The App Store created a new industry overnight. In dorm rooms and garages and at major media companies, entrepreneurs invented new apps. John Doerr’s venture capital firm created an iFund of $200 million to offer equity financing for the best ideas. Magazines and newspapers that had been giving away their content for free saw one last chance to put the genie of that dubious business model back into the bottle. Innovative publishers created new magazines, books, and learning materials just for the iPad. For example, the high-end publishing house Callaway, which had produced books ranging from Madonna’s
The iPad and other app-based digital devices heralded a fundamental shift in the digital world. Back in the 1980s, going online usually meant dialing into a service like AOL, CompuServe, or Prodigy that charged fees for access to a carefully curated walled garden filled with content plus some exit gates that allowed braver users access to the Internet at large. The second phase, beginning in the early 1990s, was the advent of browsers that allowed everyone to freely surf the Internet using the hypertext transfer protocols of the World Wide Web, which linked billions of sites. Search engines arose so that people could easily find the websites they wanted. The release of the iPad portended a new model. Apps resembled the walled gardens of old. The creators could charge fees and offer more functions to the users who downloaded them. But the rise of apps also meant that the openness and linked nature of the web were sacrificed. Apps were not as easily linked or searchable. Because the iPad allowed the use of both apps and web browsing, it was not at war with the web model. But it did offer an alternative, for both the consumers and the creators of content.
With the iPod, Jobs had transformed the music business. With the iPad and its App Store, he began to transform all media, from publishing to journalism to television and movies.
Books were an obvious target, since Amazon’s Kindle had shown there was an appetite for electronic books. So Apple created an iBooks Store, which sold electronic books the way the iTunes Store sold songs. There was, however, a slight difference in the business model. For the iTunes Store, Jobs had insisted that all songs be sold at one inexpensive price, initially 99 cents. Amazon’s Jeff Bezos had tried to take a similar approach with ebooks, insisting on selling them for at most $9.99. Jobs came in and offered publishers what he had refused to offer record companies: They could set any price they wanted for their wares in the iBooks Store, and Apple would take 30%. Initially that meant prices were higher than on Amazon. Why would people pay Apple more? “That won’t be the case,” Jobs answered, when Walt Mossberg asked him that question at the iPad launch event. “The price will be the same.” He was right.
The day after the iPad launch, Jobs described to me his thinking on books:
Amazon screwed it up. It paid the wholesale price for some books, but started selling them below cost at $9.99. The publishers hated that—they thought it would trash their ability to sell hardcover books at $28. So before Apple even got on the scene, some booksellers were starting to withhold books from Amazon. So we told the publishers, “We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.” But we also asked for a guarantee that if anybody else is selling the books cheaper than we are, then we can sell them at the lower price too. So they went to Amazon and said, “You’re going to sign an agency contract or we’re not going to give you the books.”
Jobs acknowledged that he was trying to have it both ways when it came to music and books. He had refused to offer the music companies the agency model and allow them to set their own prices. Why? Because he didn’t have to. But with books he did. “We were not the first people in the books business,” he said. “Given the situation that existed, what was best for us was to do this akido move and end up with the agency model. And we pulled it off.”
Right after the iPad launch event, Jobs traveled to New York in February 2010 to meet with executives in the journalism business. In two days he saw Rupert Murdoch, his son James, and the management of their
Publishers, however, turned out to be leery of his lifeline. It meant that they would have to give 30% of their revenue to Apple, but that wasn’t the biggest problem. More important, the publishers feared that, under his system, they would no longer have a direct relationship with their subscribers; they wouldn’t have their email address and credit card number so they could bill them, communicate with them, and market new products to them. Instead Apple would own the customers, bill them, and have their information in its own database. And because of its privacy policy, Apple would not share this information unless a customer gave explicit permission to do so.
Jobs was particularly interested in striking a deal with the
During his New York trip, he went to dinner with fifty top
When one of the
Jobs also met privately with Arthur Sulzberger Jr. “He’s a nice guy, and he’s really proud of his new building, as he should be,” Jobs said later. “I talked to him about what I thought he ought to do, but then nothing happened.” It took a year, but in April 2011 the
At the Time-Life Building,
The bigger problem at Time Inc. was the same as the one at the
Jobs tried to negotiate personally with the CEO of Time Warner, Jeff Bewkes, a savvy pragmatist with a no- bullshit charm to him. They had dealt with each other a few years earlier over video rights for the iPod Touch;