Programming Windows: iPhone (Premium)

When Steve Jobs returned to Apple in the late 1990s, he initially focused on saving the failing company by fixing Apple’s core platform, the Mac. This involved two primary strategies: releasing exciting new Macintosh computers to placate the fans and replacing the dated classic Mac OS over time with a more sophisticated platform called Mac OS X that was based on NeXTStep/OpenStep technologies from Jobs’ previous company, NeXT.

By 2001, Jobs had succeeded in making Apple profitable again. On the Mac front, the company had released successful iMac and iBook computers for consumers in 1998 and 1999, respectively, and it revitalized its prosumer offerings with new Power Mac G3 and PowerBook G3 in 1999 and 2001. And as discussed previously in Programming Windows: Meanwhile, in Cupertino, the firm successfully launched Mac OS X in early 2001, giving Microsoft’s NT-based Windows family of products a technically credible competitor.

With those successes behind him, Jobs investigated what might be next for his company. And among the ideas he championed was the notion of the digital hub, where the Mac would orchestrate content from a variety of devices, including portable media players, cameras, and personal video recorders as users would connect these devices to their Macs and sync content between them. For example, one might use a Mac to store and manage their entire digital music collection and sync part of it to a portable music player. Or they might record home videos on a camcorder and then copy them to their Mac where the videos could be edited and perhaps burned to a recordable CD or DVD and shared with others.

Of course, this new strategy would require software. And after failing to convince Adobe to make a new version of its Premiere video editing software for Mac OS X-based Macs—a decision that would have major repercussions later for both Apple and Microsoft, go figure—Jobs decided to go it alone: Apple would create the necessary software itself, acquiring technology or even entire applications as needed. This included video editing solutions for both consumers (iMovie) and professionals (Final Cut Pro), DVD creation (iDVD), photo management (iPhoto), and music (iTunes), among others.

To make that latter application happen, Apple acquired a music management app for the Mac called SoundJam MP in 2000, simplified its user interface, added audio CD burning capabilities, cut a few superfluous features, and released it as iTunes in 2001. Marketed as “the world’s best and easiest to use jukebox software,” iTunes offered users an end-to-end solution for getting music into a Mac from CDs and then syncing that music to portable music players.

But Jobs wasn’t a fan of the portable music players of the day. So he created a small team tasked with creating an Apple-branded player. Originally codenamed P-68, this product came to market as the iPod in late 2001, offering customers “1000 songs in your pocket.”

The first version required a Firewire-equipped Mac, but this was switched to a new dock connector within two years that supported both Firewire and USB, and future iPods moved solely to USB-based dock connectors.

The iPod exploded in popularity after Apple made two other changes: it opened the player to Windows users, with Apple eventually releasing a version of the iTunes software on Windows, and it created the iTunes Store, a place where customers could legally buy digital music that was protected by Digital Rights Management (DRM) technology that respected the music industry’s investments. With these changes in place, the iPod dominated the portable music player market and the iTunes Store dominated digital music sales. And Apple, no longer just a single product company, dropped the word “Computer” from its name.

A new era had begun. And it’s pretty clear that Microsoft’s senior executive staff was finally starting to wake up to this.

“We were smoked!” Windows head Jim Allchin told four colleagues via email after Apple announced the iTunes Music Store. “How did they get the music companies to go along?”

“When Apple brings this to Windows, we will really be smoked,” MSN chief David Cole responded.

“Apple’s Jobs again,” Bill Gates added later that night. “Steve’s ability to focus in on a few things that count, get people who get user interface right, and market things as revolutionary are amazing things.” And then Gates started a line of reasoning that would later repeat itself after Apple upended the smartphone market. “I am not saying we messed up, [but] if we did, so did Real and PressPlay and MusicNet and basically everyone else.” Gates then directed Microsoft to out-iTunes iTunes. (The resulting effort, MSN Music, failed hard, and its successor, Zune, would likewise tank.)

In subsequent years, Apple would release more and more iPod models, including Mini, Nano, and Shuffle versions, each of which targeted specific parts of the audience, all while adding capabilities and increasing the storage choices. It would also evolve the iTunes Store to offer more content types, including TV shows and movies, podcasts, and even some iPod-compatible games. And it was increasingly becoming less of a Mac company and more of an iPod company: in the final calendar quarter of 2005, for example, Apple sold 1.25 million Macs, representing 20 percent growth year-over-year. But the firm also sold an incredible 14 million iPods, with 207 percent growth. A year later, those figures were 1.6 million and 21 million, respectively, and Apple had, for the first time posted a quarterly profit of $1 billion.

Not content with this explosive success, Jobs began obsessing over which new type of product could possibly overtake the iPod. And over time, it became obvious that a new kind of mobile telephone called the smartphone would be the most obvious successor, since this kind of device could duplicate the iPod’s media content functionality while doing much more. At first, Jobs tried an unfamiliar tactic by partnering with Motorola on a disastrous smartphone effort called the Rokr E1, which couldn’t even live up to the original iPod’s promise of “1000 songs in your pocket.” (It supported only 100 songs, among its many issues.) And so Jobs directly Apple to do what it did with the iPod and create a new device itself.

The resulting smartphone was codenamed P2 and was later named the iPhone, in keeping with Apple’s “i” branding of the day. As noted in Programming Windows: Tablet PC, the device that became the iPhone sprung from an earlier effort to create a multi-touch-based tablet that would take on Microsoft’s Tablet PC platform. That product never came to market—though Apple would, of course, later release a spiritual successor called the iPad that we will discuss later—but by 2006, the technologies it required had become viable and could be used in a smartphone.

“This is the day I’ve been looking forward to for two and a half years,” Jobs said at the start of the iPhone introduction in January 2007. “Every once in a while, a revolutionary product comes along that changes everything, and Apple has been … well, first of all, one’s very fortunate if you get to work on just one of these in your career. Apple has been very fortunate. It’s been able to introduce a few of these into the world,” meaning the Mac and iPod.

“Today we’re introducing three revolutionary products of this class,” he continued. “The first one is a widescreen iPod with touch controls. The second is a revolutionary mobile phone. And the third is a breakthrough Internet communications device. So, three things: a widescreen iPod with touch controls, a revolutionary mobile phone, and a breakthrough Internet communications device. An iPod, a phone, and an Internet communicator. An iPod, a phone… are you getting it? These are not three separate devices, this is one device, and we are calling it iPhone. Today, Apple is going to reinvent the phone.”

For once, the hyperbole was true. The iPhone was revolutionary, and it would upend the smartphone market. More importantly to Microsoft, however, it would go on to dethrone Windows and the PC as the center of personal computing. Within just a few years, the iPhone and the many Android smartphones that copied it would sell in numbers that Microsoft and its hardware partners could only dream of. And unlike the clunky PCs that ran Windows, these devices were truly personal. They fit in your pocket and people brought them everywhere, relying on them for entertainment, communication, and even productivity.

This wasn’t immediately clear in 2007. Indeed, the dominant players in the smartphone industry of that era—RIM, Nokia, Motorola, and Microsoft—were initially dismissive of the iPhone because it lacked a hardware keyboard and compatibility with enterprise solutions like Microsoft Exchange. But it wouldn’t be long before each would kickstart efforts to duplicate the iPhone and its multitouch interfaces. Each would eventually fail and exit the market, however, with an unlikely new upstart, Google, taking their place once its then-nascent smartphone platform called Android was likewise rejiggered to be more like the iPhone.

“Now, it may sell very well or not, I don’t know,” Microsoft CEO Steve Ballmer said of the iPhone after the announcement but months before its June 2007 sales debut. “We have our strategy, we have great Windows Mobile devices in the market today, you can get a Motorola Q phone right now for $99, it’s a very capable machine, it will do music, it will do Internet, it will do email, it will do instant messaging. So I kind of look at that and I say, you know, I like our strategy. I like it a lot. Right now, we’re selling millions and millions and millions of phones a year, Apple is selling zero phones a year. In six months, they’ll have the most expensive phone ever in the marketplace, and … let’s see. Let’s see how the competition goes.”

In a bit of Monday morning quarterbacking, Ballmer was later criticized for complaining about the iPhone’s initially high price. But Ballmer was right: the iPhone’s $500 starting price tag—fully subsidized with a carrier plan—meant that sales would quickly nosedive. But Apple responded to this reality just two months after the launch by lowering the price by an incredible $200. It also addressed the many obvious issues with the handset in the coming years, and it opened up the iPhone to more countries and more carriers. In 2008, for example, it added Exchange. But it also announced an even bigger change that year: where the original iPhone was limited to built-in apps and very limited web apps, it would now support third-party native apps for the first time.

“Starting today, we are opening up the same native APIs and tools that we use internally to build all our iPhone applications,” Scott Forstall said at a special March 2008 event describing this major strategy shift. “This means that third-party developers can build native iPhone applications using the same SDK that we do.”

Apple was a platform company, Forstall said, and no one was surprised to discover that Apple’s new iPhone OS SDK—as it was then called—was another evolution of the same NeXT-based SDK that developers were already using on the Mac. The iPhone OS used the same three bottom architectural layers as did Mac OS X, he said—Core OS, Core Services, and Media—and it adapted the top Cocoa UI layer into something called Cocoa Touch. But where Cocoa was based around keyboard and mouse interactions, Cocoa Touch would of course be based on multitouch.

These changes had the same impact on iPhone that the iTunes Store had had on iPod, and then some. Sales exploded: by 2009, iPod sales had crested and started to fall, and the iPhone that was obsoleting it had forever surpassed the rest of Apple’s products, including the Mac, to become its biggest business by revenue.

For Microsoft, the iPhone arrived at a tough time. It had just belatedly launched Windows Vista after a multi-year effort, and that release was poorly received by customers. And Steven Sinofsky’s new Windows team would laboriously take three long years to deliver its follow-up, the well-regarded but minor update called Windows 7. This Windows release would not so subtly acknowledge the iPhone by including multitouch support, a feature that Microsoft hoped would help sales of new all-in-one (AIO) and Tablet PCs. And perhaps make it seem a little less flat-footed.

At the same time, many of the major players in the pre-Sinofsky Windows team—now considered the “B-team” by Sinofsky—had landed with the Windows Mobile group and delivered an iPhone-inspired refresh called Windows Mobile 6.5 in 2008 to disinterested customers. This forced them to start over, but that meant they couldn’t release a real iPhone competitor, initially called Windows Phone 7 Series, until 2010. It was late to market, but it might have succeeded but for two major issues: Google’s Android had already taken off in the market by then and it was much less expensive than Windows Phone, and Sinofsky and his “not invented here” mentality killed any chance of the platform integrating with Windows on PCs, destroying any chance of leveraging the company’s dwindling market dominance. He had his own ideas about the way forward.

And that, of course, is a story for another day. As are the two other times that Apple would directly impact Microsoft’s hopes for the future.