The Very Unlikely Road To The iPhone (1 of 2): Tracing It All The Way Back To … 1977
Halfway down a tree-lined street in a nondescript Los Altos, California neighborhood, 2066 Crist Ave is not a house you would expect to be named a Historic Resource, but it is the most important address in the 30-year history leading up to the world’s most beloved gadget.
In the bedroom, garage and shed of 2066 Crist Ave, Steve Jobs and Steve Wozniack birthed the Apple ][, and with it, the essence of modern consumer technology itself
40 years later, the products we build are almost unrecognizably different, but the spirit behind them is the same.
How Did Those Two … Do That … There?
Following his short, calligraphy-centric stint at Reed College, time at an Oregon Apple orchard and a pilgrimage to India, Steve Jobs returned once again to his childhood home at Crist Ave in 1975 to take up residence in the backyard toolshed. Quickly, he and Wozniak became enamored with the activities of the Homebrew Computer Club which had started up among a collection of hardcore hobbyists and DIY’ers.
To declare the personal computer in its infancy back then would mean it had been birthed. It hadn’t. To call the Club outcasts would imply that the world cared. It didn’t. It didn’t even know they existed. And to suggest the rest of us simply didn’t know yet what we wanted would imply that these hobbyists themselves had an idea what they were looking at. They didn’t. The blinking lights of their unapproachable circuits were the end-game for most of them.
Even taken individually, Wozniak and Jobs were in no position to affect change. Wozniak had little interest in the spread of personal computing beyond his love of the intellectual challenge. To him, building was its own reward. Jobs, on the other hand, did not possess the skills to build an advanced enough machine to change the world.
To think, back then, that there could be a “there there” — to say nothing of a game changer — would have been ridiculous. Which suited the two just fine.
The Origin’s Origin: Apple I
The Apple II was not a lightning strike of innovation. Woz and Jobs took a tentative step in the right direction with the Apple I. They already showed signs of wanting to go beyond the lights-and-switches simplicity of the Altair 8800 kit that was the talk of the Homebrew Computer Club at the time. Wozniak designed an entire computer board from scratch and Jobs showed early sales instinct.
But, as much as the Apple I’s engineering, its fully assembled circuit board and Jobs’ hustle to get the first 50-unit order from fellow Homebrew Computer Club member and Byte Shop owner Paul Terrell was a critical spark, it lacked a case, power supply, keyboard, color video, parent company and consumer marketing.
It would, however, serve as the forerunner of something much bigger.
Putting It All Together: Apple ][
At the West Coast Computer Faire in April 1977 (having incorporated Apple Computer at the Crist Ave address the year before), Wozniak and Jobs showed off the real game changer.
The Apple II was — in every way — the complete package.
In a feat of mostly solo engineering that has perhaps not been equalled since, Wozniak built a well-integrated combination of hardware and software that would be engaging to consumers (integrated keyboard, color video that plugged into televisions instead of much less ubiquitous computer monitors, paddles for games and an integrated speaker), and also have the capabilities for developers to extend the experience through both software (integrated assembly language with disassembler and code tracer) and hardware (eight expansion slots inside the case that would bring new storage, sound, video and input/output options).
Much less technical, but equally innovative, was the consumer-grade wrapper Jobs put around the machine beginning with his prodding of Wozniak to actually sell integrated computers, to build a company to do so, and to target consumers who in 1977 had not been trained to lust for consumer technology as we do today, but were encouraged to pay a premium for Apple’s design through the “Simplicity is the ultimate sophistication” slogan of the Apple ][ marketing campaign.
Jobs’ touches (unprecedented at the time), including naming the company after a common relatable object (remember that apple orchard?), replacing the company’s obscure Newton-under-a-tree logo with the eponymous “byte into an apple” logo and insisting on a custom-designed metallic case that evoked a feeling of sleekness, have not only survived, but still define the consumer technology industry 40 years later.
Jobs’ and Wozniak’s apprenticeships at consumer-centric Atari (under Jobs idol Nolan Bushnell), the constant feedback on their fledgling efforts from the community-minded Homebrew Computer Club and critical support from early believers like investor, early CEO and chairman Mike Markkula and marketing impresario Regis McKenna had combined perfectly to give the two confidence they were not as foolish as others perceived them to be.
No less an authority than Byte magazine, the arbiter of all things technology at the time, hit on the significance of what Jobs and Wozniak had wrought:
“… the first product to fully qualify as the ‘appliance computer’ … a complete system which is purchased off the retail shelf, taken home, plugged in and used.”
In 1979, the very accessibility of the Apple II caused Dan Bricklin and Bob Frankston to famously choose it for the development of the first version of the VisiCalc spreadsheet — the original “killer app”. On the back of VisiCalc, the Apple ][‘s popularity mushroomed as it went on to sell 210,000 units in 1981.
Industry-defining Legacy
The Apple ][ was the first to blend developer-friendly integrated hardware and software with consumer-centric design and marketing. Partially by accident, partially by design, partially by passion, and partially by simply not knowing better, Jobs and Wozniak created a recipe for the ages.
Today we recognize it as the seamless integration of the iPhone, iOS, App Store, apps like Facebook, beautiful TV ads and sleek retail stores.
The combination is so beloved by hundreds of millions of consumers that Apple takes the lion’s share of profits in practically all categories it enters.
The Apple II, and Jobs’ and Wozniak’s collaboration, would become the model to aspire to for Apple — and the entire industry — for evermore and is the forbearer of all of Apple’s successful products, most especially the iPhone, Jobs’ crowning achievement.
The Very Unlikely Road To The iPhone (2 of 2): Obvious Now, Much Less Obvious In 2004
“They’re Not Real Happy Guys”
In the middle of 2004, Steve Jobs — properly uniformed in black turtleneck, Levis jeans, New Balance running shoes and Harry Potter glasses — walked onto the stage of the Wall Street Journal’s All Things Digital conference to sit down opposite king-making journalist Walt Mossberg for a fireside chat.
Ten minutes into the conversation, Jobs made it clear that he was proud Apple had decided not to build a PDA, and that he was not going to build a cell phone:
“Getting into the PDA market really means getting into the cell phone market … and in the cell phone market you’re selling into five orifices [Ed.: the carriers]. We figured we’re not going to be very good at that. And you talk to the handset manufacturers now and they’re not real happy guys.”
His dismissal made perfect sense for two reasons: Steve Jobs was no genius, and smartphones were not a great market.
Steve Jobs Was No Genius …
The two decades from 1977–1997 were to Steve Jobs what a troubled NFL career is to a wildly heralded college quarterback. After an electrifying start with the Apple ][, a series of commercial — and career — failures followed.
The Apple III suffered a recall upon its launch in 1980 and quickly failed.
The technically advanced, but overpriced Lisa launched in 1983 at $10,000 and flopped almost immediately.
Even the Macintosh — which in 1984 introduced us to the GUI Jobs had discovered at Xerox PARC — was not widely commercially successful. Three years after its launch, it was producing no more volume for Apple than its then 10-year old Apple ][ line. Together, the two made up less than 10% of personal computers.
The following year, Jobs was ousted from the company he started by the man he had hired to run it, former “sugared water” exec John Sculley.
Jobs moved on to start NeXT. A decade of technical innovation followed (the NeXT OS is the reason Apple eventually acquired NeXT and is still at the heart of Mac OS X today). Unfortunately, so did yet another market failure, bringing the total for Jobs since the Apple ][ to four.
He would finally return to Apple — which had, miraculously, done even worse than Jobs — as CEO in 1997 and began to mount a small turn-around starting with the introduction of the iMac in 1998 which returned Apple to profitability.
However, seven years later, as Jobs stepped onto the Wall Street Journal’s stage in 2004, Apple had made only $6 billion in revenue the prior year and was worth only $18B (both numbers a mere 3% of what they would be 10 years later!). Its Macs simply could not escape the 5% market share ceiling the Microsoft Windows world had erected above Apple in the personal computer market.
Even now-defunct Gateway was outselling Jobs’ beautiful machines.
… And Smartphones Were Not A Great Market
By 2004 — 5 years after having gotten their start in Japan — smartphones were no longer new, but compared to personal computers they were a novelty market. A mere 20–30 million units annually, compared to 200 million personal computers.
Even the most enthusiastic forecasts for five years down the road had smartphones growing to only 125 million units annually, while personal computers were going to flirt with the 400 million unit mark.
What smartphone market opportunity existed was a food fight between cell phone veterans Nokia, Sony Ericsson, Motorola and Samsung. Newcomers like Microsoft, Blackberry and Palm had together been able to win no more than 20% of the opportunity. And if that was not suffocating enough, the user experience, applications and branding — so crucial to Apple’s ethos and success — were controlled by the carriers.
Jobs was so wary of the handheld space that one of his early acts upon returning to Apple in 1997 was to cancel the Newton PDA the company had been working on for most of his absence. Based on handwriting recognition and with design duties handled by no less than wunderkind and Knight Commander of the Order of the British Empire Jonathan Ive, the Newton struggled the entire decade of its development.
Fellow Silicon Valley entrepreneur, Palm CEO Ed Colligan, summarized the bleak outlook for a potential Apple entry into the market in 2006:
“We’ve learned and struggled for a few years here figuring out how to make a decent phone. PC guys are not going to just figure this out. They’re not going to just walk in.”
Of Course Steve Jobs Was Genius
But — as we know now — even as he explained to Mossberg in 2004 how foolish the cell phone business was, Jobs was incubating a clever plan to upend it entirely just two and a half years later.
What did the patron saint of all visionary, product-centric, autocratic founder CEOs with the will to act know that others didn’t? Turns out it wasn’t just one thing.
It was three:
- Even though they made up less than 20% of Apple’s revenue at the time, Jobs’ introduction of the iPod in 2001 and its companion iTunes service in 2003 were quietly teaching Apple that there were markets they could enter with their hardware and software expertise that were not subject to the 5% market share ceiling hanging over them in the personal computer business. The iPod had moved to exceed a 50% share of its segment and iTunes held a 70% share of legal digital downloads.
- Triggered by his frustration with the attention — if not market success — Microsoft had been getting for their tablet efforts since 2002, Jobs asked his hardware team to pursue an alternate vision: instead of tablets being controlled via a stylus and keyboard and acting much like personal computers, change the interaction to a big piece of uninterrupted glass that can use a finger-based multi-touch interface, including typing. To his delight, the team had come back with a successful prototype of the hardware and Jobs moved quickly to ask his best user interface engineers to build prototype interactions for what he felt would be “totally different software” suited to the new interfaces. Upon seeing his team’s work on elements like the inertial scrolling you now use dozens of times each day, he knew their new goal would be a phone, not a tablet.
- That was all well and good, but what if the beauty of these new interfaces and software would be butchered by the mobile carriers demands for control of the user experience? Jobs would have to land one of the great business deals of all time: walk into more powerful companies with him having no prior experience in phones and wrest control over the user experience from the carriers in exchange for a long-term exclusive with one of them. The notion was so off-putting that initial target Verizon rejected the deal. But Jobs was not coming into the effort cold. He knew that his successful negotiation with the five major music labels for the deals necessary to launch the iTunes service were existence proof that his charm offensive could succeed at these levels. After eighteen months of negotiations, he would not only get the basics of what he wanted from AT&T, but also secure a share of AT&T’s monthly data revenues from iPhone owners, a smartphone first.
Nearly 30 years after he and Woz had first combined a superior technical product with a consumer-grade wrapper in the Apple ][, Jobs and Apple were about to do it again.
In January 2007 — during what can comfortably be called the greatest consumer technology keynote ever — Steve Jobs’ reality distortion field was in full effect. Not two sentences into his presentation he proclaimed:
“Every once in a while a revolutionary product comes along [dramatic pause … looks down at the floor … looks up … sweeps arms in a rainbow from the center out to his sides] that changes everything.”
Eventually, he closed his keynote by making symbolically clear just how new an era had just been ushered in when he announced the change of Apple Computer, Inc.’s name to Apple Inc.
Eight years after its launch, it’s become abundantly clear that, if anything, Jobs had undersold the iPhone: It really has changed everything.
Changing A Lot Of Numbers
Remember those 2004 projections about the annual volume of personal computer and smartphone sales? Here is what actually happened:
The smartphone — with iPhone at the front of the parade — has had the greatest breakout performance in consumer technology ever. Not only defying projections to close the gap to personal computer volume after being down by 10x, but then going on to exceed it by 4x. An inversion of relevance never seen before.
The iPhone itself has gone from selling 270,000 units the first quarter after its launch to a high of nearly 75 million units in the first quarter of 2015. It accounts for 69% of Apple revenue and is — by itself — bigger than the revenues of all other technology companies. While it is only about 20% of global smartphone volume, it’s more than 90% of the profits in the entire industry.
It is the reason Apple has grown its revenue tenfold since 2006. The reason Apple became the world’s most valuable company in 2011. And the reason Apple was the first to reach a $700 billion valuation in early 2015.
Changing our lives
Much more important than all those numbers, however, the iPhone ushered in the global mobile revolution. While 80% of smartphones are not iPhones, every last one of them — down to the most basic Android smartphone — can trace their utility to Jobs’ vision about uninterrupted glass with multi-touch interfaces and how phones must behave differently from personal computers.
It’s not just that there are many more smartphones in the world now than personal computers. Smartphones are for all of us the preferred device, and for many of us around the world, the only one.
Mobile isn’t just the most valuable medium in a generation (it’s more personal than the desktop Internet), or even in multiple generations (it’s more sophisticated, global, accessible and frequently used than TV). Mobile will go down as the most valuable medium ever.