During his anti-Google diatribe this afternoon, Steve Jobs said the Google-versus-Apple, open-versus-closed debate is a smokescreen. It makes no sense to say Apple is closed while Google is open when the real issue is fragmentation versus integration.
Jobs said Google’s Android platform is fragmented. There are too many different versions of the operating system and too many devices, making it a headache for consumers and developers. Apple’s iOS devices on the other hand aren’t fragmented, because they are “vertically integrated.” Apple closely integrates the software with the hardware, and they “just work.”
But what does he mean exactly by “vertical integration?” And why is it so important?
I wrote about this at length in my book, Inside Steve’s Brain. In fact, I think it’s critical to understanding why Jobs and Apple are killing it in consumer electronics right now.
So here’s Chapter Eight — “Total Control: The Whole Widget,” — in its entirety.
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Excerpted from Inside Steve’s Brain, Expanded Edition. By Leander Kahney.
Chapter Eight — Total Control: The Whole Widget
“I’ve always wanted to own and control the primary technology in everything we do.”
The launch of the iPhone in the summer of 2007 looked to many like Jobs was about to repeat the smash hit success of the iPod—except for one thing. Jobs locked software developers out of the iPhone, at least initially. In the weeks following the launch, there was a storm of protest from bloggers and pundits who were furious that the iPhone would be a closed platform. It wouldn’t run software from anyone but Apple. The iPhone was poised to be one of the hottest consumer electronics platforms in recent memory, but it was forbidden fruit to the software industry. Third-party applications were verboten, except Web applications running on the phone’s browser. Many critics said locking out developers this way was typical of Jobs’s controlling tendencies. He didn’t want grubby outside programmers wrecking the perfect Zen of his device.
“Jobs is a strong-willed, elitist artist who doesn’t want to see his creations mutated inauspiciously by unworthy programmers,” wrote Dan Farber, ZDNet’s editor in chief. “It would be as if someone off the street added some brush strokes to a Picasso painting or changed the lyrics to a Bob Dylan song.”[i]
Jobs is a control freak extraordinaire. He controls Apple’s software, hardware, and design. He controls Apple’s marketing and online services. He controls every aspect of the organization’s functioning, from the food the employees eat to how much they can tell their families about their work, which is pretty much nothing.
Jobs’s controlling tendencies go all the way back.
In 1984, Steve Jobs’s baby, the ﬁrst Macintosh computer, shipped without an internal cooling fan. The sound of a fan drove Jobs nuts, so he insisted the Mac didn’t have one, even though his engineers strenuously objected (and even sneaked fans into later models without his knowledge). To prevent their machines from overheating, customers bought a “Mac chimney”—a cardboard stovepipe designed to be placed on top of the machine and draw heat up and out by convection. The chimney looked preposterous—it looked like a dunce’s cap—but it prevented the machines from melting down.
Jobs is a no-compromise perfectionist, a quality that has led him and the companies he’s founded to pursue the same unusual modus operandi: maintain tight control over hardware, software, and the services they access. From the get-go, Jobs has always closed down his machines. From the ﬁrst Mac to the latest iPhone, Jobs’s systems have always been sealed shut to prevent consumers from meddling and modifying them. Even his software is difﬁcult to adapt.
This approach is very unusual in an industry dominated by hackers and engineers who like to personalize their technology. In fact, it’s been widely regarded as a crippling liability in the Microsoft-dominated era of cut-price commodity hardware. But now consumers want well-made, easy-to-use devices for digital music, photography, and video. Jobs’s insistence on controlling “the whole widget” is the new mantra in the technology industry. Even Microsoft’s Bill Gates, who pioneered the commodity approach, is switching gears and emulating Jobs’s line of attack. Gates is starting to build hardware as well as software—with Zune and the Xbox at the heart of Microsoft’s own “digital hub.” Controlling the whole widget may have been the wrong model for the last thirty years, but it is the right model for the next thirty—the digital lifestyle age.
In this new era, Hollywood and the music industry are supplementing CDs and DVDs with Internet delivery of music and movies, and consumers want easy-to-use entertainment appliances like the iPod to play them on. It’s Steve Jobs’s model that will deliver them. Apple’s trump card is that it is able to make its own software, from the Mac operating system to applications such as iPhoto and iTunes.
Jobs as a Control Freak
Before Jobs returned to Apple, the company was famously laid-back. Employees arrived late and left early. They lounged around the grassy central courtyard, playing hacky-sack or throwing Frisbees to their dogs. But Jobs soon imposed new rigor and new rules. Smoking and dogs were barred, and the company had a renewed sense of urgency and industry.
Some have suggested that Jobs keeps tight control at Apple to avoid being ousted again. The last time he ceded control to his supposed friend and ally, John Sculley, Sculley had him expelled from the company. Perhaps, some have speculated, Jobs’s controlling tendencies are a result of his being adopted as a child. His dominating personality is a reaction to the helplessness of being abandoned by his birth parents. But as we’ve seen, Jobs’s control freakery has lately turned out to be good business, and good for the design of consumer-friendly gadgets. Tight control of hardware and software pays dividends in ease of use, security, and reliability.
Whatever their origins, Jobs’s control-freak tendencies[CE1] are the stuff of legend. In the early days of Apple, Jobs fought with his friend and cofounder, Steve Wozniak, who strongly advocated open, accessible machines. Wozniak, the ultimate hacker’s hacker, wanted computers that were easy to open and adapt. Jobs wanted the precise opposite: machines that were locked shut and impossible to modify. The ﬁrst Macs, which Jobs oversaw mostly without Wozniak’s help, were tightly sealed with special screws that could be loosened only with a proprietary foot-long screwdriver.
More recently, critics said barring third-party software on the iPhone was a critical mistake. It would cost the iPhone its killer app—the crucial piece of software that would make it a must-have device. In the history of the PC, successful hardware has often been determined by an exclusive piece of software: VisiCalc on the Apple II, Aldus Pagemaker and desktop publishing on the Mac, Halo on the Xbox.
Jobs’s strategy of keeping the iPod/iTunes ecosystem closed to partners was also seen by pundits as another example of his desire to maintain complete control. Critics have argued that Jobs should license iTunes to competitors, which would allow songs bought online from the iTunes music store to be played on MP3 players made by other manufacturers. As it is, songs bought from iTunes can be played only on iPods because of copy protection code attached to song ﬁles, known as digital rights management, or DRM.
Others have argued that Jobs should do the opposite: open the iPod to Microsoft’s competing Windows Media format. WMA is the default ﬁle format for music ﬁles on Windows PCs. CDs ripped on a Windows PC, or bought from an online store like Napster or Virgin Digital, are usually encoded as WMA ﬁles. (The iPod and iTunes currently import WMA ﬁles and convert them to the iPod’s format of choice: AAC.)
Predictably, some critics argued that Jobs’s refusal to open the iPod or iTunes to Microsoft’s formats or outside partners was because of Jobs’s deep-seated need to maintain absolute control. Rob Glaser, founder and CEO of RealNetworks, which operates the rival Rhapsody music service, told the New York Times that Jobs was sacriﬁcing commercial logic in the name of “ideology.” Speaking in 2003, Glaser said: “It’s absolutely clear now why ﬁve years from now, Apple will have 3 to 5 percent of the player market. . . . The history of the world is that hybridization yields better results.”[ii]
Glaser and other critics could see a clear parallel to the Windows versus Mac war of old: Apple’s refusal to license the Mac cost the company its massive early lead in the computer market. While Microsoft licensed its operating system to all comers and quickly grew to a dominant position, Apple kept its toys to itself. Even though the Mac was much more advanced than Windows, it was doomed to a tiny sliver of the market.
Some critics have argued that the same thing would happen with the iPod and iTunes, that Jobs’s refusal to play nice with others would result in Apple’s getting the same trouncing in digital music that it received in the PC business. Observers argued that eventually an open system licensed to all comers, like Microsoft’s PlaysForSure, which was adopted by dozens of online music stores and manufacturers of MP3 players, would trump Apple’s go-it-alone approach. Critics said Apple would be faced with the ﬁerce competition that naturally arises from an open market. Competing manufacturers, trying to outdo one another on price and features, would constantly drive down prices while improving their devices.
Apple, on the other hand, would be locked into its own cuckoo land of expensive players able to play songs only from its own store. To critics, it was the classic Steve Jobs play: his desire to keep it for himself would doom the iPod. Microsoft, with its legions of partners, would do the same thing to the iPod that it did to the Mac.
And again, the same criticisms were leveled with the release of the iPhone, which was initially closed to outside software developers. The iPhone ran a handful of applications from Apple and Google—Google Maps, iPhoto, iCal—but was not open to third-party developers.
The hunger for developers to get their programs on the device was evident from the start. Within days of its release, the iPhone had been opened up by enterprising hackers, allowing owners to upload applications to the phone. Within weeks, more than two hundred applications had been developed for the iPhone, including clever location ﬁnders and innovative games.
But the application hack depended on a security weakness, which Apple quickly closed with a software update. The update also closed holes that had allowed some iPhone owners—in fact, quite a lot of them—to “unlock” their phones from AT&T’s network and use them with other wireless providers. (Apple revealed that as many as 25,000 iPhones hadn’t been registered with AT&T, suggesting that nearly one in six phones sold were being used with other providers, many likely overseas.)
The update disabled some iPhones, in particular ones that had been hacked. This appears to be unintentional on Apple’s part, but the “bricking” of so many devices turned into a PR nightmare. For many commentators, customers, and bloggers, it was Apple at its worst: treating early adopters and loyal customers like dirt, disabling their devices because they had the temerity to mess with them.
The developer community also reacted with shock and outrage, accusing Apple of blowing an opportunity to get an early lead on rivals like Microsoft, Google, Nokia, and Symbian in the smartphone market. To assuage the outrage, Apple announced a plan to open up the iPhone to third-party developers in February 2008 with a software developer’s kit.
Controlling the Whole Widget
Jobs’s desire to control the whole widget is both philosophical and practical. It’s not just control for control’s sake. Jobs wants to make complex devices like computers and smartphones into truly mass-market products, and to do that, he believes that Apple needs to wrest control of the devices partly from the consumer. The iPod is a good example. The complexities of managing an MP3 player are hidden from the consumer by having iTunes software and the iTunes store manage the experience.
No, consumers can’t buy tunes from any online store they like, but then the iPod doesn’t freeze up when music is transferred onto it. This is the practical aspect. The tight integration of hardware and software makes for a more manageable, predictable system. A closed system limits choice, but it is more stable and more reliable. An open system is far more fragile and unreliable—this is the price of freedom.
Jobs’s desire to build closed systems can be traced all the way back to the original Mac. In the early days of the PC, computers were notoriously unreliable. They were prone to constant crashes, freezes, and reboots. Users were just as likely to lose hours of work on a document as they were to successfully print it. This was as true of Apple’s computers as it was of computers from IBM, Compaq, or Dell.
One of the biggest problems was expansion slots, which allowed owners to upgrade and expand their machines with extra hardware like new graphics cards, networking boards, and fax/modems. The slots were popular with businesses and electronics hobbyists, who expected to be able to customize their machines. For many of these customers, that was the point: they wanted computers that could easily be hacked for their purposes. But these expansion slots also made early computers notoriously unstable. The problem was that each piece of add-on hardware needed its own driver software to make it work with the computer’s operating system. Driver software helps the operating system recognize the hardware and sends commands to it, but it can also cause conﬂicts with other software, leading to lockups. Worse, drivers were often badly programmed: they were buggy and unreliable, especially in the early days.
In 1984, Jobs and the Mac development team decided they would try to bring an end to the crashes and freezes. They decided that the Mac wouldn’t have expansion slots. If it couldn’t be expanded, it wouldn’t suffer from these driver conﬂicts. To make sure there was no tinkering, the case was locked shut with proprietary screws that couldn’t be loosened with an ordinary screwdriver.
Critics saw this as a clear indication of Jobs’s control-freak tendencies. Not only was his machine unexpandable, he physically locked it shut. Jobs had boasted of his desire for the Mac to be the “perfect machine,” and here he was ensuring it. The Mac’s perfection would survive even after it was shipped to users. It was locked shut to protect them from themselves: they wouldn’t be able to ruin it.
But the idea wasn’t to punish users; it was to make the Mac more stable and less buggy, and to enable programs to be integrated with each other. “The goal of keeping the system closed had to do with ending the chaos that had existed on the earlier machines,” said Daniel Kottke, a teenage friend of Jobs’s and one of Apple’s ﬁrst employees.[iii]
Additionally, the lack of expansion slots allowed the hardware to be simpliﬁed and cheaper to manufacture. The Mac was already going to be an expensive machine; eliminating expansion cards [CE2] would make it a little bit cheaper.
But it turned out to be a wrong decision at the dawn of the fast-moving PC industry. As Andy Hertzfeld, the whiz kid programmer on the original Mac development team, explained: “The biggest problem with the Macintosh hardware was pretty obvious, which was its limited expandability,” he wrote. “But the problem wasn’t really technical as much as philosophical, which was that we wanted to eliminate the inevitable complexity that was a consequence of hardware expandability, both for the user and the developer, by having every Macintosh be identical. It was a valid point of view, even somewhat courageous, but not very practical, because things were still changing too fast in the computer industry for it to work.”[iv]
The Virtues of Control Freakery: Stability, Security, and Ease of Use
These days, most of Apple’s machines are expandable, especially those aimed at professional users. Computers at the high end of Apple’s range have several expansion slots. Thanks to new programming tools and certiﬁcation programs, which require rigorous testing, software drivers are much better behaved on both Macs and Windows. And yet Macs enjoy a much better reputation for stability than Windows computers.
Modern Macs use much the same components as Windows PCs. The guts are almost identical, from the central Intel processor to the RAM. Same is true of the hard drives, video cards, PCI slots, and the chipsets for USB, WiFi, and Bluetooth. The internal components of most computers are interchangeable, whether they come from Dell, HP, or Apple. As a result, the computer business is a lot less incompatible than it used to be. Many peripherals like printers or webcams are compatible with both platforms. Microsoft’s Intellimouse plugs right into a Mac, and it works instantly and ﬂawlessly.
The only real difference between the Mac and the PC is the operating system. Apple is the last company in the industry that still has control of its own software. Dell and HP license their operating systems from Microsoft. The problem is that Microsoft’s operating system must support hundreds—maybe thousands—of different hardware components, assembled in potentially millions of different ways. Apple has it much easier. Apple makes only two or three major lines of computer, most of which share common components. The Mac mini, iMac, and MacBook are all basically the same computer in different packages.
From this perspective, Windows is an extraordinary achievement of engineering. The range and scope of the hardware it runs on is quite impressive. But there are so many variables that it can’t hope to provide the same level of compatibility and stability. Microsoft’s major initiative to make hardware more compatible—Plug and Play—became known as Plug and Pray because there were so many combinations of hardware and software and the results were unpredictable.
Apple, on the other hand, has a much smaller hardware base to support, and the results are much more predictable. In addition, if something goes wrong, there’s only one company to call. Customers of Dell or Compaq dread phone-support hell, where the hardware maker blames Microsoft, and Microsoft blames the hardware maker.
Take Microsoft’s music system PlaysForSure, launched in 2005. Licensed to dozens of online music companies and manufacturers of portable players, PlaysForSure was supposed to be an iPod killer. It would offer competition and better prices. Trouble is, it was unbelievably unreliable.
I had several of my own nightmare experiences with it. I knew there were problems, but I was truly shocked at how crappy it was. In 2006, Amazon.com introduced a video download service called Amazon Unbox. Launched to great fanfare, the service promised hundreds of movies and TV shows “on demand,” which could be quickly and easily downloaded to a PC hard drive with a single click. The service promised that video could be copied to PlaysForSure devices like an 8-gigabyte SanDisk player I was testing.
Actually, Amazon didn’t promise its video would play on PlaysForSure devices; it said video might play on PlaysForSure devices. “If your device is PlaysForSure-compliant, it may work,” said Amazon’s website. May work? Surely this was a joke? The point of PlaysForSure was that media would play for sure. Alas, it didn’t. After ﬁddling with it for hours, plugging and unplugging the player, restarting the PC, reinstalling software, and searching the Web for tips, I gave up. Life’s too short.
The problem is that Microsoft makes the software that runs on the computer, but SanDisk makes the software that controls the player. Over time, Microsoft made several upgrades to its PlaysForSure software to ﬁx bugs and security problems, but to work properly with the new software, SanDisk players also had to be updated. While Microsoft and SanDisk tried to coordinate the updates, there were sometimes conﬂicts and delays. The more companies involved, the more the problems confounded. Microsoft struggled to support dozens of online stores and dozens of player manufacturers who, in turn, had shipped dozens of different models. Hardware companies had a hard time persuading Microsoft to ﬁx PlaysForSure problems, which included glitches transferring subscription songs and even failures to recognize connected players. “We can’t get them to ﬁx the bugs,” Anu Kirk, a director at Real, told CNet.[v]
In addition, all the troubleshooting had to be performed by the user, who had to seek out the latest updates and install them.
Apple, on the other hand, was able to issue similar upgrades to tens of millions of iPods quickly and efﬁciently through its iTunes software. If there was a new version of the iPod software, iTunes would automatically update the iPod when it was plugged into the computer—with the user’s consent, of course. It was, and is, a highly efﬁcient, automated system. There’s only one software application and, essentially, one device to support (even though there are several different models).
At the time, there was a lot of criticism of Apple’s growing monopoly of the online music market and the tight integration between the iPod and iTunes. And while I object intellectually to being locked into Apple’s system, at least it works. I’ve used an iPod for several years, and it’s easy to forget how seamless the iPod experience is. It’s only when things go wrong with your gadgets that you stop and take notice. In the years I’ve been using an iPod, I’ve never had a problem—no lost ﬁles, no failure to sync, no breakdown of battery or hard drive.
Stability and User Experience: The iPhone
One of the big selling points for the Mac is the suite of iLife applications: iTunes, iPhoto, Garageband, and the like. The apps are designed for everyday creative activities: storing and organizing digital photos; making home movies; recording songs to post to MySpace.
The iLife apps are a big part of what makes the Mac a Mac. There’s nothing like it on Windows. Steve Jobs often points this out as a differentiating feature. It’s like an exclusive version of Microsoft Ofﬁce that’s available only on the Mac, but it’s for fun, creative projects, not work.
One of iLife’s selling points is that the applications are tightly integrated with each other. The photo application, iPhoto, is aware of all the music stored in iTunes, which makes it easy to add a soundtrack to photo slideshows. The homepage[CE3] -building application, iWeb, can access all the pictures in iPhoto, which makes uploading photos to an online gallery a two-click process. Integration on the Mac is not limited to the iLife suite, however. Across the board, much of Apple’s software is integrated: Address Book is integrated with iCal which is integrated with iSync which is integrated with Address Book, and so on. This level of interoperability is unique to Apple. Microsoft’s Ofﬁce suite offers a similar level of integration, but it is restricted to the productivity apps that ship with Ofﬁce. It’s not system wide.
The same philosophy of integration and ease of use extends to the iPhone. Jobs took a lot of criticism for closing the iPhone to outside developers, but he did so to ensure stability, security, and ease of use. “You don’t want your phone to be an open platform,” Jobs explained to Newsweek. “You need it to work when you need it to work. Cingular [now AT&T] doesn’t want to see their West Coast network go down because some application messed up.”[vi]
While Jobs is exaggerating that one unruly app will take down a cell network, it can certainly take down a single phone. Just look what the open-platform approach has done to Windows computers (and, yes, Mac OS X, too, to a lesser extent)—it’s a world of viruses, Trojans, and spyware. How to avoid? Make the iPhone closed. Jobs’s motivation is not aesthetics, but user experience. To ensure the best user experience, the software, hardware, and services users access will be tightly integrated. While some see this as lockdown, to Jobs it’s the difference between the pleasure of the iPhone and the pain of a confusing off-brand cell phone. I’ll take the iPhone. Because Apple controls the whole widget, it can offer better stability, better integration, and faster innovation.
Devices will work well if they are designed to work well together, and it’s easier to add new features if all parts of a system are developed under the same roof. Samsung’s TVs don’t crash because Samsung takes care of the software as well as the hardware. TiVo does the same.
Of course, Apple’s iPhone/iPod/iTunes system is not perfect. It too crashes, freezes, and wipes ﬁles. The integration of Apple’s apps offers a lot of beneﬁts, but it means that Apple is sometimes too inwardly focused when better services come along. For many people, Flickr offers a better experience for uploading and sharing photos, but users need to download a third-party plug-in to make using Flickr as easy as uploading photos to Apple’s Web services. Macs still crash and peripherals can go unrecognized when plugged in—but in general, their stability and compatibility are better than Windows’. Thanks to Jobs’s control freakery.
The Systems Approach
Jobs’s desire to control the whole widget has had an unexpected consequence, which has led Apple to a fundamentally new way of creating products. Instead of making stand-alone computers and gadgets, Apple now makes whole business systems.
Jobs ﬁrst got a peek at this systems approach in 2000 while developing iMovie 2. The application was one of the ﬁrst consumer-friendly video editing applications on the market. The software was designed to let people take footage from a camcorder and turn it into a polished piece of ﬁlmmaking with edits, fades, a soundtrack, and credits. With subsequent versions, movies could be posted on the Web or burned to DVD to share with Grandma.
Jobs was delighted with the software—he’s a lover of digital video—but soon realized that iMovie’s magic wasn’t conjured up by the software alone. To function properly, the software had to be used in conjunction with several other components: a fast plug-and-play connection to the camcorder; an operating system that recognized the camera and made an automatic connection; and a suite of underlying multimedia software that provided video codes and real-time video effects (QuickTime). It occurred to Jobs that there weren’t many companies left in the PC business that had all these elements.
“We realized Apple was uniquely suited to do this because we are the last company in this business that has all the components under one roof,” Jobs said at Macworld in 2001. “We think it’s a unique strength.”
After shipping iMovie, Jobs turned his attention from digital video to digital music, and he forged the biggest breakthrough of his career—the iPod. The iPod is one of the best examples of Jobs’s new systems approach. It isn’t a stand-alone music player, but a combination of gadget, computer, iTunes software, and online music store.
“I think the deﬁnition of product has changed over the decades,” said Tony Fadell, senior vice president of the iPod Division, who led the hardware development of the original iPod. “The product now is the iTunes music store and iTunes and the iPod and the software that goes on the iPod. A lot of companies don’t really have control, or they can’t really work in a collaborative way to truly make a system. We’re really about a system.”[vii]
In the early days of the iPod, many expected Apple would soon be overtaken by competitors. The press was constantly touting the latest “iPod killer.” But until Microsoft’s Zune came along, each device was essentially a stand-alone player. Apple’s competitors were focusing on the gadget, not the software and services that supported it.
Apple’s former head of hardware, Jon Rubinstein, who oversaw development of the ﬁrst several generations of the iPod, is skeptical that competitors can overtake the iPod any time soon. Some critics had likened the iPod to Sony’s Walkman, which was eventually eclipsed by cheaper knock-offs. But Rubinstein said it is unlikely the iPod would suffer the same fate. “The iPod is substantially more difﬁcult to copy than that Walkman was,” he said. “It contains a whole ecosystem of different elements, which coordinate with each other: hardware, software, and our iTunes music store on the Internet.”[viii]
These days, most of Apple’s products are similar combinations of hardware, software, and online services. The AppleTV, which connects computers to TVs via WiFi, is another combo product: it’s the box that’s wired to the TV, the software that connects it to other computers around the house—both Macs and Windows PCs—and the iTunes software and store for buying and downloading TV shows and movies. The iPhone is the phone handset, the iTunes software that syncs it with a computer, and network services like Visual Voicemail, which make it easy to check messages.
Several of Apple’s iLife applications connect to the Net. Apple’s photo software, iPhoto, can share pictures over the Net via a mechanism called “photocasting,” or order prints or photo books online; iMovie has an export function for posting home movies to homepages; Apple’s backup app can save critical data online; and its iSync software uses the Net to synchronize calendar and contact information among multiple computers. None of this is unique to Apple, of course, but few companies have embraced the hardware, software, and services model so comprehensively or effectively.
The Return of Vertical Integration
Apple’s competitors are starting to wise up to the virtues of vertical integration, or this whole-systems approach. In August 2006, Nokia acquired Loudeye, a music licensing company that had built several “white label” music stores for other companies. Nokia bought Loudeye to kickstart its own iTunes service for its multimedia phones and handsets.
In 2006, RealNetworks teamed up with SanDisk, the number-two player manufacturer in the United States behind Apple, to pair their hardware and software offerings à la the iPod. Cutting out the middleman—Microsoft’s PlaysForSure—the companies instead opted for Real’s Helix digital rights management, which promised tighter integration.
Sony, which has decades of hardware expertise but little or none in software, has set up a software group in California to coordinate development across the giant’s disparate [CE4] product groups.
The group is run by Tim Schaaf, a former Apple executive, who has been anointed Sony’s “software czar.” Schaaf has been charged with developing a consistent, distinctive software platform for Sony’s many products. He will also try to foster collaboration between various product groups, each of which works in its own “silo.” At Sony, there’s historically been little cross-pollination between isolated product groups, and there’s a lot of repeated effort but little interoperability.
Sir Howard Stringer, Sony’s ﬁrst non-Japanese CEO, reorganized the company and empowered Schaaf’s software development group to address these problems. “There’s no question that the iPod was a wake-up call for Sony,” Sir Howard told CBS’s 60 Minutes. “And the answer is that Steve Jobs [is] smarter at software than we are.”
Most signiﬁcantly, Microsoft abandoned its own PlaysForSure system in favor of the Zune, a combination player, digital jukebox, and online store.
Although Microsoft pledged to continue to support PlaysForSure, its decision to go with its new vertically integrated Zune music system was a clear message that its horizontal approach had failed.
The Zune and Xbox
The Zune comes out of Microsoft’s Entertainment & Devices Division, a unique hardware/software shop that technology journalist Walt Mossberg characterized as a “small Apple” inside Microsoft.[ix] Run by Robbie Bach, a Microsoft vet who rose through the ranks, the division is responsible for the Zune music players and Xbox game consoles. Like Apple, it develops its own hardware and software, and runs the online stores and community services that its devices connect to. In spring 2007, the division unveiled a new product, an interactive, touchscreen tabletop called Surface.
The division has in its sights Sony and Nintendo, as well as Apple, and is pursuing a strategy it calls “connected entertainment”—“new and compelling, branded entertainment experiences across music, gaming, video and mobile communications,” according to Microsoft’s website.
“It’s the idea that your media, whether it’s music, video, photos, games, whatever—you should have access to that wherever you are and on whatever device you want—a PC, an Xbox, a Zune, a phone, whatever works and in whatever room it works,” Bach told the San Francisco Chronicle. “In order to do that, Microsoft has taken assets from across the company and consolidated them in this division. . . . We’re working on the speciﬁc areas of video, music, gaming and mobile, and also trying to work to make all those things come together in a coherent, logical way.”[x]
But to make it work in a coherent, logical way, one company has to control all the components. In technology jargon, this is known as “vertical integration.”
When the Chronicle asked Bach to compare Apple’s and Microsoft’s approaches to consumer devices—horizontal versus vertical integration—Bach danced about a little, before acknowledging the strengths of his competitors’ approach. “In some markets,” he said, “the beneﬁts of choice and breadth play out successfully. On the other hand, there [are] other markets and what people are really looking for is the ease of use of a vertically integrated solution. And what Apple demonstrated with its iPod is that a vertically integrated solution could be successful in a mass way.” Bach admitted that his division is adopting Apple’s “vertically integrated” model: it is blending hardware, software, and online services. “The market showed that’s what consumers want,” he said.
What Consumers Want
These days, more and more technology companies talk not about products, but about “solutions” or “customer experiences.” Microsoft’s press release announcing the Zune music player was entitled: “Microsoft to Put Zune Experience in Consumers’ Hands on Nov 14.” The release emphasized not the player, but a seamless customer experience, including connecting to other music lovers online and off, via the Zune’s WiFi sharing capabilities. It was “an end-to-end solution for connected entertainment,” Microsoft said.
The market research ﬁrm Forrester Research published a paper in December 2005: “Sell digital experiences, not products.” Forrester pointed out that consumers spend a fortune on expensive new toys, like big high-deﬁnition TVs, but then they fail to buy the services or content that bring them to life, like high-deﬁnition cable service. The ﬁrm recommended: “To close this gap, digital industries must stop selling standalone devices and services and start delivering digital experiences—products and services integrated end-to-end under the control of a single application.”[xi] Sound familiar?
In September 2007, at a special press event in San Francisco, Steve Jobs leapt on stage with a big grin to introduce the iPod touch: the ﬁrst ﬁnger-controlled iPod. During the ninety-minute presentation, he unveiled a cornucopia of Christmas goodies, including a completely revamped line of iPods and a WiFi music store coming to thousands of Starbucks coffee shops.
Industry analyst Tim Bajarin, president of Creative Strategies, who’s followed the tech industry for decades and has seen it all, is not easily bowled over. Nonetheless, after Jobs’s presentation as he stood in the aisle talking to reporters, Bajarin was shaking his head in disbelief. Ticking off the items one by one—new iPods, the WiFi music store, the Starbucks partnership—Bajarin noted that Apple had a full lineup of killer gadgets at every price point and a comprehensive media delivery system. “I don’t know how Microsoft and the Zune competes with something like that,” he said. “The industrial design, the pricing models that set new rules, the innovation, WiFi.” Now he was shaking his head more vigorously. “It’s not just Microsoft. Who out there has the ability to compete with that?”
In the thirty years since founding Apple, Jobs has remained remarkably consistent. The demand for excellence, the pursuit of great design, the instinct for marketing, the insistence on ease of use and compatibility, all have been there from the get-go. It’s just that they were the right instincts at the wrong time.
In the early days of the computer industry—the era of mainframes and centralized data processing centers—vertical integration was the name of the game. The giants of the mainframe business, IBM, Honeywell, and Burroughs, sent in armies of button-down consultants who researched, designed, and built the systems. They built IBM hardware and installed IBM software, and then ran, maintained, and repaired the systems on the customer’s behalf. For technophobic corporations of the sixties and seventies, vertical integration worked well enough, but it meant being locked into one company’s system.
But then the computer industry matured and it disaggregated. Companies started to specialize. Intel and National Semiconductor made chips, Compaq and HP made computers, and Microsoft provided the software. The industry grew, spurring competition, greater choice, and ever-falling prices. Customers could pick and choose hardware and software from different companies. They ran databases from Oracle on top of hardware from IBM.
Only Apple stuck to its whole-widget guns. Apple remained the last—and only—vertically integrated computer company. All the other vertical integrators, companies that made their own hardware and software—Commodore, Amiga, and Olivetti—are long gone. The ones that remain—IBM and HP—have changed their business models.
In the early days, controlling the whole widget gave Apple an advantage in stability and ease of use, but it was soon erased by the economies of scale that came with the commoditization of the PC industry. Price and performance became more important than integration and ease of use, and Apple came close to extinction in the late nineties as Microsoft grew to dominance.
But the PC industry is changing. There’s a new era opening up that has the potential to dwarf the size and scope of the productivity era of the last thirty years. Jobs’s third golden age of the PC—the era of the digital lifestyle—has dawned. It’s marked by post-PC gadgets and communication devices: smartphones and video players, digital cameras, set-top boxes, and Net-connected game consoles.
The pundits are obsessed with the old Apple-versus-Microsoft battle for the workplace. But Jobs conceded that to Microsoft a decade ago. “The roots of Apple were to build computers for people, not for corporations,” he told Time. “The world doesn’t need another Dell or Compaq.”[xii] Jobs has got his eye on the exploding digital lifestyle market—and the iPod, iPhone, and AppleTV are digital entertainment devices. In this market, consumers want devices that are well designed and easy to use, and work in harmony. Nowadays, hardware companies must get into software, and vice versa.
Owning the whole widget is why no other company has been able to build an iPod killer. Most rivals focus on the hardware—the gadget—but the secret sauce is the seamless blend of hardware, software, and services.
Now Microsoft has two whole-widget products—the Xbox and Zune—and the consumer electronics industry is getting heavily into software. Jobs has stayed the same; the world is changing around him. “My, how times have changed,” wrote Walt Mossberg in the Wall Street Journal. “Now, with computers, the Web and consumer electronics all merging and blurring, Apple is looking more like a role model than an object of pity.”[xiii] The things Jobs cares about—design, ease of use, good advertising—are right in the sweet spot of the new computer industry.
“Apple’s the only company left in this industry that designs the whole widget,” Jobs told Time. “Hardware, software, developer relations, marketing. It turns out that that, in my opinion, is Apple’s greatest strategic advantage. We didn’t have a plan, so it looked like this was a tremendous deﬁcit. But with a plan, it’s Apple’s core strategic advantage, if you believe that there’s still room for innovation in this industry, which I do, because Apple can innovate faster than anyone else.”[xiv]
Jobs was thirty years ahead of his time. The values he brought to the early PC market—design, marketing, ease of use—were the wrong values. The growth of the early PC market was in selling to corporations, which valued price above elegance and standardization over ease of use. But the growth market is now digital entertainment and home consumers, who want digital entertainment, communication, creativity—three areas that play to Jobs’s strengths. “The great thing is that Apple’s DNA hasn’t changed,” Jobs said. “The place where Apple has been standing for the last two decades is exactly where computer technology and the consumer electronics markets are converging. So it’s not like we’re having to cross the river to go somewhere else; the other side of the river is coming to us.”[xv]
In a consumer market, design, reliability, simplicity, good marketing, and elegant packaging are key assets. It’s coming full circle—the company that does it all is the one best positioned to lead.
“It seems to take a very unique combination of technology, talent, business and marketing and luck to make signiﬁcant change in our industry,” Steve Jobs told Rolling Stone in 1994. “It hasn’t happened that often.”
[i] “Steve Jobs, the iPhone and Open Platforms,” by Dan Farber, ZDnet.com, Jan. 13, 2007.
[ii] “The Guts of a New Machine,” by Rob Walker, New York Times Magazine, Nov. 30, 2003. (http:www.nytimes.com/2003/11/30/ magazine/30IPOD.html)
[iii] “If He’s So Smart . . . Steve Jobs, Apple, and the Limits of Innovation,” by Carleen Hawn, Fast Company, Issue 78, Jan. 2004, p. 68.
[iv] “Mea Culpa,” by Andy Hertzfeld, Folklore.org. (http://www .folklore.org/StoryView.py?project=Macintosh&story=Mea_ Culpa.txt)
[v] “The Sansa-Rhapsody Connection,” by James Kim, CNet Reviews, Oct. 5, 2006. (http://reviews.cnet.com/4520-6450_7-6648758-1.html)
[vi] “Apple Computer Is Dead; Long Live Apple,” by Steven Levy, News-week, Jan. 10, 2007. (http://www.newsweek.com/id/52593)
[vii] “How Apple Does It.”
[viii] “iPod Chief Not Excited About iTunes Phone,” by Ed Oswald, BetaNews, Sept. 27, 2005 (http://www.betanews.com/article/iPod_ Chief_Not_Excited_About_iTunes_Phone/1127851994?do= reply&reply_to=91676))
[ix] “Hardware and Software—The Lines Are Blurring,” by Walt Mossberg, All Things Digital, April 30, 2007. (http://mossblog.allthingsd .com/20070430/hardware-software-success/)
[x] “Getting in the game at Microsoft. Robbie Bach’s job is to make software giant’s entertainment division proﬁtable,” by Dan Fost and Ryan Kim, San Francisco Chronicle, May 28, 2007. (http://www .sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/05/28/MICROSOFT .TMP)
[xi] “Sell digital experiences, not products. Solution boutiques will help consumers buy digital experiences,” by Ted Schadler, Forrester Research, Dec. 20, 2005. (http://www.forrester.com/Research/ Document/Excerpt/0,7211,38277,00.html)