Haunted Empire: Apple After Steve Jobs

by Yukari Iwatani Kane

  All around the world, Apple’s competition keeps gaining. According to IDC, almost 80 percent of smartphones shipped in the second quarter of 2013 ran on the Android operating system while Apple’s share declined more than three points to 13.2 percent. Making matters worse, there are signs that the industry may be headed for a slowdown in smartphone sales now that most customers who want one have already bought one.

  Samsung’s market share had also slipped over the summer, but in the second quarter of 2013, it still held a 30.4 percent share according to IDC. Its quarterly profit rose 50 percent to 7.77 trillion won, or $6.9 billion, during the same period.

  The bigger concern for Samsung is arguably no longer Apple. It’s the up-and-coming Chinese companies, already plotting to dethrone its older rivals in Seoul and Cupertino.

  As fall approached, the pressure kept building on Apple to unveil the kind of innovations the world was clamoring to see. In September, Apple launched two new phones, the iPhone 5s and a plastic iPhone 5c that was $100 cheaper. The 5s came with a fingerprint sensor and a faster chip. It was also available in gold in addition to silver and “space gray.” The 5c, effectively last year’s iPhone with a larger battery, came in five colors. Both devices included the latest version of the iPhone operating system.

  Apart from the excitement over the gold model, the public’s reaction was lukewarm. Reviewers again pointed out that the upgrades were hardly revolutionary. Many noted that the price of the 5c, while less expensive, was hardly cheap. With a two-year contract, U.S. carriers subsidized the phones so consumers could purchase them for as little as $99, but in China, the 5c would cost $733 without a subsidy. Longtime Apple watchers wondered if the new lineup was an attempt to distract users by dazzling them with new colors. Apple had done the same with their iPods as the market approached saturation. Apple’s shares fell 2.3 percent that day and continued to decline in the following days.

  The reviews on the aesthetically overhauled iOS 7 software were also mixed. Many liked the simpler, more modern interface with bright colors and flat icons. The high school teacher John Keitz was thrilled to find that Siri now understood him even when he issued a command in a loud kitchen. Others deplored the fact that the operating system crashed apps and navigating the phone was less intuitive.

  When the new phones went on sale ten days after the unveiling, Apple boasted that first weekend sales hit a record nine million devices, 80 percent more than the previous year, but analysts were quick to point out that Apple was selling two phones this year rather than one as in the past, and it had released the phones in eleven markets, three more than the previous year. China, part of the initial launch for the first time ever, was estimated to have contributed more than two million of the sales. Early signs were particularly foreboding for the 5c: The model was widely available ten days after Apple began accepting pre-orders.

  In the weeks since then, it has become apparent that the 5c is not selling. Shortly after the new iPhones went on sale, Best Buy and Walmart halved their 5c price with a two-year contract, but it had little effect. A couple of weeks later, the media reported that Apple had cut its 5c orders. That action has reverberated down through the supply chain once again.

  The spoof publication, the Onion, practically predicted the public’s reception in a piece after the launch.

  “Apple Unveils Panicked Man With No Ideas,” said the headline above a photo of Tim Cook. The article pointed to the CEO’s “artificial excitement,” “quavering voice,” and “near total lack of inspiration.”

  A decline was inevitable.

  The story follows an archetypal pattern—a pattern familiar in both history and myth. A struggling empire, on the brink of dissolution, recalls one of its founders from exile and casts him as a savior. The ruler, ruthless and cunning as Odysseus, gathers the faithful and emboldens them to take startling risks that allow the empire to reach even greater heights than before. Amid the celebrations, the emperor grows sick. Knowing that he is the living embodiment of his kingdom’s fortunes, he tries to hide his illness until he is finally forced to accept that he is not immortal. Left to carry on in his name, the emperor’s lieutenants fall prey to complacency and confusion, lapsing into disarray and paralysis. Bound to the way things have always been done, these new leaders become less flexible and ignore the warning signs. Their emperor is gone, but ever present. Though they are still at war with enemy armies, these lieutenants cannot find their own way forward. They are tired. They are uncertain. The well of ingenuity has run dry.

  The theories of Clayton Christensen and Gautam Mukunda explain it all so clearly. Apple’s story, as they have noted, has long unfolded in defiance of business physics. With each new triumph, the company rose higher and higher. But sooner or later, gravity always wins.

  On Apple’s campus in Cupertino, morale has languished, and employees are quitting. Apple has always asked a great deal of its faithful. But in the past, they accepted the long hours, the ceaseless pressure, and the verbal tirades because they felt that they were working for a company always reaching for something higher. When they saw Jobs on stage, unveiling the latest wonder that all of them had joined together to create, they had felt fulfilled. After the release of the first iPad, though, it became harder for many of them to see the point of it all. Each wave of new products felt more incremental, less revolutionary, less wondrous.

  In the past two years, as it has become clearer that something fundamental has changed at Apple, the pace of the resignations has increased. Some employees wait, biding their time until their stock vests. Others just leave. In some parts of Apple, farewell gatherings have become a weekly ritual. A new phrase has been coined to describe some of the defections: G2G, or Go To Google.

  In October, the company launched two new iPads—a thinner, lighter full-size tablet called the iPad Air and an updated, faster iPad Mini with a sharper display. It also said that it would make free its iWork productivity suite and iLife photo, movie, and music-making apps, which had previously sold for $4.99 to $9.99 each. Cook called the changes “the biggest iPad announcement ever, by a large margin,” but the boasts rang hollow. iPad sales had been falling as Samsung and Amazon’s cheaper devices eroded the company’s once dominant share. Gartner research firm projects that Apple will split the market with the Android camp almost equally in 2013.

  After the event, Marco Arment, the creator of Instapaper, noted on his blog that most of the presenting executives didn’t even seem excited about their own announcements.

  “At best,” he wrote, “the presentation felt uptight.”

  Shortly after that, Apple reported its third consecutive quarterly decline in profits and just a four percent increase in revenues. Both iPhone and iPad sales were below analysts’ projections.

  When the iPad Air went on sale, Walmart, Staples, and Target cut the price of the entry-level model by $20 from the get-go.

  Despite the launch of the new iPhones and iPads, the hunger for something fresh, some beautiful breakthrough that will turn everything around, continues. Apple’s inventors are reportedly at work on new products—a connected watch device, the long-rumored television. Taking a cue from Samsung, the company has also been experimenting with phones of different sizes.

  It’s not too late for Apple to dazzle the world again. The magic can still be resurrected. Some reports suggest that the company might unveil the watch or the TV sometime in 2014. But at this point, the company has grown so huge that it would need to sell millions of these new products to make a significant enough impact on overall sales and profits to be considered successful.

  The debate continues over what would have happened if Jobs were still here to run the place, revving imaginations and terrifying underlings, speeding through life in a car with no license plate—rewriting the rules every day of what is possible for him and for Apple. Many of the problems that have plagued his successors were already taking root before his death. Whatever answers Jobs might have offered, had he lived, it’s
unlikely that he would have been second-guessed. He might even have found a way to convince people for a while longer that Apple was as great as ever.

  Without him, everything changed. The dilemmas multiply and deepen. Solutions slip further out of reach.

  It’s important to remember that Jobs handpicked his successor. He trained Tim Cook, indoctrinated him, subjected him to trial by fire, and spent years evaluating his capabilities. Jobs chose Cook knowing full well that he was not a visionary, that he had no history as an innovator, that he was best known for his devotion to spreadsheets. Jobs didn’t choose Jonathan Ive to lead Apple. He chose the Attila the Hun of Inventory. The question is, why? Did he think that a numbers man was best for the storms gathering at the horizon? Or did he want to make sure that his vision would not be replaced by someone else’s?

  Since Cook took over, he has often explained that his mission is not to emulate what Jobs would have done, but to always do what is best for Apple. At the same time, he has repeatedly insisted that nothing has changed at Apple, even as the world has changed around him. It’s unclear if he sees the contradiction.

  Watching Cook in public—taking the stage for another launch, sitting in the red chair where his boss once ruled—is to behold a man laboring at an impossible task. He’s smart. He’s engaged. He believes. But the words he utters come out flat and slightly off-key. There is no spark. No fire.

  Even some of Apple’s biggest supporters have noted the decline. Late this summer, in an interview with 60 Minutes, Larry Ellison talked about what Apple was like when Jobs was pushed out in the eighties, and what it was like after he came back.

  “We conducted the experiment,” said Oracle’s CEO, a former Apple board member and one of Jobs’s closest friends. “I mean it’s been done. We saw Apple with Steve Jobs. We saw Apple without Steve Jobs. We saw Apple with Steve Jobs.”

  Now the pattern was repeating itself. Only this time, Jobs had left One Infinite Loop forever.

  “Okay, I’ll say it publicly,” Ellison admitted. “I don’t see how they can . . . they will not be nearly so successful because he’s gone.”

  The newsstand at the airport tells the story a different way. Two magazines, on sale at the same time, with two competing covers, catch your eye. The issue of Time asks the following question:

  CAN GOOGLE SOLVE DEATH?

  The search giant is launching a venture to extend the human life span. That would be crazy—if it weren’t Google.

  BloombergBusinessweek, displayed on the shelf below, shows Cook laughing triumphantly with two of his lieutenants. The headline reads:

  WHAT, US WORRY?

  Exclusive: Apple’s Craig Federighi, Tim Cook, and Jony Ive have never been more certain they’re right

  The contrast is striking. Time’s story details how Google is creating a new company designed to search for medical advances that will help our species face down mortality. The piece describes other Google projects that, if they even reach fruition, will require decades of work—enterprises aimed not at pumping up profits but taking the long view to confront challenges that have vexed humanity since the dawn of time. Inevitably, the article draws comparisons to Google’s famous rival.

  “Last week Apple announced a gold iPhone; what did you do this week, Google? Oh, we founded a company that might one day defeat death itself.”

  The BloombergBusinessweek piece is a pep talk about Apple’s future. The writer notes the predictions of the company’s demise, then lets Cook and his team explain why the doubters are wrong. Cook repeats the familiar arguments that everything is fine, that he’s not worried, that he and his team have everything under control. On Apple’s shrinking smartphone market share, Cook points out that much of the decline is due to the proliferation of so many cheap phones.

  “There’s always a large junk part of the market,” he says. “We’re not in the junk business.”

  The article rehashes the company line that Cook has been repeating now in every interview. There is no hint of a long view, of anything happening at Apple beyond the latest product or the next quarterly earnings report.

  They’re not reinventing the world. They’re circling the wagons.

  Glance back at the cover. Cook and Federighi and Ive look so insistently happy, so determined to project confidence.

  What did they think when they saw the headline? Did it occur to them that “What, us worry?” is a steal from Mad magazine? Do they remember seeing Alfred E. Neuman’s grinning jughead on the cover next to his ironically nonchalant slogan, “What, me worry?”

  Yes, the new emperor and his team are laughing. But do they get the joke?

  Acknowledgments

  At the start of this project, I was warned about the solitary nature of writing a book. My experience has been anything but.

  My deepest gratitude to the nearly two hundred former and current Apple employees, business partners, and others in the Apple world who spoke to me. They could not have been more generous with their assistance. The list is long, and I agreed to protect most of their identities, but I’d like to acknowledge three—Fred Anderson, Jon Rubinstein, and Avie Tevanian. They did not necessarily agree with my conclusions, but they verified background where they could and challenged my thinking in other areas. My respect for them has only grown.

  In tackling this enormously complex story, I consulted experts to help me understand the intricacies of various subjects. In addition to those who are quoted in this book, they include Dr. William Chapman, Klaus Klemp, Robert Robins, Ethan Bernstein, Simon Yang, Colley Hwang, James McQuivey, Gary Allen, Jacquelyn Wilson, and Toni Sacconaghi. Foxconn spokesman Louis Woo was most gracious in his help as he chased tedious details, down to the menu for the Stars of Foxconn banquet. In my reporting travels, Ms. Evelyn Lowery and WKRG’s Debbie Williams were my guides in Alabama and my crackerjack assistant Tian Yuan (Violet) in Hong Kong and Shenzhen. PixelQi CEO John Ryan and Nikkei BP contract manufacturing expert Tomohiro Otsuki introduced me to their contacts and made me feel at home in Taipei. BlueRun Ventures’ Kwan Yoon helped me navigate Seoul.

  One of the most rewarding aspects of working on this book was encountering the extraordinary generosity of fellow journalists. Walter Isaacson provided me with his support and shared background information that didn’t make it into his Steve Jobs biography. Joe Nocera at the New York Times not only gave me details about his famous conversation with Jobs, he let me tell the story first. My friend and Wired writer Fred Vogelstein trusted me with an early copy of his own book in addition to fishing me out of my darkest moments. Poornima Gupta at Reuters, Ina Fried at All Things Digital, and Martyn Williams at IDG helped me with details on the Apple-Samsung patent trial. Fortune’s Philip Elmer-DeWitt shared his reporting on the e-book trial and BloombergBusinessweek’s Josh Tyrangiel gave me background on his interview with Tim Cook. Matthias Hohensee of Wirtschaftswoche sent me the original transcript of his interview with Steve Wozniak, mentioned in chapter twenty. Across the Pacific, Diamond Weekly’s Naoyoshi Goto and Jun Morikawa shared their reporting on Apple’s supply chain in Japan. Nikkei BP Publishing’s Hiromi Nakagawa also helped with my research on Japanese suppliers.

  There are many others who helped me with this book but asked to not be named because they weren’t authorized to speak to me or because of their ties to Apple, Samsung, and Foxconn. You know who you are. Thank you.

  My thanks also to everyone I’ve worked with at the Wall Street Journal. News Corp. CEO and former WSJ managing editor Robert Thomson and deputy editor-in-chief Matt Murray supported my initial idea for a book and granted me a leave of absence that allowed me to set off on this path. During my three years covering Apple for the paper, my editors in the San Francisco bureau—Steve Yoder, Pui-Wing Tam, and Don Clark—pushed me to be a better reporter than I had ever imagined I could be. Alix Freedman and Mike Williams made sure my page-one stories were airtight. My colleagues around the world helped me break the stories that led to this book and provided me with their
continued help and friendship. My gratitude especially goes to Ian Sherr, but also to Geoffrey A. Fowler, Joann S. Lublin, Thomas Catan, Nick Wingfield, Jason Dean, Loretta Chao, Ting-I Tsai, Evan Ramstad, Ethan Smith, and Amir Efrati. Thank you also to Walt Mossberg and Kara Swisher at All Things Digital for their encouragement, advice, and help.

  Of course, none of this would have been possible without a team of the finest reporting assistants. In addition to Violet, special thanks to Natalie Jones in the United States who has been with me since the very beginning. Bobby Tung in Taiwan, WSJ Seoul assistant MinSun Lee, the Korea Times’s Kim Yoo-Chul, and Korea JoongAng Daily’s Kim Hyung-eun also provided invaluable assistance. Laila Kearney helped fact-check.

  If it weren’t for my WSJ colleague Jim Carlton, who wrote a fabulous book of his own on Apple over fifteen years ago, I would have never met the best agent anyone could ever have. Peter Ginsberg has been an anchor, and I couldn’t be more grateful for his steadfast guidance and encouragement. He led me to Jonathan Burnham and Hollis Heimbouch at HarperCollins. Both have been unflagging in their support and enthusiasm for the book. It’s rare to find an editor who not only understands an author’s vision, but also cares about the nuances of what she is trying to say. I’m incredibly lucky to have Hollis and her extraordinary team in my corner. They include her associate editor Colleen Lawrie, copy editor Tom Pitoniak, jacket designer Milan Bozic, marketing manager Stephanie Selah, and publicist Steven Boriack.

  Writing a four-hundred-page book is a daunting undertaking, particularly for a newspaper reporter who has never written more than three thousand words. I owe a huge debt of thanks to Tom French, who took me under his wing and gave me a master’s education in narrative writing. Thanks to him, I now use words like “scaffolding” and scrutinize structure in every movie and book I come across. Tom O’Keefe read each chapter multiple times with the careful eye of an AP English teacher, Kelley Benham French with the eye of a newspaper editor, and Tim Schaaff from the perspective of a former Apple executive. Randall Farmer gave the manuscript a geek’s read. Each was indispensable.