His private reasoning was likely more complex. Allowing Adobe into the iPhone and iPad ecosystem would risk creating competition on two fronts. If developers could create software using Flash and deliver it directly to consumers over the Web, they could bypass the App Store—and its 30 percent tithe—entirely.
Also, Jobs probably hoped to lock developers into the Apple platform. Rivals were opening mobile app stores of their own, and he didn’t want to make it easy for software programmers to create apps for them.
With the future of its business at stake, Adobe fanned the development community’s discontent by calling attention to the issue on its corporate blog. Old grudges made the arguments particularly heated and personal. Jobs had never forgiven Adobe for not embracing the Macintosh when he was trying to turn Apple around in the late 1990s.
Adobe was “lazy,” Jobs said at an internal Town Hall meeting shortly after he unveiled the iPad. “They have all this potential to do interesting things but they just refuse to do it.”
Adobe supporters accused Apple of big-footing. Nearly eleven thousand Adobe fans banded together to support a Facebook page called “I’m with Adobe.”
The battle came to a head when Jobs posted a sixteen-hundred-word essay called “Thoughts on Flash” on Apple’s website in late April. It was a rare but not unprecedented move. The last time he had published something like that was three years earlier, when he urged the music industry to let Apple sell music without anti-copying protection.
“Flash was created during the PC era,” Jobs wrote. “The mobile era is about low power devices, touch interfaces and open web standards—all areas where Flash falls short. . . . New open standards created in the mobile era, such as HTML5, will win on mobile devices (and PCs too). Perhaps Adobe should focus more on creating great HTML5 tools for the future, and less on criticizing Apple for leaving the past behind.”
Apple ultimately triumphed. At the end of the day, the iPad was an Apple product. If you wanted to be a part of it, you had to abide by their terms. Flash had been on its way out anyway. Apple may have accelerated the transition, but the Web was already moving toward HTML5. The furor dissipated as developers and media companies came to terms with their reality and began planning their strategy.
But the victory cost Apple. The fight with Adobe enforced the perception that Apple was turning into an eight-hundred-pound gorilla. Despite Jobs’s justifiable reasons to exclude Flash from the iPad, Apple came across as an oppressor. The controversy tarnished the empire’s sterling brand image. More would soon follow.
Apple’s App Store would be scrutinized next.
By spring 2010, nearly two years after launch, the store was astonishingly successful. It offered more than 185,000 games and other applications, most of which were free or ninety-nine cents. Venture capital firms were pumping money into app companies, and an ecosystem of advertising networks and other supporting businesses was emerging. Apple didn’t disclose how much the company was making from its cut of sales, but Shaw Wu, a longtime Apple analyst, put estimates as high as $1 billion annually. Google, Apple’s next-biggest App Store competitor, couldn’t even come close with its thirty thousand applications, most of which were free. As with everything else the company did, Apple retained absolute control by requiring developers to submit their apps for approval.
The dominant power that Apple held in this new market was alarming for antitrust regulators. By this time, Apple had sold more than 85 million iPhones and iPod touches. The company’s share in the overall mobile phone market was still small, but it was number three among smartphone makers and gaining. Apple’s pop culture influence was even more ubiquitous. References to MacBooks, iPhones, iPod touches, and iPads appeared everywhere, overshadowing every other mobile phone maker.
Apple’s convoluted app approval process added to the concerns. The company provided no clear guidelines about what they wanted to see, and apps were routinely rejected or ignored with little explanation. In a high-profile case, the company initially rejected Google’s Voice app, which allowed users to make phone calls via the Internet. Apple approved the application only after Google complained to regulators about the anticompetitive move.
While Apple warred with Adobe, the two agencies responsible for enforcing federal antitrust laws, the Federal Trade Commission and the Justice Department, began holding discussions over which one of them would launch an inquiry into how Apple ran its App Store. At issue were two moves that Apple had made.
The first was the decision barring developers from using Adobe software that made Flash-based apps compatible with Apple’s system. The second was a change in the developers agreement that banned apps from transmitting certain technical iPhone data to third parties. Apple had made the latter move in reaction to an analytics firm that abused the terms. But the action potentially prevented advertising networks from being able to target their ads, raising suspicions that Apple was giving its own mobile advertising service, iAd, an unfair edge.
In June, the Texas attorney general began making antitrust inquiries into Apple’s relationship with book publishers over iBookstore, homing in on a creative pricing agreement between the parties.
Apple had always been an aggressive competitor and negotiator. But the kind of hardball tactics that had helped the company dig itself out of a hole and make a comeback were no longer acceptable now that Apple was top dog.
Meanwhile, Apple was soaring. In addition to putting the iPad on sale, the company was simultaneously working on the iPhone 4, which promised to wow consumers with a new design. Jobs lived for these unveilings, so he was shocked when his next hand was tipped in a bizarre turn of events.
In late March 2010, Gray Powell, a twenty-seven-year-old software engineer for Apple, went with his uncle to Gourmet Haus Staudt, a German beer garden in Redwood City, about a twenty-five-minute drive from campus. He had with him a prototype of an iPhone 4 that was disguised as the preceding 3GS model so he could field-test the device.
Powell was having a good time. Only a few years out of college, he was employed by one of the hottest companies in the world, working on one of its most important projects. He was smart and likable. “I underestimated how good German beer is,” he enthused on his Facebook page, most likely on the iPhone 4 he was carrying.
But when he left the establishment later that evening, he left the prototype behind. It’s unclear how this happened. Powell’s last memory of the phone was inside his bag on the floor by his feet. But the phone was discovered on a bar stool, ending up in the hands of Brian Hogan, a twenty-one-year-old college student who had been enjoying a drink next to Powell. Hogan checked out the contents of the phone and waited for the owner to come back for a little while before he went home. Soon after, the phone was bricked, wiped remotely by Apple. As Hogan inspected the device, he realized for the first time that the iPhone was different from other 3GSs. When he took the case apart, he found a black phone with a flat back, a front-facing camera, and an aluminum frame. On the back was Apple’s familiar logo with the word “iPhone” toward the bottom. In the space that would have usually shown the memory size in gigabytes, it just said “XXGB.” It looked like a prototype.
Hogan knew that the phone belonged to Powell because he saw his Facebook profile on the phone. A quick search on the Internet showed that Powell was an engineer at Apple. Hogan made an attempt to contact Apple’s customer care number, but when they wouldn’t take him seriously, he decided to shop it to the media.
Staffers at the tech blog Gizmodo didn’t notice Hogan’s message at first because it had been sent to the site’s general email address. When they finally spotted it, they were suspicious. Gizmodo was constantly receiving emails from people claiming to have information about unannounced products. Most of them were fake or outdated. But Jason Chen, Gizmodo’s second-in-command, responded to the message just in case it was real. When Chen met with Hogan at a Starbucks in Palo Alto, he found a typical college kid who needed extra cash. As Chen examined the
phone, Hogan chatted about working at a golfing range.
“Okay, this looks good from the surface, but I can’t boot it up,” Chen told Hogan. “It’s hard to tell this is the real thing, so I need to take it apart and verify it.” The two struck a deal for Chen to borrow the phone, take it apart, and report on it if it turned out to be real. Hogan wanted ten thousand dollars, but Chen negotiated him down by half.
About a week later, on April 19, Gizmodo published a piece called “This Is Apple’s Next iPhone.” The story received more than ten million hits. An hour after the story went live, Gizmodo’s editor Brian Lam received a call from Jobs.
“Hi, this is Steve. I really want my phone back,” he said. “We need the phone back because we can’t let it fall into the wrong hands.”
Lam played coy. First he denied having the phone. Chen had it. Then he refused to give the device back unless Apple officially claimed the prototype.
“Right now, we have nothing to lose. The thing is Apple PR has been cold to us lately. It affected my ability to do my job right at iPad launch. So we had to go outside and find our stories like this one, very aggressively,” he wrote in an email to Jobs. Likening Gizmodo to the “old Apple,” he pointed out that he was just trying to survive.
Up until this point, public sentiment was leaning toward Apple. Hogan shouldn’t have sold a phone that wasn’t his, and Gizmodo was coming under strong criticism for its checkbook journalism. Paying for news was something tabloids did. Not mainstream news media.
Jobs lost his patience. After complying with Lam’s terms by sending a letter from his legal department and retrieving the phone from Chen, Apple pressed charges with the San Mateo police. On April 23 at around 9:45 p.m., Chen came home from having a hot-pot dinner with his wife to find his garage door ajar. When he tried to open it, officers came out and informed him that they had a search warrant. With his wife watching, they placed his hands behind his head and searched him for weapons. The cup of mango and lychee frozen yogurt they had been sharing melted in the car. Officers went through the entire house, taking eighteen items including computers, business cards, hard drives, digital cameras, and cell phones. They ignored Chen, who protested that he was a journalist and thus protected from such searches.
When Chen published his experience, there was an uproar. Even though Apple officials were not part of the raid, the company had triggered it. As unethical as some might have considered Gizmodo’s decisions, a criminal search against a journalist crossed the line.
Jobs didn’t care. When Apple officially unveiled the iPhone 4 at WWDC in early June, Gizmodo was excluded from the invitation list.
Though Jobs did his best to play up the iPhone 4 at launch, there was no getting around the fact that Gizmodo’s report had stolen his thunder. The presentation was also marred by technical glitches as Web pages failed to load in demonstrations.
“Our networks in here are always unpredictable, so I have no idea what we’re going to find. They are slow today,” Jobs said, as the crowd went silent. A short while later, he asked everybody to get off the Wi-Fi network. Most of the audience assumed he was joking even though Jobs’s tone was serious. By the time Jobs found out that personal Wi-Fi connections in the room were interfering with its cellular signals, he was seething.
“We figured out why my demo crashed,” he said. “There are five hundred and seventy Wi-Fi base stations operating in this room. Okay? We can’t deal with that.”
The audience thought he was being funny again and laughed. Those who knew him heard his tone grow sharper and recognized his simmering anger. “We either turn off all the stuff and see the demos or we give up and I don’t show you the demos. Would you like to see the demos or not?” he barked. “All you bloggers need to turn off your base stations, turn off your Wi-Fi. Every notebook, I’d like you to put them down on the floor. And all of you look around, I’d like you to police each other. . . . Come on! Look around you.” Given that the media had been invited there to report the news of the day, it was a ludicrous request. But Apple staffers raced around the room, ordering everyone to close their laptops. They knew that they would hear about it if people didn’t comply.
Later, when a demo video call with Jonathan Ive froze up, Jobs accused the audience of breaking their promise. When Ive asked him how he was doing, Jobs responded: “I’m doing okay except for these guys that aren’t turning their Wi-Fi off.”
Jobs was usually polished and professional during these product launches, but faced with an unforeseen predicament, the tyrant showed himself.
Fans around the world queued up to buy the phone. In San Francisco, the line started days in advance. One man toward the front of the line brought a tent for sleeping, a chair, books, and extra shirts. A woman farther down the line lugged a movie projector for after-dark entertainment. In Tokyo, customers, including a few in iPhone costumes, braved the sweltering summer heat. Apple Store employees passed out food and drinks.
But more trouble headed Apple’s way. Customers immediately began complaining about the iPhone 4’s poor cellular reception when the bottom-left corner was covered with their hand. Apple’s first response was dismissive.
“Gripping any phone will result in some attenuation of its antenna performance with certain places being worse than others depending on the placement of the antennas,” the company said, advising people to avoid covering the lower part of the device or get a case. Apple seemed to miss the irony of a design-centric company suggesting that customers cover up their phones.
As tech blogs ran tests confirming the issues, the cacophony grew louder. Lawsuits alleged that Apple had sold a defective product. Motorola ran advertisements for its upcoming Droid X, touting the phone’s superior antenna design.
Apple could no longer deny the problem. In an open letter to iPhone 4 users, the company claimed to be surprised by the reports of the antenna issues and explained that a software problem was causing phones to mistakenly inflate readings of their cellular strength. While Apple didn’t say so explicitly, it implied that the poor cellular quality was a network issue.
This was a partial truth. The problems tended to occur where cell signals were weakest, but the design of the phone itself contributed to the situation. Contrary to Apple’s assertion, developers had known of this risk from the very beginning when Jobs and his design chief Jonathan Ive chose a stainless-steel frame that doubled as the antenna. The two had fallen in love with the design’s simplicity, but it was a technical nightmare because metals interfered with signals, while the human touch degraded the quality of the cellular reception. The beauty of this kind of loop antenna had attracted designers in other companies, too, but there was a reason why no one had incorporated it in a product.
As the complaints mounted, Consumer Reports dropped a bombshell, saying that the publication couldn’t recommend the iPhone 4.
Jobs was at his favorite vacation spot, Kona Village Resort, in Hawaii when he heard about the report.
“They want to shoot Apple down,” he told board member Art Levinson. “Fuck this, it’s not worth it,” he said.
Cook worried that Apple might look complacent and arrogant. Though he normally deferred to Jobs, Cook persuaded him to address the issue. Pulling Jobs back from extreme positions was an important role of Jobs’s executives, but few had the tact and sangfroid that Cook did. It was one of the reasons he was so effective.
Jobs flew back from Hawaii. Four days later, Apple held a press conference at its Town Hall auditorium. Still missing from the audience was Gizmodo.
Before Jobs came onstage, Apple played something called the “iPhone Antenna Song,” which the staff had found on YouTube.
“There’s an awful lotta hoopla around the iPhone antenna,” the lyrics went. “If you don’t want an iPhone 4, don’t buy it. If you bought one and you don’t like it, bring it back.” The song set the tone for the press conference. When Jobs came out, he acknowledged the problems, but his tone was defiant.
“We’re
not perfect. We know that. You know that,” he said. “But we want to make all of our users happy. And if you don’t know that about Apple, you don’t know Apple.”
He then explained that Apple had been investigating the problem for the last twenty-two days. “It’s not like Apple’s had its head in the sand for three months on this, guys.”
Jobs argued that the antenna problem wasn’t unique to Apple. He showed videos demonstrating how it could happen with other phones by Research In Motion and Samsung. “This is life in the smartphone world. Phones aren’t perfect,” he said.
Though he offered free iPhone cases to appease unhappy customers, the gesture lacked sincerity. “This has been blown so out of proportion that it’s incredible,” he said. “There is no Antennagate.”
When asked whether he would apologize to investors, his answer was no.
“You invest in the company we are, so if the stock goes down five dollars . . . I don’t think I owe them an apology.”
4
Attila the Hun of Inventory
That April, the comedian Jon Stewart directed his arrows at Apple. On the Daily Show, he addressed Apple’s heavy-handed response to Gizmodo’s possession of the iPhone 4 prototype.
“The cops had to bash in the guy’s door?” Stewart asked incredulously after recapping the story in a video clip titled “iGoons.” “Don’t they know there’s an app for that?” Behind him flashed a screenshot of a mock app, Ram iT.
“This whole thing is out of control,” he declared as the graphic in the background changed to an Apple logo with the word “Appholes.”
Stewart then called Jobs and Apple over to camera three, where he spoke to them directly.
“You know I love you guys, right? I love your products. I use them all the time. I even love your stores.
“Apple, you guys were the rebels, man, the underdogs. People believed in you. But now, are you becoming the Man? Remember back in 1984, you had those awesome ads about overthrowing Big Brother? Look in the mirror, man!”
Haunted Empire: Apple After Steve Jobs Page 6