A Rival's Desperate Proposal

Just as Yoo Jae-won appeared startled by the unexpected proposal in their smart war, Steve Jobs had visibly hesitated right before bringing up the investment. It was only natural. ID Group and Apple were, by all accounts, perfect rivals. Both companies manufactured complete PCs and possessed their own operating systems. They had also released PC peripherals such as monitors, keyboards, and mice. Recently, both had entered the MP3 player and music download markets, and with the iPhone announcement, they were now clashing directly in the mobile phone sector as well. Of course, ID Group was far larger in scale, yet it remained clear that the group's core strength lay in the PC field.

“An investment, you say. It’s rather sudden. What kind of investment are you proposing?”

Logically, rejecting Steve Jobs’ offer outright would have been the correct move. Yet Yoo Jae-won knew better than anyone that the world rarely operated on simple logic.

“Two things. One is an equity investment. The other is an investment tied specifically to the iPhone.”

Equity?

“If you accept the deal, we will issue new shares. It would amount to ten percent of the total equity.”

In other words, he was asking Yoo Jae-won to purchase Apple stock. On a broader level, there was nothing particularly strange about it. Even in his previous life, when Microsoft had still been dominant, the company had held shares in Apple. The reasons were debated, but they likely mirrored Intel’s decision to hold a stake in AMD. When running a company, the greatest threat was always the unexpected. Stability required the ability to anticipate a competitor’s moves. The problem was that, thanks to Yoo Jae-won’s existence, ID Group and Apple had never needed such precautions.

Another drawback was that Apple was not known for paying dividends. This was hardly unique to Apple; most American IT firms shared the same trait. Only after the subprime mortgage crisis wiped out the old guard did more companies begin distributing dividends. Still, Apple had been especially stingy. Even while sitting on astronomical cash reserves during Steve Jobs’ tenure as CEO, shareholder payouts had been minimal—little more than token gestures.

Perhaps that was why Steve Jobs could so casually suggest an equity investment; he had no intention of paying dividends anyway. Yet the situation was slightly different from what Yoo Jae-won had expected. Steve Jobs had arranged this meeting out of sheer desperation. Offering equity to Yoo Jae-won was the very last thing he had wanted to do, but Apple’s dire financial straits had left him no choice.

In Yoo Jae-won’s mind, the image of Apple at its peak in the early to mid-2000s remained vivid, but that success had only come after the iPhone became a global phenomenon. The Apple of today was more like a wounded lion, its balance sheet riddled with accumulated losses from repeated failures in the late 1990s. Mac OS X and the iPhone were the desperate masterpieces Steve Jobs had squeezed out of every last ounce of Apple’s remaining strength—high-stakes gambles where failure meant ruin. At least Mac OS X had built upon the foundation of NeXT, so development had not been overly difficult. The real problem was the iPhone.

“While developing the iPhone, we ran into two major challenges.”

Yoo Jae-won listened carefully. Hearing behind-the-scenes details about the iPhone from Steve Jobs himself was something that had never happened in his previous life.

“Two challenges?”

“You’ve built the T-Touch Phone yourself, so you must understand. It’s the compromise between hardware perfection and cost reduction.”

Yoo Jae-won nodded at Steve Jobs’ words. Ideally, one would want to release a product with the highest possible specifications, but that was only feasible in a high-tech laboratory. While the Xbox was being sold at a loss as part of a grand strategy, the T-Touch Phone had to generate profit. Even so, hearing this from Steve Jobs felt oddly dissonant. After all, the newly released iPhone carried a price tag of $1,199. Even if it boasted a groundbreaking 1GB of built-in storage, a price exceeding one thousand dollars was beyond imagination. No matter how devoted an Apple fan might be, that figure would give anyone pause. Yet the iPhone was not exactly a high-spec device either. Integrating 3D acceleration into the AP had been an impressive innovation—one the T-Touch Phone, limited to 2D, could never match. Still, using that as justification for pricing the device nearly twice as high as the T-Touch Phone defied Yoo Jae-won’s common sense.

“The other challenge is filling the absence of applications that can be installed on this completed iPhone.”

This, at least, he could understand. While smartphone applications appeared on screen as simple icons, each one required significant time and money to develop.

“It cost over three million dollars just to create the navigation app.”

Steve Jobs shook his head as he mentioned the figure, clearly pained by the expense. Yet Yoo Jae-won found the number surprisingly low. Covering all of North America for three million dollars was practically a bargain. Steve Jobs was not exaggerating, however. Navigation was one of the iPhone’s flagship features. While photo and video recording were possible on the T-Touch Phone as well, navigation was unique to the iPhone. Other phones, including the T-Touch Phone, lacked GPS sensors and therefore could not implement it. From the moment he decided to include a GPS sensor, Steve Jobs had planned to bundle navigation software. But once iPhone development began in earnest, a new problem emerged. Apple’s limited development team would never finish the app in time. So Steve Jobs chose to acquire a Silicon Valley venture company that had already been working on navigation software. The acquisition price had been three million dollars.

The issue was the quality of the finished navigation app. While the miniaturization of the GPS sensor had been achieved, the overall performance remained unsatisfactory. It took too long to acquire the user’s current location, and the map data was far too sparse. Smaller cities were omitted entirely, and even in densely populated areas the data was incomplete. In stark contrast stood Nextcom’s map service. By purchasing commercial satellite imagery on par with military-grade maps and releasing it for free, Nextcom had created an enormous synergy effect when combined with its search engine. Information about restaurants, pharmacies, hospitals, and government offices proved invaluable even to locals. When map data merged with search results to display such practical details, it delivered real economic benefits to local businesses. The problem was that all of this data had to be registered manually—an enormous expense that Apple simply could not afford. The same limitations applied to every other application. While developing the default apps for the iPhone, Steve Jobs had been forced to confront Apple’s weaknesses head-on. The greatest advantage of a smartphone was the ability to enjoy the internet in the palm of one’s hand, yet Apple’s internet services consisted of little more than iTunes. Unlike ID Group, Apple had no portal like Nextcom, no content distribution channel like Timeflix, and no game studio like ID Entertainment. On top of that, ID Group dominated fields such as video and graphic editing through ID Office. It was through this realization that Steve Jobs had come to understand just how long Yoo Jae-won had been preparing for the smartphone era.

The decisive factor had been the App Store. Launched with the Livepod and further refined with the T-Touch Phone, the App Store had reached the level of activation Steve Jobs had always dreamed of. Over one hundred thousand applications were already registered on the ID App Store. While games made up the majority, there were also substantial numbers of SNS and new internet services. Seeing ID Group’s perfectly prepared portfolio, the sense of victory Steve Jobs had felt at having seized the smartphone initiative with the iPhone vanished like a mirage. Yet building such internet services from scratch was simply beyond Apple’s capabilities. Even developing iTunes had been an enormous burden. Competing against the formidable Next Music had also failed to deliver the expected profitability. In the end, Steve Jobs had chosen his final option: bringing ID Group’s killer applications onto the iPhone.

“Wow.”

The analysis was so objective that it drew genuine admiration. Steve Jobs truly was a cold-blooded innovator rather than merely a developer. A pure developer who had built the iPhone from start to finish would never have tolerated ID Group’s icons appearing on the device. But Steve Jobs had assessed reality with ruthless clarity and extended his hand without hesitation to maximize the iPhone’s utility.

“Are you asking us to install the ID App Store on the iPhone?”

“Haha, that’s not it. Apple operates under an entirely different security system and framework from ID Group. We will welcome you to the Apple App Store under the most favorable terms possible.”

Yoo Jae-won had asked on the off chance, but Steve Jobs remained as unyielding as ever. Allowing the ID App Store onto the iPhone would have meant Apple was content to remain a hardware company alone. Steve Jobs understood perfectly well that ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠the App Store represented the juiciest part of the iPhone business.

“Hmm. I’ll need some time to think this over.”

Yoo Jae-won had come to the meeting with a relatively light heart, thinking he was simply meeting a legend. Yet the ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠proposal Steve Jobs had prepared was not something that could be decided lightly. He could either help nurture a struggling Apple into something much larger, or he could strip the iPhone business down to its shell and claim the core for himself.

At Yoo Jae-won’s response, disappointment was plain on Steve Jobs’ face. He had been certain that Yoo Jae-won would accept. That was why he had led with the equity sale; based on Yoo Jae-won’s usual expansion patterns, acquiring a stake was the most common approach. As long as his position as Apple’s CEO remained secure, Steve Jobs was willing to part with equity even if it meant receiving fewer stock options. The additional funds needed to build Apple’s ecosystem would simply be a bonus.

“I understand.”

After a moment of thought, Steve Jobs nodded. He had considered offering further concessions to secure a quicker answer, but he knew there was nothing more he could realistically give beyond this proposal. The atmosphere grew slightly awkward, but the moment passed quickly. Yoo Jae-won, apparently deciding the ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠important matters had been settled, began rummaging through his bag and pulled something out. It was an iPhone—two of them, in fact. One was still sealed in its original packaging with the security tape intact, while the other was the bare device itself.

“Could you sign these for me?”

The request came out of nowhere, but Steve Jobs picked up a pen without hesitation. Another treasure had just been added to Yoo Jae-won’s collection.

Yoo Jae-won sent the official notice to Apple four days after his meeting with Steve Jobs, on August 11th. The document began with the standard phrase wishing the recipient endless prosperity, and its content was straightforward. He had reviewed Steve Jobs’ proposals favorably and suggested moving forward with working-level negotiations to draft a contract.

Yoo Jae-won had discussed the matter with Remington, Choi Kang-wook, Ellen, President Henry, and the founding members, as well as the development teams at ID Technology. He had decided to accept both the equity acquisition and the iPhone application development proposals. Had Apple possessed internet service businesses beyond iTunes, he might have rejected the offer. But since Apple’s only internet-related service was ‍‍‌‌⁠​​⁠‌​​‍​​‍​‌​⁠‍‌‍⁠⁠‌⁠‌‍‌‍‌‌‌‍⁠​‌​‌​‌‍‌‌‌⁠‍​​‌‍⁠‌‌⁠⁠iTunes, allowing ID Group’s internet services to fill the gaps in the iPhone ecosystem would only strengthen ID Group’s own position. From the user’s perspective, being able to access email, cloud servers, and paid content seamlessly across both T-Touch Phones and iPhones would be beneficial in itself. Furthermore, if Apple survived in the smartphone market through fair competition with ID Group, there was a chance it could once again deliver explosive stock growth. The potential for significant capital gains was worth considering. Thus, Yoo Jae-won purchased a ten percent stake in Apple for 1.2 billion dollars. At the time, Apple’s stock price hovered in the low three-dollar range with 4.6 billion shares outstanding, meaning he had actually received a modest discount rather than paying a premium.

In return, ID Group agreed to release iPhone versions of ID Office, Nextcom, Timeflix, and other applications as quickly as possible. Because Apple was a publicly traded company, the stock market reacted immediately to the major deal. The share price, previously in the low three-dollar range, surged sharply into the high threes. Typically, stock prices rose ahead of a new product launch and then fell sharply afterward. If sales exceeded expectations, the upward momentum might continue, but the iPhone’s sales had fallen short of expectations due to its high price and lack of applications. The stock should have been falling, yet the big deal with ID Group had triggered a reversal.

“Now it’s my turn to move.”

Yoo Jae-won closed the internal HTS program at ID Investment after checking Apple’s stock price. He had done enough favors for others. Now it was time for him to take the initiative.

Meow!

DiDi, sprawled comfortably across his desk, let out a supportive cry as if cheering him on. Yoo Jae-won stroked the cat’s thick fur, then turned his full attention to the monitor and began his programming work.