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Weekly Column

The Puppet Master: Love Steve Jobs or hate him, just don't ignore him.

Status: [CLOSED] comments (221)
By Robert X. Cringely
bob@cringely.com

I have never before quoted myself at length in a column, but this week’s Apple iPhone pricing fiasco calls for it, so here is the beginning of a column I wrote back in January 2002:

In 1999, I was commissioned by Vanity Fair magazine to write a story about the relationship between Bill Gates and Steve Jobs. While I know both men, I know them separately, not together, and I just wanted to better understand how they got along. The only hint I had was from a joint interview they did several years ago for Fortune magazine in which Gates said that when they were together, Jobs bossed him around. It is very hard to imagine anyone bossing around Bill Gates. I had to know more.

So I contacted Steve and asked for some time with him to talk solely about his relationship with Bill. Steve’s first response was to call the editor-in-chief of Vanity Fair to discuss the story. This gives some insight into Jobs: I predict that whenever his children have trouble at school Steve doesn’t call the teacher, he calls the Superintendent of Schools, and that’s only if the Secretary of Education is out of town. A short negotiation followed in which Steve agreed to do the interview, but only if I talked to Bill first.

Neither Bill Gates nor Steve Jobs is anywhere close to what one might define as “normal,” but in these procedural things, Gates is a lot more normal than Jobs. It took a month or so to arrange, but I eventually had an hour with Bill, during which we spoke only about his relationship with Steve. I still have a tape of that interview, which was VERY interesting, but I promised I wouldn’t use it for any other project, so it remains inside my fireproof safe.

The promised interview with Jobs never happened. His excuse was that the antitrust case against Microsoft had reached a point where it would have been imprudent for Jobs to comment on Gates. Come back when the case is over (or Hell freezes, whichever comes first).

While I suppose there may have been some legal reason not to talk, I really doubt that was the issue. Rather, Steve Jobs just liked snubbing the world’s richest man. It was classic Jobs, and I should have seen it coming. We both should have. So the Vanity Fair story never happened.

One thing that Gates told me in that interview was he didn’t understand why Jobs had gone back to Apple at all. “Why would he do that?” Bill asked. “He has to know that he can never win.”

Okay, we’re back in 2007, eight years after that interview with Bill Gates and the subsequent snub by Jobs and the question being asked about Jobs is still the same: "Why did he do that?" And the answer is still the same: "Because he can."

This week’s iPhone pricing story, in which Apple punished its most loyal users by dropping the price of an 8-gig iPhone from $599 to $399 less than three months after the product’s introduction, is classic Steve Jobs. It wasn’t an accident. It wasn’t a thoughtless mistake. It was a calculated and tightly scripted exercise in marketing and ego gratification. In the mind of Steve Jobs the entire incident had no downside, none at all, which is yet another reason why he is not like you or me.

Let’s deconstruct the incident. Apple announced a variety of new and kinda-new iPods dominated by the iPod Touch (iPhone minus the phone) and an iPod Nano with video (great for watching miniseries). At the very end of the presentation, Jobs announced the iPhone price cut. Why did he wait until the very end? Because he knew the news would be disruptive and might have obscured his presentation of the new products. He KNEW there was going to be controversy. So much for the “Steve is simply out of touch with the world” theory.

So why did he do it? Why did he cut the price? I have no inside information here, but it seems pretty obvious to me: Apple introduced the iPhone at $599 to milk the early adopters and somewhat limit demand then dropped the price to $399 (the REAL price) to stimulate demand now that the product is a critical success and relatively bug-free. At least 500,000 iPhones went out at the old price, which means Apple made $100 million in extra profit.

Had nobody complained, Apple would have left it at that. But Jobs expected complaints and had an answer waiting — the $100 Apple store credit. This was no knee-jerk reaction, either. It was already there just waiting if needed. Apple keeps an undeserved $50 million and customers get $50 million back. Or do they? Some customers will never use their store credit. Those who do use it will nearly all buy something that costs more than $100. And, most importantly, those who bought their iPhones at an AT&T store will have to make what might be their first of many visits to an Apple Store. That is alone worth the $50 per customer this escapade will eventually cost Apple, taking into account unused credits and Apple Store wholesale costs.

So Apple still comes out $75 million ahead, which is important to Steve Jobs.

Steve has a love-hate relationship with, well, everyone. Customers buy Apple products and they appreciate Steve’s design and market sense, but they also have opinions and NEEDS — two characteristics Jobs (and for that matter almost any CEO) would like to do without.

So Steve slapped his customers around a bit and what happened? Apple got free publicity worth tens of millions and the iPhone, which was already the top-selling smartphone in the world, will now sell two million units by the end of the year, up from an estimated one million. And Steve, having deliberately alienated his best customers, now gets a chance to woo them back. He has finally placed millions of people in the role of every key Apple employee — being alternately seduced and tormented. In this case the torment is over and the seduction will come next month when Apple ships OS X 10.5 (Leopard) — the company’s last chance to position its products for Christmas. Look for 1-2 very un-Leopard surprises at that event — surprises intended to get us all dreamy-eyed over Steve Jobs again.

So Steve does things like this because he can. It reaffirms his iron grip over both Apple and Apple’s customers. It’s a lot about ego and a little about business, though with Steve Jobs they are hard to differentiate.

Here is something very important to remember about Steve Jobs (and probably the only part of this column that will bother him in the least): most of his business moves are still in reaction to having been fired by Apple back in 1985.

Back then Steve was a willful and profligate creator of new products but not very interested in profits. When he put himself up against John Sculley, wanting the Apple board to fire Sculley and make Jobs the CEO, what killed Jobs’ chance for the position was the board’s belief that he wouldn’t deliver the numbers. And they were correct. The Steve Jobs of 1985 was a terrible manager. The board was wrong, however, in believing that Sculley could provide an acceptable substitute for Jobs’ technology vision.

In the 22 years since that humiliation, Jobs has devoted himself to proving: 1) that he can deliver the numbers (and does he — Apple is the best-managed computer company on Earth), and; 2) that he is a better marketer than Sculley, the supposed marketing genius. The product vision part is easy. Not only does Jobs push these products out without apparent effort, he couldn’t make himself not do it if he tried. It’s an obsession. So he puts the real sweat into managing and marketing and occasionally beating up on anyone who gets too close.

And that 1999 quote from Bill Gates about Jobs: “He has to know that he can never win.”

I don’t think Steve knows that at all.

Comments from the Tribe

Status: [CLOSED] read all comments (221)

Steve Jobs and Apple are on a roll and early adopters will forgive the company for this price drop. After all, many early adopters are similar to evangelists and would like millions more to buy Apple products. There is no greater satisfaction as an Apple fan (not a fanatic) to see their products competitively priced. That makes one look smart, not just like a loyal devotee.

Tomas Sancio | Sep 15, 2007 | 7:47PM

It is not just that the iPod is easier to use for non-techies; it is easier to use for techies too. Who needs more complexity in their life? I just want music. When I want complexity, I'll pop in the earbuds, and open an xterm window. When I want simplicity, I skip that second step.

My theory on why Jobs dropped the price: Apple has *always* had supply problems with new products. They wanted to seed the market, but not get customers angry when they order an iPhone, and can't get one for 90 days. Now that the factories for the special parts have ramped up, he can drop the price and open the floodgates.

Neil Prestemon | Sep 17, 2007 | 4:11PM

Everyone is complaining about the price drop of the iphone. It reminds me when I splurged and bought my wife tickets to the Barbra Streisand millennium concert in Las Vegas. Up until that time her tickets would sell for $200-$300 and everyone would end up selling them for $1200 to $2000 to the folks who really wanted to attend. This concert Streisand controlled her own destiny and sold the tickets for $800 to $2500. Why shouldnt she profit by the sales instead of some third party mark up? All you had to do was look on eBay for the iphone the day after it was released and you would have seen thousands for sale, selling for $700-$800 or more. The iphone would have sold for that much on eBay regardless what the retail price would have been. The folks who were willing to shell out the bucks to get the product didnt seem too concerned about the price at the time. Every product has a price point. If $599 is too much then they shouldnt have bought it. Did the folks who waited in line on day one really expect that the price would never come down, that the product would never be improved?

Lawrence | Sep 18, 2007 | 2:40PM