Steve Jobs Review by Don Allen Resnikoff
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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.
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