Inside the Apple and Google smartphone war
This is an excerpt from DOGFIGHT: How Apple and Google Went to War and Started a Revolution by Fred Vogelstein, published in October 2013 by Sarah Crichton Books, an imprint of Farrar, Straus and Giroux, LLC.
By 2010 Apple and Google were attacking each other on every possible front: in the courts, in the media, and in the marketplace. Android’s surge in popularity was astonishing, and Andy Rubin, Eric Schmidt, and the rest of Google made no secret of their glee. It seemed that every chance they got during 2010 they would expound on how many monthly activations Android had racked up and how mobile devices were going to change the future of Google and the world. In an April 2010 interview with the New York Times, Rubin even predicted that Android was going to rule the entire mobile universe.
The year before he had been worried that Google would abandon Android and that he and his team would need to job hunt. Now he confidently proclaimed, “It [Android] is a numbers game. When you have multiple OEM’s [phone manufacturers] building multiple products in multiple product categories, it’s just a matter of time” before Android overtakes other smartphone platforms such as iPhone and BlackBerry.
It was as if little else about Google mattered anymore. That wasn’t really true, but it wasn’t a huge exaggeration either. In 2010, Android started the year with 7 million users. By year-end it had grown to 67 million and was adding three hundred thousand new customers a day. Android itself wasn’t making money yet, but it was heading there fast. More important, it was accelerating the revenue and profit growth of other Google applications such as search and YouTube, and it was getting more people to sign up for Google accounts and give Google their credit card information.
The more people used Android, the more Google searches they did and the more ads they clicked on. Google still made most of its money from searches on laptops and desktops. But everyone at the top of the company knew desktop ads wouldn’t be the dominant source of revenue forever. Soon, fewer and fewer people would be buying those devices, and more and more would be buying smartphones and other mobile gadgets with Internet access.
The growth and profits for Google lurking in these numbers were eye-popping. Each mobile phone ad might sell for less than a desktop ad, but its potential audience — and, therefore, total revenue potential — were enormous. Consumers buy five times more cell phones every year than PCs — 1.8 billion versus 400 million. Google had barely penetrated this market. Thanks to Android, Google’s potential audience for its ads and applications had quintupled.
It had all worked almost exactly the way Rubin had envisioned it would, too: manufacturers and carriers wanted to compete with the iPhone, and Rubin’s success with the Droid had convinced them that Android was their best chance of doing that. Rubin took full advantage of the opportunity, pushing his engineers to deliver three major updates to the Android software in 2010 — a relentless pace. By the end of 2010 Android didn’t just have monster hits such as the Droid, but a handful of others such as HTC’s Evo 4G and Samsung’s Galaxy S. In all, by the end of 2010, nearly 200 Android phone models were available in 50 countries, and carriers and manufacturers worldwide were lining up to throw their multimillion-dollar marketing budgets behind them. An electronic poll of the audience at a Fortune magazine technology conference in July 2010 asked, “Who will have the dominant smartphone in five years?” The verdict was clear: 57 percent picked Android; 37 percent picked iPhone.
By early 2011 Schmidt was marveling not only at how smartphones had changed technology, but how they had become one of the most important advancements in human civilization. In a speech he gave in Germany he said:
We have a product that allows you to speak to your phone in English and have it come out in the native language of the person you are talking to. To me this is the stuff of science fiction. Imagine a near future where you never forget anything. [Pocket] computers, with your permission, remember everything — where you’ve been, what you did, who you took pictures of. I used to love getting lost, wandering about without knowing where I was. You can’t get lost anymore. You know your position to the foot, and by the way, so do your friends, with your permission. When you travel, you’re never lonely. Your friends travel with you now. There is always someone to speak to or send a picture to. You’re never bored. You’re never out of ideas because all the world’s information is at your fingertips. And this is not just for the elite. Historically, these kinds of technologies have been available only to the elites and not to the common man. If there was a trickle down, it would happen over a generation. This is a vision accessible to every person on the planet. We’re going to be amazed at how smart and capable all those people are who did not have access to our standard of living, our universities, and our culture. When they come, they are going to teach us things. And they are coming. There are about a billion smartphones in the world, and in emerging markets the growth rate is much faster than it is anywhere else. I am very excited about this.
The telecom industry had been desperately worried that Rubin planned to marginalize it the way Bill Gates had tried to marginalize PC makers with Microsoft Windows in the 1990s. But Rubin had insisted that was not his plan, and it appeared that he was keeping his word. Rubin allowed each carrier and manufacturer to add their own software and applications on top of Android to differentiate themselves from one another. And he gave to the carriers the 30 percent cut of app store revenues that Apple took for itself.
For the hidebound cell phone business, Rubin’s strategy was truly innovative. It was: Create as much competition among carriers and manufacturers as possible. By scrambling to compete with the iPhone they would also be competing with each other. Manufacturers previously made phones to please carriers more than consumers, because in the United States, at least, they depended upon carrier subsidies and marketing support to sell their phones.
But it became clear that to compete with the iPhone, they would have to jettison these old ways. Verizon and Motorola learned that lesson with the Droid. What was essential now was to make phones that consumers wanted to buy.
Carriers and manufacturers didn’t talk much about this, but their actions spoke loudly. HTC bought a design firm, One & Co, to help it make cooler-looking phones. Samsung’s design approach so closely resembled Apple’s that it became the center of their ongoing patent lawsuit. And carriers listened to consumers when they complained. In the fall of 2010 Vodafone tried to foist a slew of its own apps onto customers of certain HTC Android smartphones. When consumers realized they couldn’t remove them, the reaction was so virulent that within a week Vodafone had backtracked. It pushed out a software update that removed all the apps, restoring phones to their previous condition.
When Rubin explains this to me in the conference room down the hall from his office, he talks like a man who has been thinking about this evolution for a long time.
So the thing that disappeared in 2008 [that made the industry rethink] was the walled garden — it completely disappeared. And it wasn’t because of the iPhone. It was because of the Internet. It’s because the killer application that consumers wanted was that they wanted to take the Internet with them. You’d be stupid to try to compete with the Internet [if you were a carrier or a manufacturer]. How could you? So Android enabled both of them to take advantage of the Internet in a controlled way. Our pitch was ‘You have costs. We understand what those costs are. You want to be differentiated and don’t want to be commoditized. So we’re going to give you this, this, this, and this — the hook to solve that equation.’
Translation: None of us can beat Apple on our own. But if we work together, each of us focusing on what we are truly good at, we can not only beat Apple but make all our businesses stronger and more profitable than they were before.
The market forces Rubin channeled and the incentives he set up didn’t always work perfectly. Despite his best efforts, carriers and manufacturers were slow to roll out Android software updates. One phone would have the latest version of Android, but another would have the previous version or even the version before that. This meant that not all apps in the Android app store worked on all phones, and it meant that consumers sometimes thought they were buying a phone with the latest and greatest Android software, only to find out that that wasn’t the case.
But the market pressure on the industry was a lot greater than it had been in the past. Rubin made sure that each year there was at least one phone model that carriers and manufacturers weren’t allowed to customize with their own software, such as the HTC Nexus One and Samsung Nexus S in 2010. That way, if consumers didn’t like HTC Sense, Samsung TouchWiz, or any of the other carrier and manufacturer customizations they used to distinguish themselves in the market, they always had alternatives. Most important, Android was good enough by 2010 to offer consumers something they had begun to crave: choice. Apple had completely controlled the high-end smartphone market for three years. But it made only one phone, with a fixed set of capabilities and customizations available with, in the United States, only one carrier, AT&T.
By 2010 a few Android phones were not only as cool-looking as the iPhone, but were better devices in some ways. They had replaceable batteries, upgradable memories, and more customizable software. Most Android phones had bigger screens than the iPhone. They all supported multitasking [the ability to run more than one program at a time], which the iPhone did not. Any software developer with an idea could get his program listed in the Android app store without advance approval, unlike in Apple’s store. Android phones were better for watching video because they had a video player that ran Adobe Flash. Apple had banned it as bad technology, but it had become the standard for video on the Internet. And in the United States, Android phones ran on both the T‑Mobile and Verizon networks, which to many was a competitive advantage in itself. AT&T had the iPhone, but it was so popular that the reliability of its network was suffering, with slow Internet speeds and higher-than-normal call drops.
Rubin did what he could to make the Android pitch everywhere he went. In 2010, for the first time in his career, everyone wanted to listen to him. He was inundated with requests for media interviews, mobbed at conferences, and enjoyed access to the CEO of every cell phone maker and carrier in the world, all of whom wanted Rubin to help them hone their own messages. It was his good fortune that his competitors Apple and AT&T seemed to do everything in their power to help him. Weeks before Jobs was to unveil the iPhone 4, gadget site Gizmodo spoiled the valuable surprise quotient Apple builds into every product launch. An Apple engineer, doing legitimate bug-testing outside Apple, had left the prototype in a Redwood City bar. Gizmodo got its hands on it and published pictures. Then, after the new iPhone had been released in June, reviewers discovered the iPhone 4’s new wraparound antenna had a dead spot. It forced Jobs to call a damage-control press conference. On top of all this was the growing customer dissatisfaction with the iPhone’s U.S. network operator, AT&T. AT&T had been unable to handle the explosion of traffic the iPhone caused on its network, and by 2010 its customers had become furious and vocal about it. All three stories became international news in 2010 and fodder for late-night comedians.
The stories gave Rubin and other members of the Android community almost unlimited opportunities to highlight the differences between the Apple way and the Android way. And they took full advantage of the openings. Intellectually, it’s easy to understand why Jobs was so angry about the lost prototype. He felt Apple itself had been burglarized. When the prototype was found by other bar patrons, they first called Apple. But when they couldn’t get Apple to respond immediately, they called a few media outlets. Gizmodo bought the prototype for $5,000, saying that it did not know whether it was real. Jobs cared because Gizmodo’s photos would likely cost Apple millions in lost sales and marketing buzz. Few would buy the iPhone that was currently on sale now that they knew what the new one looked like and when it was likely going to be released. And Apple might get less coverage for the iPhone 4’s actual unveiling since it was no longer a surprise. But Apple and Jobs had become so rich and powerful by then that instead of looking like the victims, they looked like bullies. The San Matteo sheriff’s office opened a criminal investigation into whether Gizmodo had illegally received stolen property. They got a search warrant for the Gizmodo journalist’s home and seized his computer equipment. Jobs looked as if he had orchestrated it all because he publicly supported the investigation.
The Gizmodo journalist wasn’t charged with a crime, and he got his computer equipment back. But journalists couldn’t wait to ask Rubin about it all, and he happily obliged. When a New York Times reporter asked him what he would do if one of his Android prototypes had been found in a bar, he said, “I’d be happy if that happened and someone wrote about it. With openness comes less secrets.” The lurking advertisement was clever: If owning an iPhone makes you feel part of a totalitarian state, that’s because the company that makes it is run by a despot. Try Android.
In June came “Antennagate,” and with it, the question of whether the iPhone truly was the best designed and most beautiful phone in the world. Apple had figured out a way to put all the iPhone’s antennas on the outside of the device — three thin, shiny pieces of metal wrapping around the edge of the phone. It was supposed to improve the iPhone’s cell reception. Jobs touted it hard when he announced the phone as the perfect example of complementary form and function. But reviewers discovered that if it was held a certain way — especially by left-handed users — a finger could easily cover a spot where two pieces of antenna met and degrade the signal.
Jobs was ultimately forced to call a press conference to explain the problem, and to offer a fix — a free case. But Jobs also couldn’t resist pointing out that Android phones had similar problems, and the dig backfired. Members of the Android community collectively and publicly made fun of Jobs’s well-known arrogance about the beauty of Apple products. “You know, I heard that the most popular voice message on iPhone 4 was ‘Sorry I can’t answer your call because I am holding my phone.’ I don’t think this is an issue with Droid X,” said Sanjay Jha, Motorola’s CEO, at a technology conference put on by Fortune magazine. He and other members of the Android community gleefully named the problem “the iPhone death grip.”
But the Android community had the most fun of all with “Connectiongate” — the iPhone’s reliability problems on AT&T’s wireless network. Carriers love to trash one another’s networks, and consumers love to trash their carriers, but historically the real differences among wireless services have been marginal. With AT&T and the iPhone, connection and call quality were enormous problems compared to reception for other carriers, and they seemed to get worse and worse through 2009 and early 2010. The difficulty was simple: Before the iPhone, no one had built a pocket computer that could not only surf the Internet but stream video. That meant AT&T’s projections for data traffic were way off the mark.
The solution, on the other hand, was complex. It was going to take two or three years and nearly $50 billion for AT&T to upgrade its network to handle all the new traffic. That isn’t a satisfactory explanation to consumers locked into two-year contracts and paying at least $100 a month for service. Few could have handled it well, and AT&T and Apple handled it less than well. Apple blamed all the problems on AT&T even though the iPhone itself was the source of some connection problems. Apple refused to modify the way the iPhone consumed data even though that might have helped matters. Meanwhile, AT&T — at least initially — responded defensively rather than proactively. By the end of 2009 Verizon was pummeling AT&T with a series of “map” ads, claiming that AT&T’s spotty 3G network was to blame for poor service. AT&T customers began posting news of dropped calls on the Twitter hashtag #ATTFAIL. AT&T made this debacle worse by suing Verizon rather than parrying with their own advertisements.
By 2010 many consumers in the United States were buying Android phones just so they didn’t have to have AT&T as a carrier. Jobs had been leaning on AT&T executives to speed up its network upgrades since the iPhone had launched in 2007. But he had limited leverage until the start of 2011, when the exclusivity period with AT&T expired and Verizon could also offer the iPhone. He’d considered dropping AT&T and switching to Verizon more than half a dozen times, but concluded the move was too risky. It would have required redesigning the iPhone, because Verizon phones used bigger cell radios than AT&T phones, and there was no additional room in the iPhone case. Verizon cell radios were well known to be battery hogs. Lastly, it wasn’t clear at the problem’s peak in 2009 that Verizon would be able to handle the iPhone traffic any better. “There were plenty of conversations along the lines of ‘Why are we sticking ourselves with this boat anchor [AT&T],’ ” Bob Borchers said. “But every time we had that conversation, it always came down to the fact that the technology challenges were too high to warrant doing the work.”
Jobs did little to hide his fury at all these problems in 2010. He was so vocal that by the fall he was starting to sound defensive, petulant, and pedantic. By then he was not only trashing Android as bad for consumers but publicly questioning the veracity of Google’s sales and activation numbers. It wasn’t just that he felt Google had stabbed him in the back or that maybe he was embarrassed for having misjudged Android’s appeal. He felt that if Android wasn’t stopped, the future of Apple itself was in peril, he told executives. One executive who heard Jobs talk about the issue described Jobs’s feelings this way: “It [Android] was an existential threat. Apple’s business depended on it selling its devices for a lot more than it cost to make them, and then using that money to develop new products. Android’s approach was completely the opposite of this. Google was about growing the platform, without regard to the cost or profit on the devices. It made money off advertising, not hardware.”
In Jobs’s opinion the two approaches could not coexist. Jobs had launched the iPhone in 2007 thinking he’d not only created a beautiful, revolutionary device, but that he was leveraging the dominant content platform in the world, iTunes. Because of the iPod — which by 2007 had sold more than 100 million units — virtually everyone with a computer managed and purchased their music through that software. There was little incentive to use any portable music player other than an iPod, with huge incentives for families to buy more than one. Apple had three different iPod models that came in a variety of colors and capacities. And Apple made sure it was a pain to use competing hardware or software. The only easy way to get music onto an iPod was through iTunes. The best music selection was in the iTunes store, if you didn’t want to rip from your own CDs. And many non-Apple devices wouldn’t connect to iTunes and wouldn’t play all songs purchased through the store.
The iPod-iTunes symbiosis was a powerful thing to behold. Like Microsoft Windows in the 1990s, it was self-reinforcing and in 2007 seemed to be an unassailable fortress. Apple effectively had a monopoly in music players — in excess of 70 percent market share — because of it. Everyone at Apple knew the dynamics of the global cell phone market were different from those driving music players. It was many times larger, and it was dominated by some of the biggest corporations in the world.
But when iPhone sales took off, it was hard for Jobs and the rest of Apple not to wonder if history was repeating itself — if the iPhone wouldn’t quickly become just as dominant as the iPod. For years Apple had worried about every potential competitor in the marketplace — RIM, Nokia, Walmart, Amazon, Dell, Microsoft, and various wireless carriers — breaking the iPod’s dominance. Instead, the reverse had happened. Every competitor made a run at Apple and failed. Meanwhile, the iPhone made Apple even more dominant. It had tied consumers to the iPod by sucking all their music into iTunes. Now something similar was happening because of iPhone owners’ love affair with the app store. Before long, many users had shelled out $50 to $100 in apps, meaning they would have to spend all that money again if they wanted the same applications on Android or another smartphone platform.
But by 2010 it was also clear that Rubin and Android were playing a much more sophisticated game than Apple’s previous competitors. To them the hub wasn’t the laptop or the desktop computer, but the millions of faceless machines running 24-7 in Google’s giant network of server farms—now often referred to as the cloud. Connecting and syncing with a personal computer — the way iTunes was set up — was necessary when devices didn’t have wireless capability or when wireless bandwidth was too slow to be useful. But in 2010 neither was true, prompting Rubin and the Android team to ask, Why tether users to one machine when the Wi-Fi and cellular chips inside smartphones are fast enough to let them have access to their content on any machine? Android now wirelessly synced with virtually all mail, contact, and calendar servers — whether stored at Google, Microsoft, or Yahoo, or at a worker’s company. Music and movies could be downloaded from Amazon in addition to the iTunes store. Spotify and Pandora offered music subscription services for small monthly fees. Developers were scrambling to make sure that all of the programs inside the Apple app store could be found inside the Android app store too. As for all that content trapped inside iTunes, Google and the rest of the software industry were writing programs that made it easier and easier to get it out and uploaded to Google — or anywhere. With many new ways to download and enjoy content on Android devices, the penalty for using a non-Apple device that wouldn’t connect to iTunes was diminished. Freed from this control, users were choosing Android devices in droves, and Jobs was desperately worried this trend would accelerate, Apple executives at the time recalled. The monopoly power of iTunes as a content hub had begun to evaporate.
It all exposed an often overlooked component of Jobs’s genius: his basic worldview about technology had not changed since he started Apple in 1976 and built the Macintosh in 1984. While most high-tech executives struggled to adapt to a world that was in constant flux, Jobs had never faltered in his belief that consumers would gravitate to the best designed and most beautiful products. He continued to believe that he alone knew what this incredibly subjective thing was. And he continued to believe that the only way to ensure his vision’s success was to control the entire user experience — the software, the hardware, and the content users accessed. But Android’s rise was now calling all that into question.
Copyright © 2013 by Fred Vogelstein. All rights reserved.
PHOTO: Peter Chou, CEO of HTC, Andy Rubin, vice president of engineering for Google, and Mario Quieroz, vice president of product management for Google, (L-R) attend a question and answer period after the unveiling of the Nexus One smartphone, the first mobile phone the internet company will sell directly to consumers, during a news conference at Google headquarters in Mountain View, California January 5, 2010. REUTERS/Robert Galbraith