Wednesday, October 12, 2011

iTunes and A.R.Rahman; iPad and Ayn Rand:Lesson's in Capitalism

Growing up in Tanjore in the 80's and early 90's one of the pastimes in our family was to procure cassettes (yes, those tapes) of Tamil film songs. Often time we would make a list of just the songs we wanted and take it to a shop where they would look up their repository of collection and say which ones we could get. For like Rs50 we could get our own collection of songs. Sometimes the collection would have a theme like "Songs with Moon" (Nila Paadalgal), al the songs would be centered with moon as analogy for the theme. Copyrights were unheard of. Mostly Ilayaraja songs. Ilayaraja reigned supreme in 80's Tamil film music. This practice was common all over Tamil Nadu. Street corner tea shops would have cassettes like that and blare the latest hit songs early morning. Ilayaraja commanded a princely sum for scoring the music but earned literally zero from all these sales. He would not even have known that such a thing is possible. Hollywood Screen Writers get, I read, a dollar from the sales of each DVD in addition to their fee for writing screen play. Imagine the accrued earnings for a block buster movie.

Today A.R.Rahman earns in crores, sums which Ilayaraja would not have dreamt of. When the soundtrack of Rajini's last mega blockbuster movie, scored by Rahman, was released it burned the charts on iTunes. From the day he scored for 'Roja" in 1992 Rahman has come a long way. Now he signs contracts with recording companies like Sony at unheard of sums. Sony, no doubt, factors sales from iTunes and I'd guess Rahman's lawyers, if they are good, put in clauses for royalties from online sales. The Rajini movie is now almost a year old but even today if I bought the song revenue is shared between Apple and the record label and I am sure the music composer gets a share too.

Steve Jobs took capitalism to areas where only crony capitalism existed. An invention in America, product made in China (with South Korean and Taiwan parts), enables an obscure Indian musician to earn money through a Japanese recording label. Yes today too infringements of copyrights like I narrated would certainly take place in India but Rahman's avenues to earn money have expanded making him a global brand. If this is not progress I'd love to know what is. Seminars on economics can be woven around this.

As a bibliophile I watch with sadness as book store chains disappear. Today I read that the last remaining book store chain (Barnes and Noble) faces a possible bankruptcy. Apple's iBook (an app originally created for iPad) and's Kindle are the key drivers. Tennyson in his 'Idyll's of the King' wrote beautifully, "the old order changeth yielding place to new...lest one good custom should corrupt the world". Yes, a good custom left undisturbed for long will corrupt. Book selling and reading is undergoing an epochal change. I've a dog eared copy of Ayn Rand's epic "Atlas Shrugged" bought for $7. I've read the 1000 page tome several times. Yesterday 'Atlas Shrugged' was released for iPad as an app complete with rare videos of Ayn Rand's speeches, graphic laden biographical time lines, trivia quiz, multimedia presentations etc. This book published in 1954 is being repackaged and republished for the 21st century 50 years later. Cost $14. Worth every penny. 9How I wish some Tamil Classic was rendered thus but....OK why go there). Children's books are the best. Those books come with read along option with each word being read out and highlighted as they are read out.

As with iTunes store it was the app store that unleashed a torrent, not just of creativity, but very importantly of capitalism. With the core principles of free market such as copyrights, revenue sharing, ratings, comments and more app store democratized capitalism to an extent unseen in centuries. Today a college student sitting in a dorm can 'create' something, sell it and call it his 'earning'.

Steve Jobs never made anything cheap. He did not donate anything to anybody. Microsoft and Intel partner together in donating computers (of course with Windows and Intel chips) to schools. Microsoft products are far cheaper than Apple products. Microsoft and Intel really ushered in the PC era though affordable PC's. While reams of newsprint hail Jobs' business acumen in churning out products that sold at premium and sold in blockbuster numbers what is generally glossed over is a big business failure of Jobs. Jobs refused to unbundle his software (Mac OS) and the hardware. Bill Gates, very shrewdly, did the opposite and created the PC era with IBM.

Steve Jobs never subscribed to anything 'free'. Freeware was anathema to him. However iTunes serves as a platform for Ivy League universities that disburse classes free. MIT's 'Open Course ware" is very popular. MIT posts classes by its professors online through iTunesU (iTunes University). I once downloaded a physics lecture on Snell's law and practically relearnt everything that my teachers pathetically failed to teach at school and college. If colleges, in Tamil Nadu, just had internet connections and students only watched these lectures they would learnt twice as much as they learn from those who roam in the colleges calling themselves as lecturers.

That Steve Jobs is mourned so much today is not only because he produced entertainment products that millions use. Users, especially of iPhone and iPad are not just passive users. The iPhone and iPadiPad in turn become an extended identity of the owner. One can never say that of Microsoft office or a Bose audio system. Ayn Rand's biggest agony about industrialists and innovators was that they lacked the philosophical framework to appreciate what they were achieving. Likewise Apple users, mostly unknown to themselves, take part in a quintessential free market ecosystem that is the bedrock of capitalism.

The ultimate principle of capitalism is 'individualism'. The individual is the building block of capitalism. One commentator highlighted how Jobs and his products enabled individualism on a scale that no innovator or product had achieved before. Ayn Rand's in her novella  'Anthem' depicts a collectivist society where the word "I" is banished and its usage is punishable by death. Apple products are all prefixed with 'i', iPad, iMac, iPhone, iPod. 

Time magazine's "Person of the year" in 2006 was "YOU". The cover featured a Mylar strip in the place of a computer (an iMac) screen reflecting the person who is reading it. In an age of twitter, Facebook, blogs where every person expresses himself Steve Jobs and his 'i's just fit in. He cashed on an era of individualism by making his users feel that  the products they use are an extended identity.

The Apple product we bought is not a one time money-earner for Apple. The product serves as a channel for continued revenue. A PC sold by HP is one time money-earner. An iPad continues to earn money for Apple beyond the initial sales. Everytime we buy a song or an app a share of the cost goes to Apple as much as it goes to the creator of the app or the record label of the song. Let me be clear, I've the deepest admiration for business strategies that are innovative in creating revenue streams for companies. Anybody can choose never to buy an Apple product or having bought they can choose not to spend on apps etc and use it without paying one cent more to Apple.

There is a dark lining though amidst this sunny aspect of capitalism that is enveloping millions. Sociologists often talk about 'digital divide'. 'Digital divide' refers to the gulf between those who have access to internet and digital technologies and those who do not. My daughter plays piano on the iPad, listens to wide array of music, watches excellent shows, plays with innovative apps that teach physics and math. She loves to construct bird houses within a budget and test them for sturdiness. This learning experience is possible only because I could afford a pricey digital product. Some rich counties in USA are using iPads in classrooms. A kid from lesser fortunate circumstance would miss out on this. This is deepening the digital divide.

Before the critics of free market pounce on that let me caution do not take it for granted that nobody else would come along with a cheaper and better product. When Steve Jobs signed a exclusive arrangement with AT&T for iPhone AT&T's chief competitor Verizon used all their innovativeness to stanch the migration of its customers. Jobs could hold that exclusive deal for only 4 years. AT&T network was plagued by heavy data usage of iPhone customers. Finally as iPhone subscription reached a saturation point with AT&T Jobs then expanded the availability to Verizon in early 2011. The latest iPhone is available on Sprint too thus increasing the iPhone carriers to 3. Another big factor in expanding the availability is the success of Android phones.

Customers unsatisfied by the monopolistic attitudes of Jobs went to Android. Android, developed by Google, is sold to phone makers. Google, after a short disastrous stint, got out of the business of making phones. So its the classic DOS vs Mac OS fight retold as Android Vs iPhone. Android app store is more liberal unlike the control freak Apple in approving apps. Android phones now surpass iPhone sales. As Jobs said 'this is life in the technology lane'. So there might come a competitor to obliterate iPad soon enough and THAT's the charm of free market.

While Steve Jobs is being mourned by all and sundry there is little awareness of how he furthered the cause of capitalism and I wish Ayn Rand wrote his obituary. From Adam Smith to Ayn Rand with Edmund Burke, Friedrich Hayek, Milton Friedman in between praise Jobs for his signal service to capitalism and free markets.

Monday, October 10, 2011

Steve Jobs: Posterboy for Capitalism, Ayn Rand and Genius

In early 1980 Gorbachev's deputy showed him an Apple computer and said "Look, this is a revolution' (David Hoffman's Pulitzer awarded 'Dead Hand').

A saga and an epoch that has changed lives, created jobs, destroyed jobs and, most notably, introduced us to desires we did not know existed within us, has ended. No one book, let alone one blog or one column can do justice to the life that Steve Jobs lived. Wikipedia gives a good short hand biography of Jobs so I shall not regurgitate either arcana like his being an adopted son etc or recite his well known trajectory of being famously fired from a company he founded and later rejoining it to take it to stratospheric heights. Though many in US are broadly aware of Steve Jobs, his obsession for design, creating computers and software that even computer novices could use with ease, only a moment like his passing away would bring into sharp focus features of his life that we did not know.

Steve Jobs did everything that Bill Gates did, except for Gates' philanthropy yet it is Jobs who is mourned affectionately. Jobs filed patent violation lawsuits with glee, shut down charity programs at apple (Apple is the richest company on earth today), borrowed ideas (windows and mouse from Xerox corp), took what existed and improved them vastly (iPod, iPhone, iPad), complete monopoly over his products, censors what can be done within app stores (no adult content or Gay rights), when his product has an issue he would scald his competitors and use graphics to show they are no better, he would scold customers (iPhone 4 death grip affair) yet he remains the most loved.

Steve Jobs never ran focus groups to know what customer wants, he said "It’s not the consumers’ job to know what they want.". Howard Roark, Ayn Rand's architect protagonist in 'Fountainhead', could not have said it better. Roark gets his first commission to build his style of home. When the customer first sees it he enthuses that Roark had thought of the customer in every minute decision. Roark denies, "I haven't thought of you at all. I thought of the house, Perhaps that's why I knew how to be considerate of you". Roark would never include in his designs anything that was not logically flowing out of the needs of the home. Whether its the choice of tables in Apple showroom or demanding that the thinnest laptop have a full keyboard Jobs was all about perfection. A columnist noted that the worst insult Jobs could offer to a person was to say "you have no taste". That's vintage Howard Roark. Apple products are famously friendly to users. Businessweek summed it up in an article titled "Steve Jobs and design: Beautiful gadget, no manual necessary". 

The more I read of Jobs only two characters came to my mind. Howard Roark and Hank Rearden from Ayn Rand's two mega selling classics, bestsellers for 50+ years.  Jobs had been to India in search of, enlightenment but returned disillusioned and went on to found Apple. When I read Jobs's statement that "Thomas Edison has done more for the world than Karl Marx and Neem Kairali Baba put together" I felt a thrill, it was the core of every thing that Ayn Rand wrote for over 30 years.  Jobs as innovator and visionary understood that creating products that enhance lives is the best philanthropic act. He briefly ran a charity fund and later closed it. An associate remarked, "he had no time for it". The words could not have been better said of Hank Rearden who thought his inventing a rare steel that mankind should thank him for and had no rights to ask for more.

Time and again Jobs, specifically after his comeback, stood up conventional economic theories on its head. While the country reeled from a dot com bust and a terror attack Jobs unveiled a very pricey iPod. Then he married an innovative concept of running a store, iTunes, making iPod the music device to be seen with. iTunes is buggy, I've found that oftentimes it cannot match appropriate artwork for CD's when Windows media player could. But the device and simplicity of the store fed each other.

A columnist gushed that Jobs is the Henry Ford of our age. Wrong. Dead Wrong on many counts. In an era when profit sharing was unheard of Ford implemented profit sharing for every single worker of his factory. He wanted his car to be affordable to all. Jobs, as Hank Rearden, had no such desires. All of Apple products are priced well above equivalent products in the market. Apple devotees would argue hard about the value for money but its a hard case.

Little attention is also paid to how Jobs is disruptive to economy. If any economics professor wanted to illustrate the 'creative destruction' aspect of capitalism the best illustration is iPod. Last year Jobs removed the CD image in iTunes logo, "CD is an anachronism". Millions cheered. Thousands lost their job in factories that manufactured CD's and Walkmans. Sony discontinued its iconic Walkmans several years ago).

Jobs with his bestselling iPod exercised his muscle into browbeating the recording industry into lowering prices for songs. Recording industry preferred to deal with iTunes rather than Napster and keeled over to Jobs.The customers were happy. Note this is exactly what Walmart does and its the most hated big box retailer in the world. Walmart squeezes its suppliers for every cent and passes on the savings to the customer giving 'low prices'. The award for that is partisan documentary titled 'The high cost of low prices'.

Jobs with his innovative App store for iPhones created a new industry and wiped out a few. Best Buy and  Circuit City were the top two electronics retailers in USA. Circuit City closed out a few years ago leaving just Best Buy in the scene. We would expect Best Buy to become arrogant and indulge in price gouging. No luck, they are fighting for profits. App store kept them honest. Today bar code apps and QR code scanners tell a shopper inside the store, immediately, what is the cheapest price is for a 65" HDTV on Amazon or some Internet retailer. Best Buy would match the price. Customer walks out grinning and Best Buy just lost a pretty penny. Best Buy puts in a store assistant, trains them, give him benefits etc and here is the customer forcing the corporation to match prices given by an Internet retailer than has lower costs than Best Buy.

It is said that Jobs' most outstanding product might be the iPad. Between Jobs's ebook store and Amazon today the publishing industry is at a cross roads. Borders, the second largest book store chain, closed out in part due to flagging CD sales (iTunes) and books (ibooks). Barnes and Noble, the only remaining large book seller,  today resembles a toy store than a book store. iPad is one product that took iPhone to a much new plane of unleashing consumer creativity. Again note that iPad is changing parts of the economy. iPad creates and destroys jobs. The jobs it destroys are the lower paying ones. The jobs were it helps a professional become better is a higher educated worker. Remember as books go out of fashion printing presses, layout artists and so many others lose jobs. If books can be delivered wireless who needs trucks, who needs union bound truckers, who needs to take insurance for cargo, who needs able-bodied employees to unload and reload cargo. Books are now written to exploit iPad's capabilities but none of the above who lost their jobs can aspire to play a role in that. When Jobs said Edison did more for humanity than Marx what he meant was how Edison's product unleashed individual productivity and lifted millions out of poverty. Its the IPad that is increasingly written about for somebody employing it for a very novel idea. Autistic and learning disabled children respond to apps that were made possible by iPad.

Reams of newsprint is already spent on Jobs the visionary and his iconoclasm. Jobs, a college dropout, drew upon his calligraphy classes to invent 'fonts'. When IBM's Watson jeered "what is the need for a PC", Jobs saw the future. The genius of jobs is that he saw not only saw the future, he helped shape it.

The past few weeks have seen mass protests in USA against Wall Street called "Occupy Wall Street" led mostly by youngsters, many toting Apple products. Little do they realize that Apple and Steve Jobs are poster boys for capitalism.

Time magazine, in a cover story titled "Striking it rich: A new breed of risk takers" highlighted how raising Capital gains tax, a pet peeve of Obama, would hurt raising capital for innovators like Jobs. The article gushed that Jobs "single handedly created the PC industry" and is now "worth over $140 million" (in 1982).  Jobs would appear on Time magazine cover 12 times.

Jobs was an intensely private person, he was monk like in his pursuit of making lives better through technology. He lived in a modest house. Nothing was flashy about him personally. Every obituary writer drew attention to the fact that Jobs was the ultimate showman. Apple is notorious for its secrecy around products and particularly product releases. Many columnists pointed out that Jobs manipulated the media and the media loved him back. One obituary wrote tartly that Jobs would not give access to journalists unless he had a product to sell.

After the iPod triumph a scandal relating to stock options briefly appeared to knock down Jobs. Apple, with Jobs as CEO, was accused of back dating stock options. SEC inquiry cleared Jobs of personal wrongdoing yet it was a blip. If Bill Gates had done it, Microsoft would have gotten a black eye and people would have grunted "capitalist".

Steve Jobs slapped lawsuits on Microsoft alleging patent violations. Then in 1981 with Apple teetering on the brink of collapse, Jobs did what was sacrilege to his flock of devotees. Jobs asked Gates for help. Bill Gates invested in Apple giving it a lease of life. When Jobs introduced Gates at a Apple event Gates was booed. Jobs got irritated that the audience showed disrespect to the man who saved what they all loved. But Jobs himself loved to throw barbs at Gates and Microsoft. Jobs protects his patents with  a zeal that would make Ayn Rand proud of him. Apple would file prolific lawsuits against competitors especially after iPad variants hit the market.

Some obituaries compared Jobs to Thomas Edison. The publisher of tech books, Oreilly (not Bill Oreilly of Fox) demurred that some adulation is going overboard. Edison did not hire an army of geeks and lord over them. Jobs's successes have his finger prints all over but they share prints with a few others, most notably, Jonathan Ive the designer.

Every obituary of Jobs had the word "ego maniac". Jobs is notorious for not suffering fools and for verbally lacerating his people if something went wrong. Jobs's ego mania came into full view when he sparred with users. Users can freely write to Jobs and sometimes he would reply. A few weeks after iPhone 4 was released there were lot of complaints over the so called "death grip". When the phone was gripped a certain way the signals faded. Jobs retorted "don't hold it that way". The furore refused to die down and Jobs backed down finally but in a way that was, well what to say, classic Bill Gates.

How Jobs steam rolled AT&T into giving him a carte blanche for developing iPhone is industry gossip. Verizon refused to give him that. Later Verizon, in a shining example of capitalism, fought tenaciously to prevent its users from jumping to AT&T just to get the new craze in town. When Jobs attempted the same techniques in Europe he was rebuffed. European commission frowned on Jobs giving exclusive rights to one carrier thus robbing the consumer of choice. Note, yet again, if Gates had done something like tons of antitrust law suits and scathing articles would hit him.

iMac's are the only PC's today that do not have a Blu-Ray DVD option. I bought a High definition camcorder and started testing it out. I used canon's own software, provided only for Windows, and burnt DVD's of the recordings I made. It was wonderful. There was no software for Mac be causes Mac's famously come with Apple software, like iMovie, that can handle any product. Finally I burnt a DVD from Mac. The quality was crappy. I spent 2 hours in a Mac store and finally figured out that the iDVD software, notoriously never updated by Apple, is crappy and introduces interlaces. Its not that Windows DVD burning is superior but possibly Canon's software removes the wrinkles. No luck for Mac because Jobs brushes off manufacturers from writing anything specific for Mac. The techie asked me "why do you need to burn DVD's, you can stream them to your TV". I said "can I stream it to my parents in India". He had no answer. Apple store employees will rarely accept that their product has shortcomings. They have drunk from the corporate koolaid that they can do no wrong.

Apple products carry the personality stamp of Jobs. iPhone and iPad do not support 'flash' the most widely used software on the web for presenting videos. Jobs got into a mud fight with Adobe refusing to support what is the de-facto standard in Internet. Again, traces of Hank Rearden and Roark. Sort of, this is my product, I define what goes into it, I'll not bend to the market, I define the market.

As an admirer of Ayn Rand and Capitalism I am happy to see the life of Jobs being celebrated. It is gratifying to see somebody whose products are priced at a premium being mourned by his consumers like they lost a loved one. Jobs life is unique at many levels. During the iPhone 4 flap one commentator astutely observed that slowly Apple is facing the consumer ire akin to what Microsoft used to face when its products failed. Apple was not longer the underdog compared to a greedy behemoth Microsoft. Apple was loved by its fanatically loyal user base primarily because they made great products and equally because they were underdogs. No longer. This year Apple crossed Microsoft as the most valuable tech company and is now threatening the status of Exxon Mobil as the most valuable company in earth. His cancer affliction and his slow death smoothed the rough edges that are inevitable for a billionaire CEO. Incidentally, he earned every penny of his wealth. So when a left wing commie says that the top 1%, the billionaires in USA, take 40% of US income please remember that every single one has earned every single penny and that it includes Steve Jobs.

Steve Jobs will be remembered forever, to use what is now a cliche, for 'changing our lives'. His life is worth studying for the sheer number of lessons so many can learn.