Steve Jobs' Greatest Surprises

Apple's chief executive is the master of surprise--and not just when he's launching new products.

BURLINGAME, Calif.--Mark your calendars. Thanks to Steve Jobs, January has become the season of surprises for the technology industry.

Over the past decade, Jobs has taken over the global music business, turned Apple's (nasdaq: AAPL - news - people ) clunky computer business into a juggernaut and stormed through the wireless industry with the iPhone. As a result, the Cupterino, Calif., company's shares have risen more than 1,000% over the past 10 years. By contrast, mighty Microsoft's (nasdaq: MSFT - news - people ) shares have fallen more than 40%.

So what's next? Nobody knows. That's what makes Apple so dangerous. The only certainty: Apple will surprise us with something during the first full week of January at MacWorld in San Francisco. The week is usually marked by big news from Apple Chief Jobs.

In Pictures: 10 Great Steve Jobs Moments

So what will it be this year? Rumors abound. Some speculate that Apple will introduce a tablet computer. Others say Apple will roll out a line of low-cost iPhones. Anything is possible. That's in large part because Apple has been so unpredictable over the past decade.

The biggest surprises have been unexpected new products. The pattern was set in 1998, when Jobs unveiled the candy-colored all-in-one iMac. Since then, Jobs has launched a barrage of surprises. The biggest include the MacBook Air and the Cube.

So what will it be this year? Rumors abound. Some speculate that Apple will introduce a tablet computer. Others say Apple will roll out a line of low-cost iPhones. Anything is possible. That's in large part because Apple has been so unpredictable over the past decade.

The biggest surprises have been unexpected new products. The pattern was set in 1998, when Jobs unveiled the candy-colored all-in-one iMac. Since then, Jobs has launched a barrage of surprises. The biggest include the MacBook Air and the Cube.

Even the widely anticipated iPhone was a surprise. While reporters had teased out the new products name, few guessed that Apple would introduce a touch-screen phone that didn't sport any buttons.

Probably the biggest shock was Apple's switch to Intel (nasdaq: INTC - news - people ) processors. While the switch had been rumored for months before the 2005 Apple Worldwide Developers Conference, many had dismissed the rumor as absurd. Instead, it turned out to be true.

Illustration by Peter Arkle

A few years ago, if someone asked what sort of cell phone you had, your response would probably be to name a network, like Sprint (S) or Cingular (T). Wireless carriers so completely controlled the business, especially in the U.S., that many manufacturers weren't even allowed to put their brand names on handsets. Now this relationship is changing in ways that will reduce the power of carriers and, with luck, increase consumers' choices.

The relationship started to shift when people began using phones for more than voice calls and text messages. As browsers and e-mail systems became important, it mattered more whether you had a Palm (PALM) Treo or a BlackBerry (RIMM) than whether your phone ran on the Verizon Wireless or AT&T (T) network. Then along came Apple's (AAPL) iPhone to rewrite the rules completely.

The conventional wisdom holds that AT&T scored a coup when it signed on as the exclusive U.S. iPhone carrier, and on one level this is true. The company reported that it activated 2.4 million of the new 3G iPhones in the third quarter, that 40% of those customers came to AT&T from rival operators, and that their average monthly bill was 1.6 times that of other subscribers. But the impact on AT&T's bottom line is another story. Mostly because of the fat subsidy it pays Apple for each iPhone, AT&T's third-quarter earnings of $3.2 billion were $900 million less than they would otherwise have been.

AT&T should eventually recoup the subsidy from monthly fees, especially if subscribers don't come in for a new subsidized phone the minute their two-year contract is up. But what the carrier has probably lost forever is ownership of the customer, a process economists call "disintermediation."

Before the iPhone, relatively few owners of any phones—smart or dumb—downloaded applications. The carriers had a nice business selling ringtones and the odd game. But with iTunes and the App Store, Apple became the exclusive supplier of applications as well as music and videos. The content suppliers got about two-thirds of the revenue, Apple kept about a third, and the carriers were frozen out.

"It's remarkable the impact [Apple] has had," says Jim Balsillie, co-CEO of BlackBerry maker Research In Motion (RIMM). "They exposed a lot of disintermediation risk in the industry." Balsillie says when RIM proposed application stores a couple of years ago, the carriers were hostile. But Apple's success is forcing the carriers to play. "Now everyone wants [an app store]," Balsillie says, and RIM will oblige next year, offering terms that will give carriers some of the action. Google (GOOG) has the Android Market, and Microsoft (MSFT) is considering an app store for Windows Mobile.

A key test of the new relationship between handset makers and smartphone software publishers, carriers, and customers will arrive when turn-by-turn driving instructions come to the iPhone. Apple seems to have created the phone with navigation in mind, yet the App Store prohibits programs that offer real-time driving instructions. Such services are available for other smartphones, typically for $10 a month, with revenues split between the carrier and a service provider such as TeleNav or Networks in Motion. Apple is mum about its intentions, but rumors are flying that it plans a navigation offering that leaves carriers in the cold.

I wish Apple were less controlling and less opaque about what may be sold at the App Store, but on the whole, I think the development of a robust market for third-party smartphone applications is a great thing for consumers. It's a huge improvement from the days when stodgy, innovation-averse carriers ran the show.

This shift in power is a bad thing for wireless carriers, whose nightmares of being turned into commodity sellers of bandwidth are coming true. But it's a win for everyone else.

Apple's chief executive is the master of surprise--and not just when he's launching new products.

Among the sector activity stories for Wednesday, Dec. 10, from AP Financial News:

CHICAGO (AP) - Shares of the nation's office suppliers rose Wednesday after Office Depot Inc. (nyse: ODP - news - people ) said it would eliminate 2,200 jobs and close 112 stores in a cost-cutting effort.

NEW YORK (AP) - An FBR Capital Markets (nasdaq: FBCM - news - people ) analyst said Wednesday that Apple Inc. (nasdaq: AAPL - news - people )'s production cutbacks appear to be slackening, in a welcome sign for the company's parts suppliers.

NEW YORK (AP) - Airlines stocks fluctuated Wednesday as the broader markets rose but oil prices also increased.

NEW YORK (AP) - Shares of online travel companies Orbitz Worldwide (nyse: OWW - news - people ) Inc. and Expedia Inc. (nasdaq: EXPE - news - people ) edged lower Wednesday as an analyst said deteriorating travel trends and poor visibility are concerns for both online travel companies.

NEW YORK (AP) - Shares of drybulk shipping companies rose strongly Wednesday on signs that ships may be moving again and rates for the vessels are rising.

NEW YORK (AP) - Shares of credit-card lenders and processors moved slightly lower Wednesday as analysts worried about recent data indicating consumers are pulling out the plastic less frequently as the economy continues to weaken.

Even as Macs have multiplied, the number of viruses and Trojans targeting them has fallen.

Even as Macs have multiplied, the number of viruses and Trojans targeting them has fallen.

The tough economy seems to be having little affect on iPod sales, according to one analyst Wednesday.

Kaufman Bros. analyst Shaw Wu said in a note to investors his checks show Apple (nasdaq: AAPL - news - people )'s popular music player has joined the iPhone in the sold-out category.

He said wait times at online retailer Amazon.com (nasdaq: AMZN - news - people ) for the $229 8 gigabyte and $299 16 gigabyte iPod Touch models are three to five weeks.

Wu said certain retailers, including Best Buy (nyse: BBY - news - people ), Target (nyse: TGT - news - people ) and Wal-Mart (nyse: WMT - news - people ), are even seeing spot shortages of the iPod Nano, which has $149 and $199 models, and iPod Shuffle, which sell for $49 or $69.

"Frankly, we find these sell-outs on iPods surprising given how difficult the macroeconomic environment is, putting a crimp on consumer spending," Wu said in the note.

He expects Apple to sell 21 million iPods in the quarter, up 90 percent from the previous three months, but down about 5 percent from the year-ago period.

Apple's shares rose $2.42, or 2.6 percent, to $94.89. The stock has traded between $79.14 and $200.26 over the past year.

The tough economy seems to be having little affect on iPod sales, according to one analyst Wednesday.

Kaufman Bros. analyst Shaw Wu said in a note to investors his checks show Apple (nasdaq: AAPL - news - people )'s popular music player has joined the iPhone in the sold-out category.

He said wait times at online retailer Amazon.com (nasdaq: AMZN - news - people ) for the $229 8 gigabyte and $299 16 gigabyte iPod Touch models are three to five weeks.

Wu said certain retailers, including Best Buy (nyse: BBY - news - people ), Target (nyse: TGT - news - people ) and Wal-Mart (nyse: WMT - news - people ), are even seeing spot shortages of the iPod Nano, which has $149 and $199 models, and iPod Shuffle, which sell for $49 or $69.

"Frankly, we find these sell-outs on iPods surprising given how difficult the macroeconomic environment is, putting a crimp on consumer spending," Wu said in the note.

He expects Apple to sell 21 million iPods in the quarter, up 90 percent from the previous three months, but down about 5 percent from the year-ago period.

Apple's shares rose $2.42, or 2.6 percent, to $94.89. The stock has traded between $79.14 and $200.26 over the past year.