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For Evelyn, Sam, and Beatrice
Contents
Title Page
Copyright Notice
Dedication
Introduction
1. The Moon Mission
2. The iPhone Is Good. Android Will Be Better.
3. Twenty-Four Weeks, Three Days, and Three Hours Until Launch
4. I Thought We Were Friends
5. The Consequences of Betrayal
6. Android Everywhere
7. The iPad Changes Everything—Again
8. “Mr. Quinn, Please, Don’t Make Me Sanction You.”
9. Remember Convergence? It’s Happening
10. Changing the World One Screen at a Time
A Note on My Reporting
Notes
Acknowledgments
Index
A Note About the Author
Copyright
Introduction
When Steve Jobs stood before the world at the beginning of 2007 and said he was going to reinvent the cell phone, the expectations were modest—at best. Jobs had upended the music business with the iPod and iTunes. But taking on the cell phone industry? That seemed unlikely. The wireless carriers, who controlled the market, had been foiling cell phone innovators for years. And the iPhone, while cool looking, seemed no match for their iron grip on the industry. It was more expensive than most phones out there. And it was arguably less capable. It ran on a slower cell/data network. And it required users to type on a virtual, not a physical, keyboard. To some critics, that meant the iPhone was dead on arrival.
If anything, Jobs undersold the iPhone that day. It truly was a breakthrough. The iPhone wasn’t really a phone, but the first mainstream pocket computer that made calls. With its touchscreen, it did so many things that other phones could never do that consumers overlooked its shortcomings. Consumers got used to the virtual keyboard, and Apple continued to make it better and better. It cut the price to equal that of other phones. It quickly upgraded the slower cell/data radios to make its technology competitive. It developed displays with unheard-of resolutions. It bought a chip design company to make sure the iPhone was always the fastest device out there. It rolled out a completely new version of the iPhone software every year. And it designed iconic television ads—as it had done for the iPod—that made consumers feel special about owning one.
The subsequent frenzy of demand gave Apple and Jobs the leverage to turn the tables on the wireless carriers and start telling them what to do. More important, it ignited a technology revolution that today touches almost every corner of civilization. The iPhone has become one of the most popular cell phones of all time, selling more than 135 million units in 2012 alone. It has become the platform for a new and hugely profitable software industry—phone apps—that has generated more than $10 billion in total revenues since starting five years ago, in 2008. And the iPhone has become the source of an entire rethink of how humans interact with machines—with their fingers instead of buttons or a mouse. The iPhone and its progeny—the iPod Touch and the iPad—haven’t just changed the way the world thinks about cell phones, they have changed the way the world thinks about computers for the first time in a generation, arguably since the advent of the Macintosh in 1984.
Since 2010, when Jobs followed the iPhone with the iPad, the questioning has grown frenzied. Who said our computer had to sit under our desk or on our lap? Can’t it just be a screen that fits in our pocket or purse, or something we leave lying around the house? Indeed, if you compare iPad sales to sales of desktops and laptops, Apple is now the largest PC maker in the world. It now sells more iPads per quarter than Dell or HP sells laptops and desktops. Apple’s total sales of iPhones, iPads, and iPod Touches now exceed 200 million devices a year. That’s about the same number of TVs sold by all manufacturers every year and about four times the number of cars sold worldwide. All of this has turned Apple, the corporation, into a colossus larger than even Jobs’s enormous ambitions. Once on the precipice of bankruptcy, in 1997, Apple today is one of the most valuable and profitable companies anywhere.
And yet Apple behaves like a corporation under siege—because despite all this success, it is. From the moment in late 2007 that Google unveiled Android—and its own plan to dominate the world of mobile phones and other mobile devices—Google hasn’t just tried to compete with the iPhone, it has succeeded in competing with the iPhone. Android took hold in 2010, and it has exploded in popularity since. To Apple’s astonishment, there are now more smartphones and tablets running Android software than there are iPhones, iPads, and iPod Touches running Apple’s software, known as iOS. In 2012 there was even debate about whether the iPhone was the most popular smartphone anymore. During the third quarter of 2012, some surveys said, Samsung sold more Android-powered Galaxys than Apple sold iPhones.
Apple ended the “who has the most popular smartphone” discussion at the end of 2012, when it unveiled the iPhone 5. But more and more wonder whether this is even relevant anymore. The differences between the two platforms are narrowing by the day. Sure, they are different structurally. Apple makes every inch of the iPhone—the hardware and the software (though the devices are assembled in China). Google just makes the software for Android phones. It allows phone manufacturers such as Samsung to make the hardware. But both platforms now have an equivalent number of pluses and minuses: Apple’s platform is a little easier to use, but it only offers three products—the iPhone, the iPad, and the iPod Touch. Google’s platform offers many more phone choices, and often has the latest phone features ahead of Apple, but it lacks the polish of Apple’s interface. Still, both platforms are now equally available among large carriers worldwide, and, with the exception of Apple stores, they are available for purchase in the same places.
Seeing Apple’s market dominance challenged so swiftly and broadly was uniquely painful for Jobs and remains that way for the company’s other executives. Jobs thought, and Apple executives still think, that Google and the Android community cheated to create their success. They think that Google executives stole Apple’s software to build Android, and that Android’s largest phone maker, Samsung, copied Apple’s designs to build its supersuccessful Galaxy phones. They feel betrayed. Apple and Google weren’t just business partners when the iPhone was unveiled in early 2007. They were spiritual allies—the yin and yang of the technology revolution. This was one of the closest alliances in American business. Apple made great devices. Google made great software. Google’s founders considered Jobs to be a mentor. Google’s then CEO, Eric Schmidt, sat on Apple’s board of directors. They had a common enemy: Microsoft. Together they planned for a long and prosperous marriage.
Then, as can happen in a marriage, the relationship frayed. Secrets were kept. Promises were broken. And the two went to war. When Jobs died in October 2011, there was hope that the dogfight would feel less like personal betrayal and quiet down—that Apple’s new CEO, Tim Cook, would take the emotion out of the battle and find a way to settle it. But if anything, Apple has gotten more aggressive and nasty toward Google since then. It still has dozens of patent lawsuits in at least seven countries pending against the Android community—mostly a
gainst Samsung and Motorola (owned by Google). In the summer of 2012, it took the unheard-of step of having its fight with Samsung, Google’s top distributor of Android phones, tried in front of a jury in San Jose. It won a $1 billion judgment, though that is being appealed. In September 2012 Apple stopped selling the iPhone preloaded with Google Maps. It replaced the app with one of its own, despite wide consumer complaints that the app was inferior. Apple is believed to be working on a video service to compete with YouTube, which Google owns.
Apple has even begun replacing some Google search technology in the iPhone with search technology from its old enemy, Microsoft. Now when you use Siri, the iPhone’s voice recognition feature, Apple’s newest software no longer uses Google search. Instead, she queries Microsoft’s Bing search engine, which has been clawing at Google for a decade over search market share. To get Siri to use Google’s search, you have to specifically ask her to “search Google” before each request. Google is still the default search engine inside the iPhone’s web browser. But for those with long memories, the idea that Apple would dump any Google technology for Microsoft’s—when Microsoft was the bitter enemy of both for so long—is an astonishing development.
Google’s public posture in its fight with Apple has consistently been “Who, us? We’re just a bunch of geeks out to change the world.” But in its quiet, nerdy way Google has fought back ferociously. It defied Apple’s demands that it remove software from Android phones or face patent lawsuits. It employed tactics to make Jobs look like an unhinged tyrant. And it bought the cell phone maker Motorola for $12.5 billion in 2012, its largest acquisition by far. It said the only purpose of the purchase was to buy Motorola’s patents. It said it would be easier to fight a litigious opponent like Apple if it owned the company that invented the modern cell phone and all the patents associated with that. That’s true, but the claim hid another equally powerful reason: the acquisition means that Google will always be able to make phones to compete with Apple no matter how successful Apple is with its lawsuits against other phone and tablet manufacturers. The purchase also gives Google leverage in case new challengers emerge.
Last, Google now finds itself doing something most thought it would never do: it is making its own consumer electronics from scratch to compete with Apple devices in the living room. Google has all the pieces not only to hook users on cell phones running its Android software, but to reach them wherever they go, inside or outside their homes.
* * *
Usually, the story of two companies and their powerful leaders going at it makes a great magazine piece and little more. Company X attacks company Y. Company Y fights back. One wins. One loses. But this is a much bigger tale than that. It’s hard to imagine a more revolutionary object than the object the two companies started fighting over: the smartphone. The smartphone has fundamentally changed the way humans get and process information, and that is changing the world in ways that are almost too large to imagine. Ponder the individual impacts of the book, the newspaper, the telephone, the radio, the tape recorder, the camera, the video camera, the compass, the television, the VCR and the DVD, the personal computer, the cell phone, the video game, and the iPod. The smartphone is all those things in one device that fits in your pocket. It is radically changing the way we learn in school, the way doctors treat patients, the way we travel and explore. Entertainment and all media are accessed in entirely new ways. That sounds like something Jobs might have said at one of his famous product launches. But it is not an exaggeration.
What this means is that Apple versus Google isn’t just a run-of-the-mill spat between two rich companies. It is the defining business battle of a generation. It is an inflection point, such as the moment when the PC was invented, when the Internet browser took hold, when Google reinvented web search, and when Facebook created the social network. In this massive reexamination of how technology, media, and communications intersect, two of the most powerful companies in the world to dominate that new landscape are in open warfare.
Yes, invariably this reminds you of previous fights among entrepreneurs in Silicon Valley, such as Apple versus Microsoft in the 1980s or Microsoft versus Netscape in the 1990s. But the stakes are infinitely higher now. In the 1980s personal computing was a nascent market, and both Apple and Microsoft were new companies. In the 1990s people saw the potential of the Internet, especially in a device that fit in your pocket. But wireless bandwidth was still too slow and expensive. Today, 1.8 billion cell phones are sold worldwide every year, and in five to ten years most of them are going to be smartphones. No one knows how big the tablet market is going to be yet, but the tablet is already becoming an important new technology for people to read books, newspapers, and magazines, not to mention watch TV or play video games. In other words, the stakes of this battle are infinitely higher than any earlier struggles.
It’s not just that there is a lot more money to be made and lost in the Apple/Google fight than in previous Silicon Valley battles. It’s that the fight feels—to the players, at least—like a winner-take-all situation. Why? Because they’re not just fighting over which side has the hottest devices, they’re battling for control of the online stores and communities these devices connect to—the so-called cloud. A lot of what we buy via Apple’s iTunes store—apps, music, movies, TV shows, books, etc.—doesn’t work easily on Android devices or at all, and vice versa. And both companies know that the more money each of us spends on apps and other media from one store, the less likely we are to switch to the other. They know we will ask, “Why rebuy all that content just to buy an Android phone instead of an iPhone?” Many companies have free apps that work on both platforms, but even having to redownload them, and re-set them up, is enough to keep many users from switching. In Silicon Valley parlance, it’s a platform war. Whether your example is Microsoft with Windows and Office, eBay with auctions, Apple with the iPod, Amazon with books, Google with search, or Facebook with social media, history suggests that the winner in fights like this gets more than 75 percent of the market share, while the loser struggles to stay in that business.
This is a big deal. In the coming years most of what we consider information—news, entertainment, communications—will get funneled through either Apple’s or Google’s platform. Doubt me? It’s already happening. We now spend as much time connected to the Internet as we do watching television, and more and more of our access to the Internet comes through smartphones and tablets. Think about how much time you spend staring at your phone or tablet now—not just responding to email, reading the news, tweeting, facebooking, watching a video, playing games, or surfing the web. Include the seconds you spend in elevators, standing in line, at stoplights, in the restroom too. Now ask yourself this question: Who controls what you see on your television? Your cable company. Who controls what you see on your smartphone? Ultimately, it is Apple and Google.
I remember when, as a contributing editor for Wired, I first started thinking about the mobile revolution. At that time the top-selling phones worldwide came from Nokia, RIM (which makes the BlackBerry), Sony Ericsson, and Motorola. Then the iPhone was announced. It quickly seemed inevitable that Apple and Google would end up fighting. Few agreed with me. An editor friend of mine said the idea seemed preposterous. How could Apple and Google compete when they were in entirely different businesses? he asked. Technically he was right. Apple makes money selling the devices it creates. Google makes money selling online advertising. What he and many missed is that those are now only means to a much bigger end. Both companies see themselves as becoming new kinds of content distribution engines—twenty-first-century TV networks, if you will. They won’t make content as the TV networks do today; but their control of huge global audiences, and their enormous balance sheets, will enable them to have a big impact on what gets made and who sees it.
This may seem counterintuitive. It’s hard to imagine the geeks at Apple or Google producing Mad Men. But makers of movies and TV shows essentially care about only two things: How muc
h is their project going to cost? And how many people are going to see it? No two companies have more reach than Apple and Google. Fewer still have more money. Together they controlled $200 billion in cash alone by mid-2013. That’s not only enough to buy and/or finance an unlimited amount of content for their audience; it’s actually enough to buy most of Hollywood. The market capitalizations of News Corp., Time Warner, Viacom, and CBS total that much combined. Although most people don’t think of Apple and Google as entertainment giants, Apple through iTunes controls roughly 25 percent of all music purchased and 6 to 10 percent of the $18 billion home video market. Meanwhile, Google is investing millions of dollars in original programming for YouTube, which is already a video destination for tens of millions of consumers around the world.
This isn’t to suggest that there won’t be enormous room for new and old companies to build substantial businesses of their own in this new world. In early 2013 Netflix boasted 30 million subscribers, as many as HBO. Two years ago it looked to be a company that might not make it. Studios jacked up the price of their content to unaffordable levels. Movie and TV-show selection fell and customers started to leave. So Netflix—a technology company based in Los Gatos, not a Hollywood studio—started financing its own programming. Its first stab at this, the series House of Cards, with Kevin Spacey, has been an enormous hit. Amazon and Microsoft are getting production facilities up and running too. Meanwhile, Facebook, with more than 1 billion members—half the Internet—has become a favorite stop for Hollywood agents looking to use this giant global audience as another way to finance and distribute their clients’ work.
But despite the power of Facebook, Amazon, Netflix, and Microsoft, at the moment they all still have to largely go through two companies—Apple and Google—to get to the increasingly massive audiences using smartphones and tablets for their news, entertainment, and communications. What this means is that the Apple/Google fight is not just a story about the future of Silicon Valley. It is about the future of media and communications in New York and Hollywood as well. Hundreds of billions of dollars in revenue are at stake, and for at least the next two years, and probably the next five, these companies, their allies, and their hangers-on will be going at it full bore.
Dogfight: How Apple and Google Went to War and Started a Revolution Page 1
