iPhone: The bet Steve Jobs didn’t decline

Suppose you were the CEO of Apple in 2005 when a couple of intergalactic visitors with time-warping technology offered you this bet:

Design and manufacture a small mobile device that seamlessly combines the functionalities of a cellular phone, a web surfer, an audio/video player and a small PC, and your company will double its market cap and establish a third mass-market computing platform after Windows and Macintosh.

Would you take it?

Before you say, “Are you nuts, why wouldn’t I?” ponder just a few of the issues involved:

  1. It won’t be possible to enter this market quietly or modestly and hope to grow slowly (like with Xserve a few years earlier). Yours will have to be a blockbuster entry. You are good in raising awareness and expectations around a product but that raises the consequences of failure exponentially.
  2. If you fail, it would be a public fiasco of the first order, likely lopping off at least a third of your market cap and seriously eroding financial sector confidence in your company’s ability to grow and diversify beyond the Mac and the iPod businesses.
  3. You will have to enter a highly-regulated, highly-contested, large-scale and capital-intensive industry of established players with deep pockets that you have never been involved with.
  4. You don’t have an operating system designed for mobile devices and adopting someone else’s OS doesn’t make business or technical sense.
  5. You’ll have to solve a very long list of vexing technical problems for mobile devices including power management, radio efficiency, miniaturization, storage, display, CPU utilization, multi-tasking, cloud computing, advanced graphics, data/sensory input, etc.
  6. While you’re beginning to appreciate logistic and component pricing advantages on volume-based products like the iPod, you won’t have similar advantages with this device especially at the start and against players like Nokia that sells hundreds of millions of units around the world each year.
  7. You may have thought dealing with music labels wasn’t much fun, now try changing handset acquisition and revenue sharing models of entrenched and oligopolistic carriers here and abroad to an extent never tried before.
  8. You may think Jonathan Ive can easily design the hardware, but you’ll have to invent a stunning UI and a truly innovative interaction paradigm so that it’ll give you at least a two-to-three year competitive cushion against other players, as you will surely need it.
  9. This device will likely require a bunch of proprietary service and content components (maps, email, media, games, etc) beyond your core competency, requiring lengthy negotiations and strategic partnerships.
  10. In order to create a sufficiently large and attractive platform you’ll have to entice developers with an array of inexpensive development tools and create a highly-lubricated marketplace unlike any other.
  11. As with the iPod, you’ll have to sell this device to a mostly Windows-oriented world.
  12. In order not to be quickly marginalized, you’ll have to distribute the device in most countries around the world, even where you have little or no Mac or iPod penetration.
  13. If you want to achieve iPod-scale (and you must) you’ll have to implement and operate a different, dedicated and larger sales and support network on a global basis.
  14. Clearly, this is a bet-the-company move and the anti-Apple brigades are ready and armed.
  15. Incidentally, you’ve recently been diagnosed with pancreatic cancer.

Often, the anything-but-Apple choir doesn’t quite appreciate the immensity of the risks Apple took with the iPhone.

So it’s 2005, will you still take the bet? Steve Jobs did:

iphone3g.jpg

45 thoughts on “iPhone: The bet Steve Jobs didn’t decline

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  6. Now days the phone of choice is iPhone, iPad are seen everywhere, and so is the Mac. How things have change since he came back to Apple.

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  13. Steve Jobs knew exactly what he was doing. If you go back past 2005 even further to 2002 you could read articles describing his negotiations with a small Denver company named MPEG-LA to license the technologies that would be the core of iTunes.

    MPEG-LA is an IP management company whose mission was to fully commercialize uses of the MPEG patents, regardless of patent owner. It was one of the first efforts to pool patents and share revenues.

    Steve Jobs fought MPEG-LA like crazy to get what he wanted. I have seen various prototypes of services which indicate that virtually all of the arguments (save, unfortunately #15) had been already managed in one form or another by the summer of 2002.

    Great post, though!

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  15. Nice to read from you again, Kontra. I would like to add to the point that you and other posters made.

    On Mobile OS, Apple had learned some hard lessons from the Newton, which was critically wounded by the Palm Pilot, and the subsequent fall of Palm, aided by the iPod (despite its intent to be a music player rather than PDA). While Apple did have good experience in these markets, they also were intimately aware of the risks.

  16. If I remember correctly, when OSX was introduced, Jobs said it had to be scalable. This would lead you to believe that this was in his shirt pocket–even if nothing but a concept back then.

  17. “4. You don’t have an operating system designed for mobile devices and adopting someone else’s OS doesn’t make business or technical sense.”

    This, I think, was actually more of a driving point for Jobs than a problem. None of the other mobile OSes out there were any good either (and still aren’t). Jobs knew his people could do better. I’m glad they made the bet.

    • agreed on this. jobs knew apple was really good at software — maybe the *best* at software. and its the software that made it…paired w/ other things they had experience in: battery/cpu/antenna (mac books), miniaturization (ipods).

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  22. Inspirational!

    It sickens me to see so many Apple haters belittle what Jobs has done with the iPhone. I recently heard the following two statements on a Podcast…
    “I hate Apple and I hate Steve Jobs, I hate everything that they stand for!”, “Is Steve Jobs evil? Yes, I think he is!” Anyone who can make such comments has clearly lost touch with reality or is simply looking for hits!

  23. Although it was a ‘bet the company’ move in 2004 it was already obvious, in markets like Japan, that many people would download music to their cellphones. This would lead to iPod growth stalling – now low double digits – which would reduce Apple’s growth and market cap. So Jobs had to try for this.

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  25. Steven: “not all 15 of the ‘other issues involved’ were obvious at the time the bet was placed.”

    That’s an interesting point you raise. Obviously, there’s no way for any of us to know precisely what specific issues were considered by Jobs & Co. I’m sure there were others that were considered that I didn’t cite as well. But I think we can all agree that they would have covered most (if not all) of it and Apple is the only company that could and does, as you say.

    Considering these 15 risk factors is one thing, having the ability to mitigate them one-by-one through strategic system design with patience is another. As an exercise, it would be fun to speculate just what Microsoft, RIM or Samsung would have done.

  26. I’ll certainly accept the quantity in exchange for the quality.
    One interesting observation I had is that certainly not all 15 of the “other issues involved” were obvious at the time the bet was placed. I’m sure some of them only became apparent as the process progressed. Also, how many companies would be willing to embark upon a project which would require them to revisit so many painful episodes in their corporate history?
    I think there is common agreement that there is not another company out there who whould have had the gonads to take this risk. But I don’t think that I’ve read many articles which attempted to articulate what the full magnitude of this risk was. And thats the part that many of the pundits, in their rush to bash Apple, regularly miss or choose to ignore. Any reasonably impartial analysis would include kudos for this if nothing else.

  27. Steven: “I wish you would post more often.”

    Steven, thank you very much for your kind appreciation. I do wish I had more time to write, but I do have a busy consulting practice and a family. And the fact that many of the articles I write are somewhat long, perspective pieces requiring a bit of research result in my admittedly meager output. I hope to do better.

  28. Kontra,
    I don’t know how busy you are, but I wish you would post more often. I never feel less than well-informed after I read one of your posts.

  29. Bob: “January 2007 minus 30 months is June 2004.”

    Until Steve Jobs or Katie Cotton writes in to correct the time-line :-) we may never know the exact dates. But I was told that the interest in a mobile device (which later became the iPhone) actually started with Jobs’ desire to utilize multi-touch technologies. That may have started earlier and the focus on a convergence-type cellphone may have followed it months later. My reference to “2005″ is really to the later incarnation as the iPhone device. In any case, thanks for the clarification, Bob.

  30. @Kontra:

    Jobs actually says, “This is a day … I’ve been looking forward to for two and a half years.” (26:29 into the Macworld 2007 keynote, which I subscribed to via iTunes). Later in the keynote (52:12) he calls Jony Ive and says, “Well, it’s been two and a half years, and I, I can’t tell you how thrilled I am to make the first public phone call, with iPhone.” Jony, btw, is using a flip-phone at the time, as is Phil Schiller when they conference him in. ;o)

    January 2007 minus 30 months is June 2004.

    Now, of course I have no insight into when the project “really took off,” but he’d have had to make his bet before beginning the project, not at the time it took off.

    Great article, this quibble notwithstanding. Kudos for pointing out the big scary risks he’d face if he didn’t have all that help from the aliens who brought you the Reality Distortion Field. ;o)

  31. Bob: “I think he actually took the bet in 2004.”

    I’m told the iPhone project really took off around Thanksgiving of 2005.

  32. I think he actually took the bet in 2004. Didn’t he announce at Macworld Expo in January 2007 that the company had been working on this for three years already?

    Incidentally, a Google search tells me that Jobs was diagnosed with pancreatic cancer in October, 2003 and had surgery at the end of July, 2004 (source: CNN.com).

    Finally, as the success of the iPhone can only be the result of help from the intergalactic visitors with time-warping technology, it’s clear that Jobs had already won some OTHER kind of bet, which forced the visitors to help create the iPhone in the first place.

    (sigh) That means the iPhone is the product of “illegal aliens” (from another galaxy. Green skin, but no Green Cards). You heard it here first!

  33. Very enjoyable, thought-provoking article. You raise some very valid points most of the anti-Apple pundits completely overlook. Great read!

  34. A stock owner since 1999. A genius like Jobs comes along once in a blue moon. Regardless of whether he stays, lays or prays, he has created an organization that has vision and an extraordinarily wide moat. I cannot thank him enough.

    Beltway Greg
    $260 Dec. 31, 2008

  35. To those reading and considering the truth in this article -

    If you didn’t know before that Steve ‘has a set’

    Then bet you believe it now

    ;-)

    BC

  36. I have always thought of Apple as a company with guts, more than being innovative or path-breaking. Those become the by-products when you make seemingly impossible decisions like the way Jobs did.
    What next bet will he make? I want an i-ebook reader!

  37. To be honest, I never really believed the iPhone rumours, and for several reasons. Having worked in the telco business for over ten years, I knew how entrenched the business was: no user communities, few large customers in the form of operators, disinterest (frankly) in end-users, everyone wanted to be MSFT (whatever that meant), no genuine software engineering culture, lack of real innovation, and so on. Frankly, I thought Apple was out of their minds, if they wanted to battle all these problems. I was so wrong.

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