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Apple’s Antitrust Problem (Part 2)

Last’week’s Part 1 column about Apple’s dominant’s position in the tablet market triggered an abundance of comments and emails, both on the Note’s blog and on the Guardian. All interesting, most well reasoned. But, for some people, it’s always funny to see how an Apple topic can turn religious. Question a few basic facts and you’re automatically labeled as a foe, as a member of the anti-innovation camp.

At the risk of repeating myself, here’s my perspective: my day job is to try and find sustainable news media business models in the digital world. No more no less. I set aside the fact that I’ve been a big fan of Apple products since 1986 and that I’ve always admired Steve Jobs. I don’t let such feelings impair my judgement or my ability to question Apple’s ways in the digital world…
And I’ll begin by reviewing the latest statistics documenting Apple’s dominance over the tablet market. The numbers are compelling: according to hosting provider Pingdom, which monitors global traffic, the iPad controls 88% of the tablet-based internet traffic worldwide; in the US, it’s 95.5%. For a device that represent only 1.2% of the worldwide web usage (desktop + tablets), that’s not bad. Then, setting aside the hectoring of zealots, we’ll examine what this position means for content providers and end-users.

Today, we’ll take a closer look at  two issues:
#1 Apple’s publishing business models
#2 Customer data

The 30% Fee

Let’s settle this one quickly: according to a lawyer I spoke with, regulatory bodies have nothing to say about how much a company charges its partners. Apple can charge whatever it wants to media providers willing to be on its platform, the market is supposed to regulate this, and judging by the number of apps and books in the iTunes Store, it has voted.

Ok, then, it’s legal. But is it fair and, more importantly, sustainable for Apple?

The 30% fee is part of Apple’s simplicity obsession. It undoubtedly played a key role in  the iTunes Store’s success. But this system essentially favors the vast market of small to medium-size companies unencumbered by legacy products and unwilling to bother with the tasks of distributing, marketing, and invoicing their customers. As for the news business, I keep telling my journalism school students who consider an e-publication based pay-for model: ‘Go for it! In your case, 30% is fair and convenient’.

It’s a very different story for large established companies. When probed about the 30% for online media, Apple cinder-block answer is: don’t complain fellows, we charge much less than you’re used to spend in the physical world.

Wrong answer, for three reasons: ad-related ARPU, retail price and distribution costs. On the Average Revenue per User side, we know that advertising revenue, as calculated per digital user, fall to a fifth or a tenth from what it is (soon: was) for print. Two, ask a twenty-something how much s/he’ll be ready to pay for the convenience of a digital edition landing on her iPad. I did it with my Sciences-Po students as I was showing a variety of digital products ranging from the precambrian PDF to brand new iPad design-for publications. They’d accept to pay no more 30-50 Euro cents per copy. Take 30% of this — actually, 39% with taxes — and you end up with 18 or 30 cents — again with a largely depleted advertising revenue. Plus, still worth mentioning, the cost of distributing a file is negligible compared to printing and shipping physical product to users’ doorsteps.

What about market trends? A good agency-model deal (in which the publisher sets the price) can land around a 20% commission fee and Google will be more like 10%.At some point, my take is Apple will have to adjust its fees to market conditions. Again, while 30% is fair for a startup with no marketing and distribution system whatsoever, it remains quite high for big companies who already have large infrastructures.

The same goes for its applications review system. $99 for a developer account wether you are the Wall Street Journal or some students e-zine makes little sense. Large companies should be asked to pay way more and to get different services, such as an interoperable transaction system instead of iTunes passage obligé. As long as it pays Apple for its apps-related service, the publisher should have the right to use the transaction system of its own choosing. If Google, PayPal, or some local system is cheaper, the content provider should be entitled to direct its customer to it — at least antitrust lawyers believe so. For Apple, the problem is it won’t collect precious customer data, which brings us to the next point.

Accessing the Customer

The genesis of this hot issue between Apple and the publishers is to be found in Walter Isaacson’s biography of Steve Jobs. The author recounts the meeting with Time Warner CEO’s Jeff Bewkes. The discussion focused on publishing Time Inc.’s magazines on the iPad. Bewkes had agreed on the 30% (this was early 2010, Jobs was not ready to yield anyway), then the main subject arose:

“I have only one question,” Bewkes continued. “If you sell a subscription to my magazine, and I give you the 30%, who has the subscription—you or me?”

“I can’t give away all the subscriber info because of Apple’s privacy policy,” Jobs replied.

“Well, then, we have to figure something else out, because I don’t want my whole subscription base to become subscribers of yours, for you to then aggregate at the Apple store,” said Bewkes. “And the next thing you’ll do, once you have a monopoly, is come back and tell me that my magazine shouldn’t be $4 a copy but instead should be $1. If someone subscribes to our magazine, we need to know who it is, we need to be able to create online communities of those people, and we need the right to pitch them directly about renewing.”

In fact, access to the customer could be another antitrust issue. Specialized attorneys I spoke with say Apple has no right to retain customer data the way it does and it should make the transfer customer information much easier. Today, you can’t engage into a direct relationship with a customer via the application. Furthermore, the opt-in system Apple sets up for apps-subscribers yields meager results and, when it comes to use the info, “some restrictions apply”. That’s a double jeopardy.

Some readers of the Monday Note liked to refer to Wal-Mart in defense of Apple’s position. First of all, I don’t see the comparison as particularly flattering. To me, Wal-Mart is one of the worst companies on Earth, built on below-poverty-level wages and third-world enslavement (I encourage the reading of this 2003 Pulitzer Prize winning series in the Los Angeles Times). Compared to Wal-Mart’s founder Sam Walton, Steve Jobs was Mother Teresa.

Except for one thing. Wal-Mart allows a box of corn-flakes sitting in its shelf, to be loaded with everything needed by the brand to engage a relationship directly with its customer: coupons, games, toll-free numbers, emails and web addresses, samples, all sorts of incentives designed to further tie the customer to the products whether or not they are sold in Wal-Mart stores. On the contrary, in the app-world, you can’t even have a link sending the user to a customer-relation pages. On this specific matter, Apple is doing worse than the worst retailer in the physical world.

Elusive Attitude

What’s next for Apple regarding the anti-competitive issue? Not very much. First of all because Apple is cornering only one segment of the digital devices. And, unlike Microsoft in the nineties, Apple is playing a clever chess game. “They have a well-defined elusive strategy”, said a European antitrust lawyer, “their goal is avoid the European Commission opening the case. They are closely monitoring the other players’ moves, and they will budge accordingly, one inch at a time. In doing so, they are buying time. And six months here and there is a big deal in the digital business.” On the publishing side and the customer relationships irritant, I bet the Cupertino guys will calm everyone down with minor adjustments in the coming few months.

frederic.filloux@mondaynote.com

Apple’s Antitrust Problem

(First in a series)

Will Apple face the type of antitrust issues Microsoft had to contend with in the 90′s? Possibly, but not with the same magnitude. Apple is by no means locking up its market the way Microsoft controlled the personal computer field with Windows. Still, the question arises for the iTunes Store, the App Store and their tightly controlled transaction and subscription systems.

Today, we’ll take a look at the issue from a news business perspective.

The fact that scores of publishers are flocking to the iTunes system doesn’t mean they are happy with it. For any publisher willing to access the burgeoning tablet market currently dominated by the iPad, a presence in the AppStore is mandatory. But I never met a publisher happy with his relationship with Apple. For most, what started as an enthralling partnership is slowly morphing into a feeling of servitude.

That perception is tinged with schizophrenia. Media people are usually fond of Apple products. From top bosses to tech reporters, they cherish their iPads and their iPhones. Then, each time Apple introduces a well-polished new device, it gets glowing coverage worth hundreds of million dollars if converted in media space.
Enjoying great products and admiring Apple for its many achievements does not prevent anyone from taking a stern look at the way the Cupertino folks do business. In a nutshell, publishers feel increasingly locked-in, and sometimes abused by Apple’s tight ecosystem.

As always, there are excesses on both sides. Difficult as it might be, let’s try and take a balanced view of three majors issues:
#1 the Application ecosystem
#2 the validity of a business model build on a 30% commission
#3 the issue of the customer data.
(We’ll start with #1 today, and address #2 and 3 next week)

The following is based on my ongoing contacts with publishers and conversations I had with lawyers specialized in antitrust and intellectual property. They spoke anonymously as they are quietly loading their guns for a possible legal action before the European Commission.

#1 The App Ecosystem

The context. Apple set up a huge technical and human infrastructure in order to provide tools to anyone, large of small, willing to build an application and yearning to make it available to any market. Amazingly, from the outset, Apple decided to provide all this machinery (software development kit, tracking system, testing) for free (let alone the symbolic cost of a $99 developer account).
Entrepreneurs voted with their keyboards and mice: there are 500,000 applications in the AppStore today, and counting. It created a huge new business. As Apple gives back 70% of the revenue for paid-for applications, by June 2011, the company had paid over $2.5B to developers, many of them individuals or very small companies.
Well, is there really a matter to complain about here?
Surely not for the developer working from a high rise in Seoul or a barge in Amsterdam. But for the large publishing company, it’s another story. Once it enters the system, two keywords begin flashing : “discretionary power” and “locked-in”.

Let’s face it, Apple has life and death power over the apps it harbors in its store. Its approval system it completely opaque, left at the discretion of an elusive army of people working at “undisclosed locations”. Welcome to the kingdom of the arbitrary. The same set of features that once raised a red flag triggering a rejection will be accepted the next time around — without explanation. Approval delays vary widely, making it difficult to plan the roll-out of a critical product. What is acceptable for a mom and pop operation becomes anxiogenic for large organizations.

The question of “choice”. To those who criticized its “black box” system, Apple’s retorts we evolve in a free market: if a publisher is not happy with its App Store it can: (a) go to the Android market, or (b) build its own web-app, i.e. an app that will live and function independently of the iTunes Store.

Antitrust lawyers don’t see things that way. Their argument: for someone controlling 75 % of the tablet market, invoking such a marginal alternative isn’t relevant. A publisher willing to join the tablet business has no choice but being available on the iPad. In practical terms, this means investing serious money to join a platform operated in a discretionary and opaque way, with unclear and changing rules.

As for the web app, antitrust attorneys suggest they represent a degraded and dangerously uncertain alternative to the iTunes Store. Degraded because a web app such as the Financial Times’ — the poster child of the “resistance” to Apple — doesn’t work as well as a native app. And this notion of “slightly less good” is absolutely critical. Given the sate of HTML5 (the programming language used for independent apps) and whatever the skills of its developers, a web-app will never be as fast, as fluid, as features-rich as a native application. As for the uncertainty, it lies in the fact that a web-app depends on features Apple can change without warning, such as the ability to use its browser (no choice here, it’s Safari) to store content. Put another way, web-apps are likely to work — no more than OK — until Apple decides otherwise. Again, it’s difficult to build a sound business upon such quick sand.

Evidently,  Apple is entitled to defend the integrity of its operating system by not giving independent applications access to critical layers of its iOS. This precaution provides better security against rogue code such as viruses and other malware; it is an indisputable justification for tight control. Agreed, said the antitrust lawyers, but: (a) for the native apps, rules could be more transparent and stable, (b) as for web apps, such rules should evolve within a framework of well-documented Application Programming Interfaces (APIs), a set of coding conventions used by programs to communicate with each other and with the underlying operating system. These APIs would be controlled by Apple on the sole basis of technical concern in order to protect the integrity its OS while creating a clear and well-defined framework for publishers.

Evidently, these suggestions sound a bit naïve. Apple has no business interest whatsoever in easing its allowance for independent web-apps. Most likely, it will carefully adjust the cursor to appear reasonably open while, at the same time, protecting its own ecosystem.

Things are likely to get worse before they get better: Apple is likely to unleash features that will benefit only applications and services of its choice in order to preserve its position. The best example is its Newsstand’s background downloading for publications (your iPad automatically wakes up to download the publications you subscribed to in the Newsstand, see a previous Monday Note on the matter). Lawyers says this is the perfect example of a feature that creates an unfair advantage favoring Apple’s own distribution channel.

Apple’s attitude towards competition epitomizes a often-seen scenario of the technological evolution: a company acquires a dominant position in a given market (in today’s case, several ones) thanks to superior products and services. As the company further gains ground over its competitors, the admiration for its quick success morphs into growing suspicion. Features that once were lauded as innovative market boosters begin to be seen as instruments of a market lock-down. At the same time, competition tries to imitate the leader as fast as it can. As it feels both unfairly copied and threatened, the market leader reacts by further tightening its grip on its business, using whatever it takes to buy time. In doing so, it triggers more hostility, etc. A vicious spiral begins.

Next week, considering market domination, we’ll see why Apple takes a different approach from the one Microsoft once used. Unless it becomes completely intoxicated by its own success, a clever “cursor adjustment” could preserve Apple’s lead and, at the same time, favor healthy competition.

frederic.filloux@mondaynote.com

The Discreet Shift to Twitter

You hear things about Facebook. You see things. As its audience matures, a subtle shift might be underway. Of course, numbers remains staggering. Facebook is heading toward the 800 million users mark, mostly by conquering new markets. The growth is distributed as follows : Middle-East Africa, Asia-Pacific and Latin America grow by around 60% per year; Europe by 35-40%; and North America by 25%. And demographics are shifting: older people are joining in Western markets while a younger audience grows in emerging ones. More changes are underway as the internet spreads on both landlines and mobile devices: over the last 3 years, China added more internet users than exist in the United States today. Furthermore, in the fastest growing markets, Facebook captures over 90% of all social network traffic. So, for the near future, Facebook doesn’t have a growth problem.

On mature markets, the future looks bright as well. In the United States, unique users grew by 22% between June 2010 and September 2011, reaching a total of155 million. Notably, the average time spent per person grew from 6:02hrs to 7:42hrs.

And…

When you speak with grownups and young adults who used to be Facebook enthusiasts, you hear the following :
– Facebook’s interface, its features have become overly complicated. The result is it takes more time to do the same old things.
– Managing friends leaves you with two choices: spending a lot of time delicately pruning lists, circles and groups, or being swamped.
– Constant and insidious changes in Facebook’s privacy features keep taking people off-guard: all of a sudden, you find many things about your digital life, mostly mundane stuff such as what you read and listen, being broadly available outside your initial circle. Quasi-paranoid caution has become a must. And again, since “opening” is the default setting on Facebook, recovering your own privacy gets increasingly complicated.
– A rise in the advertising presence, which reinforces the impression of being tracked down: users don’t have the slightest idea of the breadth and depth of Facebook’s mining of their personal activities.

It now seems Facebook’s usage is undergoing a split. Active Facebookers become increasingly engaged, spend more time doing more stuff, while “reasonable” users (above 25) become more reluctant and careful.

Who benefits from such shift? Twitter, primarily. Globally, Twitter’s microblogging/social network is much smaller than Facebook, with a reported 200 million users, only a fraction of which are really active. Business-wise, Facebook is 30 times larger than Twitter and is expected to gross $4.27bn this year, according to eMarketer ultra-precise estimates; that’s more than twice last year’s revenue. As for Twitter, its advertising strategy is gaining traction: again, eMarketer expects Twitter to make $139.5 million, up 210% from the previous year.

Given the differences in size and reach, does it make sense to compare the two?

Let’s consider the news media sector. From a pure quantitative standpoint, Facebook remains a solid referral for news sites as people “Like” and link to stories. But Facebook encourages fly-bys, i.e. viewers that  won’t stay on the site. Twitter’s referrals to a news content is of a different nature. Tweets and retweeets usually come from people who have chosen to follow a given individual, a news organization or a specific subject. The referral is therefore much sharper, more targeted than the impulsive “throw-on-my-Facebook-wall” type.

For what it worth, let’s look at an essay published last Saturday in the Wall Street Journal. Titled Why Can’t Wall Street Handle the Truth, it is written by Mike Mayo, a long time banking analyst who made repeated calls to dump banks stocks.

The essay generated 795 Facebook “Likes” — which is small for a story that is freely available in the WSJ Social Facebook application:

In the meantime, the same piece (and the mention of Mayo’s book) has been indexed 140,000 times in Google, thanks to only 392 tweets.

Still using the Wall Street Journal as an example, let’s have look at Walt Mossberg’s presence. (He is the Journal’s world-famous tech writer.) On Facebook, his page got 874 “Likes”. On the WSJ Social application, where Mossberg appears as an editor, he got 252 readers as the app has been able to collect a total “23K Readers”

Not very compelling.

But, on Twitter, Walt has 264,000 followers.

Another key element in Twitter’s favor: the mobile factor. Twitter’s 140 characters format turned out to be a killer on smartphones: it is growing faster on mobile (+75% Year-to-Year) than LinkedIn (+69%) and Facebook  (+50%). That’s the privilege of simplicity and straightforwardness over feature-itis.

frederic.filloux@mondaynote.com

From Heaven: iTV

Search for the word ‘‘cracked’’ in Walt Isaacson’s biography of Steve Jobs (or flip to page 555 if you have the bricks-and-mortar version). The second hit yields the following:

It will have the simplest user interface you could imagine. I finally cracked it.

“It” is the mythical Apple iTV. Even though Walt’s report of the July 2011 conversation didn’t hint at Steve’s solution, the eleventh hour revelation has rekindled old rumors and set the blogosphere on fire. “If Steve said he ‘cracked’ the problem, it must be true!”

At first, I had impure thoughts: I imagined Dear Leader, taking a moment away from redesigning Saint Peter’s abode, had foisted a prank upon us abandoned mortals: “That’ll keep ‘em busy…and will take their attention away from embarrassing topics such as the incompatibility between iOS and Mac file formats.”

A few days later, however, I read two posts that made me rethink my dismissive views.

First, in “Apps Are the New Channels”, John Gruber floats the idea of channels-as-apps (powered by iOS, of course):

Imagine watching a baseball game on a TV where ESPN is a smart app, not a dumb channel. When you’re watching a game, you could tell the TV to show you the career statistics for the current batter. You could ask the HBO app which other movies this actress has been in.

Second, in his good-natured pout post “Fine. I will talk about Apple Television or iTV or whatever it will be or will not be called.”, Brian Hall led me to a Nielsen Wire article that contains this graph:

40% and 42% of smartphone and tablet users, respectively, use their devices while watching TV — on a daily basis. The statistics themselves are hardly surprising, particularly to parents who have watched their multimedia-tasking children grow into young adults. But as I looked at the charts, a retroactively-obvious connection, a compatibility, struck me: Smartphones, tablets, and the iTV all use apps. [I’ve given up using the precautionary “putative” when speaking of iTV, and I use the present tense with license.]

With this in mind, what will the iTV look like?

As discussed in a previous Monday Note, if the iTV is an integrated device, the computer inside will become outdated long before the monitor does. Once you’ve graduated to Full HD (1920 by 1080 pixels) any other “improvements” –“240 Hz” display frequency and the like — are markitecture gimmicks that are invisible to most users. In other words, you won’t want to upgrade your TV after 18 months the way many of us do with laptops, tablets, and smartphones. (One could imagine a replaceable iOS computer module inside the iTV, but it sounds clunky, a source of problems.) Even more important, an integrated iTV would orphan the millions of HDTV sets already in place.

Furthermore, I still don’t see a 50” TV set walking out of an Apple Store. It’s hard enough to carry a 27” iMac out — or back in when trouble strikes. And I don’t see battalions of Apple field service people coming to our homes to fix these things.

If there’s no integrated iTV, let’s consider the iTV as a separate module, the next-generation Apple TV. In order to really work in the marketplace and achieve an iPod-like status, the module would have to “swallow” the set-top box, DVR included. If it didn’t, we’d still have to fight the multiple device/multiple remote battle: The set-top box, the primary source of TV fodder, has to be connected to the Input 1 HDMI connector, relegating iTV to Input 2. Certainly not the elegant solution Steve had in mind.

However, swallowing the set-top box and its DVR would entail making agreements with cable operators, business that are more numerous, less sophisticated, and more afraid of Apple than are the wireless carriers. While the wireless carriers have seen how smartphones can increase their ARPU, cable operators know only too well what would happen to their barely legal and definitely distasteful program bundling schemes once Apple gets in the game. (Try adding a single channel to your existing Comcast bundle: in Palo Alto, with Comcast, you must fill and email a form. It can’t be done on the phone, even if you manage to get to a human after a 20 minute wait.)

Ah, but maybe there is a way: Connect the set-top box to the HDMI input on the iTV, then connect the iTV to your HDTV’s prized Input 1. That gets us partway there, but it still doesn’t solve the multiple remote problem.

That’s where apps come in for the first but not last time: Download Apple’s iRemote application to your iOS, Android, or Windows Phone smartphone or tablet and you’re done.

Smartdevice-as-remote has been attempted before, of course. One example is the Xfinity iPad/iPhone app. You prep each set-top box in your home, download the program guide to your iDevice, and you’re good to go. When you issue a channel-change command from your smartphone, it’s sent through the Net to the Comcast cloud, and is routed back to your set-top box via Comcast’s cable:

Why the detour through Comcast? Because your smartphone/tablet and your set-top box don’t understand each other. The former speaks WiFi and Bluetooth; the latter only understands infrared.

Unfortunately, in my case, it worked once and never worked again.

Judging from the comments in the App Store, I’m not alone.

Furthermore, counting on the cable operator – and there are more than 25 in the US — to let the smartphone/tablet app control a multitude of set-top box models via the circuitous route described above probably isn’t the type of elegant solution Jobs had in mind.

How about translating between the smartphone/tablet and the set-top box by inserting a mediating device, a WiFi or Bluetooth-to-I/R converter? With the iTV connected to the set-top box and TV via HDMI, you still end up with a complicated arrangement: Your home WiFi base station provides a Net connection to your smartphone and iTV, and the WiFi-to-I/R converter listens to your smartphone and speaks I/R to your TV and set-top box:

This looks ugly, and it gets uglier: Since there’s no two-way connection between the TV/set-top box and the “remote,” the remote has no idea whether the TV is on or off, which input it’s using, which channel it’s tuned to. As a result, it’s easy to have a system in an unknown state, frustrating most mortals and forcing ‘‘harmonizing remote” makers such as Logitech to use complicated workarounds.

For most users, chances are slim that the set-up I just described will work and keep working.

Now let’s consider channels as apps. Why should TV on an iTV be like the TV we get through a set-top box? Newspapers and magazines on tablets (and smartphones for some publications such as the NY Times) aren’t mere replicas of the paper-based product. The adaptation to the new medium isn’t always pretty, but there are some great examples: See Bloomberg Businessweek or The New Yorker Magazine on a tablet.

The same will apply to TV. Not all channels will adapt equally well or equally quickly, but as “channel apps” evolve, we’ll see new ways of using the medium. As Mr. Gruber pointed out, imagine a football game as an app on an HDTV screen with the on-demand stats he mentioned plus the Twitter and Facebook streams we’ve grown to expect. (Personally, I’m not crazy about having too much “other” content on the screen as I watch a game, but I might be in a minority.)

Delivering channels as apps liberates our “viewing experience” in two ways: It breaks today’s narrow channel delivery format and it bypasses the set-top box. Today, I can watch the “straight” version of 60 Minutes on my TV (in real time or from my DVR), or I can go to my computer and watch a recent episode plus the additional “60 Overtime” content…or I can buy the $4.99 iPad app and get all of that through a much better UI that includes great navigation to the vast library of past episodes. Port that iPad app to the iTV device and you’re done. With channels as apps, all you need is a net connection (sometimes provided by the cable operator). You can throw the set-top box away.

Will consumers pay for iTV apps/content as I did for 60 Minutes? Probably, and we won’t have to pay for everything, just as with today’s TV with its combination of free and pay-per-view programs.

Of course, there’s the notorious “simple matter of implementation,” here: Someone has to write the apps that encapsulate the channels. But once the movement gains strength and tools become widespread and understood, it will be easier than you might think. 500,000 iOS apps attest to the availability of institutional knowledge.

In the meantime, if you don’t have an iPad, borrow one, spend $4.99 for the 60 Minutes app, and imagine the experience on an HDTV. Is this the TV future Jobs had in mind?

JLG@mondaynote.com

[In a future Monday Note and/or in comments on our site, I’ll cover variants to the approach described above, infrastructure issues, and also potential reactions from carriers/operators and competitors.]

Steve’s Bio: A Personal Perspective

Let me jump to the conclusion: This is an extraordinary book on many levels: informative, entertaining often, insightful, sympathetic but not indulgent; it rises to its unusual subject and manages to render its complexity in a straightforward manner that attests to the biographer’s talent.
Get thee to a physical bookstore, if you can find one, or to Amazon’s or Apple’s online dispensers, you won’t regret it. And if you don’t have the time or patience, start with Chapter Thirty-Six: The iPhone, Revolutionary Products in One (page 465 on paper, easily searched on electrons).

Last year, Walt Isaacson called to talk about the bio Steve had asked him to write. No surprise there, Dear Leader always wanted the best, and Isaacson had written world-class biographies of Ben Franklin, Einstein, and Henry Kissinger.

I told Isaacson how sad this felt, how I perceived Steve’s decision as ‘‘putting his affairs in order’’ before leaving this Earth. Walt didn’t answer directly, but he did say something shocking: Steve had relinquished all control over the book, all decisions were Walt’s. I didn’t believe it. I couldn’t see Steve giving up control on anything. His fanatical attention to detail is, sorry, was a key ingredient of his success. But Steve’s editorial grip on the book went no further than his picture on the cover. In Isaacson’s words:

“He had never, in two years, asked anything about what I was putting in the book or what conclusions I had drawn. But now he looked at me and said, “I know there will be a lot in your book I won’t like.” It was more a question than a statement, and when he stared at me for a response, I nodded, smiled, and said I was sure that would be true. “That’s good,” he said. “Then it won’t seem like an in-house book. I won’t read it for a while, because I don’t want to get mad. Maybe I will read it in a year—if I’m still around.” By then, his eyes were closed and his energy gone, so I quietly took my leave.”

To be sure, this isn’t your typical CEO encomium where the slightest achievements are remembered as world-changing deeds, and unseemly details are airbrushed into endearing idiosyncrasies.

The arc of Steve’s life is the stuff of legends: Abandoned at birth; raised in Silicon Valley; an acid-dropping, ashram-dwelling college drop-out, hacker, and co-founder of the most iconic of personal computer companies; fired at age thirty; re-inventor of animated movies at Pixar; the struggle to create the NeXT big thing; the return to Apple in the most stunning turnaround the industry had ever seen; reshaping the music industry; building a world-class retail network in his own image; re-inventing the smartphone industry and grabbing half of its profits; and, finally, after thirty years of false starts, making tablets a reality and grabbing iPod-like market and profit share as a result. An arc that saw the unmanageable hippie become the head of one of the world’s best-managed companies. And he died just as he reached the pinnacle.

This could tempt both subject and his biographer to produce a statuesque book, a North Korean monument to Dear Leader’s achievements. But instead of The Life and Miracles of Saint Steve, we get the gift of truth. We are forced to stare at the reality, or realities of the actual man. Thinking of his children, for whom Steve said the book was, so they got to better know him, this book is a great present. Judging oneself only by comparison to the better side of a parent is a terrible burden. Walt’s book gives them an independent look into the incredibly luminous Steve as well as into his sometimes repulsive dark side. Steve’s must have hoped to free them from his legend.

On the one hand, Isaacson shows the man who thrilled us with his (almost) unerring taste, with his sense that computers of various sizes and forms were more than merely utilitarian, that they were the objects, the vehicles of an evolving culture. Visionary, artist, leader, innovator… the list of meliorative words goes on, and rightly so: Steve was all these.
On the other hand, Isaacson manages the feat of being, by turns, empathetic, even affectionate and, in the next sentence, unblinkingly factual. The book will confirm everything you’ve heard about Steve’s unpleasant sides, and then some. When learning of his truly pathological eating habits, for example, you’ll wonder about his sanity. I don’t use the word pathological lightly: you’ll see how delusional Steve was when, for eight months, he refused surgery for his diagnosed pancreatic cancer, choosing instead a strict vegan diet, acupuncture and “herbal remedies, and occasionally a few other treatments he found on the Internet or by consulting people around the country, including a psychic”.

In a similar vein, you’ll read what Jony Ive, Apple’s Sr. VP of Design, Steve’s soulmate had to say about his dark side:

“… his way to achieve catharsis is to hurt somebody. And I think he feels he has a liberty and a license to do that. The normal rules of social engagement, he feels, don’t apply to him. Because of how very sensitive he is, he knows exactly how to efficiently and effectively hurt someone.”

Yes, that’s also the way Steve was. With everyone, family included.

Knowing or having known many of the characters in the book, I can vouch for its accuracy. But, even more important, I can vouch for its voice. Walt Isaacson got Steve right. He didn’t get intimidated, he wasn’t seduced into being a groupie, he didn’t get nauseated or angry. Instead, he delivered the truest rendition I’ve read of one of the most complicated people I’ve known.

His subject’s complexity didn’t rob Isaacson of his dry wit, such as this when observing Jobs after his liver transplant:

“As Jobs got better, much of his feisty personality returned. He still had his bile ducts.”

Or from recording memorable Bill Gates quotes such a this one:

“I’ve been predicting a tablet with a stylus for many years,” he told me. “I will eventually turn out to be right or be dead.”

(Not so fast, Bill, we love to have you and Ballmer around.)

In my view, the only way to keep one’s sanity when dealing with Steve was to stay ambivalent, to force oneself to harbor contradictory feelings about him. Easier said than done. In my case, over time, feelings of admiration and affection have taken over when watching the feats and the struggle. Reading Walt’s book was a helpful and, at times, painful reminder of who Jobs actually was.

JLG@mondaynote.com

[For a small compendium of Walt’s best-selling Steve Jobs bio reviews, look here.]

You Cheat. We Cut Prices

Surprise: To boost its circulation, Rupert Murdoch’s Wall Street Journal Europe engaged in massive channel stuffing. No kidding. It sounds like everyone discovers, all of a sudden, how medias (old and new) actually work. Granted, when it comes to cheating, News Corp is in a class all by itself. The phone hacking scandal pushed the practice of checkbook journalism to the pinnacle of massive corruption. As for the circulation scheme unveiled last week by the Guardian, WSJ Europe has pushed the envelope of bogus circulation numbers much farther than any other newspaper in the world.

From May 2009 to April 2011, the WSJE had a deal with a Dutch company called Executive Learning Partnership by which ELP purchased thousands of copies of the Journal for a price as low as 0.01€. If such deal is not uncommon, the scale was: 41% of the WSJE’s total audited circulation was inflated via this little scheme. The deal also involved a positive coverage of ELP. On Tuesday October 11th, Andrew Langhoff, the publisher of the Wall Street Journal Europe handed his resignation out.

The next episode is likely to unfold inside the soundproof walls of News Corp’s boardroom. While the phone hacking scandal might still hold more juicy bits in reserve (Guardian’s full coverage here), the circulation scandal involving the Murdoch empire’s most prestigious asset could be the one transgression too far. The board could be tempted to demote the aging boss. The rationale behind their putative decision would point to the rigid, top-down News Corp chain of command. In such an environment, practices such as this amazing circulation scheme must have been directed or, at the very least, tolerated by top management.

More broadly, this scandal raises another question: What is the real value of an audience, print or digital, when it is artificially bought — instead of naturally sold?

In the newspaper business, inflating circulation is hardly new. In fact, it is standard practice. The way copies are counted is a soft encouragement to blur the line between loyal and occasional readers. Officially, audit organizations across the world make subtle distinctions between distribution channels. They break down paid/unpaid circulation, mass subscriptions, types of deliveries, etc. On most Western markets, roughly 20% to 35% of the circulation for supposed paid-for newspaper is actually free.
Beyond that, we have what I’d call “near-free” circulation, i.e, copies that are paid a fraction of the cover price, usually just above the minimum rate imposed by audit organizations to be counted as paid distribution. This includes copies made available in airline lounges and hotels. In the end, this circulation is free. First of all, end users won’t disburse a dime for their newspaper (it is part of the service). Second, the price paid by the corporate distributor will likely be offset by side arrangements such as logistics fees charged by airlines or hotel chains (let alone advertising deals that could also be part of the package). Taking in account such arrangements, the share of free distribution can rise well above 50%. More

Premature Evaluation: The iPhone 5 Introduction

On October 4th, after months of speculation, Apple finally introduces the iPhone 5. The kommentariat are ecstatic and approvingly list the new smartphone’s strongest points: Twice the processor speed; seven times the graphics oomph; a new camera with an Apple-designed lens, 8 megapixels and improved image processing; the power of the new iOS 5; iCloud integration and synchronization with all your iDevices; a new smart antenna; Siri, the innovative intelligent assistant. And, courageously resisting the temptation of capricious cosmetic changes, the iPhone 5 stays with Jony Ive’s elegant, timeless design that was unveiled only last year.

The preternaturally modest Apple execs cringe at the gushing praise, but what can they do? It’s their cross to bear.

That’s what we expected. Now let’s consider the reality: Same phone, same features, same design, but it’s now called 4S instead of 5. This changes everything. The pundits are indignant: The iPhone 4S is a lame, evolutionary product; management’s presentation (video here) is flat, uninspiring. This dog won’t sell. Apple has lost its mojo.
(Regarding the “flat” presentation, Apple execs knew Steve Jobs was just a few breaths away from his last, but they got on stage and delivered anyway. When news of Steve’s demise came out the following day, many critics, such as blogger Robert Scobble, had the good grace to apologize to Cook & Co. for railing about their subdued performance.)

Despite these lamentations, strong pre-order numbers start circulating (more than 1 million on day one), followed by the first batch of reviews. Apple 2.0’s Philip Elmer-DeWitte obligingly provides a neat compendium of these first impressions, which range from “fair and balanced” to unabashedly enthusiastic. More

The Teacher

Steve Jobs taught us so many things… To us whose professional life strides tech, ads and media, his way of fostering innovation, of creating an obsessive culture of perfection remains both inspirational and enigmatic. For those who like design and engineering, there isn’t a single field Apple hasn’t entered — or at least influenced. When I fumble with the appalling multi-function display of my Prius, when I struggle with the remote control of my office A/C, or when I wonder why in hell the $2000 battery-assisted bicycle I consider buying doesn’t have an programmable memory chip to upgrade software that looks forever stuck in version 1.0, I wonder how the Cupertino guys would have handled it. Needless to say, I do the same when I look at media applications or newspapers/magazines designs, many of which seem to have succumbed to a sad mélange of sloppy execution and a lack of decisiveness in design.

For years, I have been reading everything I could about Apple from the management/innovation perspective. As a business journalist, I find Apple being the most frustrating company to follow. Very little comes out. The culture (and the cult) of secrecy extents way beyond any employee tenure; even the usually profligate academic literature is rather bare when it comes to Apple.

Front page of Liberation

However, over a span of fourteen years, as it impacted so many sectors, Apple’s unprecedented turnaround yielded a few clues. I tried to isolate some with potential applications outside the tech world. What interests me in Apple ranges from their choice of frosted-glass for my MacBookPro’s trackpad (instead of cheaper plastic), to the use of its immense cash hoard, to the way the company prepared itself for the post-Steve Jobs era. More

Too soon…

‘Humor is the politeness of despair’, an approximate, googlish translation of l’humour est la politesse du désespoir, a saying attributed to noted post-WWII Left Bank jazzman, writer, and engineer, Boris Vian, So, let’s start with the reverent, despairing humor of Chris Calloway in Wired Magazine’s memorial to Steve Jobs:

“Heaven got a major upgrade today…”

Yes, I can see Dear Leader in his new abode. Having climbed his last mountain, he summons Saint Peter and utters the words that he has heard throughout his life: “You’re doing it all wrong.”

“Look at the name above the door, the typeface sucks, the kerning is off. The furniture is out of style — get something cleaner, fresher. And the stairs… We need something airier…I don’t know, glass? Come to think of it, one of the founding partners of the architecture firm that designed the Apple Store moved in here a few months ago. Bernard Cywinski; look him up get to work.”

…and then it’s Saint Peter’s turn to mourn Steve’s untimely demise, and his own lost tranquility.

[Update: I just found this picture of the New Yorker’s upcoming October 17th cover. Obviously, this is before Steve starts to take matters into his own hands.]

Back in our Valley of Tears, this Onion article provides just the right amount of serious thought wrapped in knowing derision. I can’t resist but quote the entire piece, it’s too good and, in a way, it’s a consolation:

Last American Who Knew What The Fuck He Was Doing Dies

Steve Jobs, the visionary co-founder of Apple Computers and the only American in the country who had any clue what the fuck he was doing, died Wednesday at the age of 56. “We haven’t just lost a great innovator, leader, and businessman, we’ve literally lost the only person in this country who actually had his shit together and knew what the hell was going on,” a statement from President Barack Obama read in part, adding that Jobs will be remembered both for the life-changing products he created and for the fact that he was able to sit down, think clearly, and execute his ideas—attributes he shared with no other U.S. citizen. “This is a dark time for our country, because the reality is none of the 300 million or so Americans who remain can actually get anything done or make things happen. Those days are over.” Obama added that if anyone could fill the void left by Jobs it would probably be himself, but said that at this point he honestly doesn’t have the slightest notion what he’s doing anymore.” More

Dreaming at the Kindle Potential

With each introduction of a new reading device publishers around the world are overcome with the same recurring same fantasy: What if it worked, this time around? Could a reliable business model emerge for news publishing companies?

Last week’s launch of new Kindles is no exception to the cyclic fantasy. For those who where on Mars last Wednesday, here is a look at the revamped family:

To sum up: the new lineup features the widely expected Kindle Fire (full color display, multimedia capabilities and the clever, cloud-accelerated Silk browser — see Jean-Louis’ column). In addition, Amazon redesigned its e-Ink based Kindle with two models, including a small 6 inches version that fits in a pocket. All of them priced aggressively, below their production cost.

A lot has been written comparing Apple’s iPad and Amazon Kindle devices. Exciting but not relevant. The two companies’ strategies can’t be more diametrically opposite. Apple is in the hardware business and all other product lines — software, media offerings — exist for the sole purpose of raising perceived value and units volume. Then, great product execution and streamlined operations help maximize margins. Apple’s gross margin on iPads is about 30%.
By contrast, Amazon is a digital retail company in which all forms of media — books, videos, music, games –  account for about 40% of its sales. Its hardware strategy is designed to funnel customers to its retail business.

This explains why Amazon doesn’t care much about Kindle hardware margins, and is much keener to strike deals with content providers than Apple is. In parallel to the launch of its news Kindles, Amazon has harvested a large set of deals with media companies. Its Kindle Fire Newsstand is already impressive and features a 3-months free trial for a selection of magazines. Symmetrically, a growing number of publishers keep complaining about Apple harsh terms; as a result, in the coming months, we’ll see many prominent publishers exit the Apple ecosystem and switch instead to web-based apps (a move that is actually more complicated than it appears). More