Will Apple's chief executive unveil a tablet Mac or an 'iPhone' at Macworld next week? Former sales boss David Sobotta describes the meeting which explained key thinking
Thursday January 4, 2007
Next week, Steve Jobs will stand on stage in San Francisco to make his keynote speech at the Macworld show, to unveil new - much-rumoured - products. Here's something I discovered in my 22 years at Apple: some of the toughest competition for the best seats, or the first of those new products, comes from former Windows-centric executives who Steve has personally sucked into his "reality distortion zone" in face-to-face executive briefings.
You want to go to one? You want to meet Steve Jobs to persuade him that Apple should build a tablet computer, or an iPhone? Then besides having a big purchasing budget and persuasive reasons, you'd better bring a big ego.
In the spring of 2002, I had been at Apple for nearly 20 years and had risen through the ranks to become its national federal sales manager. I joined a delegation from the prestigious National Institutes of Health, the pre-eminent US federal agency for medical research, for an "executive briefing" at Apple's Cupertino headquarters with Steve Jobs. Most people haven't heard of NIH; but its 2007 budget will be around $28.6bn (£14.6bn). NIH also happens to be one of Apple's premier scientific customers.
Nine key NIH people attended the meeting, including its two highest-ranking technology officers. Setting up an executive briefing at Apple is a bizarre process that takes a couple of months; if you also want Steve to grace the briefing, add another six weeks to run a formal request up the chain of command, including just about every detail but the DNA of the people who want to meet him.
With luck, and if Steve happens to be in town, you will get the commitment that unless something else turns up, he will drop by and stay as long as he feels necessary.
Once you have your ironclad guarantee that Steve might come by, the management chain starts telling horror stories about how the best thing is for Steve not to come. That if he does come, he'll talk about whatever he has immersed himself in recently, whether it is iTunes or Garageband. That whatever Steve has to say might or might not have anything to do with what the customer wants to hear. For a salesman, that's disconcerting; your customers normally only come to these executive briefings to understand where Apple executives stand on key issues. And they're customers, aren't they? They're the ones who pay for it all, the ones who are always right?
Yet it's an amazing experience to take part in a briefing with Steve. Stories about him reprimanding customers are true. Once, when renegotiating a Pixar distribution deal with Disney, he humiliated Disney's chief information officer in front of his staff. Steve pointed to a couple of recent Disney flops, and told the attendees that they could expect more of the same as long as the CIO was stupid enough to keep Macs out of the creative process.
An executive briefing always looks, on paper, like a clash of titanic egos. From what I saw, most wilt quickly in Steve's presence. And customers' reverence for him usually overwhelms any hostility.
In fact, it doesn't really matter who is presenting or what is being discussed. When Steve enters a room, everything stops and attention turns to him. When he walks in you get the feeling that he has sucked all the other thoughts out of the room. As for quoting him precisely - you don't take notes if you want to live. (At Apple's most recent sales briefing, nobody was allowed to have a notebook, phone or computer out while Steve spoke.)
I've checked these recollections with an NIH attendee. Steve did show up wearing shorts, sandals and a few days' stubble. Everyone else was in east coast business casual - sports coats and khaki pants. He also brought his brilliance but not, that day, the arrogance you often hear about.
The NIH delegation wanted to know whether Apple would build a tablet computer that would work in their clinical situation. Actually, more than that: they wanted to convince Steve to make a tablet. After all, Bill Gates had launched one the year before at CES in January, boldly saying "within five years, I predict that it will be the most popular form of PC sold in America". Tablets were the future - weren't they? Not like those music players that Apple had launched the previous October. Pod-somethings?
But as Apple's then vice-president of hardware, Jon Rubenstein, once told me: "Customers do not know what they want to buy. We have to tell them." Steve had not been forewarned about the tablet question, but it became obvious he had given the topic serious consideration. He listed a number of reasons why Apple was not interested. And they provide some of the best insights into why Apple does or does not do a product.
The tablet situation
First, he said, tablet computers were not a big enough market for Apple to spend its limited resources chasing. And even if the market grew, it would not reach a size to be of interest. The form factor was all wrong. Apple was more interested in defining markets than trying to catch other companies that were busy trying to create a market for questionable products. Still, some of the NIH scientists pressed the issue. Steve's follow-up answer was the most impressive I had heard him give.
First, he said, the wireless bandwidth for huge images, plus the security needed to successfully do what NIH wanted, was just not on the horizon. (Apple staff had been notably fuzzy earlier in the briefing about wireless standards after 802.11b.) Plus, tablets' screen resolution was nowhere near that required for NIH's high-quality medical images. Finally, any product designed to work in the medical field would attract significant liability. The hint was that Apple wasn't interested in anything with that kind of potential liability. That pretty well shut down the issue.
So, no tablet. But NIH at the time had more than 2,000 BlackBerry users. The NIH CIO wanted Apple to push RIM for better compatibility. Tough: Steve basically said it was another niche product, and that while there would be convergence of computing and phones, the BlackBerry was not that product. He did not see that compatibility as an area where Apple should spend any effort. So what will the converged product - what is being called the "iPhone" (even though that's a Cisco trademark) - look like? He said the really converged, ubiquitous devices would have to fit in your shirt pocket, and be better than either a phone or a computer by itself.
That was 2002. But let's examine the rumours that Apple will next week unveil a tablet computer or iPhone in light of Steve's comments that day.
The market for a converged computer and phone should be very attractive: Gartner forecast last year that 986m mobiles would be sold in 2006. And there's an "Apple gap": mobile phone users often find their interfaces confusing, even within the same brands. Apple's unique ability to simplify while innovating looks like a good fit there. Plus Apple's deal with Samsung means it is well placed for anything that needs lots of flash memory. It has played around with unique relationships with phone manufacturers: Jobs used a Sony Ericsson phone to demonstrate Bluetooth capability in July 2002, and showed off the Motorola ROKR, the first to play iTunes, in 2005. This fits Apple's pattern of learning what it needs to know through partnership before jumping into a market. Significantly, the first Powerbooks, in 1991, involved Sony. Now the companies' laptops compete, although Sony still makes the batteries. Logically, Apple will make its own phone if it is holding true to pattern.
But a tablet computer? Most analysts would agree the market is growing only slowly, mostly in the healthcare and other specialised industries, and that these models will make at most 5% of the laptop market by 2009 (they account for 1% now). Even Dell doesn't make its own tablet. Furthermore, the tablet was championed by Bill Gates. I don't see Steve stepping up to the plate to help Bill's reputation as a forecaster of computer trends.
I believe there are other reasons why Apple won't make a tablet computer. Even before the iPod gained momentum, Apple executives had a theory that the route to success will not be through selling thousands of relatively expensive things, but millions of very inexpensive things like iPods; and not necessarily computers. Tablet computers remain expensive. Yet the mobile phone market is almost perfect for Apple strategy. There is no real market leader, and it's ripe for simplification. Plus it's worldwide, and engineers from the network operators would be available to do localisation.
Apple might even be able to do a Java-based phone platform which could integrate into current systems. With a focus on simple mail and contact integration with its online .Mac (mac.com) service, Apple could provide advantages for early adopters while making its .Mac service better value (because it isn't right now). Few non-technical people consider doing anything other than transferring numbers to their new mobiles by typing. On anything other than a Mac, the process is just too complex. Apple already knows how to make this easy. It just needs to convince people to buy an Apple phone and a Mac.
Also anti-tablet is Apple's sales force, which often spends so much of its time forecasting what it's going to sell in a given quarter there's precious little time left to actually sell anything. Right now they sell everything from iPods to Xserve RAIDs. However, an Apple phone wouldn't need a new sales force. The network operators' sales force could handle it - probably cutting Apple sales people out of any new commission revenue for phones, much as they have done for the iPod.
Even if Apple partners only with a single national carrier it will get an immediate, huge retail presence.
What about a more targeted tablet - perhaps to control all the devices in your home entertainment stable? Traditionally, Apple stays away from markets where it cannot define all of the standards, so I really don't think Steve will devote resources to make non-Apple stuff work together. Even the vertical markets like healthcare suffer from this problem: too many pieces in a very complex puzzle.
So next week, I'm sure we won't see any kind of tablet computer from Apple. I am 99% confident we will see an Apple phone, with enhanced music capabilities and maybe a few computing features such as email and contacts synchronisation with Macs or through .Mac.
Steve's ability to know where consumers and technology will intersect often creates a road paved in gold. That's why he'll focus his energy on mobiles. The potential there that only Steve can see could well turn into another must-have product for the legions who don't even know they are part of Steve's army. They haven't met him across a table. But they've met the products of his thinking.
· David Sobotta was formerly the federal sales manager at Apple. His blog is at viewfromthemountain.typepad.com/applepeels/