Steve Ballmer was Right About the iPhone

I’m always fascinated by the way people try to rewrite history. Case in point: Steve Ballmer’s fantastical comments about the iPhone in 2007. Guess what? He was right.

Let’s roll the tape.

“$500, fully subsidized with a plan,” he said at the time, in 2007, laughing, “I said, that is the most expensive phone in the world. And it doesn’t appeal to business customers because it doesn’t have a keyboard. Which makes it not a very good email machine.”

Most people end the quote there and proceed directly to mocking the man because the iPhone, as we all know, has gone on to sell in the several hundred millions of units. But let’s keep listening, shall we?

“Now, it may sell very well or not, I don’t know. 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.”

When asked how Microsoft could compete with the iPhone, Ballmer said, “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.”

What a jerk, right?

Wrong. Let’s step through what he really said.

The iPhone is too expensive. When Apple first launched the iPhone in June 2007, it sold a stripper 4 GB model for $500 and an 8 GB model for $600. And Ballmer was right: The iPhone was significantly more expensive than the smartphones of the day. So much so that, just two months later, Apple dropped the price of the iPhone by an incredible $200. It killed the 4 GB model and re-priced the 8 GB version to just $400.

The iPhone did not appeal to business customers. Here again, Ballmer was right, though time has proven that the virtual keyboard isn’t the reason why: The original iPhone didn’t work well with the Exchange (and Exchange ActiveSync) systems that were common in businesses at the time, a fact I outlined in great detail in the summer of 2007. In 2008, when Apple launched the second iPhone, guess what? It made a big point of highlighting its business acumen, thanks to dramatically improved support for … wait for it … Exchange/EAS. And a ton of other enterprise features.

The fate of the iPhone was indeed an unknown in 2007. If you actually watch the Ballmer video I link to above, this is what you see: Ballmer doing his joking, blustery, pro-Microsoft persona upfront and then getting serious. And his calmer comment that “it may sell very well or not,” and that Microsoft was selling “millions” of phones at the time, and Apple wasn’t … was absolutely correct. The thing I think we lose sight of here is that the iPhone was a stretch for many reasons. Apple fixed the price, and over time it filled in the functional gaps, including introducing an app store, and it made iPhone available on more and more carriers over time. When it launched, however, the iPhone was not a sure thing. Again, Ballmer was correct.

The reason this is coming up today is that Mr. Ballmer recently appeared on Bloomberg TV. And he was asked about that iPhone crack, among other things, from the perspective of many years later. (One has to wonder why Ballmer was on Bloomberg. I assume it wasn’t for this topic specifically.)

Discussing mistakes he made as Microsoft’s CEO, Ballmer said he would move into the hardware business faster because the system that worked for PCs would not work in the mobile world. (Though to be fair, I don’t see how he could have foreseen that: It was working before the iPhone, and Apple’s vertically integrated strategy, which eventually saw great success in mobile, had never mattered in the PC market at all.)

But then he said something a bit strange, something that some commentators have seized on to portray Ballmer as delusional.

“I wish I had thought about the model of subsidizing phones through the [mobile] operators,” he said. “You know, people like to point to this quote where I said iPhones would never sell because the price [of] $600 or $700 was too high. And there was a business model innovation by Apple to get [the iPhone’s cost] essentially built into the monthly cell phone bill.”

This tells me two things.

One, that Ballmer knew he’d be talking about this topic when he went to Bloomberg, and that he reviewed his comments from 2007, where he stated that the iPhone was “$500, fully subsidized with a plan.” And two, that he felt the need to explain what he meant.

He did so badly, and if you watch the video he kind of stumbles over this bit. Which is too bad as his actual point at that time—that the iPhone was too expensive—was correct. Again, Apple lowered the price by an astonishing $200 just two months after it launched. Ballmer should have defended himself by pointing that out.

But he didn’t. And so we have silliness like this Recode post claiming that the “iPhone wasn’t the first phone to be subsidized. It was one of the first ones not to be.” Right. He just misspoke. What Apple did do, however, was get the iPhone’s cost built into users’ cell phone bills, as Ballmer stated. Which, by the way, is the same thing as a subsidy to the customer: You don’t need to pay the entire price of the phone upfront. So this cheap put-down hangs purely on semantics. And to be clear, that Recode post is an unfair hit job.

Naturally, the more overt Mac blogs are having a field day with this too, as they love nothing more than pulling out this old chestnut, no matter how wrong they are. Former Microsoft CEO Steve Ballmer Admits He Was Wrong About the iPhone, one headlines screams. Guys, relax. We were all wrong about the iPhone. Even Apple was, as the price cut, app store and business feature additions all prove. Today, thanks to a great product that improved regularly over time, the iPhone has vanquished any number of foes—Blackberry, Nokia, Palm, and Microsoft among them—because, again, we were all wrong about the iPhone.

It’s too bad Mr. Ballmer didn’t offer up a better defense on Bloomberg. But any reporter who covered these events or is covering them now isn’t doing their job if they don’t understand this basic truth: Steve Ballmer was right about the iPhone in 2007. And there is no reason to mock him for his comments. Nor does he have anything to apologize for with regards to missing mobile or not understanding the iPhone threat right up front. Everyone was confused by what happened then. Some just choose to pretend otherwise.