Steve Jobs Review by Don Allen Resnikoff

Steve Jobs
By Walter Isaacson
Simon and Schuster, 2011
561 pages, $14.99 ebook price; approximately $18.00 hardcover from various sellers

                                       Steve Jobs
                              Review by Don Allen Resnikoff
Walter Isaacson’s lengthy and widely read biography of Steve Jobs offers a valuable study of the
computer industry that is relevant to important antitrust enforcement issues. The book offers
important insights concerning the genesis of innovations that have transformed the market for
computers in recent decades. Market transforming innovations are important in explaining declines
in market power of dominant computer companies like Microsoft and IBM.

The difficulty in predicting the timing and nature of market transforming innovations is a challenge
for antitrust enforcers intent on facilitating new competition. Enforcers faced that challenge when
they needed to craft remedies for anticompetitive conduct by dominant computer companies.

My goal in pointing to Isaacson’s stories of innovation in the computer industry is to proffer a tool
for increasing the efficacy of antitrust enforcement, including remedies. I believe in vigorous
antitrust enforcement. Like traditional industrial organization economists, such as the legendary
Leonard Weiss, I believe that knowledge of industry facts enhances enforcement. I am not invoking
Schumpeterian ideas about innovation to undermine support for enforcement.

Isaacson helps us to understand the insertion of new technology in the computer industry by taking
us deeply into the stories of how the market-changing computer innovations of recent decades came
about. Steve Jobs had an extraordinary role in the innovation stories that reshaped computer
markets.

Technological innovation, as Isaacson explains it, becomes important in a commercial context only
when someone with the skills of a Steve Jobs puts the technology into a form that consumers can
appreciate. Steve Jobs is to personal computers and other modern electronics products what Edison
was to the light bulb and electrical wiring grids. Edison famously did not invent the incandescent
light bulb, but he did lead a team that made the light bulb commercially viable. Edison was also a
pioneer in developing commercially available grids of electrical wiring for powering homes and
businesses.

Steve Jobs did not discover portable computers, or digital music players, or cell phones, or tablet
computers that funnel “apps,” but he played an important role in commercially developing these and
other products.

Isaacson tells a number of stories about Jobs as innovator, beginning with the famous story of how
Jobs and Steve Wozniak led development of the personal computer as a viable commercial product.
Another story, from Jobs’ early days with Apple, is about Jobs’ role in commercial adaptation of
graphical user interface innovations of Xerox engineers. The Xerox engineers developed user
friendly screen graphics that could replace the command lines and DOS prompts used in computers

of the time (about 1980). They also developed a “mouse” that allowed the user to point to a graphic
screen image and summon up the desired computer function. A related Xerox innovation was
“bitmapping,” a development that allowed computer programs to control screen pixels rather than
merely controlling characters like “a”or “1.”

The Xerox company declined to commercially develop these innovations, despite the enthusiasm of
its engineers. Steve Jobs appreciated their significance, believing that the innovations could
transform the experience of consumers who bought computers. “It was like a veil being lifted from
my eyes,” Jobs said,”I could see what the future of computing was destined to be.”

Jobs acquired the Xerox technology. He then organized its refinement for Apple computers. He
was deeply involved with his engineering and design teams, often in the abrasive way that was his
hallmark. For example, he bullied his engineers until they developed an improved mouse that would
move in many directions, not just up and down.

The rest is a history we all know. The graphical user interface, the mouse, and bitmapping all were
successfully embodied in Apple products, and gained broad consumer acceptance. The innovations
gained broad acceptance not only in Apple products, but in personal computers that use the
operating system of Apple’s great rival, Microsoft.

Another innovation story that shows Jobs in action is from a later period, when Jobs returned to
Apple after a period of absence. It concerns the iPod, the now very popular portable digital music
player. Steve Jobs certainly can’t be credited as inventor of such players. Many portable music
players were on the market before introduction of the iPod. An example is the Rio MP3 player.

To Jobs, the Rio player was a poorly engineered and designed piece of “junk” waiting for
metamorphosis into an elegant music player like the Apple iPod. Jobs’ first step, in 2000, was to
have Apple acquire a company called SoundJam, which had developed software that would allow the
Rio to work with a digital music library on an Apple computer. Jobs then worked with his engineers
and designers, pressing them to develop a small digital player for Apple that was elegant in design,
simple to operate, could contain a large internal library, and interface easily with an Apple computer.
The iPod was introduced by Apple in 2001, and, again, the rest is a history that we all know.

Isaacson is admiring of Jobs’ extraordinary ability to transform technology into elegantly designed
products, and also of Jobs’ uncanny ability to anticipate that consumers would love and demand the
new products. That anticipation of consumer desires was based on intuition, not market research.
Henry Ford knew that consumers wanted cars even if they said they just wanted better horses. Jobs
thought in a similar way when he anticipated that consumers would want computers with graphical
user interfaces, or iPads, among other products.

Jobs caused Apple to pursue innovation in a way that is unusual for large companies. Jobs’
maintained deep personal involvement in Apple’s innovation and design work. He brought
branches of the company together and forced them to cooperate. Design people, engineers, and
marketing people were forced to work together.

An interesting contrast to Apple’s intra-corporate coordination is the story of Sony and its lack of
success in developing an iPod type product. Sony was a big producer of music media, and maker of
the once very popular Sony Walkman CD player. At one time people frequently played popular

Sony CDs on their popular Sony Walkman players. What might have followed is a transition to
people playing Sony music downloads on a Sony-built device resembling the iPod. But Sony was
slow to improve on existing technology where Apple was quick, apparently because Sony was more
bureaucratic. So, the more nimble Apple was first on the field with its iPod.

A later and game-changing product was the Apple tablet computer, the iPad. The iPad is used by
many consumers in ways that differ from use of earlier Apple or variously branded Microsoft-based
personal computers. The Apple iPad, along with the iPod and the iPhone, offer a “hub” that brings
together an array of applications of interest to the consumer. Often the hub is used as a receiver of
media, such as music or movies. Various other applications may involve creativity, such as video
editing.

In contrast, the traditional pre-tablet personal computer with built-in keyboard would more
commonly be used to run programs associated with office or student chores, such as word
processing, calculations and spread sheets, and presentation software. Of course, traditional
computers can receive media and play games, among other non-office functions, but not with the
physical lightness and agility of the tablet products.

The tablet computer as a hub for a variety of apps puts at risk Microsoft’s large market share in
personal computers.

This leads us to the question of how the evolution from the traditional personal computer to the
game-changing tablet-computer-as-hub took place. It did not happen all at once. The idea for a
touch-screen operated, internet-friendly iPad style tablet device was well developed at Apple when
the touch-screen operated and internet friendly iPhone was introduced by Apple in 2007. The 2007
iPhone introduced the hub functionality that would be the hallmark of the iPad, which was not
offered to the market until 2010. By now the popularity of the hub approach has spread to devices
manufactured by an array of companies, some using Google’s Android software as an alternative to
Apple proprietary software.

A key to hub functionality is availability of “apps,” applications for an array of functions ranging
from music downloading, to book downloading, game-playing, and many more. Apple offers many
thousands of apps, and Android apps are expanding rapidly. Isaacson sees the recent explosion in
apps as a key to understanding the important shift in the market, one that gives users a new and
important alternative to traditional computer software programs and internet access-based
functionality. Popular use of iPad style tablets acting as hubs for an array of applications may mark a
shift in the computer business analogous to the earlier important shift from IBM dominated
computer mainframes to Microsoft dominated personal computers.

So, the stories Isaacson tells include two major innovations with great impact on market structure.
One was development of the personal computer, which caused a shift from dominance of computer
markets by IBM to dominance by Apple and Microsoft, with the greater market share eventually
going to Microsoft. The second is the development of tablet format hub computer that brings
thousands of “apps” into play. That innovation may lead to a shift away from Microsoft as a
dominant player, and toward Apple, or possibly Google as owner of the increasingly popular
Android operating system.

To understand why Microsoft achieved greater market share than Apple in personal computers, and
why Google’s Android operating system may achieve Microsoft-like success in the tablet computer
space, it helps to follow Isaacson as he explains what he calls the “ecosystem” of computing. This is
his way of saying that computing involves an array of complementary products and services.
Consumer access to a specific array of complementary products and services is necessary for the
commercial success of an offering like the Apple iPad or rival Android based devices. If the Palm
company offers a product that functions like an iPad but cannot offer a complementary array of
apps to consumers, the offering will suffer in the marketplace.

More generally, the ecosystem of computing includes the computer’s hardware and software, and
that has been true since the days of mainframe computing in the 1950s. As Isaacson points out, the
software side has been augmented since the 1960s by computer access to the internet and the
content there, and, more recently, by computer “apps.”

Isaacson suggests that while the Jobs/Apple style of insisting on firm company control of the
complementary elements of the ecosystem may lead to excellent products, greater market share may
follow from the Microsoft and Google/Android strategy of making the software elements of the
system available to an array of manufacturers.

The Isaacson idea about Microsoft’s market share, which is a popular one, suggests that Jobs had the
option of competing with Microsoft on its turf by selling a free-standing Apple operating system to
an array of manufacturers. If he had chosen that option, the personal computer market might have
become more competitive.

But, Steve Jobs wanted Apple to tightly control all complementary elements, hardware and software.
When Jobs returned to Apple after a period of absence he moved quickly to kill off Apple “clones,”
computers made by other companies using operating system software licensed from Apple. The
separate marketing of the operating system and software pieces of the personal computing
ecosystem was left to Microsoft.

Today, Google makes its Android operating system available to various manufacturers of “smart”
phones and tablet computers in a manner reminiscent of the Microsoft strategy. Google’s related
Chrome brand operating system is now available in lightweight keyboard laptops made by Acer and
Samsung, and others. Apple does not share in a similar way. Android has achieved a growing
market share, and Android based devices have attained status as an important hub for a great variety
of apps that resemble the stable of Apple apps.

Isaacson doesn’t wander from his subject matter to discuss antitrust policy issues. He does recognize
the irony that the personal computer market could have been much different and more competitive
if Jobs had chosen to put popular Apple operating systems into the market as free standing
competition to Microsoft operating systems. Isaacson does reveal a blind spot relevant to antitrust
enforcement: Isaacson seems not to understand that while Microsoft’s strategy of making its
operating system available to an array of manufacturers is relatively “open” compared to Apple, the
Microsoft strategy as a dominant firm was nevertheless more closed than open. Microsoft employed
strongly anti-competitive and exclusionary conduct that exploited the operating system market
dominance that it developed.

As mentioned earlier, an antitrust point that may be drawn from Isaacson’s stories is that difficulties
in predicting innovation are a challenge to enforcers. The challenge is, for example, reflected in the
remedies the U.S. government and some states put in place in the 2000 consent decree concerning
Microsoft. The decree could not and did not anticipate the technology innovations that may cause
tectonic shifts in market power, particularly the Apple iPad “hub” concept, now also embodied in
Android-based             devices.                    (See          the           papers             at
http://www.justice.gov/atr/cases/ms_remediespapers.htm )

That the drafters of the 2000 Microsoft decree lacked a crystal ball for predicting the future should
not lead to the conclusion that monopolization prosecutions in general are a bad idea, that the
Microsoft prosecution in particular was ill-advised, or that the 2000 Microsoft decree provisions are
useless.

I believe that both the U.S. v. Microsoft and the similar U.S. v. IBM prosecutions were worthwhile
undertakings that benefited the public, despite problems in execution, and that analysis of those
cases leads to the conclusion that effective antitrust remedies can be crafted in the context of a
dynamically evolving computer industry. Briefly, taking an illustrative example, Microsoft’s
squelching of the Netscape browser business was strongly anti-competitive and exclusionary,
including elements of predatory pricing, with the main commercial benefit to Microsoft being
elimination of competition. The fact of government litigation against that anti-competitive conduct
may by itself have chilled similar Microsoft conduct, but it is important that there was a sensible idea
behind the remedy adopted by the government in the 2000 consent decree. The government remedy
includes steps to prevent future Microsoft threats to “middleware” rivals, referring to rival
companies with products similar to Netscape in offering possible platforms for alternatives to the
Microsoft operating systems. That example illustrates that an antitrust remedy can make sense and
be effective despite the difficulties of predicting the future.

A parallel example in the earlier U.S. v. IBM case that was dismissed in 1982 concerns allegations of
predatory IBM conduct directed against certain computer mainframes of rivals potentially
competitive to IBM products. No remedy was ever put in place, but I would argue that an effective
remedy was possible, and should have been pressed by the government.

These limited examples illustrate that prosecution of anti-competitive behavior by a dominant firm,
and crafting of appropriate remedies, can be done successfully by prosecutors well informed about
the facts of a dynamic industry, even without use of a crystal ball to overcome the difficulty of
predicting technology innovations. That includes innovations in computers of the kind we learn
about in Isaacson’s book about Steve Jobs.