Steve_Jobs_The_Exclusive_Biography

anywhere. “Sony’s never going to figure things out,” he told Morris. They agreed to quit dealing with Sony and join with Apple instead. “How Sony missed this is completely mind-boggling to me, a historic fuckup,” Iovine said. “Steve would fire people if the divisions didn’t work together, but Sony’s divisions were at war with one another.”

Indeed Sony provided a clear counterexample to Apple. It had a consumer electronics division that made sleek products and a music division with beloved artists (including Bob Dylan). But because each division tried to protect its own interests, the company as a whole never got its act together to produce an end-to-end service.

Andy Lack, the new head of Sony music, had the unenviable task of negotiating with Jobs about whether Sony would sell its music in the iTunes Store. The irrepressible and savvy Lack had just come from a distinguished career in television journalism—a producer at CBS News and president of NBC—and he knew how to size people up and keep his sense of humor. He realized that, for Sony, selling its songs in the iTunes Store was both insane and necessary— which seemed to be the case with a lot of decisions in the music business. Apple would make out like a bandit, not just from its cut on song sales, but from driving the sale of iPods. Lack believed that since the music companies would be responsible for the success of the iPod, they should get a royalty from each device sold.

Jobs would agree with Lack in many of their conversations and claim that he wanted to be a true partner with the music companies. “Steve, you’ve got me if you just give me something for every sale of your device,” Lack told him in his booming voice. “It’s a beautiful device. But our music is helping to sell it.

That’s what true partnership means to me.”

“I’m with you,” Jobs replied on more than one occasion. But then he would go to Doug Morris and Roger Ames to lament, in a conspiratorial fashion, that Lack just didn’t get it, that he was clueless about the music business, that he wasn’t as smart as Morris and Ames. “In classic Steve fashion, he would agree to something, but it would never happen,” said Lack. “He would set you up and then pull it off the table. He’s pathological, which can be useful in negotiations. And he’s a genius.”

Lack knew that he could not win his case unless he got support from others in the industry. But Jobs used flattery and the lure of Apple’s marketing clout to keep the other record labels in line. “If the industry had stood together, we could have gotten a license fee, giving us the dual revenue stream we desperately needed,” Lack said. “We were the ones making the iPod sell, so it would have been equitable.” That, of course, was one of the beauties of Jobs’s end-to-end strategy: Sales of songs on iTunes would drive iPod sales, which would drive Macintosh sales. What made it all the more infuriating to Lack was that Sony could have done the same, but it never could get its hardware and software and content divisions to row in unison.

Jobs tried hard to seduce Lack. During one visit to New York, he invited Lack to his penthouse at the Four Seasons hotel. Jobs had already ordered a breakfast spread—oatmeal and berries for them both—and was “beyond solicitous,” Lack recalled. “But Jack Welch taught me not to fall in love. Morris and Ames could be seduced. They would say, ‘You don’t get it, you’re supposed to fall in love,’ and they did. So I ended up isolated in the industry.”

Even after Sony agreed to sell its music in the iTunes Store, the relationship remained contentious.

Each new round of renewals or changes would bring a showdown. “With Andy, it was mostly about his big ego,” Jobs claimed. “He never really understood the music business, and he could never really deliver. I thought he was sometimes a dick.” When I told him what Jobs said, Lack responded, “I fought for Sony and the music industry, so I can see why he thought I was a dick.”

Corralling the record labels to go along with the iTunes plan was not enough, however. Many of their artists had carve-outs in their contracts that allowed them personally to control the digital distribution of their music or prevent their songs from being unbundled from their albums and sold singly. So Jobs set about cajoling various top musicians, which he found fun but also a lot harder than he expected.

Before the launch of iTunes, Jobs met with almost two dozen major artists, including Bono, Mick Jagger, and Sheryl Crow. “He would call me at home, relentless, at ten at night, to say he still needed to get to Led Zeppelin or Madonna,” Ames recalled. “He was determined, and nobody else could have convinced some of these artists.”

Perhaps the oddest meeting was when Dr. Dre came to visit Jobs at Apple headquarters. Jobs loved the Beatles and Dylan, but he admitted that the appeal of rap eluded him. Now Jobs needed Eminem and other rappers to agree to be sold in the iTunes Store, so he huddled with Dr. Dre, who was Eminem’s mentor. After Jobs showed him the seamless way the iTunes Store would work with the iPod, Dr. Dre proclaimed, “Man, somebody finally got it right.”

On the other end of the musical taste spectrum was the trumpeter Wynton Marsalis. He was on a West Coast fund-raising tour for Jazz at Lincoln Center and was meeting with Jobs’s wife, Laurene. Jobs insisted

that he come over to the house in Palo Alto, and he proceeded to show off iTunes. “What do you want to search for?” he asked Marsalis. Beethoven, the trumpeter replied. “Watch what it can do!” Jobs kept insisting when Marsalis’s attention would wander. “See how the interface works.” Marsalis later recalled, “I don’t care much about computers, and kept telling him so, but he goes on for two hours. He was a man possessed. After a while, I started looking at him and not the computer, because I was so fascinated with his passion.”

Jobs unveiled the iTunes Store on April 28, 2003, at San Francisco’s Moscone Center. With hair now closely cropped and receding, and a studied unshaven look, Jobs paced the stage and described how Napster “demonstrated that the Internet was made for music delivery.” Its offspring, such as Kazaa, he said, offered songs for free. How do you compete with that? To answer that question, he began by describing the downsides of using these free services. The downloads were unreliable and the quality was often bad. “A lot of these songs are encoded by seven-year-olds, and they don’t do a great job.” In addition, there were no previews or album art. Then he added, “Worst of all it’s stealing. It’s best not to mess with karma.”

Why had these piracy sites proliferated, then? Because, Jobs said, there was no alternative. The subscription services, such as Pressplay and MusicNet, “treat you like a criminal,” he said, showing a slide of an inmate in striped prison garb. Then a slide of Bob Dylan came on the screen. “People want to own the music they love.”

After a lot of negotiating with the record companies, he said, “they were willing to do something with us to change the world.” The iTunes Store would start with 200,000 tracks, and it would grow each day.

By using the store, he said, you can own your songs, burn them on CDs, be assured of the download quality, get a preview of a song before you download it, and use it with your iMovies and iDVDs to “make the soundtrack of your life.” The price? Just 99 cents, he said, less than a third of what a Starbucks latte cost. Why was it worth it? Because to get the right song from Kazaa took about fifteen minutes, rather than a minute. By spending an hour of your time to save about four dollars, he calculated, “you’re working for under the minimum wage!” And one more thing . . . “With iTunes, it’s not stealing anymore. It’s good karma.”

Clapping the loudest for that line were the heads of the record labels in the front row, including Doug Morris sitting next to Jimmy Iovine, in his usual baseball cap, and the whole crowd from Warner Music. Eddy Cue, who was in charge of the store, predicted that Apple would sell a million songs in six months. Instead the iTunes Store sold a million songs in six days. “This will go down in history as a turning point for the music industry,” Jobs declared.

Microsoft

“We were smoked.”

That was the blunt email sent to four colleagues by Jim Allchin, the Microsoft executive in charge of Windows development, at 5 p.m. the day he saw the iTunes Store. It had only one other line: “How did they get the music companies to go along?”

Later that evening a reply came from David Cole, who was running Microsoft’s online business group. “When Apple brings this to Windows (I assume they won’t make the mistake of not bringing it to Windows), we will really be smoked.” He said that the Windows team needed “to bring this kind of solution to market,” adding, “That will require focus and goal alignment around an end-to-end service which delivers direct user

value, something we don’t have today.” Even though Microsoft had its own Internet service (MSN), it was not used to providing end-to-end service the way Apple was.

Bill Gates himself weighed in at 10:46 that night. His subject line, “Apple’s Jobs again,” indicated his frustration. “Steve Jobs’s ability to focus in on a few things that count, get people who get user interface right, and market things as revolutionary are amazing things,” he said. He too expressed surprise that Jobs had been able to convince the music companies to go along with his store. “This is very strange to me. The music companies’ own operations offer a service that is truly unfriendly to the user. Somehow they decide to give Apple the ability to do something pretty good.”

Gates also found it strange that no one else had created a service that allowed people to buy songs rather than subscribe on a monthly basis. “I am not saying this strangeness means we messed up—at least if we did, so did Real and Pressplay and MusicNet and basically everyone else,” he wrote. “Now that Jobs has done it we need to move fast to get something where the user interface and Rights are as good. . . . I think we need some plan to prove that, even though Jobs has us a bit flat footed again, we can move quick and both match and do stuff better.” It was an astonishing private admission: Microsoft had again been caught flat-footed, and it would again try to catch up by copying Apple. But like Sony, Microsoft could never make it happen, even after Jobs showed the way.

Instead Apple continued to smoke Microsoft in the way that Cole had predicted: It ported the iTunes software and store to Windows. But that took some internal agonizing. First, Jobs and his team had to decide whether they wanted the iPod to work with Windows computers. Jobs was initially opposed. “By

keeping the iPod for Mac only, it was driving the sales of Macs even more than we expected,” he recalled. But lined up against him were all four of his top executives: Schiller, Rubinstein, Robbin, and Fadell. It was an argument about what the future of Apple should be. “We felt we should be in the music player business, not just in the Mac business,” said Schiller.

Jobs always wanted Apple to create its own unified utopia, a magical walled garden where hardware and software and peripheral devices worked well together to create a great experience, and where the success of one product drove sales of all the companions. Now he was facing pressure to have his hottest new product work with Windows machines, and it went against his nature. “It was a really big argument for months,” Jobs recalled, “me against everyone else.” At one point he declared that Windows users would get to use iPods “over my dead body.” But still his team kept pushing. “This needs to get to the PC,” said Fadell.

Finally Jobs declared, “Until you can prove to me that it will make business sense, I’m not going to do it.” That was actually his way of backing down. If you put aside emotion and dogma, it was easy to prove that it made business sense to allow Windows users to buy iPods. Experts were called in, sales scenarios developed, and everyone concluded this would bring in more profits. “We developed a spreadsheet,” said Schiller. “Under all scenarios, there was no amount of cannibalization of Mac sales that would outweigh the sales of iPods.” Jobs was sometimes willing to surrender, despite his reputation, but he never won any awards for gracious concession speeches. “Screw it,” he said at one meeting where they showed him the analysis. “I’m sick of listening to you assholes. Go do whatever the hell you want.”

That left another question: When Apple allowed

the iPod to be compatible with Windows machines, should it also create a version of iTunes to serve as the music-management software for those Windows users? As usual, Jobs believed the hardware and software should go together: The user experience depended on the iPod working in complete sync (so to speak) with iTunes software on the computer. Schiller was opposed. “I thought that was crazy, since we don’t make Windows software,” Schiller recalled. “But Steve kept arguing, ‘If we’re going to do it, we should do it right.’”

Schiller prevailed at first. Apple decided to allow the iPod to work with Windows by using software from MusicMatch, an outside company. But the software was so clunky that it proved Jobs’s point, and Apple embarked on a fast-track effort to produce iTunes for Windows. Jobs recalled:

To make the iPod work on PCs, we initially partnered with another company that had a jukebox, gave them the secret sauce to connect to the iPod, and they did a crappy job. That was the worst of all worlds, because this other company was controlling a big piece of the user experience. So we lived with this crappy outside jukebox for about six months, and then we finally got iTunes written for Windows. In the end, you just don’t want someone else to control a big part of the user experience. People may disagree with me, but I am pretty consistent about that.

Porting iTunes to Windows meant going back to all of the music companies—which had made deals to be in iTunes based on the assurance that it would be for only the small universe of Macintosh users—and negotiate again. Sony was especially resistant. Andy Lack thought it another example of Jobs changing the terms after a deal was done. It was. But by then the other labels were happy about how the iTunes Store was working and went along, so Sony was forced to

capitulate.

Jobs announced the launch of iTunes for Windows in October 2003. “Here’s a feature that people thought we’d never add until this happened,” he said, waving his hand at the giant screen behind him. “Hell froze over,” proclaimed the slide. The show included iChat appearances and videos from Mick Jagger, Dr. Dre, and Bono. “It’s a very cool thing for musicians and music,” Bono said of the iPod and iTunes. “That’s why I’m here to kiss the corporate ass. I don’t kiss everybody’s.”

Jobs was never prone to understatement. To the cheers of the crowd, he declared, “iTunes for Windows is probably the best Windows app ever written.”

Microsoft was not grateful. “They’re pursuing the same strategy that they pursued in the PC business, controlling both the hardware and software,” Bill Gates told Business Week. “We’ve always done things a little bit differently than Apple in terms of giving people choice.” It was not until three years later, in November 2006, that Microsoft was finally able to release its own answer to the iPod. It was called the Zune, and it looked like an iPod, though a bit clunkier. Two years later it had achieved a market share of less than 5%. Jobs was brutal about the cause of the Zune’s uninspired design and market weakness:

The older I get, the more I see how much motivations matter. The Zune was crappy because the people at Microsoft don’t really love music or art the way we do. We won because we personally love music. We made the iPod for ourselves, and when you’re doing something for yourself, or your best friend or family, you’re not going to cheese out. If you don’t love something, you’re not going to go the extra mile, work the extra weekend, challenge the status quo as much.

Mr. Tambourine Man

Andy Lack’s first annual meeting at Sony was in April 2003, the same week that Apple launched the iTunes Store. He had been made head of the music division four months earlier, and had spent much of that time negotiating with Jobs. In fact he arrived in Tokyo directly from Cupertino, carrying the latest version of the iPod and a description of the iTunes Store. In front of the two hundred managers gathered, he pulled the iPod out of his pocket. “Here it is,” he said as CEO Nobuyuki Idei and Sony’s North America head Howard Stringer looked on. “Here’s the Walkman killer. There’s no mystery meat. The reason you bought a music company is so that you could be the one to make a device like this. You can do better.”

But Sony couldn’t. It had pioneered portable music with the Walkman, it had a great record company, and it had a long history of making beautiful consumer devices. It had all of the assets to compete with Jobs’s strategy of integration of hardware, software, devices, and content sales. Why did it fail? Partly because it was a company, like AOL Time Warner, that was organized into divisions (that word itself was ominous) with their own bottom lines; the goal of achieving synergy in such companies by prodding the divisions to work together was usually elusive.

Jobs did not organize Apple into semiautonomous divisions; he closely controlled all of his teams and pushed them to work as one cohesive and flexible company, with one profit-and-loss bottom line. “We don’t have ‘divisions’ with their own P&L,” said Tim Cook. “We run one P&L for the company.”

In addition, like many companies, Sony worried about cannibalization. If it built a music player and service that made it easy for people to share digital songs, that might hurt sales of its record division. One of Jobs’s business rules was to never be afraid of