At Motorola's expense

What Tomy Ahonen noticed came as no surprise to Steve Jobs, who had access to much more detailed iPod sales figures and could clearly see that the wave of phones with music players threatened to sweep away his painstakingly built music strategy. Although he often spoke derisively about marketing and sales research, he had no reason not to believe the figures and forecasts in this case, because the substitution of MP3 players by mobile phones was too obvious and indisputable.

At the same time, however, Jobs realized that the mobile phone industry was highly competitive, demanding, and costly to enter. There was concern that it could drain Apple too much and that the company could not afford to experiment too much, as it could miss the mark and deplete the reserves that the iPod had helped it build.

He had been thinking about his own mobile phone, or rather a portable Apple computer, for some time (he had registered the domain iPhone.org back in 1999), and the first prototypes of various models existed as early as the 1990s, from which the Newton later emerged. However, the memory of Newton’s failure encouraged caution. The company managed to bring this “personal assistant” to the limits of perfection at the time, but it remembered well that this was not enough for positive sales results.

However, this history gave the company a certain theoretical basis, on which it began to work cautiously in 2003 and more intensively in the following years. But in 2004, Apple was still unable to come up with any breakthrough solutions. Although the so-called Purple 1 project resulted in a number of patent applications, including, for example, dialing contacts using the ClickWheel touch wheel, the company (and Jobs himself) failed to develop the mobile phone to a state where Jobs could and would be satisfied with it, partly because at that moment it needed to focus on other projects in progress: pushing the iPod, iTunes Store, reviving them with video and movies, and then also considering the transition to the Intel processor platform.

All this demanded attention, and Jobs realized that he could not handle such a demanding task without focus and experience. The question was where to get both. He couldn’t consider acquiring a major telecommunications company in early 2004; he didn’t have enough cash, and a stock swap would have diluted Jobs’ influence too much, which he considered a mistake he didn’t want to repeat. So the only option left was collaboration.

And so a blunder was made that Apple had not managed for a long time: the Motorola ROKR.

At first, it seemed like a good idea: to collaborate with the industry leader on bringing music to mobile phones. Steve Jobs knew Motorola CEO Ed Zander from his time at Sun Microsystems, and in early 2004, Zander introduced him to a then-unreleased prototype of the Motorola RAZR, which had been developed internally as a side project, a random vision born out of spare time. Zander liked it and, contrary to the rigid structure of Motorola at the time, wanted to put it into production. Jobs’ response to the RAZR was also positive, which further convinced Zander that the phone should be officially launched on the market. And so it happened. From the fall of 2004, the RAZR saved Motorola’s mobile division with its sales results and became a showcase gem, a symbol of the “new Zander Motorola.”

Zander introduced Jobs to how the world of telecommunications and mobile sales works. Unlike the very liberal world of information technology, this is a world bound by rules and, above all, by operators whose sales incentives and subsidies determine which phones will sell well and what services will be sold in them and for how much.

This was a whole new world for Jobs. So he agreed to collaborate with Zander: Apple would make iTunes available to Motorola for its mobile phones, Motorola would produce an “iPod in a mobile phone” and secure partnerships with major mobile operators.

The agreement was of enormous importance, especially for Zander himself, who needed to show shareholders that he knew where the company should be heading and that he was capable of opening up new and interesting markets and forging important alliances. This was also the reason why Motorola released information about its collaboration with Apple in a press statement on July 26, 2004. However, at that time, nothing more had been agreed than that the two companies would collaborate on the development of such a device, and in fact no progress had been made. Zander, however, needed to impress the media and investors before the company published its quarterly results. This angered Jobs, because Zander stole his moment of surprise and also revealed what was in the pipeline.

Over time, the decision was made to separate the RAZR series from the planned cooperative model, as Motorola could imagine how much Apple would want to appropriate the successful model and how it would assert its influence on the final device. Moreover, the RAZR was not a very suitable basis technically, so Motorola opted for the E398 model, which was actually the company’s first music phone. A strong argument in its favor was the dual speaker, which allowed the phone to play music in stereo not only through headphones. And that was another contradiction: Jobs didn’t want a remake, a sugar-coated version of an existing product; he wanted something new that would impress the market. But changing the choice of technology platform was not easy. Motorola itself was in a state of frustrating chaos, with the priorities of individual model lines constantly changing and what was supposed to go into production one week being dropped from the lineup the next. It was better to take what existed than to rely on Motorola not changing its plans, so the modifications to the E398 model remained.

The first prototype of the phone’s iTunes player interface was shown at CES in 2005 by Vice President Ron Garriques, again without Apple’s knowledge, and the presentation of prototypes continued at other trade shows, but Apple refused to comment on anything.

The result of the collaboration was finally officially unveiled on September 7, 2005. The mobile phone was called the Motorola ROKR E1 and was compatible with the new iTunes 5. On the same stage where Jobs announced the ROKR, he also announced that the popular iPod Mini would be replaced by the flash memory-equipped Nano model and reminded the audience that the company was considering the Motorola ROKR as an iPod Shuffle (a simple model without a display) for mobile phones.

Image: Motorola ROKR Caption: The result of the collaboration between the three best-known companies in the industry was a complete flop.

Motorola Rokr received a terrible reception, incomparable to the doubts surrounding the launch of the first iPod. The influential magazine Wired mockingly asked on its November cover, “You call this the phone of the future?” and other references were similar in tone. It was no surprise.

The Rokr was a hastily created hodgepodge, with Apple and Motorola sharing the blame. Compared to the already outdated E398, the ROKR had a white finish and a dedicated button to launch the player. Those were all the changes Motorola made.

Apple also distinguished itself. At the last minute, it forced Motorola to limit the maximum number of songs to 100, which was still a “generous concession”; the initial proposal was to limit the number to 25 songs. Apple was afraid that Rokr would compete with its iPods. And so, although Rokr was equipped with 512MB on a MicroSD card, users could only use 100 songs from mobile iTunes. To make the situation even more ridiculous, the phone was equipped with Java support, which had a generic MP3 player pre-installed that could play any number of songs from the SD card, but of course could not play songs secured with Apple FairPlay.

Another restriction on the phone was imposed by the sales partner, the American operator Cingular Wireless (renamed AT&T in January 2007), with whom Motorola agreed to sell the phone. Cingular did not want users to be able to use music from iTunes as ringtones, fearing for its revenue from ringtones, for which users were paying around two to three dollars at the time.

Well, the original Motorola E398 itself was no longer a big deal in the fall of 2005, for example, music synchronization on the data card was handled by slow USB 1.1.

Despite a massive campaign, sales of the mobile phone were poor. In the year of sales (until November 2006), around one million iTunes-enabled phones were sold, while seven million iPods were sold in a single quarter. The collaboration between Apple and Motorola, which began in 2004, thus ended in a fiasco, with the companies blaming each other for the success of the “experiment,” even though it could be said that the unfortunate ROKR had collected all the limitations that each of the three companies involved had come up with.

The advantage, however, was that Apple realized the need to develop a mobile phone from its own resources if it was to look the way the company wanted it to and if important know-how was to remain in its hands. Jobs also realized that it would be necessary to cooperate with an operator. In 2005, American operators were not yet ready for the massive use of mobile data, they did not see any special income in it, and most of the revenue in the “mobile data” tables came from overpriced services operated on premium SMS, such as ringtones. In order for the device to fulfill Jobs’ dream of downloading iTunes orders immediately via the mobile network, it would be necessary to convince the mobile operator to invest heavily in the network, and Jobs knew very well that users who had to wait for their orders to be processed on their home computers would usually reconsider their purchases.

It was necessary to approach the plan in a completely different way.

Recap:

•Apple failed in its first attempt to enter the mobile phone market.

•The Motorola ROKR was a flop because each company imposed its own restrictions on it to prevent cannibalization of its own revenues.

•The partnership with Motorola showed Jobs that telecommunications companies are cumbersome, not very progressive despite all their proclamations, and that developing a product with them is something he is mentally incapable of.

•But he also discovered that it was essential for such a product to excite the operator and compel them to allow customers to offer certain services from which Apple could also earn a commission. And that was a discovery that would have far-reaching consequences for the future of the iPhone and telecommunications.

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At Motorola's expense

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