Dogfight: How Apple and Google Went to War and Started a Revolution (27 page)

And they used that power to reward friends and punish enemies. When Facebook tried to negotiate too hard with Apple over its integration into iPhone iOS 5, Apple simply did a deal with Twitter. Facebook was much more compliant during the next round of negotiations. “They kept talking about how they’d been burned by Google over Maps, and how they were never going to let that happen again,” said someone involved in the discussions. Software developers may not like Apple’s brass-knuckled approach. They may not like watching Apple take 30 percent of their revenue for listing in the iTunes app store. But they also know that they make less money if they don’t. And together they have made
a lot
of money. By the end of 2011, even after Apple took its cut, developers had made more than $4 billion because of the iTunes app store. Apple generated as much revenue just from content/app sales in 2011 as it had made as an entire corporation in 2003—$6 billion.

Perhaps the most conspicuous example of Google’s all-out scramble to keep up with this juggernaut was its decision to buy Motorola for $12.5 billion at the end of 2011. The official position about Motorola is that Google bought it for the patent portfolio. That’s true. Having enough patents to disrupt competitors in a lawsuit typically keeps them from suing
you
for patent violations. Motorola invented the modern cell phone. As a result it has some of the most valuable and important patents in the world. They touch virtually every wireless device. But few believe Google bought Motorola
just
for the patents. Motorola is one of the largest phone and tablet makers in the world. That buys Google valuable insurance if, for example, Apple’s lawsuits get a court to block sales of Android phones somewhere—or even if Google needs to compete with a member of its own Android ecosystem. While Rubin has insisted that it would be suicide for it to use Motorola to compete with other Android phone makers, it
does
give Google more leverage in case that dynamic starts to work in reverse—if one of the Android manufacturers decides to compete with Android.

This so-called “forking” of Android is arguably Google’s biggest challenge in its fight with Apple. The beauty of Android is that it is free and open and allows phone makers and carriers a lot of leeway to redesign its look and feel. PC makers never had this flexibility with Windows. Microsoft owned it, and manufacturers had limited flexibility to modify it. But Android’s openness is also its biggest potential problem. It allows its manufacturers to abandon the ecosystem. It allows a manufacturer such as Samsung to take Google’s software, modify it to its liking, and build its own end-to-end solution the way Apple has, so that content and apps bought for Samsung phones and tablets work only on those devices. As Samsung’s Galaxy phones and tablets became the dominant Android phones and tablets in 2013, Samsung seemed to be heading in this direction at an accelerating pace. By then it had its own mobile apps for email and contacts, calendar and notes. And it had felt free to put its competing app store—the Samsung Media Hub—alongside Google’s.

Google has always maintained that its control of the Google mobile stack of applications and the Google Play store will keep such defections from happening—as if it held all the cards. Google’s position has been “How are you going to sell your phone or tablet if it doesn’t come with YouTube or Google search or Google Maps?” That was indeed true for a while. But it isn’t anymore. The iPhone 5 sold better than any previous iPhone even though it didn’t come with YouTube, and it came with Apple Maps—which proved to be terrible—instead of Google Maps. Google just made those apps available in the Apple app store and consumers downloaded them there.

Count on Samsung pondering the same thing. It has the top-selling smartphone and tablet in the world now. Its executives are wondering the same thing Apple did: Will customers really slow their purchases of our phones and tablets because we don’t include Google’s software on our phones and don’t allow access to Google’s app store?

The likely answer is no. Amazon has an app store that is just as good. Microsoft has a search engine that is just as good. There are half a dozen good mapping applications. Google needs Samsung as much as Samsung needs Google now. Without Google apps on Samsung phones—which are now half of all Android sales—half of Google’s mobile advertising base disappears.

Andy Rubin is no longer the Google executive to query about Android’s future. In early 2013 he handed Android’s reigns to Sundar Pichai, who had also been running Google Chrome. Pichai has long been a favorite of Page’s and is well regarded as a seasoned manager. That is something Android needs now that it has grown to include hundreds of Googlers worldwide. Such leadership is something Rubin, more of an entrepreneur than an executive, didn’t enjoy providing, according to friends. Indeed, when asked about Google’s shifting alliance with Samsung in June 2013, Pichai demonstrated his fluency at tackling such complicated questions. He said the best way to think about the Google-Samsung relationship is to think about how Microsoft and Intel worked together to dominate the PC industry: they didn’t always say nice things about each other and sometimes they competed, but they mostly worked together because they both knew that was the best way to make the most money. “Samsung is a very close partner and we owe a lot of the success of Android to what they have done. But it’s also fair to say that Samsung has been hugely successful in mobile because of Android. We see a path where we can be successful and so can Samsung. We don’t see it as a zero-sum game.”

The response was friendly but not conciliatory. It also happens to be truthful. Samsung is competing with Google. Yet, as Pichai announced the month before, the two companies are also finding new ways to partner. Samsung’s flagship smartphone, the Galaxy S4, can now be purchased two ways—with or without Samsung’s Android software enhancements. This is a big deal. Many consumers love the S4 but hate Samsung’s enhancements. Now consumers can buy an S4 with an unmodified version of Android, with essentially the same software that comes with the Nexus phones and tablets Google oversees. That’s not the kind of deal that happens when two companies are nearing war.

10

Changing the World One Screen at a Time

The upheaval in media and technology that the iPhone started, the Android movement accelerated, and the iPad broadened into a full-on revolution has unleashed a maelstrom in the years since Jobs died that few in Silicon Valley, New York, or Hollywood have seen before in their careers. It’s not just that two of the biggest, most influential corporations in their worlds—Apple and Google—are fighting each other to the death. It’s that the mobile revolution they set off has suddenly put roughly $250 billion in revenue from half a dozen industries up for grabs.

For those on the wrong end of these changes, the past five years have been unpleasant. Newspaper publishers have seen print advertising revenue and circulation fall to twenty-year lows. The number of journalists employed at newspapers has been cut almost in half in the past five years. Book publishers are worried that they are about to get hit in a similar way. Amazon is not only driving prices down beyond publishers’ ability to make a profit but also trying to lure away their most profitable authors. Movie studio executives are already reeling from watching their DVD business evaporate. Now their ability to build audiences for bad movies is being destroyed by moviegoers’ loud and instant reactions to films on Facebook and Twitter. The television industry is worried because tech companies such as Netflix and Google’s YouTube are competing for their audience with their own content, putting pressure on monthly subscription rates.

But the mobile revolution has also created scores of
new
moneymaking opportunities—particularly in television—and it is enabling business partnerships never before thought possible. Tech companies are making impressive strides partnering with top entertainment-industry directors and producers, whereas the companies had previously shown little interest or affinity. New York and Hollywood big shots are now building slick mobile apps and partnering with software developers, whom they once called criminals for encouraging the theft of their content. Indeed, New York and Los Angeles now boast thriving tech start-up communities. Los Angeles is fast approaching a thousand tech start-ups, while New York now has roughly seven thousand. Top agents and producers, who previously had little reason to visit Northern California, are now making the trek almost every week.

“We’ve launched five different start-ups [for our clients and others] now,” said Michael Yanover, the head of business development at Creative Artists Agency (CAA) in Hollywood. “Every time we launch a start-up, it has to get funded. So we are constantly circling VCs for funding, information, and access. We meet with all of the interesting start-ups and the bigger, established companies. We work a lot with Amazon, for instance, and also with YouTube. We look at anything that is emerging. If it’s Pinterest. If it’s IntoNow. If it’s Shazam. We would like to be part of all of that.”

Yanover, who looks fortyish but would not tell me his age, has been thinking about the Silicon Valley–Hollywood axis for fifteen years. He was running his own start-up in Los Angeles when Macromedia in San Francisco recruited him to help it build out the first explosion of web content during the Internet bubble.

We did some very pioneering work with Matt Stone and Trey Parker, the guys behind
South Park
, and Tim Burton and James L. Brooks, to create content on our site in return for equity. It wasn’t TV, but it serialized episodically like TV. We bought Atom Films, and I ended up running all the content that was nongaming, which was anything film, animation, music, videos, and even greeting cards.

One of the things I was doing at Macromedia was working on embedded Flash. And Flash, at that point, was driving all rich media [video] on the Internet. What we thought was the natural evolution of Flash [now owned by Adobe] was to embed it into mobile devices, embed it onto set-top boxes, embed it into game consoles, et cetera. So we developed an initiative, which we code-named Columbus, because it was the new world, right? Columbus was all about embedding Flash everywhere, including the mobile phone.

The experience of mobile apps was very primitive in 2002. But to me it was always clear that everything was going to be on your mobile phone. In emerging markets they were already skipping over the PC and going right to the mobile phone. And they were skipping over landlines and going right to wireless. So those two factors in and of themselves told you that, oh my God, the mobile phone is going to be the device where content gets displayed and broadcast.

But most of Yanover’s work building web content needed to be shelved for a while because the technology just wasn’t ready. Most homes didn’t even have broadband back then, let alone wireless connections and devices that were fast enough to show video. He joined CAA in 2003 and represented as many mobile ventures as he could find. “And then Steve Jobs came along with the iPhone,” he says,

and suddenly the world opened up and totally emancipated all of these developers and all of these creative people from the stranglehold of the carriers and from the lack of flexibility and the screwed-up platform that existed in the traditional feature phone. And so when the iPhone showed up, it was like Moses leading people out of the desert into the Holy Land. It was an amazing moment. And it freed everybody. Of course it made Apple much stronger. But it was a freeing moment. Today it’s much easier. You have iOS and you have Android and it’s very simple, that’s it.

*   *   *

Experimental—that’s what tech companies like to call their growing interest in media. If so, it’s a big experiment. Netflix just spent two years and $100 million producing its hit
House of Cards
with Kevin Spacey. It just revived
Arrested Development
, the Mitchell Hurwitz comedy that ended its three-year run on Fox seven years ago. It plans to make twenty other shows the same way. Google is spending hundreds of millions to jump-start production of dozens of channels for YouTube, effectively turning it into the Internet’s first cable television network. And Facebook, with a membership that now represents half the Internet—half—is becoming an important part of the movie money-raising and distribution process. You can’t finance and distribute a Hollywood blockbuster through Facebook, but you can do an independent film with a budget of a few million dollars. Amazon, Hulu, and Microsoft are now also in the early stages of professional content financing and distribution.

Most think it is only a matter of time before Apple does something big in TV—either with another revolutionary device or by using its enormous cash hoard to turn iTunes into the most current and deepest source of content anywhere. Before he died, Jobs told biographer Isaacson that he’d finally figured out a way for Apple to do it. There has been no big, splashy announcement yet, but already Apple TV with Airplay has been incrementally turning Apple’s iPhone and iPad into personalized TV remote controls. You can start watching a movie on your iPhone or iPad while cleaning the kitchen and continue it on your TV after you’ve finished your chores. Or if you like the two-screen experience, you can switch the movie to the TV while using the iPhone or iPad to tweet or Facebook with friends about it—or use the iPhone or iPad to do something else entirely.

Meanwhile, old-line Hollywood agencies such as CAA and William Morris Endeavor (WME) now not only shop their clients to big studios but to app developers too. In 2011, with money from chip maker Qualcomm, CAA created Moonshark, a company that would produce mobile apps the same way the agency packages writers, actors, and producers for feature films or TV shows. Yanover said that all the mobile entertainment apps that exist now are great but could be so much bigger if they could tap into the storytelling and production machinery of Hollywood. Writers could give game characters names and origin stories, for example. “
Angry Birds
was fantastic, but really it’s the tip of the iceberg. It’s the beginning of what is going to really happen,” Yanover said. Last year, in an effort to capitalize on the new moneymaking opportunities of convergence, big tech investor Silver Lake Capital bought a third of WME for an undisclosed sum. TPG, meanwhile, bought a chunk of CAA. “It used to be the only things the agent did—back when I started—was TV, movies, books, and theater,” said Ari Emanuel, the CEO of WME, during an onstage interview last year. “Now there are a wide variety of distribution points and places where artists can start creating content. Clients are now creating games, turning it into a book and then a movie. The agency now has a new media department. Apps are getting developed. It’s very dynamic.”