Last week Apple made headlines twice. On Monday it broke the world record for shareholder value. Apple's $623.5 billion market cap beat Microsoft's record from tech's notorious bubble era. (Microsoft needed a price-to-earnings ratio of 72 in 1999 to set the record. Apple's ratio is a modest 16.) Then on Friday, Apple won a $1.05 billion patent-infringement judgment against Samsung, the Korean electronics giant and the maker of the Galaxy line of smartphones that stirred Apple's ire.
Congratulations, Apple—twice. But these two coinciding events should give us pause.
One, how badly has Apple been hurt by copycats if it has become the richest company on earth? Do we want a patent system in which the strongest sue everyone else? Is this good for innovation?
Two, Apple lost the jury trial, in a federal court in San Jose, Calif., on most of its hardware claims, such as a ridiculous patent on curved glass for phone surface design. Apple won mostly on software, such as "pinch and stretch," a nifty design trick Apple introduced in 2007 with its first iPhone. So why did Apple sue Samsung, the Galaxy hardware manufacturer, and not Google, maker of the phone's Android software?
Apple sees Google as its chief competitor—this is no secret. Steve Jobs so hated Google's Android that, even as he struggled with cancer, he told biographer Walter Isaacson: "Google . . . ripped off the iPhone, wholesale ripped us off. I will spend my last dying breath if I need to, and I will spend every penny of Apple's $40 billion in the bank, to right this wrong. I'm going to destroy Android, because it's a stolen product. . . . I'm willing to go thermonuclear on this."
It is revealing that Jobs spent precious energy in such an outburst. As a longtime Silicon Valley observer, I believe the real story is not what it seems. The source of Jobsian rage was not his Google loathing, per se. It was fear that Apple might be "Microsofted" again.
Some history: As many people know by now, Apple founder Steve Jobs and Macintosh computer designer Bill Atkinson drew heavily from the work of Xerox's Palo Alto Research Center. In the 1970s, PARC had developed a computer called Alto. The computer featured all kinds of new stuff, including a mouse and pop-up windows. Jobs visited PARC in 1979 and a light switched on. A day or two later, Jobs met with an industrial designer and ordered him to build a prototype computer with a mouse. Thus was born the Apple Macintosh, which made its debut in 1984.
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Apple's iPhone (left) and Samsung Electronic's Galaxy S mobile phone.
Did Apple steal from Xerox PARC or not? In the broadest sense, yes. The visit to PARC did more than inspire Steve Jobs. It sent him directly on a mission to build something very much like the Alto. But Jobs being Jobs, he immediately had ideas for improvement. The mouse should have one button, not three. It should work on any surface. It should be cheap to manufacture. The pop-up windows should look this way, not that way.
Jobs swiped the idea and made it better. But Macintosh was only modestly successful in the market, and Jobs was asked to leave Apple in 1985.
Meanwhile, his baby-boomer rival, Bill Gates, had introduced Microsoft Windows software in 1983. It wasn't pretty, and it didn't work well until version three in 1986, two years after the Macintosh's arrival. But it incorporated several Apple features, and the personal-computer industry built around Windows software soon boomed and grew to immense size. Microsoft PCs crushed the Macintosh market share, which fell to 3% by the late 1990s.
In the mind of Steve Jobs, I believe, the story was this: Even if he did copy the idea of the Xerox Alto, he added so much value that the copying barely amounted to technological petty larceny; Microsoft, by contrast, just ripped off Apple without improving it.
What Bill Gates improved, of course, was not Apple's software but the entire business model for personal computing. That's how Microsoft came to dominate personal computing for a generation. That's how Microsoft beat the market-cap world record and held it until Apple topped it nearly 13 years later.
Jobs deeply feared a replay of this business-model history. He feared that Google was going to pull a Microsoft and once again reduce Apple's products to a pricey niche. To Jobs, Android looked like the new Windows.
So why doesn't Apple sue Google directly, instead of suing a Google hardware partner like Samsung? Politics and public relations, mainly. Apple knows that suing a foreign giant will go down a lot better than suing a Silicon Valley neighbor. Apple enjoys huge favor right now among customers, politicians and the public. Suing Google would divide Apple's support and tarnish the company's image. So Apple sued a foreign company to send a message to Google.
This techno-Shakespearian story is entertaining but is bad for the phone-buying public. (Tablet patents were also part of the Apple-Samsung court case, but smartphones were at the heart of the lawsuit.) As Samsung contemplates filing an appeal, it appears that smartphone-makers may begin redesigning their products to avoid crossing swords with Apple.
Last week I bought a Samsung Galaxy Note phone. It is a marvel of machinery. It is larger, slimmer and lighter than Apple's iPhone. The Samsung Note's screen is so large that people who see it think I must have acquired an early version of the mini-iPad that Apple is expected to release soon. The Note takes the iPhone hardware design and makes it significantly better.
Funny. That's just what Apple did with the Xerox Alto.
