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Steve Jobs' Endangered Second Act

Open Source/Open Standards

In his later years, the American Jazz Age author F. Scott Fitzgerald ruefully observed that "There are no second acts in American Lives." That now-famous verdict was based upon the personal experience of the once celebrated author, by then a self-described "Hollywood Hack," reduced to writing B Movie scripts for current income. 

If there is a current exception to Fitzgerald's axiom in the world of technology, it must certainly be Steve Jobs.  The company he founded in a garage with partner Steve Wozniak quickly seized the lead in the PC revolution, reaching $100 million in revenues by 1980.  Later the same year, Apple launched the largest IPO since Ford Motor Company went public.  But the introduction of the IBM PC and the rise of Microsoft wrought a reversal in Apple's fortunes, and in May of 1985, the man he had recruited to be his mentor ousted Jobs from his own company.

The rest, of course, is the stuff of which legends are made.  Jobs attempted to vindicate his vision in 1985 by founding a new company that he unsubtly dubbed NeXT Computer.  But NeXT never found its market: by 1993, it had sold only c. 50,000 machines.  Then, at last, Jobs' fortunes began to improve. 

In 1996, NeXT was acquired by Apple, which had itself been largely wandering in the wilderness during the intervening years.  By acquiring NexT, Apple not only obtained the rights to a new operating system, but it reacquired Jobs as well.  Moreover, not long after leaving Apple, Jobs had bought an animation studio from LucasFilms for $5 million, plus a $5 million cash infusion into the studio itself.  He later renamed that studio Pixar, and it went on to become wildly successful, making Jobs a very wealthy man twice over.

With the fantastic success of the iPod and iTunes, the successful launch of the tectonically innovative iPhone and the rejuvenation of Mac sales, Jobs now seems poised on the cusp of proving Fitzgerald wrong to the point of stomping on the author's grave.  But will he in fact pull it off, leading Apple to dominate the mobile platform of the future after surrendering the emerging PC platform of the past to his rivals?

Given Jobs' announcements of yesterday, I'm afraid that history may be about to repeat itself instead.  Here's why.

Yesterday, Jobs made a number of impressive iPhone related announcements, most significantly (for business users) disclosing that Apple had entered into an agreement with Microsoft whereby the iPhone will support Microsoft Exchange.  Jobs contends that the result, along with further details, will allow Apple to more directly challenge Research in Motion's (RIM) dominant BlackBerry mobile device.  If so, this would permit Apple to have the same impact on its competitors in the business space that it is already having in the consumer world, and perhaps more so, since the penetration of mobile devices in the business world is still much smaller than the spread mobile phones among consumers.

Jobs also revealed news of major appeal to consumers as well, announcing a new release of the iPhone operating system, and here is where I fear he may be making a fatal misstep.  But first, the good news:  Apple will embrace the innovation of independent software vendors (ISVs), providing them the technical information to create iPhone-based apps, and also a ready distribution channel as well.  From the press release:

The iPhone 2.0 software release will contain the App Store, a new application that lets users browse, search, purchase and wirelessly download third party applications directly onto their iPhone or iPod touch. The App Store enables developers to reach every iPhone and iPod touch user....Users can download free applications at no charge to either the user or developer, or purchase priced applications with just one click. Enterprise customers will be able to create a secure, private page on the App Store accessible only by their employees. Apple will cover all credit card, web hosting, infrastructure and DRM costs associated with offering applications on the App Store....

The iPhone SDK provides a reliable, fast and secure way to create innovative applications for the iPhone and iPod touch. In addition to the rich set of iPhone OS APIs, the iPhone SDK also provides advanced tools for creating native iPhone and iPod touch applications including: Xcode® for source code editing, project management and graphical debugging; Interface Builder with drag and drop interface creation and live preview; Instruments to monitor and optimize iPhone application performance in real time; and the iPhone Simulator to run and debug applications.

All of which sounds beyond wonderful, not only for Apple, but for ISVs and Apple's enthusiastic customers as well.  But now the bad news:  the devil is in the ellipses.  Here's a part of the language that I did not include in the extract above:

Developers set the price for their applications—including free—and retain 70 percent of all sales revenues....Third party iPhone and iPod touch applications must be approved by Apple and will be available exclusively through the App Store.

And now you can begin to see why I think that rather than standing on the verge of an unprecedentedly successful second act, Jobs may be about to stage a replay of the same mistakes of three decades ago.  Will developers wish to tie themselves to the whims of Steve Jobs, the same way they did 25 years ago to Bill Gates - and pay a toll for the privilege of doing so to boot?  Or will they spend their time working to support more open platforms, such as Android, where there will be less control, no toll booth, and multiple channels of distribution?  Haven't they all been there before? 

Unfortunately, it appears that Steve Jobs learned the wrong lessons the first time around, and is fighting the last war rather than the next one.  Apple failed in the early 1980s in large part because the IBM PC platform provided what at the time was a remarkably open platform for ISVs, as well as an ever-growing potential customer market as more and more personal computer buyers flocked to the "WinTel" platform instead of Tandy, Commodore - or Apple. 

Soon, this "virtuous cycle" of more platforms attracting more applications attracting more customers (and back around again) became a juggernaut that no computer manufacturer could challenge with a proprietary alternative.  Instead, the name of the game became to simply play the game better.  While Apple's fortunes fell, Compaq and Dell became ascendant, soon eclipsing Apple in both business and consumer sales.  Eventually, Apple flirted with allowing its products to be cloned, it was too little and too late, and Jobs reversed the experiment in any event upon his return.

I find yesterday's announcements particularly unfortunate, because Jobs really does have a chance for a "do-over" here,  but only if he understands the opportunity.  Just as the PC revolution allowed new venturers to unseat IBM, we are on the dawn of another unparalleled shift.  I recently described that opportunity in a piece I called Going Mobile: the Year of the Smartphone Startup.  In that piece, I observed:

2008 will usher in a multiyear period of opportunity for entrepreneurs and investors. The dynamics will echo two boom periods of the past -- the rapid expansion of the PC marketplace in the early 1980s, and the Internet explosion of the late 1990s. The device that will most robustly deliver on these antecedents is the smart phone, initially deployed (like the first personal computers) with many competing operating systems, and now able (like the PCs of the Internet boom) to satisfactorily access the Internet and the web.

In many ways, however, this boom will be better. Unlike the early, anemic, expensive PCs that people had never used before, a smart phone is simply a much more versatile telephone -- something a billion people already own. With a decade of Internet and web experience behind us, there will be far fewer failed efforts to determine what people really will and won't do online. And these mobile devices will be able to perform new tricks, using as many as nine separate on-board radios to interact with an ever-expanding "Internet of things," such as ATMs, film kiosks, movie posters and much more.

But there is one extremely important difference this time around: now we live in an open IT world.  If Jobs fights yesterday's war the way that Bill Gates did - by trying to create an ecosystem with Apple firmly entrenched at its center - ISVs will simply go elsewhere.  Crucially, there are only so many iPhones in use today.  The prize is simply not yet large enough to offset the costs to ISV independence to lure the best of them in and keep them there exclusively.

Already, various flavors of Linux are destined to power the majority of mobile devices, and the Google Android project aims to provide developers with greater independence as well. Not long ago, even the dominant telecommunications carriers grudgingly came to realize that they are better served (assuming they still have a choice) by opening their phones to independent software vendors than by shutting them out.

If Steve Jobs is to truly prove F. Scott Fitzgerald wrong, he needs to realize that the game - and the rules - have changed.  Will that happen?  Unfortunately, I'm not optimistic.  Jobs seems constitutionally rooted in proprietary strategy, and to date has only been capable of incrementally opening the door a crack at a time in the same way as Microsoft - and for Apple's benefit alone.

As I have opined before, this seems to me to be a tragic flaw in Jobs' leadership.  Certainly Apple is the unparalleled leader in innovation and design for the consumer market among the majors.  Were Jobs to truly open the Apple platform, it seems likely to me that Apple could enjoy a substantial and sustaining lead in an explosively growing market space.  How much better to be king of a much larger and more profitable hill as the acknowledged master of the game, rather than a latter day, unsuccessful adopter of the Bill Gates play book?  Unless Steve can get through the openness knothole, I fear that his chance at a truly successful second act will be squandered. 

The choice, of course, is his.  We need not worry too much on his account, though, as the remaining years of his career are certain to end more happily than F. Scott Fitzgerald's. 

After all, Jobs owns a studio.

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Steve Jobs' Endangered Second Act | 22 comments | Create New Account
The following comments are owned by whomever posted them. This site is not responsible for what they say.
Steve Jobs' Endangered Second Act
Authored by: Anonymous on Friday, March 07 2008 @ 10:14 PM CST
He will survive it
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Steve Jobs' Endangered Second Act
Authored by: Anonymous on Saturday, March 08 2008 @ 08:10 AM CST
An interesting analysis, but I wonder if the one-stop-shopping benefits of the App Store will offset the downside of it being closed. That is, look at it from the consumer's vantage point rather than the developer's. You'll have one place to go where you can find/purchase all this great stuff, rather than having to hunt around the web for it. That's what makes Amazon so effective. And what's good for the consumer, ultimately, is what's good for the people selling the goods, in case developers. Plus, Apple will handle billing etc and showcase apps on what no doubt will be a very nicely done web store, so developers won't have to deal with back- or front-end issues as much. Just write a great app, and let Apple do the rest.
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30% Thing
Authored by: Anonymous on Saturday, March 08 2008 @ 08:18 AM CST
30% is not a gross amount, especially when the cost of hosting is considered. Do you believe software programmers who sell their stuff at BestBuy receive more than 70% of the retail price of boxed software? And putting software in Apple's App Store will be like suddenly opening a small store in a mall. For most smaller software developers, the potential increase in foot traffic is worth the 30%. Plus, the really small programmers now require little expertise or effort once the actual programming is done. That is the easy part for most programmers. By the way, what percentage of the cost of a gallon of milk does a dairy farmer get? Think about that!
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  • 30% Thing - Authored by: Anonymous on Sunday, March 09 2008 @ 12:47 AM CST
Steve Jobs' Endangered Second Act
Authored by: Andy Updegrove on Saturday, March 08 2008 @ 09:05 AM CST
Thanks for the comments, and I take your points.  I do think that Apple will be quite successful with this strategy in the short term for the reasons that you suggest.  In that sense, it's a smart strategy, and is likely to result in an early lead for Apple, especially given the cachet of the iPhone and the obvious interest in it that has already led to lots of apps already from hackers that had to work harder than they will now to launch something.

In the long term, though, the result might be different, because of the greater degree of freedom that developers may have on other platforms, and most obviously Android.  If that proves to be more attractive, then over time there may be more apps there, and one would expect Google to offer an equivalent "one stop shopping" experience (why not?)  That's when the risk comes in, because if Android becomes the Amazon, then Apple's position could rapidly erode. 

Will that happen?  Obviously it depends on Google doing a good job with its initiative and other factors.  But long term I don't think that people would be any happier being locked in by Steve Jobs than Bill Gates.

  -  Andy
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Steve Jobs' Endangered Second Act
Authored by: Anonymous on Saturday, March 08 2008 @ 10:05 AM CST
Steve Jobs is the best in his industry no matter what anyone says!!

Debra Baker
http://debrabaker.com
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Steve Jobs' Endangered Second Act
Authored by: Anonymous on Saturday, March 08 2008 @ 02:34 PM CST
Steve's second act is in zero danger; if he quits tomorrow, what he's already accomplished will be a Harvard case study for a century. As for comparing this situation to MS 20 years ago, that combination of events will never be repeated in this industry.
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Steve Jobs' Endangered Second Act
Authored by: Anonymous on Sunday, March 09 2008 @ 12:00 AM CST
Here we go again. Yes, Apple is a software developer but history has shown since the "second coming" of Steve Jobs that [b]Apple primarily develops software to push hardware sales[/b]. This is why Apple killed cloning and developed killer applications and services - to push hardware.

We only need to look at the iPod to see this sales model in motion. The iTunes Store is nothing more than one more reason to buy their hardware. We see this with AppleTV and now the iPhone. Sure, Apple makes some profit from the iTunes Store and eventually the AppStore, but the money is in the hardware.

As the iPod has proven. A closed system has its advantages for consumers, when you want a device that just works and works well.

While the iPhone and Touch are much more than an iPod, it would make no sense for Apple to allow for hardware cloning of these devices, since that's where the money is. And opening software development is meaningless since no other phone could run iPhone software, since no other phone has it's key feature; multi-touch.

By the way. How is also-ran Dell doing these days!
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Steve Jobs' Endangered Second Act
Authored by: Anonymous on Sunday, March 09 2008 @ 03:20 PM CDT
Since iTunes is poised to be the virtual Walmart for digital media why wouldn't a developer want to be involved? What people may miss is that Apple is offering a whole lot of customers and a minimum of fuss for developers to distribute their wares. While large firms can afford to get their product on actual store shelves this gives the smaller companies a chance at the ipod / iphone customer. Is that a bad thing?
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Steve Jobs' Endangered Second Act
Authored by: Anonymous on Sunday, March 09 2008 @ 05:36 PM CDT
Wow, you sure have a lot of Apple fan boys posting some pretty ridiculous comments here.  I'm going to reply to all of them at once instead of posting a bunch of replies.

Let me start with:

"An interesting analysis, but I wonder if the one-stop-shopping benefits of the App Store will offset the downside of it being closed. That is, look at it from the consumer's vantage point rather than the developer's. You'll have one place to go where you can find/purchase all this great stuff, rather than having to hunt around the web for it. That's what makes Amazon so effective. And what's good for the consumer, ultimately, is what's good for the people selling the goods"

Excuse me, but there is a difference between providing an App Store for customers convenience, and forcing users to obtain any and all applications from Apple.  I for one, refuse to spend hundreds of dollars on a product where the manufacturer tells me where and how I can get add-ons for it.

"Apple will handle billing etc and showcase apps on what no doubt will be a very nicely done web store, so developers won't have to deal with back- or front-end issues as much. Just write a great app, and let Apple do the rest."

As good of an idea as this is, it doesn't justify forcing it down the consumers throat.  If I want to write my own apps for my own iPhone, I should be able to do so.  I can do this with my Blackberry, so why not an iPhone?

"Steve Jobs is the best in his industry no matter what anyone says!!"

Besides the fact that this is a pointless comment....  What are you responding to?  Did anyone say Steve Jobs wasn't good at what he does?  And where is the justification for this statement?  Posting comments like this only undermines your case because it shows that you lack the cognitive ability to think on your own.

"Steve's second act is in zero danger; if he quits tomorrow, what he's already accomplished will be a Harvard case study for a century."

This comment is no better than the one preceding it.  Just someone else in love with Steve Jobs who thinks it's impossible for him to do wrong or make a mistake.  It's amazing how people will worship people like Steve Jobs as if he was some sort of God.
And again, I have nothing against Steve Jobs, or Apple.  But come on, how does saying "what he's already accomplished will be a Harvard case study for a century" help your case at all?  It doesn't, because it does nothing to address any of the points made by the original article.  It's also an unfounded statement:  No evidence to support this silly claim is provided.


And now on to the next comment:

"As the iPod has proven.  A closed system has its advantages for consumers, when you want a device that just works and works well."

Really?  How did the iPod prove this?  What are the advantages, exactly?  Making the system closed does not make the system "work and work well" any more than an open system.  There is no basis for this argument whatsoever.  A closed system only limits consumer choice, it does not improve anything.

"While the iPhone and Touch are much more than an iPod, it would make no sense for Apple to allow for hardware cloning of these devices, since that's where the money is."

Who's talking about allowing people to clone the hardware?  Who cares?

"And opening software development is meaningless since no other phone could run iPhone software"

This is where you really show your ignorance of the topic.  Updegrove is talking about the fact that all software for an iPhone must come from Apple.  As a consumer, if Apple says 'no' to a software product they don't like, it means you can't get that product, period.  As a user, if I pay $500 for a phone, i should be able to get software from wherever I like.  Sure most users will probably use the App Store, but that doesn't mean you should force them to go through the App Store and give them no other choice.

And the next comment:

"Since iTunes is poised to be the virtual Walmart for digital media why wouldn't a developer want to be involved? What people may miss is that Apple is offering a whole lot of customers and a minimum of fuss for developers to distribute their wares. While large firms can afford to get their product on actual store shelves this gives the smaller companies a chance at the ipod / iphone customer. Is that a bad thing?"

No, it's not.  The 'bad thing' here is that Apple is telling their own consumers what they can and can't put on their iPhone.  This kind of dictatorship like stance will prevent a lot of educated consumers from buying the iPhone.  I personally refuse to buy any computing device that prohibits me from installing my own software on it.

And the App Store, as good of an idea as it may be, will mean nothing if developers don't publish apps there.  If Apple continues down the road of trying to be the iPhone dictator, they are going to chase away developers and users.  They need both to make the iPhone truly successful.

-Jeremy
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Steve Jobs' Endangered Second Act
Authored by: Anonymous on Monday, March 10 2008 @ 07:00 AM CDT
People don't like the PC way of doing things -- mixing hardware and software from different vendors on your own machine and not knowing who to call when it breaks.  Who has time to be an IS weenie for a computer and for a phone?  And the initial install is just the beginning.  If iphone apps are like any other modern software there will be updates, and offering a single channel for updates will be a huge life-simplifyer for customers.

Of course, in some cases you don't know who to blame, Apple or SBC/Cingular/whatever they're calling themselves this year -- but making things less like the PC model is a _good_ thing.
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This is a repost of a reply to another user
Authored by: Anonymous on Saturday, March 15 2008 @ 12:26 PM CDT

I thought about what I had said, and that due to the way the comments system here works it really wasn't visible, so I reposted it.

Wayne

*****

If you own the phone, you should be able to do what you want with it. I agree. It's one reason that I like the GPL, and free software in general.

However Apple's plan of selling all IPhone software through the ITunes App Store has serious advantages for software developers, and it's something I suspect we will see from other smartphone vendors.

1) One stop shopping - if it's easier for the consumer to find, it's easier for the consumer to buy,

2) Bigger profits. Anyone selling through the supply chain (i.e. Best Buy, Future Shop, et. al) is getting less than 10% of the price the consumer pays. This way they get 70%.

3) Marketing department costs are zero.

4) Packaging costs are zero.

5) General overhead costs (accounting, human resources) are way lower.

Let's consider a program called APPX (what it is or does doesn't matter). If I sell it through the supply chain, and it sells for $50.00 to the consumer, I may get $5.00, and from that I have to pay all my overheads, packaging, payroll, etc. If I sell it through the ITunes store for $20.00, I make $14.00 per sale, and my overheads are less. This assumes that I sell the same number of copies - what's not to like about retaining 3.4 times the amount of money per unit sold? My margins will be way higher, and my costs way lower! And this doesn't take into account that I may sell a lot more copies because after all it's $30.00 cheaper, and because it's easier to find - it's in the ITunes App Store.

Steve Jobs has just done a lot of developers one hell of a huge favor. They can sell their product to the consumer for less, make more money, and do it with a lower cost structure. This is why the IPhone SDK is being downloaded like mad. Developers know a good deal when they see one.

As to Apple having to vet every program, well this makes sense too. I've been around computers a long time - my first personal computer was a Timex Sinclair with 2K of RAM. Back then trojans/key loggers, and other nasties weren't a huge issue. It wasn't connected to the net, or to a telephone line, so anything I had on it (cassette tape drive for storage) was safe unless someone physically walked off with my tapes. With the Iphone, well it's got built in Wifi, a dock to connect it to a computer, and the phone itself. If I was a scumbag programmer I could code in a credit card number recognition routine, and have it email/phone/IRC it to me. The requirement for the source code to be supplied to Apple allows Apple Corporation to guard it's customer's against this, and therefore makes the IPhone more valuable to the consumer, which means that Apple will sell more of them. And guess what - this makes the Iphone more valuable to the developer as his/her market is bigger.

It also makes the IPhone more valuable to corporate IT departments. If you have a Blackberry you can load on any software you want, and if this software was written by a black hat, well...

So I can understand you wanting to do whatever you feel like with your phone - but I can also understand why developers are very excited about this, and how it's valuable to the consumer as well. The devs and the consumers end up winning big time with this Apple policy.

I think that Andy blew it with this article, something I have never seen him do before.
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