The return to Apple
Apple in 1996
To understand how Steve Jobs came back to the company he founded, it is necessary to have a look at Apple’s situation in the mid-1990s.
As we said before, Apple made healthy profits from 1986 to 1995, mainly thanks to its monopoly on both the GUI and the desktop publishing revolution. Everyone who wanted a user-friendly computer bought a Macintosh for approximately $2,000, half of which were pure profits to Cupertino.
But, starting in 1992, Apple felt threatened by an emerging super-power in the computer business: Microsoft. So far Microsoft was mostly known for providing MS-DOS to the IBM PC and its clones, which accounted for something like 80% of the PC market — the remaining 20% being Apple. But the Redmond-based company was also an application developer, and it had actually worked on the Macintosh with Steve Jobs in the early 1980s to provide Mac software such as Multiplan.
When Bill Gates saw the GUI of the Macintosh in 1982, he also understood that this was the way of the future, a future which threatened his DOS franchise. So he started working on a Microsoft GUI that could be added on top of MS-DOS: Windows.
For years, Windows was so terrible that nobody in the industry took it seriously. But Apple started feeling threatened when it became better and more Mac-like, especially after the release of Windows 3.0 in 1990. As early as 1988, Apple sued Microsoft for stealing “the look and feel” of its Mac operating system. The case ended at the Supreme Court in 1994, and Apple lost (one of the main arguments was it had itself stolen the GUI from Xerox some fifteen years earlier).
The following year, in 1995, Microsoft launched Windows 95, which was the most successful GUI release in the history of personal computing. Almost every PC user upgraded and started using GUI en masse, while Apple lost its monopoly. Macintosh sales started going down dramatically, not only because of the Wintel domination, but also because of the bad move to license the Mac OS to Mac clone makers — manufacturers of cheaper computers that could use Apple’s system. The company was losing market share, and getting rid of its successive CEOs didn’t seem to help. After John Sculley left in 1993, he was replaced by Michael Spindler for two years, and then by Gil Amelio starting in February 1996. The company was going downhill, failing to deliver new products on time and lagging behind in software development.
The first talks of Steve Jobs going back to Apple started in 1995, even before Gil Amelio was named CEO. In December of that year, Steve’s friend Larry Ellison, the founder and CEO of Oracle and one of the world’s richest men, talked about making a hostile takeover bid for Apple in the media and on his website. All the arrangements were made for Oracle and other investors to purchase the company for about $3 billion and install Steve as its new boss. Steve later explained that he was the one who decided against it at the last minute:
I decided I’m not a hostile-takeover kind of guy. If they had [asked] me to come back, it might have been different.
Steve Jobs on the takeover bid, quoted in a Time article from December 1996
A new foundation for the Mac OS
It was one year later that Steve’s return to Apple was set into motion. In November 1996, the company was looking for a new operating system for its future Macs. The Mac OS was bloated with old technologies, slow, and unadapted to modern computers. Apple had been working for some time on an internal project called Copland, yet it was constantly being delayed and it soon became obvious it would not fit the bill. So CEO Gil Amelio started shopping around for a modern OS to buy, and after a while, a consensus started to emerge on Jean-Louis Gassée’s BeOS. Gassée was the former Apple France executive who was supposed to replace Steve Jobs as the head of the Macintosh division in 1985. He had since left Apple and started his own company, Be Inc., whose software had everything Apple needed, including the good taste of running natively on Apple’s products.
However some NeXT employees called up Apple and told them about their own system, the very advanced NeXTSTEP, that had always been regarded as one of the best software platforms on the planet. Steve Jobs learned about it later and he was stunned. But in December 1996, he showed up at Apple for the first time in eleven years and not only convinced the board of using his technology, but also to buy his company. Apple agreed to pay more than $400 million for NeXT, whereas Be was only asking for $200 million.
Joining Apple fulfills the spiritual reasons for starting NeXT.
Steve Jobs said, envisioning the finally wide-spread use of NeXTSTEP, a dream he had struggled ten years to realize. As part of the deal, Steve got 1.5 million Apple shares that he could not sell for a year, and was appointed “informal adviser” to CEO Gil Amelio…
Steve also agreed to take the stage at Macworld Expo in January 1997. The show painfully showed how disastrous the company’s management had become under Amelio. The CEO kept rambling, unable to make sense as he got lost in his notes. And then he dropped the bomb: Apple had had one its most terrible quarters ever in Q4 1996, with sales that fell 30% below their 1995 level.
The situation did not improve as in Q1 1997, the company lost $700 million, making the total losses under Amelio amount to over $1 billion. Steve sold his stock the minute he was allowed to do so, sending it further into the bottom:
Yes, I sold the shares. I pretty much had given up hope that the Apple board was going to do anything. I didn’t think the stock was going up.
It was too much. In July, the board of directors, led by Steve’s ally Ed Woolard Jr., ousted Amelio after 500 days on the job, and asked Steve Jobs to become the company’s new chairman and CEO. He declined, accepting only to become a mere member of the board and an interim CEO, to supposedly help the company get back on track before leaving the position to somebody else. He was concerned about being CEO of two public companies at the same time — Pixar and Apple. After he seized power, he reformed the board to install his friends: of course Ed Woolard, chairman of DuPont, stayed, as well as Gareth Chang, president of Hughes International. The new members were all supporters of Steve, starting with his friend Larry Ellison, CEO of Oracle; Jerry York, former CFO of Chrysler and IBM, also joined, together with Bill Campbell, the CEO of software developer Intuit.
The interim CEO
Macworld Boston 1997
One of Steve’s first decisions was to make a deal with market leader Microsoft. This was a hot issue as to many Apple customers, Microsoft was something of a personal enemy, the embodiment of evil in the computer industry. Yet Steve Jobs came to his old acquaintance Bill Gates and proposed him to solve the several disputes between their respective companies. The deal included the end of all patent lawsuits, a promise to keep releasing Mac versions of Microsoft Office for five years in exchange of making Internet Explorer the default Web browser on the Mac, and a $150 million investment in Apple from Microsoft, in the form of non-voting shares.
When Steve Jobs unveiled the deal in August at Macworld Boston 1997, the Apple fans in the room welcomed the announcements with screams of reprehension. They were especially startled when Bill Gates’ face appeared on the huge screen of the room, curiously reminiscent of the 1984 ad against IBM. After all, Steve himself had often called Microsoft “the IBM of the 1990s.”
It was during that same keynote that Steve Jobs hinted at the new marketing strategy for Apple. He would leverage the incredible power of the Apple brand, focusing only on the company’s culture of rebellion and artistic creativity. This was the germ of the Think Different campaign. Steve had come back to Lee Clow at TBWA Chiat/Day, the ad agency that was responsible for the original Macintosh’s advertising (especially the 1984 commercial), to help him restore the company’s image in the public. The result was as Jobsian as it gets: huge black and white photographs, similar to the ones he had at home, portraying great iconic people who were celebrated for having changed the world.
The ads are for people who don’t care what the computer does, but care about what they can do with the computer. The premise is that people who use Apple computers are different, and that we make computers for those creative people who believe that one person can change the world.
Allen Olivo, Apple’s senior director for worldwide marketing communications, in the NYT
It is not surprising that the agency suggested Steve Jobs as one of the persons to be displayed in the ads, although he turned it down.
Steve started working like crazy in that second half of 1997 to put Apple back on track.
He surveyed every single product team in the company, calling them in one by one in Apple’s conference room. Everybody had to convince him that their product was essential to the company’s strategy. There was no sentimentality: if the product was not making a profit, it usually had to go, however strategic it might seem to the engineers working on it. He soaked up a tremendous amount of information about all aspects of the business before taking action.
To be fair to his predecessor, Gil Amelio had already started the turnaround work by cutting the number of Apple projects from 350 to around 50. Steve finished the job by cutting it down to ten:
What I found when I got here was a zillion and one products. […] It was amazing. And I started to ask people, why would I recommend a 3400 over a 4400? Or when should somebody jump up to a 6500, but not a 7300? And after three weeks, I couldn’t figure this out! And I figured if I can’t figure it out working inside Apple with all these experts telling me into it, how are our customers going to figure this out?
Steve Jobs at WWDC 1998
Steve had brought a number of NeXT executives that had remained faithful to him at Apple. Most notably, he installed Avie Tevanian as head of software, Jon Rubinstein as head of hardware, Mitch Mandich for sales, and Phil Schiller at worldwide marketing. He personally handled operations until he hired Tim Cook away from Compaq in March 1998, naming him COO. He also left his mark on the daily life at Apple campus, enforcing new rules such as the interdiction to smoke or to bring pets to work. One of the most appreciated change was the new cafeteria, which Steve had run by Palo Alto’s famous Italian caterer, Il Fornaio. It is still considered one of the finest cafeterias in the Valley.
Some of Steve’s first decisions included the killing of the Mac clone business, which deeply hurt Apple’s hardware sales while not increasing the Mac OS market share; and the launch of Apple’s online store, one of the first of its kind. It would soon become a model to several other tech companies. Steve also brought with him the culture of secrecy he had developed at NeXT. Apple was a rumor mill at the time; every product was rumored months in advance in the specialized press… well this would end under Steve Jobs. He hung a World War II poster in his office that stated: Loose Lips Might Sink Ships. The new policy was clear: leaking information about future products to journalists or analysts would get you fired real quick.
As far as the new product strategy was concerned, it was pretty straightforward. On the software side, all the developers started working on porting NeXTSTEP to the Mac platform, headed by NeXT’s Avie Tevanian. This would end some four years later, with the introduction of Mac OS X. Regarding hardware, Steve decided to start from scratch and base the whole strategy on a simple matrix. Apple would drop its 20+ product lines and make just four great products: a consumer desktop, a consumer notebook, a pro desktop and a pro notebook.
Insanely great products
The first product lines to be renovated by Steve Jobs were the pro products, Power Mac and PowerBook, which he unveiled in November 1997, only eleven months after he came back. They were the first Macs to run the new Power PC G3 family of processors, from Motorola. They were relatively fast machines designed for creative professionals, which outperformed their Pentium-based competitors in many respects.
The new pro Macs sold quite well, proving to Steve that he was right about Apple’s customer base. He knew that a lot of Mac users had refrained from buying new computers throughout 1995 and 1996, not because they wanted to switch to Windows, but because they were afraid that Apple would disappear. It was a widespread feeling within the Apple community while Cupertino kept releasing bad products and accumulating losses. When Steve Jobs came back and insufflated the company with confidence in the future, sales started rising again. So much so that at Macworld 1998, on January 8, he announced on stage that Apple was back to profitability. For the first time since 1996, it had made a $45 million profit in the last quarter of 1997.
But Apple’s biggest hit was yet to come. When Steve came back at Apple, a team was working on a so-called NC machine, for “network computer.” It was commonly thought at the time that personal computers were living their last days before their complete replacement by so-called “network appliances”, stripped-down terminals that would get all their content from the Internet. Steve kept the project internally but made it evolve into a new consumer desktop computer, the iMac (the i stood for Internet). For the looks of the box, he turned to one of Apple’s in-house designer, a soft-spoken Englishman named Jonathan Ive. Ive had joined the company before Steve came back, but it was the interim CEO who made him head of the industrial design team.
Steve unveiled the iMac on May 6 1998, at the Flint Center auditorium in Cupertino, in the same room where he had unveiled Macintosh some fourteen years earlier. The choice was highly symbolic, just like the first words that showed up on the computer’s screen: “hello (again)”, a reference to Macintosh’s original “hello”. Steve Jobs had put Apple back at the forefront of the consumer desktop scene, a market the company had invented.
Apple made bold choices in developing iMac. It was the first mainstream computer to offer USB connectivity, a technology developed by Intel that was almost inexistent in the PC space. Apple dropped all of its older I/O for USB, and today, the iMac is recognized as the one machine that helped popularize this now-ubiquitous standard. The iMac was also the first personal computer not to include a floppy disk drive. Steve hated floppies, as we have seen in the chapter about NeXT. He only put a CD-ROM drive in iMac, deciding that users who needed floppies purchase separate Zip drives. The decision proved right, as floppies disappeared some two years later.
But perhaps the most striking feature of iMac was its radically different design, developed by Jonathan Ive and his team. It was a translucent, blue/green, round machine in a boring world of beige boxes. iMac influenced a whole generation of designers, and its mark can be felt in a myriad of different products from the time, which ubiquitously sported translucent, colored plastic.
The extraordinary enthusiasm unleashed by iMac not only boosted sales, but it reinforced confidence in the company’s future. A significant sign was the increasing number of software developers who announced they would come back to the Mac platform after iMac was introduced. This was crucial, as many critics pointed out that the amount of software available on the Mac OS was ridicule compared to its Windows counterpart.
The iMac proved one of Apple’s biggest hits, selling two million units in its first two years. But of course Steve Jobs didn’t stop there.
Only seven months later, in January 1999, he made two product announcements at Macworld San Francisco. First was a brand new Power Mac G3 tower that was not only faster, but also featured a new, appealing design inspired by the original iMac. And second was that the iMac would now come in several colors, hence its internal code name “lifesavers”… this was another breakthrough in computer design at the time.
However it would take another six months for Apple to fill its product matrix, until in July 1999, Steve unveiled the iBook at Macworld New York. The company’s consumer notebook was introduced with the tag-line: “iMac to go”, as its design clearly evoked that of its desktop counterpart. It was a sensation again to many industry observers.
During that same show, Apple also unveiled its first Wi-Fi product, the AirPort base station. Wireless connectivity was typical of an Apple innovation. The company being and wishing to remain small, it usually developed new technologies two or three at a time, not more, so that it could keep its focus and put A teams on every project. By doing so, Apple could pioneer several technologies with a brilliance unmatched in hi-tech: AirPort clearly set the standard for the future of WiFi.
After two years as interim CEO, Steve Jobs completely turned Apple around. He restored the company’s public image, implemented a successful and focused new strategy, attracted software developers, and launched highly innovative and awe-inspiring products on the marketplace. The confused product lines had turned into a simple yet powerful product matrix, filled with breakthrough computers:
A true visionary
Apple’s CEO, at last
Steve Jobs’ keynote address at Macworld on January 5 2000 was a milestone for two reasons.
First, after a little over three years of managing Apple, he declared he had accepted his de facto situation and become the company’s full-time CEO. Remember that he was only interim CEO up to this point, not wanting to upset either Pixar’s or Apple’s shareholders by being simultaneously CEO of two public companies. Time had proven this wasn’t a problem: Pixar was well managed by Ed Catmull and John Lasseter, and had released two successful movies since Toy Story, A Bug’s Life and Toy Story 2. His main role at Pixar was negotiating with Disney, which left him plenty of time to run Apple. He had turned the Cupertino firm into a leader in computer innovation again, steadily refreshing its product line and pioneering new technologies.
When the crowd heard the news, everybody stood up and cheered at their beloved leader (see it in the Movie Theater). It was obvious the Apple community was grateful to Steve for saving their favorite company.
Mac OS X
But the biggest news was probably the unveiling of Apple’s new operating system, Mac OS X.
Mac OS X was the result of three years of hard work by all of Apple’s software engineers to port NeXTSTEP to the Mac platform. The new system felt like an evolved version of the Mac OS, but people familiar with NeXTSTEP felt home too. You can verify this on this video from our website.
Let’s have a look at the system’s architecture to see what we mean.
The system’s UNIX kernel was called Darwin, and it was based on Mach, the modern kernel technology developed by Avie Tevanian at Carnegie Mellon and the foundation of NeXTSTEP. Darwin was why Mac OS X had protected memory and pre-emptive multi-tasking, which allowed for multiple applications to run at the same time without ever bringing the system down. It also provided very advanced networking, unlike the old Mac OS.
2D graphics were based on PostScript, just like NeXTSTEP, which allowed for nice font anti-aliasing and on the-fly PDF rendering. 3D graphics however, unlike NeXTSTEP, were based on the most widespread standard, OpenGL, not on Pixar’s RenderMan. And the media core was Apple’s QuickTime, an old Mac technology ported to the new system.
Object-oriented application development, which was the raison d’être of NeXTSTEP and its true competitive advantage, was of course possible in OS X, but it required entirely rewriting an application. So Apple provided an environment to which old Mac apps were easy to port, called Carbon — and OS X even supported those apps natively in a third environment, called Classic. Although Classic could not support any of OS X’s benefits, it was necessary to ease the radical transition from the old Mac OS to the brand new OS X.
All these advanced technologies (most of which had been available on NeXTSTEP for over a decade) were essential, but what users noticed the most was Mac OS X’s brand new user interface, called Aqua. In fact, it is Aqua that Steve Jobs introduced at Macworld 2000, since OS X’s technologies had been known to developers for over two years, and the actual system wouldn’t ship for another year.
Aqua was a revolutionary new user interface that visually took the Mac OS and even NeXTSTEP to a whole new level. It used translucent colors instead of solid grays, circles instead of angles, and shadows and transparency aplenty. In fact the reason it was called Aqua is that “you wanted to lick it”.
Mac OS X shipped on March 24, 2001, and became the core of Apple’s resurgence and current success. What an incredible twist of fate: to make a long history short, Apple was eventually saved by NeXT, a company that was created to defeat it by an angry Steve Jobs.
The Digital Hub strategy
Apple’s so-called Digital Hub strategy also emerged in 2000, although it was only disclosed a year later at Macworld San Francisco 2001 (see it in the Movie Theater).
The Digital Hub strategy was a take on the future of personal computing that went against a common belief that had developed toward the end of the 1990s. Many analysts were so enthusiastic about the success of the Internet that they were convinced the personal computer was soon to disappear. It would evolve into a mere terminal whose only purpose would be to access all kinds of content on the Web. The consensus was that the current state of the PC was a dull, boring box, and that any innovation had stopped in the industry.
Steve Jobs and Apple thought differently. They were among the very few that professed quite the opposite: the PC had a very exciting future. As they put it, it had evolved throughout the years from the age of productivity, in the 1980s, where people used it for spreadsheets and databases; to the age of networking, in the 1990s, where it connected to the Internet; and it was now, in the early 2000s, entering its third age: that of the digital lifestyle. Consumers were increasingly starting to use all kinds of digital devices: digital cameras, camcorders, music players, PDAs… But these devices didn’t make sense without a computer. The personal computer was going to become the center or digital hub of this new digital lifestyle, making all its pieces — music, photos, movies, contacts, data — come together.
It’s worth stopping and looking back at this for a minute. See, it’s such decisions that have made Steve Jobs worthy of his reputation of hi-tech visionary. He certainly isn’t always right: he never believed in Pixar’s success in making animated movies, for example, until the very last months before Toy Story was released. He thought NeXT would become a new standard in personal computing, and Pixar’s RenderMan would allow mere mortals to draw 3D objects just as easily as they laid out and printed newsletters. He also released computers that flopped badly, from the NeXT Cube to the G4 Cube, released in July 2000 and discontinued just one year later. But he really did see the future at several points in his career: first, of course, with the personal computer, which led him to start Apple. Then with graphical user interfaces, and later with desktop publishing, on the original Macintosh. We can now say without doubt that the digital hub strategy was another one of those great visions, one that has turned Apple from a niche computer company to the computer/music/consumer electronics powerhouse it is today.
Looking back at this success, Steve summed it all up in this particularly telling phrase:
The great thing is that Apple’s DNA hasn’t changed. The place where Apple has been standing for the last two decades is exactly where computer technology and the consumer electronics markets are converging. So it’s not like we’re having to cross the river to go somewhere else; the other side of the river is coming to us.
Steve Jobs in How Big Can Apple Get?, Fortune, February 2005
Indeed, if you look back at what had always inspired Steve Jobs, it was simplicity, ease of use, using computers to do creative work, and making your life easier. He always looked up to Sony, to which he was thankful for creating the consumer electronics business… in a way, he always dreamed of what Apple is doing today, and prepared the company for it, even unconsciously.
It started with iMovie, a digital movie editing application that Apple introduced in 1999. As opposed to the digital hub strategy, one can think of iMovie as one of Steve’s erroneous visions. He thought that “desktop movies”, i.e. the ability to shoot movies with digital camcorders and edit them on your computer, was going to be the next big thing in personal computing, yet another “next desktop publishing revolution.” It was one of his main points when he introduced the iMac DVs in late 1999.
But quickly enough, he realized he was wrong. Users didn’t embrace desktop movies as fast as he hoped, and certainly PC users didn’t switch to the Mac to use iMovie. However, they did go online to download music over Napster, as digital piracy really started to emerge by the turn of the century.
It was the starting point of the digital hub strategy. Apple’s software developers began work on a couple of new digital lifestyle applications, namely iDVD, to burn your movies on DVDs, and especially iTunes, the digital music jukebox. iTunes was actually written in less than five months, which exemplifies the panic of Steve when he realized Apple was late catching up with the digital music revolution. The company actually didn’t start from scratch, as they brought in an outside developer who was working on a similar piece of software to save some time.
However, Cupertino didn’t always plan to develop all its digital lifestyle applications in-house. After all, they had enough work on their hands with bringing their new operating system to market. That’s why they went to one of their main software partners, Adobe, maker of Photoshop, and asked them to develop a consumer version of their photo editing software for the Mac. To their surprise, Adobe refused, as the company didn’t believe in the digital hub strategy and was already having a hard time porting their existing apps to the new OS X platform. That’s why Apple started releasing the so-called iApps one after the other.
The iApps were a digital suite of applications that eventually evolved into iLife, which Apple branded as “Microsoft Office for the rest of your life.” They all had the same purpose of making our emerging digital lives easier. In addition to iMovie, iDVD and iTunes, iPhoto was released in 2002, followed by iCal later that year, GarageBand (for recording and editing music) in 2004, and iWeb (for making websites) in 2006. The reason Apple was able to develop such breakthrough software so rapidly was mainly Mac OS X, with its object-oriented environment inherited from NeXTSTEP.
Although the iApps were really the foundation for Apple’s future lead in the consumer electronics business, that’s not what they were envisioned for. They were intended as killer apps, i.e. apps that would compel consumers to buy a Mac just so that they could use them. More precisely, they were supposed to entice Windows users to switch to the Mac, as there was no similar complete digital-life solution on their platform.
“5 down, 95 to go”
The digital hub strategy itself was just one part of Steve’s greater plan to finally gain market share in the PC market. Since he had returned to Apple, the Cupertino company was stuck at around 5% of the overall PC market, even though most industry analysts acknowledged the superiority of its operating system, and the innovations in its hardware.
One other plan was an aggressive TV campaign called “Switchers”. Its ads showed several former PC users who had switched to the Mac and were describing how it had made their life so much easier. The purpose of the campaign was to encourage people who were thinking of switching but were a little afraid to do so, by showing them someone who had made the change and was happy with it.
Yet the riskiest strategic move Apple did to seduce Windows users was to get into the retailing business.
Notice the huge black and white photographs, so typical of him.
It was far from an obvious choice. Once again, there was a consensus in the industry that brick-and-mortar computer retailing had had its day. The new model was Dell, which only shipped computers directly to customers after they were purchased on its website. The one company that had their own computer boutiques, Gateway, was actually closing them because they were huge money sinks.
But Steve’s vision was different. He understood that Windows users wouldn’t even consider Apple unless they would actually see how Macs worked and could help them run their digital lives effortlessly. He envisioned “lifestyle stores” that would showcase Apple’s products working with digital devices, that people could pick up and test drive on the spot. The stores would be in very expensive locations, in popular malls or in the center of shopping districts.
To help get into retailing, Steve had former Gap executive Mickey Drexler join the Apple board as early as 1999, then hired Ron Johnson away from Target in late 2000. After months of experimentation, Apple inaugurated their first Retail Store in May 2001, in the midst of the industry’s post-Internet bubble crisis. Almost every expert agreed they would turn out an expensive mistake…
The iPod revolution
1,000 songs in your pocket
Although Mac OS X, the digital hub strategy, the breakthrough hardware and the retail stores all played a role in Apple’s renaissance, they were not the essential key that made it all come together. As you probably know, that key was a little shiny white device the size of a pack of cigarettes called the iPod.
The iPod was of course an integral part of Apple’s vision of the digital lifestyle. When they looked at the big picture, they realized that, unlike the digital camera and camcorder markets, the digital music player market did not yet offer compelling products to work with your Mac. That’s how the idea of making such a device in-house arose, in early 2001, after iTunes was introduced and the company started focusing on the digital music revolution.
Just like iTunes, Steve Jobs wanted to get a product out to market quickly, to catch up with the rest of the industry. That’s why he turned to an outside engineer, PortalPlayer founder Tony Fadell, who had notoriously tried to sell his prototype of a little MP3 player to several consumer electronics company. Fadell joined Apple in February 2001, and the iPod shipped only nine months later, in late October 2001, just in time for the holiday season.
The original iPod distinguished itself from its competition for several reasons. Apart from its gorgeous look, its click wheel and user interface made browsing through one’s music collection very easy and fast; it had a hard drive which could store up to 5GB, or “a thousand songs in your pocket”, which was Apple’s tag-line for the new product; it connected to your Mac via FireWire, which was 30 times faster than your typical USB MP3 player; and it synced with iTunes seamlessly: you just had to plug it in, and the software took care of the rest.
There was simply no other MP3 player that matched any one of those breakthrough features. iPod quickly became a very, very hot product for music lovers… and digital pirates. It was quickly acknowledged as “the walkman of the digital age”, as even Windows users either hacked it or moved to the Mac just so that they could use it.
Apple was confused about how to react to this unexpected success. They could decide to continue limiting iPod to Macs, so that it would entice PC users to switch; or they could make it Windows-compatible, which would broaden their target and show users unfamiliar with Apple how good their products could get. At Macworld New York in July 2002, Steve announced they had opted for the second solution.
The iTunes Music Store
Once Apple had step foot in the music business with iPod, they started looking at content. At the time, most people either ripped their CDs on their Macs or downloaded music illegally on peer-to-peer networks. Recognizing they were in a unique position to do so, Apple decided to try and come up with a legal solution by building an online music store. They had enough experience to do so thanks to their own popular online store on apple.com, as well as their QuickTime movie trailers, which had taught them how to handle massive downloads on their servers.
Moreover, they were able to negotiate with the music companies because they were still a niche player. The majors were trying hard to fight Napster, but they were reluctant to launch online stores, afraid that it would destroy their current business model. But iTunes could only run on Macs, which were still a fraction of the PC market — so they viewed Apple’s proposal as an opportunity to try a new model with limited risks.
Steve Jobs used his negotiation skills to have the labels agree on a unique price: $0.99 for each track, and $9.99 for whole albums. Although Apple would not get much from the iTunes Store, they expected it to drive iPod sales, as purchased music could only be played on their player.
So, on April 28 2003, Steve unveiled the iTunes Music Store at a special Music event. The results quickly exceeded the company’s best hopes. Five million songs were sold in just eight weeks, and another eight million in the following fifteen weeks, bringing iTunes’ share of legal music downloads to 70% — yet it was still only Mac-compatible!
It was the first viable business model for selling music online. Everybody was happy: the labels, who finally saw a way to defeat Napster; Apple, whose sales of iPod were boosted; and of course the customers, who were finally offered a seamless and legal way to acquire music. As a result, the labels agreed to let Apple extend its business, and on October 16 2003, Steve Jobs introduced the company’s second app for Windows (the first was its QuickTime Player): iTunes, “the best Windows app ever written”. Windows iPod users would finally be able to sync their device on Apple’s software, and, more importantly, every PC user could now purchase music on the iTunes Store.
It was the start of a revolution. iPod was already a success, but it was now becoming a cult object, a music player so successful that it embodied the digital music era all by itself — the same way Sony’s Walkman had come to symbolize the portable music era some twenty years earlier. Steve was thrilled: his products were finally recognized for their value, they were finally adopted by the masses. Unlike the Mac’s 5% market share, as of January 2004, iPod was enjoying a 30% market share (by units sold), making it the leader of the portable music players market.
As Steve often pointed out, only Apple could make the iPod. The reason was, there was simply no other company out there that still knew how to make both great hardware and great software. In the computer business, there were PC manufacturers on one side, and software developers on the other. As for the consumer electronics business, they could never come up with advanced software such as iTunes, which made the iPod experience so effortless. What had always been designated as Apple’s greatest flaw turned out to be their greatest strength in the emerging digital consumer electronics market. Steve saw that unique opportunity — and he grabbed it.
“Apple is strong”
Revolution in Cupertino
Steve Jobs didn’t let Apple rest on its laurels.
The iPod was a hot product, but it belonged to a niche market: the high-end hard-drive MP3 players. There were still zillions of little Flash players that were a lot cheaper and got sold for that. Apple went after them as well: at Macworld in January 2004, Steve unveiled the iPod mini, a smaller version of the iPod which came in colors and soon became the best selling MP3 player in the world. Exactly one year later, he introduced the iPod shuffle, a cheap, Flash version of the iPod, to go after the rest of the competition. It worked: as of early 2006, Apple’s market share in the music player space was around 70% — it still is today. The company improved its product line every year, introducing the iPod nano in September 2005, and the iPod video the following month. Every year after that, the iPod line was refreshed every September.
In the music distribution business, the iTunes Store was gradually expanded to foreign markets: a European Store was announced in June 2004, and was followed by a Japanese Store a year later. iTunes’ market share kept growing, reaching 85% of legal music downloads as of January 2006 — at the expense of other music download websites, but also the traditional distribution channels.
The exponential growth of iPod sales, the new iTunes business, the ever-expanding retail operations (Apple had more than 100 stores open in 2005 throughout the US and a couple abroad, all of which were profitable) — all contributed to Apple’s phenomenal expansion from 2004 on. This was a change in scale that was unprecedented in the company’s history. As Steve Jobs put it:
We’re in uncharted territory. We’ve never sold this many of anything before.
Steve Jobs, CNBC interview, September 2006
The company hired engineers at an incredibly fast rate, and they couldn’t even fit in the firm’s campus in Cupertino. Steve actually announced to the city council that they were planning the construction of a second campus in April 2006.
The day hell froze over
The Mac business was starting to rise — finally. The risky Trojan horse concept — iPod would seduce Windows users into switching to the Mac — seemed to be working, together with the unexpected success of the Apple Retail Stores.
The company expanded and adjusted its product line, careful to the market’s reaction. The days of the simple four-product matrix were long gone. First was the Power Mac G4 Cube, that we already talked about, halfway between the consumer and pro desktop lines. It was discontinued in 2001. Then came the eMac, a cheaper version of the iMac G4 with a CRT display, introduced especially for the education market in 2002, and discontinued in 2005. Finally, in January 2005, they released the Mac mini, a stripped-down Mac designed to appeal to switchers, the cheapest Mac ever at $499.
On the pro side, in 2002, the company entered the high-end server market with the XServe. They also fought hard to catch up with the speed performances of the Wintel platform, and in June 2003, they unveiled the G5, a new chip they had developed with IBM that they claimed was the fastest in the world.
But the biggest move was announced in June 2005, at Apple’s annual developers conference, WWDC. The company had just finished its complete transition to OS X after the release of Mac OS X 10.4 Tiger, which was adopted by a very large majority of Mac users. That day, Steve Jobs came on stage and announced to a stunned audience that Apple was going to switch away from IBM to using Intel processors in their Macs.
This was close to a cultural shock to many developers and avid Mac followers. For years, the company had been making fun of Intel, the main provider of chips used in Windows computers. Intel was always depicted as a slow, almost retard company, whose chips didn’t even compare to the ones Apple used.
But something changed in 2004. After one year of using IBM’s new chip, the G5, in their professional workstations, Apple still didn’t manage to put the chip into their pro notebooks. IBM also failed to deliver on their promise of making a 3GHz processor within a year. The situation really became embarrassing when, in September 2004, Apple unveiled iMacs that ran on G5s while its PowerBooks were still using their previous-generation processors, the G4. The problem with the G5 was its power consumption: it just required too much energy to fit inside a laptop.
That’s why Apple started talking to Intel, planning to use their much more power-efficient chips in future Macs. This change would have been impossible had Apple still been using the old Mac OS. But as you recall, Mac OS X was a different story. Its parent system, NeXTSTEP, had already been ported to Intel in 1993. The OS was platform-independent: it could run on any kind of computer. That’s why Apple developed Intel versions of its OS since version 10.0, in case they would have to use it someday — and that day came in June 2005.
Apart from the ability to make powerful notebooks, there was a strategic reason to switch to Intel. For years, Apple had suffered from unjustified critics from the PC world, claiming their computers were slower. From then on, Mac would be using the same hardware components as any Windows PC. Moreover, the Macs would now be able to run Windows natively! This was a very powerful message to potential switchers who were afraid some of their favorite software would not run on the Mac. They could turn their Mac into a Windows PC by simply rebooting, using an Apple software called Boot Camp. There simply was no compelling argument not to switch to the Mac anymore, other than price.
The move to Intel was decisive in Apple’s fight against the Windows supremacy. Given his company’s growing momentum, Steve appropriately concluded his WWDC keynote address with the words: “Apple is strong”.
Steve and the Magic Kingdom
Let’s go back a couple of years earlier and look at the changes at Steve’s other company, Pixar. The animation studios released success after success: following A Bug’s Life (1998) and Toy Story 2 (1999), their fourth movie, Monsters Inc., released in 2001, had generated more than $520 million in gross revenue worldwide. The company had expanded and was prepared to release a new movie every two years. Because it had so many more employees, it moved to a brand new, expansive campus in Emeryville, a small industrial town outside of Berkeley, in late 2000.
However, the relationship with Disney was turning bitter. The Walt Disney Company’s CEO, Michael Eisner, had never gotten along with Steve Jobs. It was obvious to any observer that there was a huge personality clash between the two of them.
The first problems emerged after the release of Toy Story 2. Eisner asked Pixar to work on yet another sequel, Toy Story 3, and even convinced Lasseter to do so. The problem was that such a sequel would not count as an “original movie” as stipulated in the five-picture deal signed by both companies in 1997. If such a sequel was released, Disney would get seven Pixar films for the price of five, so to speak. It was out of the question for Steve Jobs.
Tensions between the two bosses reached their climax when, in 2002, while Eisner was speaking about digital piracy in front of a Senate Committee, he told them that computer companies actually benefited from such illegal actions. The example he took was Apple and its advertising campaign for iTunes, whose slogan was: “Rip. Mix. Burn.” — making a confusion between “rip” and “rip off”. It was obviously a personal revenge on Steve Jobs, who was quick to react. He called up Roy Disney, Walt’s nephew, and confided to him that Pixar would not make a new deal with Disney as long as Eisner was still in charge.
In the spring of 2003, Steve Jobs came to Disney to negotiate the next deal between the two companies. His demands were so unacceptably high that it was obvious he had crafted them just so they would be refused. He asked for 100% ownership of Pixar’s films — Disney would only get a 7.5% distribution fee. Moreover, their distribution exclusivity would be limited to five years. Disney’s only privilege was the right to use Pixar’s characters in its theme parks. Of course, Eisner refused, and Steve left, officially announcing he was looking for a new distributor.
In early 2004, Steve faced Pixar’s shareholders at the company’s earnings conference call. It was the first time since the company’s IPO that its future was not tied to its contract with Disney. However, Steve was pretty confident, especially after the success of the studios’ latest release, Finding Nemo, which eventually became the highest-grossing animated movie in history and an Academy Award winner.
Steve mentioned an email that Michael Eisner sent to Disney’s board of directors before Finding Nemo was released, in which he said the new movie was “nowhere near as good as their previous movies.” “As you know, things turned out a little different”, Steve joked. Then he discussed Pixar’s concern about Disney’s right to make sequels to Pixar’s first movies:
We feel sick about Disney doing sequels, because if you look at the quality of their sequels, like The Lion King 1/2 and their Peter Pan sequels and stuff, it’s pretty embarrassing.
He ended the conference by reassuring the shareholders, saying he had had calls from four other major studios who seemed more than willing to distribute Pixar’s films in the future. The relationship with Disney was dead and buried.
However, change at the Magic Kingdom made way for quite a different future. Indeed, increasingly exasperated by Eisner’s management — including his fight with Pixar, Roy Disney had publicly announced he was resigning from the company’s board in November 2003. Shortly afterwards, he started a public campaign called “Save Disney” whose sole purpose was to oust the current CEO. He got support from prominent figures in the animation business, as well as thousands of individual Disney shareholders.
To the surprise of many, the campaign worked. At Disney’s annual shareholders meeting, in March 2004, the vote of confidence to renew Eisner’s position only garnered 57% of the votes. It was unheard of in the company’s history. The board took notice, and some six months later, the CEO announced he was going to retire the following year. His successor would be the company’s COO, Bob Iger.
The day he was informed of his promotion, Iger phoned both Steve Jobs and John Lasseter to pay his respects. He made sure they understood that the hateful days of Eisner were over.
In the summer of 2005, Steve Jobs and Bob Iger met in person in a very different context. Steve didn’t come as head of Pixar, but as Apple’s CEO. He was working on the next-generation iPod, which would be able to play video. However, there needed to be some way to acquire video content legally, or Apple would be accused of supporting piracy again. That’s why part of the announcement would be the launch of an expanded iTunes Store, where one could buy TV shows. As it happened, the two most successful TV shows in the US, Desperate Housewives and Lost, were both owned by ABC, whose parent company was no other than Disney.
Apple made a deal with Disney to sell both shows and a couple more on iTunes, and Iger went on stage during Steve’s keynote to announce it to a stunned audience of journalists and media experts. The handshake between the two CEOs was a strong signal that a new cooperation between Pixar and Disney was increasingly likely.
Yet very few people envisioned the scope of that renewed partnership. Iger proposed to Jobs no less than merging both companies. He said he understood that Pixar was the only creative force that Disney could rely on for its future in animation. After making sure that the animation studio would keep its independence — staying in Emeryville and keeping its logo — Steve signed a deal for Disney to buy Pixar for $7.4 billion. That was a lot by any standard, given the company’s revenues — but Iger was willing to pay it for John Lasseter’s leadership in animation. The merger was announced on January 24, 2006, at Pixar studios in Emeryville.
to Pixar employees in January 2006
Under the terms of the deal, Steve Jobs, who still owned close to 50% of Pixar’s stock, became Disney’s single largest individual shareholder, with a share of 7%. Ed Catmull, Pixar’s former president, was named president of the combined Disney-Pixar studios, while John Lasseter was chief creative officer. Steve was now an influential board member of the Walt Disney Company, a position he still holds today. That left him with even more time to concentrate on Apple.
The company’s decade-long fight to gain market share in the PC industry, especially in the consumer market, was actually finally starting to pay off around 2006. The transition to Intel was rapid yet smooth. The entire product line was ported in less than a year: it started with the iMac and the pro notebook, re-christened the MacBook Pro, in January 2006. Then came the Mac mini in February, followed by the MacBook (replacing the venerable iBook) in May and the Mac Pro (former Power Mac) and XServe in August.
All of these new Macs sold very well, especially the MacBooks and the consumer desktop, the iMac. But, inspired by its success with the iPod, Apple was starting to expand outside the computer industry into consumer electronics. Steve Jobs finally saw his dream of making Apple the Sony of the digital age materialize. His vision was encouraged by the brand’s undeniably powerful image thanks to the iPod, as well as the incredibly hot Apple retail stores. Indeed, the stores had been designed as lifestyle boutiques demonstrating the power of Macs to run your digital life — that concept obviously worked very well with consumer electronics too.
In February 2006, Steve unveiled the iPod hi-fi, a stereo speaker system designed to work only with iPods. He claimed its quality was rivaling with high-end, $10,000 audio systems, while it cost only $349. The market thought otherwise, as the product flopped and was discontinued in September 2007. The company gave it another shot with the Apple TV, originally known as iTV, a wireless set-top box that basically linked your Mac with the widescreen TV in your living room. The Apple TV was officially released at Macworld 2007, but it has yet to prove itself as a successful product.
Right: Steve unveils a prototype of Apple TV in September 2006.
Since you are such well-informed readers, you probably already know that Apple’s biggest move outside its computer and music businesses was announced at Macworld in January 2007: it is the iPhone.
The iPhone project started in 2003 — although rumors about such a product had circulated even before that, with the much-hyped Apple PDA. The basic idea was to build a digital convergence product, the ultimate digital device that would combine a phone, PDA, and iPod. Actually, Apple had already moved into the phone business with the Motorola ROCKR in late 2005 — a standard chipset that was compatible with iTunes. But the product was lame, and it was just a temporary solution before Apple came up with its own phone.
One of the first thing Steve Jobs did before developing iPhone was to go to the cell phone carriers. He talked to them separately in early 2005, promising to build a device “light-years ahead of anything else”. He soon made a deal with America’s #1 carrier, Cingular. The provider knew that the only way to increase its profits was not by competing on price, but by charging users for their increasing use of data online. Since the iPhone was going to surf the Web, it fit their strategy pretty well.
By looking at Apple’s deal with AT&T, one has once again to wonder at Steve Jobs’ extraordinary negotiation skills. Before iPhone, wireless carriers treated handsets manufacturers like slaves. They used to dictate the phone’s features, pricing and marketing, in exchange for the right to use their networks. The iPhone deal completely reversed this balance of power. AT&T-Cingular begged Apple for five years of exclusivity and a 10% margin for sales in its stores, just so they could be the one carrier to support iPhone. Apple kept complete control over design, manufacturing and marketing — and they even managed to garner $10 a month from every iPhone Cingular plan. AT&T didn’t even see iPhone until a couple of weeks before it was introduced in January 2007: although such secrecy was common at Apple, it was unheard of in the cell phone industry.
Work on the iPhone really intensified by early 2006. The product was, once again, a tribute to Apple’s unique ability to innovate in the consumer electronics industry. It was a miracle of the marriage of hardware and software, and Apple was the only company that excelled in both. On the software side, it used Mac OS X, the exact same system that was used on Macs. This made iPhone potentially able to run any kind of Mac software. As for hardware, its most revolutionary feature was its touch-screen display, a technology Apple originally developed for a tablet PC… that would eventually be introduced three years later (iPad, folks!). The development of iPhone had its share of tough drawbacks, especially when it was almost restarted from scratch in fall 2006. But the prototype was eventually ready for Macworld, on January 9 2007.
That day, when Steve took the stage at Moscone Center in San Francisco, he told his audience they would making some history together. He knew iPhone would be one of the most important product in Apple’s history, one that would set its destiny for decades to come. This little box less than half an inch thick was the ultimate digital pocket device, a computer/iPod/phone that allowed its owner to make calls, take photos, handle contacts and email, browse the Web, listen to music and watch movies in a powerful yet incredibly easy fashion that was unmatched by any of its predecessors.
iPhone is five years ahead of what everybody else has got. If we didn’t do one more thing, we’d be set for five years!
Steve Jobs, Newsweek interview, January 2007
To concretize Apple’s transformation — obvious as it was at the end of his Macworld keynote, after he had introduced both iPhone and Apple TV — Steve announced that the company’s name was going to change from “Apple Computer Inc.” to just “Apple Inc.” (watch the NeXTSTEP vs. OS X video in our Movies section). It was now official: after thirty years, the fruit company had helped turn the turbulent prince of Silicon Valley into the king of the digital age.
Although Steve’s “Second Coming” (to use biographer Alan Deutschman’s words) is regarded as one of the most spectacular success stories in the history of business, recent years have not been all that rosy for the iCEO.
The backdating scandal
Backdating is an illegal accounting process consisting of picking a date in the past, when a stock’s value was lower, to assign the exercise price of options. It basically involves faking documentation and lying to investors. Although backdating is unlawful, it was common practice in Silicon Valley for a long time — until a 2006 Wall Street Journal article exposed it, denouncing a number of highly-regarded public companies. Apple was not cited by the Journal, but it decided to hire a special legal committee to do an in-house investigation on its own situation. These lawyers unveiled they had discovered “irregularities” involving more than 6,000 grants in the 1997-2001 timeframe.
The complete story was revealed later, after the SEC investigation. Steve Jobs was actually directly involved with two illegal procedures related to backdating.
The first happened in October 2000. The global state of the tech industry was disastrous, because of the burst of the dot-com bubble. Several companies were trying to sway talented executives away from their competitors, and Apple was a popular target. Steve decided to give some of his top executives a substantial team grant to serve as golden handcuffs. But Apple’s legal counsel failed to deliver the grant on the date that had been agreed upon — which was problematic since the stock had gone up in the meantime. As a remedy, the options were backdated from their actual delivery date of Feb. 7 to Jan. 17 — with Steve’s agreement.
The second irregularity involved Jobs himself. From 1997 on, he had refused to get more than $1 in annual salary from Apple. His official claim, especially when he first arrived as interim CEO, was that he was there “to help” and not for the money. The $1 was there only so his family could be on the company’s health benefits plan. But, in January 2000, after it was clear Apple had resurrected during his tenure, and after he had announced he was becoming full-time CEO, the board agreed to compensate him. First, by buying him a private Gulfstream V jet, with taxes — which amounted to $88 million. Second, by giving him a 40 million options mega-grant, i.e. approximately 6% of the company.
But when it was time for these options to vest, the dot-com bubble had burst, and Apple’s stock price was worth only half what it was the year before. Steve came to the board asking for new options:
Everybody likes to be recognized by their peers, and the closest that I’ve got, or any CEO has, is their Board of Directors. […] I spent a lot of time trying to take care of people at Apple and to, you know, surprise and delight them with what a career at Apple could be — could mean to them and their families. And I felt that the board wasn’t really doing the same with me. […] So I was hurt, I suppose would be the most accurate word, and, you know, the board had given me some options, but they were all underwater […] and here I had been working, you know, I don’t know, four years, five years of my life and not seeing my family very much and stuff, and I just felt like there is nobody looking out there for me here, you know. […] So I wanted them to do something, and so we talked about it.
I thought I was doing a pretty good job. […] I’d wished they had come to me and said, “Steve, we’ve got this new grant for you,” without me having to suggest anything or be involved in anything or negotiate anything. That would have been much better from the company’s point of view because it would have made me feel better at that time.
Steve Jobs’ deposition in front of the SEC, March 2008
The directors agreed to give him a new batch of 15 million options in August 2001. However, Steve only agreed on the condition they would replace his 2000 40-million-option grant, having suffered from the public criticism he had faced the year before. This turned out to be impossible because of accounting complications —which dragged the negotiations until December 2001. The price of Apple stock had gone up again, so Apple’s legal counsel Nancy Heinen arranged for fake paperwork to date the options back a month, corresponding to $20 million more for Steve’s pockets. However, he never cashed in those options, and actually traded them for 10 million restricted shares in March 2003. As of early 2008, those shares were worth $1.2 billion pretax, compared to the $5.8 billion pretax of the 2003 grant — Steve did a bad deal for a change.
After several weeks of reviewing those facts, the SEC announced in April 2007 that they would file charges against Apple’s former legal counsel Nancy Heinen — for the backdating of the two grants of options mentioned above — and its former CFO Fred Anderson, for negligence over one grant. Anderson settled the charge by paying a $3.6 million fine, but used the occasion to publicly denounce the commission’s exoneration of Steve Jobs: the CEO was aware of the backdating, since he picked up retroactive dates himself. However, the SEC did not react, and did not personally sue Steve. They also did not sue Apple itself, citing the company’s “swift, extensive, and extraordinary cooperation,” including its “prompt self-reporting, an independent internal investigation, the sharing of the results of that investigation with the government, and the implementation of new controls designed to prevent the recurrence of fraudulent conduct.”
The case was closed in August 2008, when Nancy Heinen agreed to pay $2.2 million to the SEC — including the reimbursement of her illegal gains on the backdated options, and a fine. The commission had cleared Steve Jobs, confirming Apple’s own statement that, although he “was aware of or recommended the selection of some favorable grant dates,” it didn’t amount to misconduct, because he “was unaware of the accounting implications.” However the case tarnished his image and caused debates about the future of the company when he would be gone — since at some point it was feared he could have been thrown out of the company by the government.
However the most serious troubles Steve had to face in recent years were not legal ones, but medical ones: in October 2003, while performing a routine abdominal scan, doctors discovered a tumor growing in his pancreas. Usually a pancreatic cancer is quick to kill you — but not in Steve’s case. He was suffering from an islet cell neuroendocrine tumor, one that can be removed by surgery and usually leave the patient with some ten more years on earth, or more.
But Steve Jobs was no ordinary patient. True to the Eastern mysticism of his youth and his strange yet deep beliefs about medicine and food, he stubbornly refused to have the surgery, sticking to a special diet that he thought would cure him from his cancer. This lasted for nine long months, while his family and Apple’s top people got increasingly concerned about him. However, observing that his situation was not improving, he reluctantly agreed to have the surgery in August 2004, at the Stanford Medical Center. It was only then that the news were made public, with Steve himself writing a letter to Apple employees from his hospital bed. He took one month off and came back as CEO in September, assuring everyone he was “cured.” This first event was felt as a shock by the Apple community worldwide, but it was even more shocking to the company’s shareholders, who argued that they should have been aware of the CEO’s diagnosis early on, given his importance to the company. Most lawyers did agree that such move wasn’t mandatory though, since Jobs had a right to protect his privacy.
Steve Jobs’ Stanford Commencement Speech, 12 Jun 2005
Of course, as you noticed, Steve didn’t mention his nine-month refusal to have surgery and his special diet techniques.
The case seemed closed for a while, before it surprisingly resurfaced some three years later, in 2008. First came rumors following Steve’s public appearances at Macworld in January, but especially at WWDC in June 2008. He obviously had lost weight in a substantial and even frightening way during those six months. Many blogs and dedicated websites speculated his cancer had come back. Because of increasing pressure from journalists, Apple’s spokeswoman Katie Cotton had to issue a public statement after the WWDC keynote, confessing Steve was suffering from “a common bug.” Considering Steve’s gaunt appearance, many people found it hard to believe. They didn’t feel more relieved when, the following month, CFO Peter Oppenheimer declared at the company’s earnings conference call that: “Steve’s health [was] a private matter.” As if to make things worse, press agency Bloomberg accidentally published Jobs’ obituary in late August 2008. It is common practice in the media to keep such obituaries ready in case of emergency — but the publication obviously added concern to the issue of Steve’s health.
Steve himself reacted to the news in his September 9 Music Event, using a famous quotation from Mark Twain:
He reiterated in his October 14 event Media Event, when he told journalists his blood pressure was 110/70: “and that’s all we’re gonna talk about Steve’s health today”. Although most laughed at the joke, hardly any of them failed to notice that, in addition to his still alarmingly frail look, he unusually shared the stage with several executives — most notably Apple’s #2 Tim Cook and Senior VP of Design Jony Ive, keeping only the introduction of the new laptops for himself.
Unfortunately, those growing concerns eventually proved justified. On December 16, Apple made a shocking announcement:
Apple today announced that this year is the last year the company will exhibit at Macworld Expo. Philip Schiller, Apple’s senior vice president of Worldwide Product Marketing, will deliver the opening keynote for this year’s Macworld Conference & Expo, and it will be Apple’s last keynote at the show.
Although the demise of Macworld seemed inevitable to many, as the company did progressively scale back from its trade shows one after the other, the real shock was that it wouldn’t be Steve, but head of marketing Phil Schiller, that would appear on stage for the last Macworld keynote in history. There was no doubt that the CEO, who hadn’t missed a single Macworld keynote since his return (except Apple Expo 2004, one month after he had his cancer surgery), was simply not in good enough health to go on stage and face Apple’s fans (including your fellow webmaster).
Because of the stream of reactions that the statement caused, Steve once again made a personal announcement on Apple’s website on January 5, 2009, the day before Macworld. He explained his medical situation in those terms:
As many of you know, I have been losing weight throughout 2008. The reason has been a mystery to me and my doctors. A few weeks ago, I decided that getting to the root cause of this and reversing it needed to become my #1 priority. Fortunately, after further testing, my doctors think they have found the cause—a hormone imbalance that has been “robbing” me of the proteins my body needs to be healthy. Sophisticated blood tests have confirmed this diagnosis.
Steve said he would remain CEO during his recovery. He contradicted himself some nine days later, in an email to all Apple employees that was made public:
During the past week I have learned that my health-related issues are more complex than I originally thought. In order to take myself out of the limelight and focus on my health, and to allow everyone at Apple to focus on delivering extraordinary products, I have decided to take a medical leave of absence until the end of June.
The CEO would continue to oversee key strategic orientations, while he left most of the day-to-day tasks to his second-in-command, COO Tim Cook, as he had already done in 2004. As a result, the company and the whole Apple community learned how to live without Steve Jobs for half of 2009. This was a historic moment, reminding everybody of the simple truth that Steve was not eternal.
It would be later revealed that Steve underwent a liver transplant in April 2009. It actually is not uncommon for his type of pancreatic tumor to metastasize in other organs, including the liver. According to Philip Elmer-DeWitt, author of the Apple 2.0 blog at CNNmoney.com, Steve’s “lost his gall-bladder, part of his stomach, part of his pancreas, the upper end of his small intestine and now has someone else’s liver, which probably means he’ll be on immunosuppressant drugs for the rest of his life.” “That can’t be fun,” he added. The transplant took place at the Methodist University Hospital in Memphis, Tennessee, one of the nation’s leading center for such surgery. The hospital officially disclosed that Jobs “received a liver transplant because he was the patient with the highest MELD score (Model for End-Stage Liver Disease) of his blood type and, therefore, the sickest patient on the waiting list at the time a donor organ became available.”
Right: standing ovation as Steve came back on stage on Sep. 9 2009
The transplant worked, and Steve went back to Apple in late June 2009, as planned. It wasn’t long after that that the Wall Street Journal ran a story about Steve “being back at Apple and focusing on [the] new tablet”, with employees complaining they “had to readjust” to their boss’s demanding habits. Good old Steve was definitely alive and well. He eventually proved it at the September 9 2009 Music Event, when he was welcome on stage by a standing ovation from Apple employees and several hundreds of journalists (watch it in the Movie Theater) — before unveiling exciting new iPods, as he had done in the previous four years.
2010: Steve is back. Again.
After an almost entire year of complete absence from the media scene, due to his health problems, Steve has made an impressive comeback in 2010. The charismatic CEO has taken the public spotlight several times during that year, often to make game-changing announcements.
The biggest of all was undeniably on January 27, when Steve Jobs finally introduced iPad, Apple’s much-anticipated tablet. There were rumors on an Apple tablet even before there were rumors on an Apple phone, and for good reasons: the labs of Cupertino started working on a tablet years before they worked on iPhone.
I actually started on the tablet first. I had this idea of being able to get rid of the keyboard, type on a multitouch glass display. And I asked our folks, could we come up with a multitouch display? that I could rest my hands on, and actually type on. And about six months later, they called me in and showed me this prototype display. And it was amazing. This is in the early 2000s. And I gave it to one of our other, really brilliant UI folks, and he called me back a few weeks later and he had inertial scrolling working, and a few other things. Now we were thinking about building a phone at that time, and when I saw the rubber band, inertial scrolling and a few of the other things, I thought My God, we could build a phone out of this. And I put the tablet project on the shelf, because the phone was more important. And we took the next several years, and did the iPhone.
Steve Jobs at the D8 Conference, 1 June 2010
Throughout 2009, even before Steve Jobs came back from his medical leave of absence, the Apple rumor mill started spinning again with increasing confidence about an upcoming incredible device, a handheld tablet halfway between a Mac and an iPhone. The rumors went even crazier after Steve Jobs presented a prototype of the device to several major US publishers, who couldn’t help talking about it off the record. The Wall Street Journal’s Walt Mossberg, one of Steve Jobs’ favorite industry analyst, reported early on that :
It’s better than the average movie experience, when you hold this thing in your hands.
Expectations were high to say the least.
Then, on January 27, Steve Jobs finally took the stage and unveiled iPad to the world. The presentation was bare, almost simplistic, with Steve sitting on a couch and demoing the device for most of his keynote.
iPad disappointed the majority of analysts at the time. It was deemed “a bigger iPod touch”, nothing else. Steve was being mocked for calling it “a magical device” during his keynote, and in Apple advertising too! Yet, once again, the market proved the critics wrong, and iPad turned out an amazing success. Apple sold 7.5 million of them as of September 2010, representing close to 8% of its 2010 fiscal-year revenues (iPods amounted for 13%).
Asked what his feelings about iPad were at the famous All Things D conference in June 2008, Steve Jobs boldly made the following comments :
When we were an agrarian nation, all cars were trucks, because that’s what you needed, on the farm. But as vehicles started to be used in urban centers, and America started to move into those urban, then suburban centers, cars got more popular and innovations like automatic transmission and power steering and things that you didn’t care about in a truck as much, started to become paramount in cars. And now, probably […] one out of every 25 vehicles is a truck, where it used to be 100%… PCs are gonna be like trucks. They’re still gonna be around, they’re still gonna have a lot of value, but they’re gonna be used by one out of x people. […] And this transformation’s gonna make some people uneasy — people from the PC world, like you and me. It’s gonna make us uneasy, because the PC’s taken us a long ways — it’s brilliant. And we liked to talk about the post-PC era, but when it really starts to happen, I think it’s uncomfortable, for a lot of people […] So… I think that we’re embarked on that.
Steve Jobs at the D8 Conference, 1 June 2010
It is worth thinking about these comments for a minute. If we assume Steve Jobs is right about this, and almost everyone (but Microsoft’s Steve Ballmer) agrees he is, then he will be a unique case in history of someone who has been instrumental in both creating and putting an end to an industry. Indeed, Apple was a key player in starting of the personal computing revolution in the early 1980s, and there would not have been an Apple without Steve Jobs. But Apple will also likely be the company leading the transition away from the PC, and this time there’s no denying this would not have happened so quickly without the iOS mobile revolution… What other man can be credited for such a huge impact on a multibillion-dollar industry?
Apple’s possible future
2010 has seen Apple’s dominance in the high-tech industry reinforced. The company is the market leader or a dominant player in four huge and growing markets: digital music players (with iPod), digital music distribution (with iTunes), smartphones and mobile apps (with iPhone, iPod touch and the App Store), and tablet PCs (with iPad).
This unique position at the crossroads of the digital revolution, makes the fruit company the subject of many a fantasy. Two trends have constantly re-emerged when speculating on Apple’s future.
The first is its take on the television market. Steve Jobs himself has commented at length on it at D8 (again), saying it was impossible for Apple to enter this market because of its structure. He talked about an insoluble go-to-market impossibility.
Yet only three months later, he introduced a revamped, network-based Apple TV at the traditional September Apple Media Event. The new box is iOS-based and most people think it won’t be long before it runs iOS apps. To speak more generally, it is very likely that, unlike what Steve Jobs has explained, Apple will try very hard to enter and revolutionize this “other” consumer electronics space that is television, and the Living Room in general — following a strategy that was conceived some four years earlier with iPod hi-fi.
Another controversial issue is that of Apple’s relation toward its new arch-rival, Google. This relation is controversial because for several years, Google was not an enemy, but an ally in the war against the behemoth of Redmond, Microsoft. Google’s CEO Eric Schmidt even sat on Apple’s board of directors for three whole years, from 2006 to 2009. But it’s no wonder he left in 2009: by entering the smartphone market with its Android mobile OS (and its own app store!), Google had become a direct competitor of Apple. This conflict of interest was as good a reason for him to leave, as Steve Jobs’ shrinking tolerance for what he felt was a plain and simple betrayal.
Google’s increasing market share in the smartphone market led many observers to think that the scenario of the 1990s was being played again. Google, in the role previously played by Microsoft, was going to crush the industry innovator, Apple and its closed system, by licensing its “open” software to a myriad of different hardware companies… Steve Jobs supposedly had not learned from his own mistakes, and was going down the wrong path again because of his stubbornness. Of course it’s far too early to judge if this opinion is justified or not, but it’s fair to say that the fight between Apple and Google will be interesting to watch in the coming decade.
Has Steve changed?
Finally, an old debate about Steve’s personality has also re-emerged in 2010: has he changed? Although some of his traits, such as his propensity to take the spotlight then and again to unveil insanely great products to the world, have not changed… People have noticed two minor evolutions in his public persona.
The first is his increasing habit of communicating by writing emails to customers. He has been known to do so for years, and he is famous for reading a ton of them, but never before 2010 had he replied to so many of them, so often. Usually, he has used them to publicly respond to hot issues about Apple or to spread rumors himself. Some even pretend he has theorized this method, which is in essence a new way for CEOs to deal with PR, bypassing the traditional press.
Another change is more profound, and has to do with his implication on charity issues. Steve’s reputation in Silicon Valley was not very positive on this particular topic, as he was often dismissed for basically being stingy. Yet, in addition to large donations to charities, he spoke publicly twice for the defense of organ donations in 2010, and even played a critical role in the creation of the nations’ first organ donor registry in October 2010. This was obviously a praiseworthy side effect of the liver transplant that had saved his life one year earlier.
So here’s where we are today. Apple, on the verge of bankruptcy a decade ago, is now one of the most powerful and influential high-tech company in the world. It is the most innovative brand in the computer industry, a leader in the music and phone businesses, and a likely consumer electronics powerhouse for decades to come. As for Pixar, it is the single most successful movie studio in the history of Hollywood, having yet to release a dud after more than twenty years of existence. It has defined the future of animation and is now at the center of this industry after it s merger with Disney. The founder of both these companies, Steve Jobs is now routinely voted one of the world’s most important business leaders, after having been called a one-time fluke for years.
Now that we have followed together the most important events in Steve’s life — especially his career of course — it is time to step back and try and look at the big picture.
I am going to get personal here: it is hard for me to put into words how much admiration and huge respect I have for Steve Jobs, and how much inspiration I draw from him. Let’s face it, business history has seen many another genius entrepreneur, inspirational leader, or industry visionary. But among them, who has had as big an impact as Steve Jobs on the rest of humanity? Who has faced greater glory and worse shames, all in one life? Here we are talking about a man who has dedicated his life to giving the power of technology to the masses. He has democratized computers with the Apple II. He has made them human and even friendly with Macintosh. He has almost single-handedly made possible the desktop publishing revolution. Here is a man whose company, Apple, is so innovative its products inspire the whole high-tech world, whose corporate culture is so powerful, it has millions of fans worldwide whose following is akin to that of a cult. Here is a man who has changed the way we all listen to music with iPod, who has shaken the music business with iTunes and the phone business with iPhone. Here is a man without whom 3D animation might have never taken off, or certainly would not have taken off the way it did thanks to Pixar. Here is a man who has made millions of lives so much easier by making technology seamless, intuitive, exciting and beautiful, instead of complicated, arcane, dull and ugly.
The question remains open to me: which business figure can claim so many achievements? Whose influence has been greater? That’s why I struggled for so long to find appropriate words to summarize the essence of Steve Jobs, a genius, but also a man, an icon with flaws, full of paradoxes, a visionary who has sometimes proven dead wrong. I thought hard — until I realized Steve himself had found these words. So let me conclude with the voice from Apple’s Think Different commercial:
Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.