1. Why would Steve Jobs want to partner with Bill Gates?
2. What is Apple's Strategy? Is it effective?
3. According to Christensen, in his book The Innovator's Dilemma, the world thanks innovators for new products but wont buy them. Does his statement hold for apple in general and for its IPhone, in particular?

206 Part 3: Open-System Design Elements very strange kind of controlled system-because they have movies to iTunes. The 52 million TV shows and movies sold these insanely high bars [for reliability and user experi- so far by Apple amounts to fewer than two videos per iPod. ence] that they want to hit." This makes Apple's newest partnership with AT&T Many partners won't wait for a formal invite. Despite (T) for iPhone service all the more intriguing. Since the doubts about the iphone's usefulness to serious business- iPhone was announced in January, many observers have people, Salesforce.com is working on an iPhone version of wondered if Jobs pulled another fast one, using his con- its sales management software. "It's not just about market sumer cred to win unprecedented influence over the $140 share, it's about showing what is possible and what is billion cellular-phone business. Normally, carriers in the cool," says CEO Marc Benioff. And more than 150 devel- U.S. control how cell-phones are priced and marketed, opers have registered to attend an ad hoc "iPhone Devel- right down to deciding whether they will turn on capabili opers Camp" in San Francisco on July 6, to trade ideas ties built into the phones, such as wireless music down- and create new applications. loading. But that's not how Apple rolls. Apple defined the But if the Apple orchard is growing, it is still no Eden. 16 services that are highlighted on the iphone homepage, For those partners that make the cut, Apple enforces a and users sign up for them via iTunes, not on AT&T's brutal perfectionism. "The stereotype is that they're this homepage or in its stores. loosey-goosey California company, but nothing could be Has AT&T set itself up to be marginalized? The car- further from the truth," says Gary Johnson, the former rier stands to steal subscribers from its rivals; CEO Randall CEO of chipmaker PortalPlayer Inc., which roared to pros- L. Stephenson said on June 19 that of the 1.1 million people perity by providing the electronic brains of the first genera- who had inquired about the iphone, 40 percent were not tions of iPods. Johnson says that whenever a project fell currently signed up with AT&T. But analysts say Apple off track or a part fell short of Apple's needs, its engineers will earn a luxurious 35 percent gross margin on each of were demanding "root cause analysis" and explanations the $500 devices. AT&T is offering a $59 base plan for within 12 hours. "You could pacify other customers by phone and data services-roughly $20 less than the cost putting 10 engineers on a plane to see them. Not Apple." for corporate e-mail devices like Treo. Besides potentially taking a bite out of AT&T's margins, this could cause its "An Unreasonableness" other handset makers to demand sweeter deals, too. Working with Apple can be exhausting. Johnson says the But the real test will be whether Jobs can change the company almost never issued documents outlining its tech- way consumers think about a phone. This is Apple's first nical requirements, preferring to keep things oral to avoid entry into a preexisting mass market, and those other phone a paper trail that might be leaked. And no supplier was manufacturers can't afford to let Jobs rewire things to suit given a full picture of what exactly Apple was working Apple's strengths. Some already have rolled out cheaper on: Everything was on a "need to know" basis. "There's products that, if not exactly as capable as the iPhone, may an unreasonableness," says Johnson. "It's as though your be close enough. Will most consumers eventually choose to entire reason for being is to serve them." Yet he adds he has save money, even at the expense of a bit of elegance? His- no hard feelings: "It wasn't a malicious thing. It's almost tory says they will, according to Harvard Business School machine-like. You may have friendships or business rela- professor Clayton M. Christensen: "The world always tionships, but they don't really count." Johnson found that ends up thanking innovators for their cool products-but out on an April morning in 2006, when he learned Apple had decided not to use a chip that had been under develop- won't pay for them. There are forces of gravity at work." ment for more than a year and was expected to bring in vs. gravity. Now there's a matchup worth watching: Steve Jobs half of PortalPlayer's sales. The company's stock crashed 50 percent when Johnson told Wall Street a few days later. Assignment Questions Seven months later, it was purchased by Nvidia Corp. (NVDA) for $357 million-half of its peak market cap. 1. Why would Steve Jobs want to partner with Bill Gates: Suppliers of TV shows, movies, and other video con- 2. What is Apple's strategy? Is it effective? tent have their own reasons for being wary of joining the 3. According to Christensen, in his book The Innova- Apple ecosystem. They know what happened in the music tor's Dilemma, the world thanks innovators for new industry. Jobs created a kind of reverse razor-and-blades model with the iPod, where Apple sells lucrative razors products but won't buy them. Does his statement hold (music players) and the studios are stuck selling cheapo for Apple in general and for its iPhone, in part blades (music). Hollywood has resisted Jobs' vision for placing movies on the iPod and iPhone. Only movies from Walt Disney Co. (DIS) (where Jobs is the largest individual Burrows, P. (2007) Welcome to Planet Apple, www.businesswer shareholder) and Paramount Pictures (VIA) have licensed .com/magazine/content/07_28/b4042058.htm?chan=search, Ju 2007. Used with permission of Bloomberg All rights reserved. omberg L.P. Copyright @ 2011. NELCase for Analysis: Apple* July 9, 2007 As long as Apple stays on its game, leading providers Steve Jobs had plenty of problems to contend with as he of everything from silicon chips to Hollywood flicks will sauntered onstage for his first speech after returning to the feel pressure to strike deals to Jobs' liking. Apple can top of Apple in 1997. He faced a shrinking market for his confer brand hipness on its partners. And its ascendence Mac computers, bloated costs, and a severe shortage of cash. in markets like cell phones and who knows what else in But on that day, Jobs chose to talk to the Mac faithful mostly the future may impose a new focus on more consumer- about another problem: Apple's growing isolation. Despite friendly parts, software, and services. But to be part of the the company's reputation for making the world's finest PCs, Jobs club, you give up a certain amount of independence very little software or add-on gear worked with the Mac. on everything from design to identity to pricing. "Apple lives in an ecosystem, and it needs help from other Jobs is upending two decades of conventional partners," said Jobs. "And it needs to help other partners.' wisdom about the nature of competition in digital mar- Jobs then did the unthinkable, inviting arch-nemesis kets. Since the rise of Microsoft and Intel's "Wintel" PC Bill Gates to join him on stage via videoconference to standard in the 1980s, the assumption has been that mar- announce details of a deal to forget any patent claims in kets would be dominated by those that could set technical exchange for $150 million, and a promise by Microsoft standards-say, Microsoft in operating systems or Intel in Corp. (MSFT) to continue making a Mac-compatible ver- microprocessors-and then benefit as thousands of others sion of its ubiquitous Office software. competed to build products on top of these "platforms." Today, that Apple Inc. (AAPL) ecosystem has But Apple's strategy is far simpler: Focus on making morphed from a sad little high-tech shtetl into a global the best product, and rewards will follow. In fact, Apple's empire. Once known for defining the digital future but new partners are signing up in spite of, rather than never fully capitalizing on it, Apple has been transformed because of, Jobs' rules of engagement. Apple makes little into tech's most influential hit-maker. More than 200,000 pretense of building a level playing field, but routinely companies have signed on in the past year to create Apple- picks favorites-such as Google for building mapping compatible products, a 26 percent increase from the year and video applications for the iPhone. And rather than before. That includes software makers such as gamemaker aim for the most partners, Apple focuses on attracting the Electronic Arts Inc. and corporate supplier VMware, best ones. As a result, the Mac and iPod feel more like a drawn by Mac sales that are growing three times faster gated, elitist community, with Apple keeping close watch than the overall PC market. A cottage industry of iPod over who gets in. "The notion of a platform is a very PC- accessories continues to blossom into something far more oriented way of looking at the world," says Silicon Valley substantial. Consider that this year, some 70 percent of new U.S.-model cars have iPod connectors built in, and financier Roger McNamee. "Consumers just want a great about 100,000 airline seats will have the same. And experience. They don't buy platforms." Apple's online iTunes Music Store has become the world's Consider how Apple changed expectations about third-largest music retailer after Wal-Mart Stores Inc. portable music devices. There were plenty of MP3 players (WMT) and Best Buy Co. (BBY) around before the iPod arrived in 2001. Now, if the iPhone works as advertised, it could similarly redefine Joining the Jobs Club the mobile-phone experience. As any BlackBerry or Treo With the June 29 debut of the iPhone, Apple seems poised owner knows, all of the 25 million smartphones sold to extend its reach even further. A new flock of partners, last year offer similar capabilities, such as Web browsing from AT&T Corp. to Salesforce.com Inc. (CRM), is and e-mail. But none has captured the heart of the main- set to jump on the bandwagon for the slick phone/Web stream consumer. And on paper, at least, the iPhone browser/music player/camera. Sure, the hype prior to erases myriad frustrations faced by hundreds of millions Phone's launch bordered on ridiculous; (Comedy Central of phone users-from maddeningly complex menus, to the [VIA] Stephen Colbert joked that the iPhone launch is the inability to find a contact while on a call. second most important event in human history, after the pin it out a few years, and it's not hard to see why birth of Christ). But phonemakers such as Nokia (NOK) many companies want to be on Apple's side. [U.S.] iPhone and Motorola (MOT), and carriers like Verizon (VZ), are buyers now sign up for an AT&T cellular package via waiting nervously to see if Apple can remake the U.S. cel- iTunes. In the future, maybe they'll also be able to sign up lular business by determining what services consumers get for all the broadband and data services needed to power and leaving the carriers out of the loop. their Macs, iPods, and future Apple products (can you say: "I want my Apple iHome Theater"?) and make them NELChapter 5: Interorganizat tionships work together. That would play to Apple's strength- making the complex simple. "What you end up with is a Consider the perspective of one big video-game pro- kind of Apple archipelago-this cluster of islands in this ducer, Electronic Arts. In the early 1980s, about half big digital sea that are great places to hang out," says of the people working at EA's Redwood City (Calif.) Silicon Valley futurist and consultant Paul Saffo. campus were Apple alumni. Yet EA stopped making Mac- Of course, Apple's products have to continue to compatible games later in the decade, when Apple turned delight-a real question for the iphone, which doesn't its attention to corporate markets. EA co-founder Bing even have a physical keyboard. But if Apple succeeds, it Gordon recalls his shock when Apple's then-CEO John could raise itself and its eco it's ecosystem above the cacophony of Sculley said in 1987 that "there is no home-computer industry giants now battling to "own" the digital consumer. market." Says Gordon: "They were working so hard to The telephone and cable companies try to take advantage of get respect, the last thing they wanted was for people who their control of customers' access to video, data, and voice wore suits to think of the Mac as a toy." Predictably, content. Google Inc. (GOOG) and Yahoo! Inc. (YHOO) game sales on the Mac plummeted, making it even less want to leverage their power as online concierge for millions worthwhile for EA to make the big investments to adapt of consumers. Apple comes at it from the device perspective: its PC games to run on the Mac's unique innards. If it can control the gadget you use to connect with all those But because today's Intel-based Macs don't look other platforms, it increases its control over what you do, much different from any Windows PC from EA's perspec- and how much you pay (99 cents a song, for example). tive, Gordon says it should be cheaper to churn out Mac There are lots of phone carriers and cable companies, games than, say, adapting them to game consoles like the each with fairly similar offerings. Google and Yahoo are Sony (SNE) PlayStation or Nintendo (NTDOY) Wii. With powerful in their own right, but they can't totally control the Mac rapidly gaining share with younger shoppers, EA their destiny since Web users are a click away from using has announced plans to release its new Harry Potter another search engine or portal. For now, though, Apple game and three other titles on the Mac this summer. is head and shoulders above others in making the actual Another rarely mentioned advantage is Apple's so- machines you use to pull up Web pages, music, TV shows, called developer program. Once iPod sales began skyrock- movies, and soon, perhaps, phone conversations. Says eting in 2003, the company worked with makers of portable David Sanderson, head of Bain & Co.'s global media prac- speakers, music-player cases, and other add-on gadgets. tice: "We're moving from a distributor-driven paradigm to And Apple is working on the most mobile platform of all. a consumer-driven paradigm-and Apple gets consumers." Since BMW first added an optional iPod connector in the And not just any consumers, but those who will pay glove compartment of many of its 2004 models, carmakers a premium. The Mac is gaining share despite an average including Chrysler (DCX), Ford (F), and Honda (HMC) have price tag of $1,400, nearly twice that of the typical PC. followed suit. General Motors Corp.'s (GM) 2008 Cadillac Pod shoppers still paid an average price of $181 in May, CTS will come with a center console that features the iPod's 15 percent above other music players. The iPhone is even 'rotate and click" interface, not only for pulling music off more audaciously priced. The [US]$499 base price com- an iPod but also for playing the radio or listening to CDs or pares with an average $66 for a regular phone, or $160 satellite radio. "It's about getting to your music, not having for a smartphone such as a BlackBerry or Treo, says NPD to learn a new set of tricks for each service," says James Grace, the 27-year-old GM manager who leads the project. Group Inc. analyst Stephen Baker. With the iphone, Apple seems ready to open up oppor- tunities for software developers who were mostly shut out The Compatibility Factor from the iPod. On June 11, it announced that any Web None of this would have come about if Jobs hadn't had 2.0 program designed to work with Apple's Safari browser his epiphany about reaching out beyond the insular world would work on the iPhone. That means such popular sites of the Mac. The Office deal was a symbolic first step, but the real wake-up call came with the 2003 decision to do a as MySpace, Digg, or Amazon.com will be able to adapt Windows-compatible version of iTunes. Rather than hurt their services to take advantage of the device-say, by Mac sales, as some feared, this opened the floodgates on adding a virtual button on their sites so that iPhone users Pod sales by making the device usable by the 98 percent could actually place a phone call with a fellow Netizen, uter users who ran Windows. Another milestone rather than just trade e-mails or post messages. came when the comp To be sure, many developers gripe that this approach e company switched from PowerPC pro- essors made by IBM (IBM) to Intel's far more popular is a far cry from letting them create applications designed chips. This made it possible for Macs to run Windows (an from the ground up to work directly with the iPhone. important insurance policy to many Mac newbies) and That's a privilege Apple has conferred on only a few made it far easier for software developers to adapt their partners, such as Google. But "it's a good first step,' programs for Apple's products. says Digg Chairman Jay Adelson, who expects Apple to become more inclusive as time goes by. "For now, it's a NEL