Demand was so much lower that Apple was soon forced to cut its order in half.
The luster was fading.
Apple could not afford to make another blunder. But in the days after the iPhone’s launch, the howls began anew.
Anticipation had been building for the new mapping application, pre-installed in the iPhone 5. But once it was released, the reaction was disastrous. Forstall and his team had been so intent on beautifying the mapping system that they had overlooked the fact that the app itself was unusable: missing roads, misplacing labels for businesses and landmarks, and riddled with errors. Even more so than Siri, Apple Maps became the subject of ridicule as consumers and bloggers took to Facebook, Twitter, and other sites to complain or mock mistakes. In searches, Apple’s app labeled the city of Berlin as “Schöeneiche bei Berlin,” referred travelers to an airport in Dublin that didn’t exist, and brought up London, Ontario, instead of its better-known U.K. counterpart. Around Washington, D.C., the map couldn’t find Dulles Airport or the Kennedy Center. The water between Asia and Australia was mislabeled as the Arctic Ocean. Greenland sank under the waves and became the Indian Ocean. An Apple executive was a half hour late to a meeting because the application had guided him to the wrong place. The errors were so bad that the humor magazine Mad put Apple Maps on its list of the “Top 20 Dumbest People, Events and Things of 2012.”
The level of inaccuracy was startling, particularly given that mapping technology was well established. Reliable databases of mapping coordinates were readily available, and other companies had already solved many of the major problems. Apple’s inability to make it work was bewildering.
Haunted Empire: Apple After Steve Jobs Page 27
