ALL ABOUT STEVE JOBS CAREER II

Wilderness years

Marriage

The years of 1991 to 1994 were the worst in Steve’s career. Paradoxically, they were some of the happiest years in his private life. In 1990, at age 35, after his girlfriend Tina Redse had turned down his proposal, he started dating a young Stanford MBA student called Laurene Powell. Laurene was a leggy blonde in the mold of Steve’s taste in women, but she was also very smart and independent — in addition to being a militant vegan. According to Steve, it was love at first sight: he canceled a business meeting to have lunch with her, and the following year, on March 18 1991, they got married in Yosemite. Steve only brought along a couple of guests in the lodge’s chapel, and the no-frills ceremony was conducted by his long-time Zen guru Kobun Chino. A few months later, Laurene gave birth to Steve’s second child, a baby boy named Reed Paul, after Steve’s alma mater (Reed College) and his father (Paul Jobs).

Troubles at NeXT

Throughout 1990 and 1991, it became obvious to NeXT’s management that something was wrong with their computers. They believed it was a strategic error; that they should position themselves as makers of an emerging kind of computers, personal workstations, i.e. computers as powerful as workstations yet as easy to use as personal computers. Their competitors were not Apple or other PC brands anymore, but Sun, the dominant player in the workstation business.

The re-positioning came too late, and it did nothing to improve the disastrous state of the company’s financials. They were still spending money like crazy, as exemplified by their new offices facing a marina in Redwood City and its free-standing staircase designed by I.M. Pei’s architectural firm. But they were hardly selling: their revenues for 1990 were as low as $28 million (in comparison, Sun made $2.5 billion that same year). In addition, NeXT’s deal with IBM was canceled, as it proved difficult for two such radically different companies to cooperate. Steve was still suspicious of Big Blue:

I’m not stupid enough to give you everything I have, when you have 27,000 salespeople.

quoted in Randall E. Stross’ Steve Jobs and the NeXT Big Thing

He was reflecting a common feeling in the company that giving away NeXT’s software to IBM was like committing suicide, as it was the company’s most valuable asset. Moreover, IBM asked for Steve Jobs to give up hardware if he were to work with IBM, which was out of the question for him at that time. This decision led to the departure of Bud Tribble, the brilliant developer who was heading software and had co-founded NeXT with Steve in 1985. All the other co-founders but George Crow eventually left in those pivotal years of the early 1990s.

The company’s other main partnership, the distribution deal with Businessland, also collapsed as the chain went bankrupt in 1991. NeXT, which had just expanded to the European market, had to turn to independent dealers worldwide, an even costlier solution. Profitability seemed like an impossible goal, and investors started to get angry: Ross Perot left by the end of 1991, after sales for the third quarter had proven abysmal. The company now relied solely on Steve and Canon, who kept pouring money in so that they wouldn’t lose all of their initial $100 million investment (and lose face at the same time). As a counterpart, the Japanese demanded that Steve hire an outside executive to help him run the company. The choice fell upon an experienced manager, Peter Van Cuylenburg, who was named COO in early 1992

A computer-animated feature film

Disney executive Jeffrey Katzenberg

While Steve was fighting to make NeXT a viable business, a crucial event happened at his other company, “his hobby”, Pixar. Remember the animation department had been struggling for survival for years, making TV commercials to make a little money. But it was also awarded several prizes for its short movies, mostly at the renowned SIGGRAPH animation conventions, but also an Academy Award for Tin Toy in 1989. John Lasseter was increasingly recognized as one of the industry’s most talented animator.

Starting in 1989, Disney’s new management (CEO Michael Eisner, but mostly his top aide Jeffrey Katzenberg) tried to hire Lasseter back to the Magic Kingdom. Yet despite Pixar’s precarious situation, he continually declined the offer: he realized that in no other place on earth he would find so many talented people who shared his vision of the future of computer animation.

So Disney agreed to sign a contract with Pixar for a full feature film, made entirely with computers. This had been Pixar’s dream for years, back in the late 1970s with Ed Catmull and Alvy Ray Smith (who had since left the company because he could not stand working with Steve Jobs). The story line John Lasseter proposed was some sort of buddy movie involving toys. Jeffrey Katzenberg agreed and in May 1991, the contract was signed. Steve negotiated for Pixar to make three movies and keep 12.5% of the revenues from ticket sales. It was a very cheap price for a film, but Steve and the rest of Pixar didn’t know better: it was a huge amount of money for their struggling studio! Steve Jobs’ investment finally seemed it was going to pay off.

Nadir

Everything seemed to collapse professionally for Steve in 1993, the year he turned 38.

It started with NeXT. In January 1992, he had already made the huge compromise of accepting to license the company’s advanced operating system, NeXTSTEP. It would no longer be restricted to NeXT’s black boxes, but would also run on Intel’s 486 IBM-compatible family of processors. To many experts he should have done this from the beginning, but to Steve, this was the first sign of his failure, as he always felt personally attached to hardware: he had always been a hardware freak, fanatical about his machines’ design, spending hours in NeXT’s factory watching robots put together his beautiful computers.

But it turned out even worse the following year. COO Van Cuylenburg, who was hired to please Canon, betrayed Steve, in a cruel reminiscence of what had happened at Apple some seven years earlier. He called up NeXT’s competitor Sun, and asked its CEO Scott McNealy to buy NeXT and install him as manager of the new entity. Fortunately, McNealy had some sense of honor and told Steve about the outrage. Van Cuylenburg left, but Steve was devastated, especially since all the company’s co-founders but George Crow had abandoned him.

A couple of months later, the coup de grâce came as NeXT had to face reality and give up its hardware operations altogether. The decision was taken on February 11, a tragic day when 300 of NeXT’s 530 employees lost their job. The automated factory was transferred to investor Canon, which sold all its furniture in a memorable auction in September of that year. The dream of a multi-billion-dollar business had given birth to a small software company, NeXT Software Inc., specialized in application development and server technology for the UNIX and Windows platforms.

As if destiny was working against him, Steve also had to face trouble with Pixar in that same awful year of 1993. While the work on the animated feature with Disney seemed to stall for a while, Disney’s Katzenberg abruptly put an end to it in November 1993. Together with the majority of Disney’s creative staff, he declared that the characters were unappealing jerks and the dialogues inappropriately cynical for a children’s movie (while he was the one who pushed for such characteristics early in development). Pixar was back to making TV commercials just so it could survive — but it was obvious it would disappear if the work did not start again.

Steve had reached the bottom of his career. To use his words, he was in “ankle deep shit.” He didn’t even go to work regularly anymore and spent most of his days at home, playing with his two-year-old son.

In this rare photograph, you can see how Steve Jobs looked at the lowest point of his career.
It was taken for Andy Hertzfeld’s birthday in April 1993.
From left to right: Mac programmer Andy Hertzfeld, Lisa and Mac programmer Bill Atkinson, Mac programmer and NeXT co-founder Bud Tribble, and Steve.

Saved by toys

Toy Story

Fortunately enough, “it’s over” didn’t have the same meaning in Hollywood as it did in Silicon Valley. John Lasseter and other Pixar employees worked very hard at the script, and in February 1994, they turned out a new, improved version that won Jeffrey Katzenberg’s approval: production could resume. Steve was not overwhelmed, as he kept trying to sell Pixar to outside investors until late fall 1994. At the time he came very close to selling the animation studios to... Apple’s arch-rival Microsoft.

But he progressively started to sense Pixar was going to be a lot more important to his career than he ever expected. According to many, the revelation came in January 1995, when he was invited to a Disney event in New York. In the middle of Central Park, the movie studio had set up a gigantic tent with a movie screen showing previews of the two upcoming Disney films, Pocahontas, to be released in the summer, and Toy Story, for Thanksgiving 1995.

That was the moment Steve realized the Disney deal would materialize into something much bigger than he had ever imagined, and that Pixar was the way out of his morass with NeXT.

Pixar’s Ralph Guggenheim quoted in Alan Deutschman's The Second Coming of Steve Jobs

Steve started to get increasingly involved in Pixar’s affairs, stripping Ed Catmull of his title of President and naming himself President & CEO of the company in February 1995. He also hired an outside CFO, Lawrence Levy, to give Pixar a respectable image to Wall Street in anticipation of a possible IPO.

When Toy Story finally came out on November 22, it exceeded all the hopes that Pixar and Disney had put into it. It made $28 million in the Thanksgiving 3-day weekend alone, and eventually reached $160 million in US box-office receipts — a great number for a $27 million production.

Billionaire

But it wasn’t just about the movie.

When Steve started envisioning the possible success of Toy Story, he talked about taking Pixar public. Wall Street analysts and experts laughed at his face, since Pixar still hadn’t made a single profit during its nine-year existence. But, in August 1995, a small startup that had existed for only a year and was also unprofitable had made a huge hit by going public: it was Netscape, the software developer of the eponymous Web browser. Suddenly Steve’s idea was not that ridiculous anymore.

However, there was a legal concern because of profit-sharing agreements with some of the company’s most senior people: John Lasseter, Ed Catmull, and two other early employees, Ralph Guggenheim and Bill Reeves. Their contracts stipulated they were entitled to some of their movie’s revenues, a situation that was contradictory to being public. Steve Jobs arranged the deal by giving away large blocks of stock to the four of them, in addition to the newly-brought-in CFO Lawrence Levy. But he managed to keep 80% of the company for himself, translating into 30 million shares.

There were tensions in Point Richmond after this settlement was revealed. After the IPO, Steve Jobs would become fabulously rich, five senior people very rich, and the others would be left out. Many of them threatened to leave the company, shocked especially by Levy’s treatment, since he had just joined the staff and had made almost no contribution to Pixar...

Yet, on November 29, exactly one week after Toy Story had come out, Steve’s vision proved right. The IPO benefited tremendously from the movie’s media coverage, and on opening day, the stock’s price jumped from $22 to $49. It became the biggest IPO of the year, beating even Netscape’s numbers. Steve Jobs had made it: he was now a billionaire, worth almost $1.5 billion. It was ten times the money he had ever made at Apple in the early 1980s. He was finally vindicated, and enjoyed being back on magazine’s covers.

As for Pixar the company, it made $123 million in the IPO, going from $47 million in the red to $76 million in the black. Steve felt strong enough to go back to Disney and re-negotiate a deal that he considered a master-and-slave relationship.

Back to Burbank

This time, Steve decided, Pixar would not get ripped off by Disney. He came with very high demands for the new agreement: a 50/50 partnership, with split production costs and split revenues; total creative control for Pixar over its movies; and equal billing, i.e. the obligation for Disney to show Pixar’s logo on the screen and on any marketing artifacts as big or for the same amount of time as its own. That’s why you’re used to see Pixar’s Luxo Jr. animation at the beginning of every movie from the studio. Here again we can sense Steve’s flair for marketing: he had a vision for Pixar to become as powerful a brand in animation as Apple was in computing. He wanted it to become no less than the next Disney.

Steve Jobs and Disney’s CEO Michael Eisner

The amazing thing is that Jobs achieved to impose these new terms — and what’s more, to Michael Eisner, one of Hollywood’s toughest negotiators! Disney never treated its contractors the way it agreed to treat Pixar. All of Hollywood was stunned.

Steve had used a killer argument: he threatened to go to other movie distributors as soon as the three-picture deal would be over. Eisner understood Pixar was going to turn into a golden goose and was smart enough not to let it go.

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.

Steve Jobs and Larry Ellison posing on the cover of BusinessWeek in 1996

Taking over?

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

Jean-Louis Gassée during his Be years

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 and Gil Amelio at Macworld 1997

Palace coup

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.

Time interview

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.”

Bill Gates at Macworld Boston 1997.

Big Brother in the 1984 commercial

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.

New strategy

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.

Steve Jobs posing with the two computers with which he saved Apple:
the Macintosh in 1984 and the iMac in 1998

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.

Head of Design Jony Ive and head of Hardware Jon Rubistein with the lifesavers iMacs

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

Macworld 2000

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 sinceToy 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.

Steve Jobs behind the Genius Bar at New York’s SoHo Apple Retail Store in 2002.
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

Steve Jobs introducing the iTunes Store on Apr. 28, 2003

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!

Unexpected success

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.