The Real iPhone 1.0

The Monday Note covers the intersection between media and technology and the shift of business models. It is jointly edited by Frédéric Filloux, a Paris-based journalist and Jean-Louis Gassée, a Silicon Valley veteran currently general partner for the venture capital firm Allegis Capital in Palo Alto. Their column appears on CBS News.com each Monday.

Saint Peter offers a choice of hells to a recently dematerialized high-tech tycoon (pick your favorite sinner) with a long list of transgressions. The basic one, fire, floggings, and the premium one, plenty of music, drink, food and other pleasures of the flesh. Said tycoon picks the fun venue, Saint Peter pulls a lever, the industrialist falls to the one and only fiery hell. Agitated, feeling cheated, the sinner demands to know about the other hell, the eternal party.

Saint Peter: It's a demo!

The joke comes to mind as I watch Steve Jobs introduce the iPhone on stage at San Francisco's MacWorld Expo, on January 9th, 2007. It is too good to be true, especially the part about running OS X. The demo looks magical, as with most of Steve's acts. The iPhone looks like one shocking product. But is it real? Nothing specifically aimed at the demonstrator, I've seen - and given - too many demos, it's a sinner speaking.

Six months later, I'm relieved. The first iPhones ship, enterprising programmers manage to inspect the firmware's insides and, yes, it is OS X. A trimmed-down version, of course, but the core of the iPhone's software engine is the genuine article.

But it's not all roses. The iPhone misses obvious features such as Cut-and-Paste, accented characters; the browser crashes; there are no third-party applications; the connection to Microsoft Exchange is problematic, and so on.

OS X is modified to run on a slower 400 MHz ARM processor, compare with the 2GHz Intel CPU in a low-end Mac, 256Mb of RAM, vs. at least 1Gb on any PC - the result feels shoehorned. Having worked inside a couple of sausage factories in earlier lives, I imagine the engineers' frantic weeks before the June 30th ship date. (Actually, Apple lore says the most frenzied days happened around Christmas 2006, right before the January 2007 MacWorld announcement. The peak of tension took place backstage, during Steve's demo: the individuals most involved with what went into the sausage had the hardest of times.)

But, if the iPhone missed so many "must-have" features, how come it sold so well so quickly?

That's an interesting question and reasonable answer(s) could explain why so many industry pundits and competitors misjudged the iPhone phenomenon. (Obviously, I'm guilty of another sin, here: predicting yesterday's weather. And to add to my rap sheet, I once thought Apple was wrong coming out with "another" MP3 player and I initially dismissed the Apple stores as a bad move: you don't compete with your retailers. I now thoroughly enjoy both "mistakes"…)

First possible answer: marketing hype. Yes, the power of Steve's Reality Distortion Field is legendary, and rightly so. It worked on AT&T's CEO: he signed on the iPhone deal without ever seeing a prototype. We're grateful for that feat, for Apple controlling their newborn's future instead of letting the carrier decide, with the well-known freedom-enhancing results.

But you can't fool consumers for long, ask Detroit. Word-of-mouth is still the most powerful promotion tool for consumer products. All the publicity around the iPhone's launch wouldn't prevent unhappy iPhone users from going on Internet forums and blogs and telling everyone they'd been had. Instead, early iPhone adopters raved. Which leads us to another possibility or two.

One such solution is iTunes, the component I didn't see at first when I only focused on the iPod as a device, as opposed to a part of a system, all right, an ecosystem as the 5 billion songs, podcasts and videos have proved. The proverbial light bulb went off when I took my first iPhone home in July 2007. First, the activation worked through iTunes, not perfectly, it took a couple of attempts, but activating a phone without the phone carrier's "store experience" was a novel pleasure. Even more important, iTunes provided a truly seamless backup and software update experience, the power and quality of which is still unparalleled. While I felt the iPhone was a glorious hack, I also pictured how Apple would provide fixes and upgrades. We know what happened. None of the other smartphones I've owned (or still own) provide their customers with such a path out of trouble and into new features. (We'll see if such an advantage lasts, I haven't been able to buy a Palm Pre yet. I suspect reproducing the whole iTunes ecosystem won't be so easy. But, sometimes, good enough is great.)

Another factor was/is the browsing experience. There was mobile browsing before the iPhone, annoying, crippled and there was, for the first time, a device that rendered most Web pages, with a touch interface for scrolling, panning and zooming.

Which leads us to the general factor of style and user interface. No hack, no shoehorning there, the iPhone looked like a finished product, another one from the maker of well-loved iPods. Jobs actually introduced the iPhone as the iPod of phones, it looked exactly like that, slick, minimalist and yet highly functional.

Enough, we get the point: the pluses overwhelm the minuses. And the march of fixes and updates starts, proving the early adopters right and yielding the highest rates in consumer satisfaction surveys.

Regarding third party applications, at launch time, the official line is: Web 2.0 apps, they're grrrreat! Everything in the cloud, that's the way of the future. You don't need "native" apps, programs running on the iPhone. There isn't and won't be an iPhone SDK (Software Development Kit). Behind the propagandastaffel's raised chins and stiff upper lips there was a reality: the iPhone was "in progress", that is not quite finished. A gloriously loved, highly successful hack, but a hack nonetheless. Which is no criticism, au contraire, it is high praise for the high-wire act.

Come November 2007, never mind what we said about Web 2.0 apps, behold the iPhone SDK, shipping next February. Perhaps Google's Android helped, it was coming with both Cloud and native apps, perhaps it was planned all along, but not a word of the App Store, yet.

Another death march starts: the first milestone is the initial release of the SDK, the end goal being a major OS release to support the native apps written using the SDK.

Early March 2008, the SDK ships and Apple reveals the App Store, a simple but profound iTunes extension. Consider this: a song is a string of zeroes and ones, it lands in a directory (a place) inside the iPhone which knows what to do with strings at that location; a native app is merely another binary string, the difference from a song is the place, the directory where it lands telling the system what to do with it. (A slight oversimplification.) For iTunes, that's it, the infrastructure is there already, nothing new to build in order to download, charge for and update the new native apps. For its services, Apple charges a mere 30% of the app price.

Programmers love it, especially Mac programmers as the SDK, incomplete as it is in its early release, is very Mac-like, powerful, flexible. But what really takes the cake is the App store, a simple, affordable sales an marketing channel with a fullu-debugged technical and micro-payment machine.
In July 2008, Apple introduces a new iPhone running on the "even faster" AT&T 3G wireless network and the new OS, the iTunes App Store and the MobileMe service. The markitecture name for the new iPhone OS is 2.0, in reality it's more like 0.8 as basic features such as Copy/Paste are absent and MobileMe, initially touted as Exchange for The Rest of Us, needs more work.

Again, not a problem, the release of the App Store and a torrent of new native apps overwhelm shortcomings, and rightly so. Suddenly, "veteran" competitors such as Windows Mobile or Symbian look old. RIM, the maker of the Blackberry, keeps doing well because its product is so well implemented for its enterprise customers, for its mail/calendar/contacts use, for its unbeaten integration and synch with Exchange. On this very set of features, the iPhone makes substantial progress but the Blackberry remains the reigning champion.

Months go by, the App Store surprises everyone, Apple included, reaching one billion downloads in the Spring of 2009. Behind the scenes, fixes and improvements are added to the iPhone OS, MobileMe becomes nicely functional, providing a good way for happy iPhone users to synch their mail/calendar/contacts if they don't use Exchange.

On a personal note, I witness an amusing example of Microsoft's changing (waning) competitive advantage. Our firm decides to update its Exchange server to the "2007" version. (I failed to convince my partners to get a hosted Exchange server instead of boxes in our office…)

Everything stops working at once: Blackberries, Outlook and Entourage (Microsoft's lame version of Outlook for Macs). Everything but my iPhone. It kept syncing my Exchange mail, contacts and calendar, untroubled through the transition, the only device not running Microsoft bits. For Entourage, the solution was provided by the tech support people at Intermedia.net where I host the Gassée family Exchange server: delete your Exchange account on Entourage and recreate the exact same one. Indeed, everything reloads after a while, about one hour to repopulate the local cache, and works without further ado. Why just zap and recreate the account? We don't know but it works…

In the meantime, the first Android phone ships, I buy one and, as reported here, find it interesting but not ready for big time. We'll hear more from Android as Google isn't devoid of money, imagination, good engineers and a strong motivation to promote its services on mobile devices without being beholden to a maker or carrier.

Finally, almost, Apple announces a new version of the OS, called 3.0, one that provides the last missing pieces. If you're really, really into details, iPhone User Guide (not affiliated with Apple) provides a compilation of the more than 100 improvements found in the new version.
From landscape email composition to searching the contents of the entire iPhone, locating or even zapping the contents of a lost phone, nice details all over, including a surprisingly well done Cut-and-Paste. Surprising because the touch interface, combined with big fingers presents challenges to a fine-grained definition of what to copy from a Web page with tiny characters. Yet, it works well, makes the user feel competent.

That is why I call the latest release 1.0, the complete one, with a tip of the hat to the engineers who, in less than two years, moved the OS from a painfully trimmed down port of OS X to a tiny ARM platform, creating a polished new user interface in the process. And giving birth to a new applications ecosystem, an unforeseen outgrowth of the iTunes platform. Understandably, the advent of the "finished" (as if software were ever so) iPhone OS, combined with a new, more capable iPhone, isn't viewed as momentous as last year's introduction of the App Store.

But, in my opinion, now is when things start getting even more interesting. With the "1.0" work now done, Apple is no longer catching up with a promise, plugging holes in the product. It will be fun to watch where the company now directs its engineering efforts: hardware variants, probably, although we shouldn't hold out for a clamshell iPhone with a hardware keyboard; other carriers, more likely; a second video camera for mobile conferencing, we can hope; a bigger screen a.k.a a tablet, perhaps; but, unlike the iPod family, no iPhone nano, I don't quite see fat fingers on a smaller screen making users drool.

Lastly, we hear more good news: Steve Jobs is indeed coming back.

By Jean-Louis Gassée and Frederic Filloux
Special to CBSNews.com