Chapter 15

The Whole Widget

Taking care of Catmull, Lasseter, and their staff was a deeply satisfying resolution to what had turned into one of the great joys of his life—the Pixar adventure that had started as such a curious whim. But it was also just one small element of the most productive period of Steve’s life, which happened to be the four years immediately following his return from abdominal surgery in the fall of 2004.

During these years, Steve’s cancer didn’t overshadow Apple’s daily operations. The board of directors discussed succession plans, but most members did not know that the cancer had spread past his pancreas. Steve’s occasional tiredness seemed reasonable, both for a man who had turned fifty in 2005 and for someone who had had cancer. He would take a few days off here and there to see his doctors and get treatments, but he worked from home a fair amount anyway, so that wasn’t alarming. Of course, Steve’s colleagues continued to worry that the cancer would recur, and looked for signs that it had come back. But there was nothing unusual to see until the summer of 2008, when Steve abruptly seemed to be losing weight in alarming fashion.

What the world did see was an effective and visionary leader at the height of his powers. These were complicated years for Apple, but Steve handled almost every challenge in exactly the manner he wanted. He had fallen into leadership at such a young age, but he was comfortable in that role now, and justifiably sure of his capacity to guide Apple’s tens of thousands of employees to the goals he set for them. During these years, he would ensure the company’s continued success in personal computers by engineering a deft switch to a new kind of microprocessor; ruthlessly and successfully managing some major transitions in his executive team; and optimizing and building upon the efficiency and ambition of the company’s product development “treadmill,” as Tim Cook describes it. This is also when he delivered what is likely to be remembered as the most notable product of his life, the iPhone, and then improved even that by pivoting once again into a strategy he personally had not wanted to pursue, thereby transforming the application software business in an almost Gatesian fashion.

These are the years when he got almost everything right. They are also the years that show most completely how he had changed, and that manifest the prolifically creative person and the genuine business genius he had become. “I am who I am,” Steve liked to say. This was most true during the last seven years of his life.

AFTER HIS FORAY into music, Steve knew that even he had underestimated the potential of a digital hub of Apple products linked to a computer. As the world of computers subsumed the world of consumer electronics, Apple steadily improved the experience of enjoying and managing music, photos, and videos on personal electronic devices, making the various technologies coherent in a way that no other company came close to matching. Apple promised to provide a simple and yet magical (to use one of Steve’s favorite adjectives) encounter with technology at every stage, as opposed to the disjointed and geeky mess that served mainly to confuse consumers when they tried to coordinate products from different companies. Purchasing music or computers from Apple online was almost too easy, while shopping in the company’s gleaming glass emporiums, staffed with all those smart young men and women and the whiz kids at the Genius Bar, could be a form of entertainment in itself. Apple was even starting to do a pretty good job of tying it all together via Wi-Fi, although this was the trickiest link in the continuum. Steve embraced the marketing adage that every single moment a consumer encounters a brand—whether as a buyer, a user, a store visitor, a passerby seeing a billboard, or someone simply watching an ad on TV—is an experience that adds either credits or debits to the brand’s “account” in his imagination. The “Apple experience” was an unprecedented merger of marketing and technology excellence that made customers want to come back for more.

This was a new kind of quality, something consumers had never expected from technology or electronics, which had always reflected their origin in the gnarly world of engineering. Buyers of products from Olympus, Panasonic, IBM, Motorola, Canon, or even Sony waded through instruction manuals that were confounding at best, and often nothing more than a step up from the technical Heathkit directions Steve had encountered as a kid. More often than not, buyers of Apple products had little more to do than open a sleek and solid package, connect their stylish device to an outlet or a Mac, and turn it on.

Buyers of PCs had heard about the quality of Apple computers for years. But now that millions of consumers had played with their iPods and used iTunes software on their PCs, Apple’s reputation for building products that made even Sony’s look stodgy was more universal. It had taken just a couple of years, in fact, for Apple to develop a phenomenal reputation among that younger generation that had ignored its products when the first retail stores opened. By 2006, the Apple emporiums from Tokyo to Johannesburg to the new gleaming cube that opened on Fifth Avenue in the heart of Manhattan were flooded primarily by young buyers. For these new customers, and of course for the Apple faithful of old, the company had an open invitation to enter any new field it liked. They were primed for any new addition to the Apple experience.

Just as significantly, Steve’s skill at figuring out an industry’s soft spot, and maneuvering Apple into a position to solve that problem, finally matched his confidence that he could do so. Steve had always been able to suss out the weak spots in other adjacent industries (just as he had always been able to quickly pinpoint the personal foibles of other people). But now that Apple had pulled off its iTunes coup, Steve knew that the company could successfully enter another industry and alter its business model in a way that would benefit both Apple and the industry’s consumers. Releasing a new phone, he knew, might take that strategy to a whole new level of complexity, affecting the lives of not merely tens or hundreds of millions of individual human beings, but billions of potential buyers. All he had to do was figure out how to work with the telephone carriers.

THE FIRST TIME Steve ever railed on to me about “the stupid carriers” was back in 1997. That’s how long he had been thinking about a phone, even though he swore again and again that he’d never do business with “those bozos.” I once said to him, “Steve, methinks you doth protest too much! You sure seem to be thinking about this a lot.” He didn’t laugh. He just got angrier. “Yeah, I do think a lot about what a crock of shit it is,” he ranted, “that our only choice if we want to get into the phone handset business is to work with one of the goddamn telecom carriers.” When Steve agreed to launch the ROKR, Motorola was the one that dealt primarily with the carriers. The disappointing experience reinforced Steve’s belief that the carriers always stiffed handset makers. Nevertheless, the carriers held the keys to a market he couldn’t ignore. By 2004, worldwide unit sales of cellphone handsets already had topped 500 million units a year, dwarfing unit sales of PCs and iPods and PDAs combined. And they were growing.

There was one way that Apple could have avoided the carriers: by operating a network itself. A new strain of carrier had emerged in the United States called a “mobile virtual network operator” (MVNO). The MVNO model made it possible for an independent company with its own strong brand to have its own eponymous network by leasing wireless capacity wholesale from one of the telecom giants. Sprint once approached Steve about starting an Apple-branded MVNO. But as much as he wanted to avoid the carriers, Steve knew that operating a network was a complex, transaction-intensive business and way outside Apple’s area of expertise. So he swallowed hard, and asked Eddy Cue to start knocking on doors.

Cue and Jobs knew there was one big obstacle to negotiating a successful deal: Steve wanted Apple to have complete control over the handset. Since the phone was also going to be a top-notch iPod, and an Internet client, and a serious computing device, the user experience would be critical to its success. The multi-touch interface on the iPhone would be utterly different from anything consumers had experienced before. Furthermore, if websites were going to display at a big enough size for consumers young and old, the screen would have to take up virtually the entire front surface of the phone. All of this was doable, Steve thought—but only if the carriers kept their hands off his design. Finally, Steve knew the team would go through a few designs before getting it perfect; Apple needed the freedom to experiment without anyone second-guessing its engineers. So any carrier that committed to a deal would have to do so without knowing all of the specifics of what kind of phone Apple would finally deliver.

“We actually knew Verizon better than we knew AT&T,” recalls Cue. (At the time, Cue was dealing with Cingular, a joint venture of Bell South and SBC that bought AT&T Wireless in 2004. In 2006, after SBC acquired AT&T Corp. and Bell South, it changed its name to AT&T.) “We knew Verizon because we had consulted them when we did the deal with Motorola for the ROKR, even though they didn’t end up selling the phone. When we went back to them to talk about our own phone, they were pretty tough. They thought cellular was their playground. Sort of like, ‘You’re gonna play our game by our rules.’ And they were pretty powerful. So when you looked at what we wanted to do, it didn’t match well, because they said, ‘Whaddya mean, you’re gonna control the phone’s UI?’ ”

AT&T’s wireless executives weren’t nearly as tough. They had more customers than Verizon, but their network was derided for its spotty coverage. So when Cue and Jobs came for a visit, the results were different. “When we went to see [AT&T],” says Cue, “we spent four hours with Ralph de la Vega and Glenn Lurie in a room in the Four Seasons. And right off we really liked them. You could tell they were hungrier and wanted to show what they were capable of. So we started a relationship that same day.”

Steve regaled the AT&T folks with the myriad ways the iPhone would send consumption of wireless data bandwidth soaring, painting a vision that made them salivate. For the first time, he explained, consumers would have a device in their hand that could do much of what they could do on their desktop computer. The iPhone’s big touch screen would make unmodified, full-featured Internet websites usable just about anywhere. Consumers would download and share photographs, which are rich with data. They would spend lots of time doing email. They could edit documents or manage information about their sales contacts remotely, right on the phone, by interacting with either built-in applications or over the Internet, with specialized websites that worked regardless of whether the user’s main computer was a PC or a Mac. They would purchase and download music from the iTunes store. They could text easily. And that was all without even mentioning video! Once people started looking at videos and movies online, data usage would skyrocket. Maybe someday they’d make video phone calls. He told them about a site that had just started up in February, something called YouTube, where people uploaded and shared video clips with anyone else online around the world. Maybe that too would turn into something big! This is what AT&T had to look forward to, he explained—being the carrier for all these kinds of new activities. And Steve had learned something else along the way, he told them. He knew that once you made this kind of powerful technology available to the world, it would take off in ways you couldn’t predict, in ways that even he couldn’t predict. Surely those developments, too, would drive usage of the AT&T wireless network.

This was why Steve had one other demand above and beyond having total control of the design and manufacture and sales price of the phone. If Apple’s phone was going to be an instrument that drove consumption of wireless data, Steve felt that his company also should be compensated for bringing the carrier the extra business. So if AT&T wanted the right to be the initial, exclusive carrier for the iPhone, it would have to pay Apple a sales commission for the added data traffic the iPhone would inevitably foster. In other words, Steve wanted a piece of the carrier’s action. After all, Apple kept 30 percent of the take on anything sold in the iTunes Music Store. So why not do the same thing with phone data carriage fees?

All in all, his demands were every bit as bold as the vision he painted. But AT&T could see that the iPhone might give its network a highly needed boost, and something else none of its competitors could claim—a phone from what had become the hottest gadget manufacturer in the world. So it was willing to strike what, in hindsight, seems like an extraordinary deal for Apple. Steve got all that he wanted, and perhaps a little bit more than he should have. AT&T gave Apple unprecedented freedom to produce, almost sight unseen, whatever phone Steve and his wizards wanted to make. It allowed Apple to set the price for the new phones, which AT&T could not change or discount. And, last but not least, the Cupertino company would receive up to about 10 percent of the data carriage revenues a user generated each month, for the duration of that customer’s iPhone service contract. These were terms no handset maker had ever received. Never had a carrier shared its fees with a telephone manufacturer.

As it would turn out, sharing fees was something neither side liked. One year later, they changed the deal so that AT&T paid Apple the full price for each phone, instead of getting the distributor’s price, which was about $200 below retail. Since accounting rules allowed Apple to spread the price AT&T paid per phone across two years, Apple was able to smooth out revenue stream and buffer the ups and downs of usage. And AT&T was happy to get Apple’s fingers out of its own revenue stream. It was a cleaner arrangement for both sides—and many telecommunications analysts believe it has been an even better deal for Apple than the old model.

After the development of iTunes, Steve had come to fully appreciate the power Apple now commanded. He used it aggressively but intelligently. He didn’t overreach with AT&T. He knew they needed something like the iPhone, he knew nobody else could provide it, and so he made a deal that gave them what they wanted, but on terms that would make Apple very, very rich. He had Cue to handle the day-to-day business of the relationship, and Cue was on the phone with AT&T’s Glenn Lurie constantly—no one wanted a repeat of Apple’s Motorola partnership. It all worked out brilliantly for Apple. By some analysts’ estimates, the Cupertino company now pockets as much as 80 percent of the profits of the entire cellphone handset business.

STEVE WAS DEEPLY focused during these years. He had pared his life down so that he could be as expansive as possible in very specific aspects of his work. The dividing lines were clear. Family mattered. A small group of friends mattered. Work mattered, and the people who mattered most at work were the ones who could abet, rather than stifle, his single-minded pursuit of what he defined as the company’s mission. Nothing else mattered.

This is why, during the last decade of his life, Steve built so much of his work life around his collaboration and deep friendship with Jony Ive. Their relationship was unlike any creative partnership either had experienced previously. Not only were they both extremely productive, but they seemed to get along even when they disagreed. “People have talked about that roller coaster of falling in and out of favor with Steve,” Jony mused during one of two lengthy interviews we had in 2014. “I was fortunate in that we didn’t have that experience. We had a very consistent relationship that weathered his illnesses and the huge transitions the company went through.”

They had come a long way since that day in 1997 when Steve first walked over to the Design Lab, where Jony was anxiously assuming that his new boss intended to fire him on the spot. But Steve told me that he immediately recognized Jony as a “real keeper.” He could tell instantly that he liked his taste, judgment, and ambition. Nevertheless, Jony had remained intimidated during that first year, fearful that if he did a single thing wrong, he’d have to pack his bags. Such was Steve’s reputation. While Jony thoroughly enjoyed the process of working with the boss on that very first iMac, he always felt self-conscious when trying to describe some of his design decisions to Steve. But a visit to Pixar helped him realize that he and his boss were on the same wavelength. “When we visited Pixar with the first model of the iMac, it was a revelation, because I didn’t know Steve very well, even then,” says Jony. “But to hear his introduction of me to the whole of Pixar, I realized that he really understood what I was trying to achieve at an emotional level. At some level, he knew what I was trying to articulate.”

As Steve spoke, it became clear to Jony that he had an even more sophisticated and intuitive sense than Jony did of why the unusual new design made sense. This was before the product had been announced or shown to anyone else outside Apple. “He could do that,” Ive continues. “He could refine and describe ideas so much better than anyone else could. I think very quickly he understood that I had a specific proficiency in terms of having good taste and understanding of aesthetics and form. But one of my problems is that I’m not always as articulate as I would like to be. I can feel things intuitively, and Steve could sense the full meaning of what I was getting at. So I didn’t have to justify it explicitly. And then what would happen was I would then see him articulate those ideas but in a way that I was completely incapable of doing. And that’s what was so amazing. I learned, I got better at it, but obviously I was never ever in his league.”

Their relationship deepened as Apple’s metabolism accelerated. Personal computers have always been works in progress, thanks in large part to the escalator effect of Moore’s law, which forces you to redesign constantly in an effort to do more with components that keep becoming more capable. The iPod only accelerated that cycle. Jony and Steve could never pause for long to bask in the afterglow of shipping a new device. But integrating these faster cycles into the company’s routine was a deeply satisfying challenge, Jony contends. “I’ve always thought there are a number of things that you have achieved at the end of a project,” he says. “There’s the object, the actual product itself, and then there’s all that you learned. What you learned is as tangible as the product itself, but much more valuable because that’s your future. You can see where that goes and demand more of yourself, being so unreasonable in what you expect of yourself and what we expect of each other, that it yields these even more amazing results, not just in the product but in what you’ve learned.”

Ive believes that the lessons gained from each successive product development cycle fueled Steve’s unquenchable restlessness. Each product somehow fell short, which meant that the next version not only could be better but had to be better. Looking at their work this way, Steve turned the incremental development of products into an ongoing and impossible quest for perfection. What got left out of each product merely served as the basis for the next, improved edition. Steve always wanted to look forward, and the completion of a device was just one more call to the future.

Ive, like Cook and Laurene, believes Steve came back from his 2004 cancer operation more focused than ever. “I remember walking and us both being in tears very, very early on, wondering whether he would see Reed graduate,” he says. “At one level there was a daily ‘What did they say? What did the tests show?’ conversation.” But Ive doesn’t think cancer is what motivated Steve during the incredibly productive end of his life. “I think it’s hard to maintain a singular focus in reaction to an illness that lasts many, many years,” he continues. “There were other things beside his illness that motivated him to focus more intensely on his work. Things like selling product in very high volume for the first time in the company’s history. I’m talking about selling tens or hundreds of millions of units of a single product. That was a huge change for Apple.

“I remember a conversation in which we talked about how do we define our metrics for feeling like we have really succeeded? We both agreed clearly it’s not about share price. Is it about number of computers we sell? No, because that would still suggest that Windows was more successful. Once again, it all came back to whether we felt really proud of what we collectively had designed and built. Were we proud of that?

“There was definitely pride, in that the numbers reflected that we were doing good work. But also I think Steve felt a vindication. This is important. It wasn’t a vindication of ‘I’m right’ or ‘I told you so.’ It was a vindication that restored his sense of faith in humanity. Given the choice, people do discern and value quality more than we give them credit for. That was a really big deal for all of us because it actually made you feel very connected to the whole world and all of humanity, and not like you’re marginalized and just making a niche product.

“There were many things that overlapped or aligned to make Steve much more sharply focused than before,” he concludes. “One was his illness, but one was an unprecedented momentum as a business that none of us had ever felt before. Feeling that momentum was as important as his illness to his creativity and success, because the excitement was still fresh.”

By the time the two got around to focusing on the iPhone, Steve had become closer to Jony than anyone he had ever worked with. “The bond became so strong between us,” says Ive. “We could just be honest and straightforward and not have to articulate precisely why this is a good idea or why this is a valuable idea. And we also were honest enough to be able to say ‘Nah, that’s a terrible idea,’ without worrying about each other’s feelings so much.”

Not surprisingly, some on the executive team thought Ive held unwarranted sway over Steve. In the years after Steve’s death, more and more unaccredited stories came forth alleging that Jony was the one who really decided who got fired and who got promoted, as if he were Steve’s Svengali. The truth was simpler than that. Steve prioritized ruthlessly, in just about every aspect of his life. To maintain his focus, Steve made clear decisions about what mattered and what didn’t. His time and friendship and discussions with Jony mattered, even at the expense of other relationships. It proved to be a relationship that was as expansive as Steve’s ambition.

“The main reason we were close and worked in the way we did was that it was a collaboration that was based on more than just the traditional view of design,” Ive says. “We both perceived objects in our environment, and people, and organizational structures intuitively in the same way. Beauty can be conceptual, it can be symbolic, it can stand as testament to progress and what humankind has managed to achieve in the last fifteen years. In that sense, it could represent progress, or it could be something as trivial as the machined face on a screw. That’s why we got on well, ’cause we both thought that way. If my contribution was simply to the shapes of things, we wouldn’t have spent so much time together. It makes no sense that the CEO of a company this size would spend nearly every lunchtime and big chunks of the afternoon with somebody who just was preoccupied with form.

“Honestly, some of the loveliest, strongest, most precious memories are those of talking at a level that was very abstract. He and I could talk philosophically about aspects of design in ways we wouldn’t with other people. I would get self-conscious if I had to talk in such philosophical terms before a group of engineers, who are brilliantly creative, but when you go on and on about the integrity and meaning of what they are building, well, that’s just not their focus. There were times when Steve and I would talk about these things and I could see in people’s eyes that they’re thinking, Oh, there they go again.

“But then we also talked about the very particular. I would say to him ‘Look. This is how we’re designing this bracket.’ Then I’d watch him take his glasses off, because he couldn’t see for shit, and I’d watch him just enjoy the beauty of all that’s inside. Even things like those special screws.”

The screws were the flattened ones used on the inside of an iPhone. When it finally debuted in 2007, the iPhone was a thing of beauty, its look almost more that of a piece of jewelry than a gadget. Even now, it still stands as perhaps the greatest physical manifestation of Steve and Jony’s remarkable creative friendship.

The iPhone was the product of the efforts of thousands of people, from Tony Fadell and Greg Christie to the workers in the Foxconn factories in China. The inventions and engineering breakthroughs necessary to make it work are too numerous to count. But it could never have been even imagined, much less made, without these two kindred spirits—Steve and Jony—working so closely together.

THE IPHONE WAS introduced on January 9, 2007, at the annual MacWorld conference at San Francisco’s Moscone Center. It was a high-wire act. The handset was nowhere near ready to ship. There were serious software shortcomings and hardware glitches. Its individual components had been put through the wringer, but the device had hardly been tested “in the wild,” when Apple treats its prototypes the way it expects consumers to use them, shifting back and forth from phone to music player to computer quickly and indiscriminately.

Steve had never liked to “pre-introduce” a product in this way (with the exception of major operating system upgrades). There was always the possibility that the software or the screen or something else might wig out during the demo, and he also worried about tipping his hand too early in a highly competitive business. But Steve had three good reasons for pre-announcing the iPhone. The first was that he had to finally show AT&T something. The company had seen nothing for years—no mock-ups, no prototypes—and it had a clause in its deal that allowed it to pull out if Apple failed to meet certain development milestones. That was unlikely to happen, but he couldn’t take any chances. Second, as Lee Clow observed, Steve was P. T. Barnum incarnate. He loved the element of surprise when he debuted a product. While Apple had remained poker-faced on the subject of a phone for nearly three years, he wasn’t sure he could preserve a cone of silence for another few months. The iPhone would need to be tested by employees out in the real world, and sooner or later one would be spotted. He preferred to control the message. Finally, the January MacWorld confab was by far the best showcase for Steve; not only did he own the forum, but his announcement would upstage anything coming out of the Consumer Electronics Show in Las Vegas, where other handset makers would be showing off their wares. He wanted to steal their headlines.

There was one other reason to make the announcement early, on the very best stage available: Steve and his team knew, in their bones, that the iPhone was something truly special. They were eager to show the world. Eddy Cue recalls: “iPhone was the culmination of everything for Steve, and of everything I had learned. It was the only event I took my wife and kids to because, as I told them, ‘In your lifetime, this might be the biggest thing ever.’ Because you could feel it. You just knew that this was huge.”

Despite all the worries, the demo went off without a hitch. The multi-touch user interface seemed almost magical as Steve showed off the little nips and tucks that made it truly engaging. Scrolling through lists had an almost liquid smoothness. A double tap on a website column would make it fill the screen. The Google Maps application that came built in was already far more useful and versatile than most dedicated GPS devices, which had only recently shrunk down to pocket size. It was a delightful presentation of a delightful device. There was just one problem, and it was obvious to everyone except Steve.

PETER LEWIS, FORTUNE magazine’s technology critic, had arranged for one of the handful of short, private interviews that Steve granted after the keynote that day, so I tagged along. It was the first time I’d seen him in the flesh since shortly after I had started a sabbatical from the magazine to start work on a book project eighteen months earlier. This was the longest stretch of time that we hadn’t spoken in the entire time I knew him, so I was looking forward to the visit. Steve was visibly relieved that the demo had gone so well, but he bristled a little when Pete and I kept trying to steer him back to one particular subject: Why wasn’t Apple allowing software developers to build applications for the iPhone? After all, it was as powerful a computing device as an early Mac or PC, wasn’t it? I mentioned that Google Maps and the YouTube video-viewing app both demonstrated that it was perfectly possible to “open up” the iPhone to third-party software developers. “We had to help them build those apps, you know,” Steve said. “So we know what went into them.” Then he said he was concerned about how third-party apps could be vetted and policed, to make sure there would be no chance of software viruses infecting the phones. “We want to understand better how apps affect the network, too, before we throw things wide open,” he added. “We don’t want to create a monster.” He also suggested that if developers really wanted to create custom applications for the device, they could always design special websites that would perform the computing tasks on Web servers, with the phone acting simply as a terminal.

Steve had already heard from a slew of people, inside and outside the company, that he had whiffed by not opening up the iPhone to outsiders’ applications from the get-go. John Doerr, the managing partner of the most prominent venture capital firm of them all—Kleiner Perkins Caufield & Byers—had become neighborhood friends with Steve after their daughters had met at Palo Alto’s Castilleja School and started having sleepovers. Doerr had never had direct business dealings with Apple, but he knew all the main players there and was tapped into everything in Silicon Valley. Steve had first showed him an iPhone several months before they shipped. Doerr immediately asked Steve the very same question: Why wasn’t he allowing third-party applications? “At the end of that conversation, I said, ‘Look, I disagree with you,’ ” Doerr recalls. “ ‘And if you ever do decide you want to put applications on it, I’d like to form a fund to encourage people to build them. I think there’s a big opportunity there.’ He said, ‘Okay, I’ll call you back if we change our mind.’ ”

When the iPhone finally shipped on June 29, 2007, the biggest problem customers encountered wasn’t the lack of applications—it was the fact that AT&T’s network coverage was so spotty. To cite just one high-profile case, Mike Slade couldn’t get any reception at his house in Seattle on either of the two phones Steve had sent him. When Slade teased Steve about this in an email, Steve called the CEO of AT&T. The next day, a service rep visited Slade’s home. But there was no solution, and Slade wasn’t able to try out the phones until he traveled out of Seattle.

Worse yet, AT&T’s network was weaker than Verizon’s in the San Francisco Bay Area, so the early-adopter techies who’d bought their units on day one found their calls being dropped regularly as they commuted up and down I-280, which connects San Francisco and San Jose. In those areas where AT&T had sporadic voice coverage, Internet connectivity was even more of a hassle.

Apple and AT&T sold about 1.5 million units in the first quarter the iPhone was on sale, but they probably could have sold many more. Between its cellular woes and the absence of more applications like the ones supplied by Apple and Google, the iPhone proved to be a tougher sell than many would have imagined. People had expected something that would support video games and reference books and fancy calculators and word processors and financial spreadsheets right out of the box. The phone they got couldn’t yet do that. Jean-Louis Gassée, Steve’s former Apple nemesis who had segued into venture capital, puts it bluntly: “The iPhone was crippled when it first came out.”

This time Steve turned around even faster than he had when his team had convinced him to go for iTunes rather than pursue iMovie any further. He didn’t do so gracefully—“Oh, hell, just go for it and leave me alone,” is how Eddy Cue recalls his edict—but he did so quickly. In the fall of 2007, Doerr got a phone call. “From out of the blue, Steve said, ‘I think we should talk. Come on down to Cupertino and tell me about this fund idea that you have.’ So I went to work, and we hastily pulled some materials together and proposed something we called the iFund. I told him we’d commit fifty million dollars to it. Scott Forstall, the Apple guy then in charge of the iPhone operating system, was in the meeting. He said, ‘Come on, John, fifty million dollars? Surely, you could do a hundred.’ So we bumped it up to one hundred million.”

In November, just over four months after shipping its first iPhone, Apple revealed that it would make available a software development kit for anyone who wanted to develop apps. “That’s when we knew Steve had finally come to see the light,” Gassée says. “Suddenly, that was all anyone was talking about in the Valley and in the VC community. Hundreds of little guys signed up, and the race was on. Then they announced the App Store. And then they released the iPhone 3G [the second version, which shipped in July 2008, and had better wireless and a faster microprocessor]. It was only then that the iPhone was truly finished, that it had all its basics, all its organs. It needed to grow, to muscle up, but it was complete as a child is complete.”

IN THE EIGHT years since that January 2007 MacWorld, Apple has sold more than a half billion iPhones. It is the most successful, most profitable consumer electronics product ever, by just about any measure—units sold, dollars of profit generated, number of global carriers that sell it, the number of apps written for it. When you think of it, who sells a half billion of anything costing hundreds of dollars? Sure, Procter & Gamble sells billions of tubes of toothpaste and Gillette sells billions of razor blades. But those don’t come with two-year service contracts that can effectively drive the price of ownership to nearly $1,000 over the life of the product.

When it first appeared in the summer of 2007, there were other devices on the market that described themselves as smartphones. Palm had been selling its Treo for several years, and a Canadian company, Research In Motion, had done well with its BlackBerry. All of these models had pint-sized keyboards and squarish screens. They were all adequate for checking email, looking at your calendar, or finding contacts in your address book. And their businesses were basically doomed, although BlackBerry would hang on for years. The iPhone changed the category forever. Google understood this, and within eighteen months developed Android, a free knockoff of the iPhone’s operating system software that powered phones made by the likes of Samsung, LG, HTC, and later an upstart Chinese handset maker named Xiaomi. A new race was on, and Apple had the lead. Android handsets would eventually outsell iPhones, but this has not been a redux of the Macintosh experience. At least not yet.

Marc Andreessen, the cofounder of Netscape who has become a highly successful Silicon Valley venture capitalist, calls the introduction of the iPhone a seminal event that “flipped the polarity” of what makes Silicon Valley go. Once upon a time, wealthy entities like the military and big corporations drove technological change. They were the only ones who could afford machines with leading-edge components. No more. Now it’s consumers like you and me who lead the way. “The scale economics are gigantic, since these are being sold in such volume,” says Andreessen, whose shaved head looks like an artillery shell, and who talks like a machine gun spraying clipped, staccato bursts of forward-thinking analysis. “We’re talking eventually billions of these things. As a result of that, the smartphone supply chain is becoming the supply chain for the entire computing industry. So the components going into the iPhone [like Corning’s Gorilla Glass, and especially the cellular microprocessors based on a design by ARM Holdings, a British firm] are going to take over computing. By end of decade, even servers will be ARM-based, because the scale economics will be so great that anything else will not be able to compete.”

In other words, Steve had just turned the computer industry on its head. The iPhone marked the emergence of a new form of computing that was more intimate than what had been called personal computing. “My theory about the turnaround of Apple is that what they have accomplished is relatively underappreciated,” says Andreessen. “Mac, iPhone, and iPad are all Unix supercomputers packaged into a consumer form factor. That’s basically what they did. That’s the part that nobody talks about, because everybody’s so design-obsessed.” He leans forward to drive home his point. “That iPhone sitting in your pocket is the exact equivalent of a Cray XMP supercomputer from twenty years ago that used to cost ten million dollars. It’s got the same operating system software, the same processing speed, the same data storage, compressed down to a six-hundred-dollar device. That is the breakthrough Steve achieved. That’s what these phones really are!”