How Jobs transformed Apple

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Adam Lashinsky, editor at large

steve_jobs_sept_09.gi.03.jpg
Steve Jobs, CEO of Apple
What is your favorite Apple product?
  • iMac/MacBook
  • iPod
  • iPhone
  • iTunes

By the following year Steve's regime had kicked into gear. Jobs completed the hiring of a new management team, which included several executives from his previous company, Next. Those top players would form the nucleus of the Jobs brain trust for nearly 10 years.

Then came the first Macintosh after Jobs' return, the iMac, a breakthrough all-in-one computer and monitor that heralded Apple's return to health. The success of the pricey iMac, coupled with drastic cost cutting, allowed Jobs to build a cash cushion. By repairing Apple's balance sheet, he prepared the company for big investments to come, a shrewd business move if ever there was one.

Jobs laid the foundation for Apple's leap from stable to stratospheric when things looked darkest. In 2000, Apple missed its financial targets in a September earnings announcement, sending its stock price plummeting in subsequent months to the equivalent of $7 in today's prices. Yet Jobs by this time had set in motion the key elements of Apple's rejuvenation.

Over the course of 2001, as global markets fell and the world headed into recession, Apple launched the iTunes music software (in January), the Mac OS X operating system (March), the first Apple retail stores (May), and the first iPod (November), a 5GB model that Apple bragged would hold 1,000 songs.

The market didn't catch on quickly to the significance of those events. iTunes was just music-playing software embedded into Macs and lacked an online store that sold music. The new operating system, though impressive, powered a niche product. The iPod was a snazzy MP3 player in an established market.

As the company's stock languished, takeover rumors appeared from time to time. What was never reported was that Jobs seriously contemplated taking the company private with the help of newly formed buyout group Silver Lake Partners. An Apple buyout would have been the deal of the century, but according to people familiar with the talks, Jobs ultimately shut them down.

That was actually the second serious proposal to buy Apple. In 1997, Jobs' friend Ellison, later an Apple board member, lined up financing to take over the company on the assumption that Jobs would run it. In a recent interview Ellison said Jobs didn't like the idea of being "second-guessed" if it looked as if he'd returned simply to make money. "He explained to me that with the moral high ground, he thought he could make decisions more easily and more gracefully," says Ellison.

For those paying attention after Jobs' return, the CEO was telegraphing Apple's trajectory. "I would rather compete with Sony (SNE) than compete in another product category with Microsoft," he told Time in early 2002. "We're the only company that owns the whole widget -- the hardware, the software, and the operating system. We can take full responsibility for the user experience. We can do things that the other guy can't do."

Jobs was convinced that the masses would turn to Apple, but only if he could speak directly to them -- and not just to faithful Macintosh users, a club that included mainly artists and students. The strategy of building company-owned retail stores, so integral to Apple today, was derided at the time as a risky cash drain.

"He did this with a nervous board," says Bill Campbell, a former Apple executive who went on to become chairman of Intuit (INTU) and an Apple board member. "He knew that this is what customers wanted." What's striking looking back is how little there was to sell in the original Apple stores. Jobs knew how he'd fill them.

Jobs made it his business to know everything about Apple. "He's involved in details you wouldn't think a CEO would be involved in," says Ken Segall, a former Chiat/Day creative director who has worked with Apple on and off for years. Jobs commissioned the iconic "Think different" campaign, says Segall, well before any of Apple's new products were introduced -- or even described to the ad team. "He'd say, 'The third word in the fourth paragraph isn't right. You might want to think about that one.' "

The rare pairing of micromanagement with big-picture vision is a Jobs hallmark. Early in his return to Apple, he recognized that gorgeous design was a differentiator for Apple in a computer industry gripped by the successful blandness of Dell, Microsoft, and Intel (INTC, Fortune 500).

"I cannot count the number of clients who have marched in and said, 'Give me the next iPod,' " writes Tim Brown, CEO of product-design consultant Ideo, in his new book "Change by Design." "But it's probably close to the number of designers I've heard respond -- under their breath -- 'Give me the next Steve Jobs.'"

Jobs also has a knack for pouncing at the right moment. The music industry had failed repeatedly to develop its own digital-music sales site before Apple came along with iTunes, which was by then prepared to become a store for buying music.

Jobs cleverly made his pact with the record labels when iTunes worked only on Macs, which in 2002 had a personal-computing market share in the low single digits. Apple's humble position -- before iTunes became compatible with Windows, expanding its potential market share to nearly all PCs -- was a virtue. This made iTunes an experiment rather than a destructive paradigm shift.

"I don't understand how Apple could ruin the record business in one year on Mac," said Doug Morris, the head of Universal Music, according to "Appetite for Self-Destruction," a new book about the record industry's ills by Rolling Stone writer Steve Knopper. "Why shouldn't we try this?" Writes Knopper: "By the time Steve Jobs came around, he was the last resort. He was merely smart enough to know it. He played tough, but not any tougher than any lawyer for a major label who had negotiated an artist contract in recent decades."

A key Jobs business tool is his mastery of the message. He rehearses over and over every line he and others utter in public about Apple, which authorizes only a small number of executives to speak publicly on a given topic.

Key to the Jobs approach is careful consideration of what he and Apple say -- and don't say. Harvard professor David Yoffie estimated that in the months between announcing and selling the first iPhone in 2007, Apple received $400 million in free advertising by not making any public statements, thereby whipping the media into a frenzy.

Jobs himself is careful to avoid overexposure, preferring to speak only when he has products to promote. He didn't disclose his 2004 cancer surgery until after it occurred, and then only in an employee e-mail that was strategically released to news outlets. Similarly, he told the world of his recent leave in another employee missive, with no additional comment from him or anyone else at Apple.

Nobody in Jobs' sphere speaks without the permission of the company's media relations team, which reports directly to Jobs. Apple declined to make Jobs available for an interview for this article. It did bless the participation of some people in Apple's orbit to speak about him, while nixing requests for others.

The secrecy has rankled corporate governance experts, who insist the health of such an indispensable CEO warrants greater disclosure.

Jobs was initially mum as well about a stock options backdating scandal that embroiled the company's former finance chief and general counsel. In an eventual SEC filing, Apple said Jobs was aware that the company had adjusted option grant dates so that the grants were more profitable for employees. Jobs apologized for the backdating, calling the episode "completely out of character for Apple."

Jobs manages the money, the message, the deals, the design, and more. Consider the case fairly made that the long-ago enfant terrible of the computer industry has built up impressive business chops and that his company is peerless. But if nothing else, his recent illness is a reminder that Steve Jobs is mortal. When he's gone, how long will his company thrive without him?

Apple's future.

This past September, when Steve Jobs made his triumphant return to the public eye, he thanked precisely one Apple executive by name: Tim Cook, Apple's chief operating officer.

At an event to introduce a new line of iPods, Jobs first informed a crowd of journalists, analysts, and Apple developers that he now possessed the liver of a "twentysomething liver donor who had died in a car crash." Then he thanked Cook and the rest of the management team for "ably" running Apple in his absence. Cook, in turn, led a standing ovation for Jobs, his arms raised over his head from the front row of a San Francisco auditorium.

With Jobs back at work, the conversation has been postponed as to whether Cook, or anyone else, is prepared to fill Jobs' shoes. "At Apple the hierarchy is determined by who Steve calls," says a former Apple executive. "There's a lot of value in 'Steve said.'"

Larry Ellison, a CEO known to dislike the topic of succession, says of his friend, "He's irreplaceable. He's built a fabulous brand. He's got a wealth of products. Whenever he leaves, I hope he retires in good health and he's sailing off in his yacht in the Mediterranean. But they're going to miss him terribly, because it's a consumer products company. The product cycle is so fast."

There are signs that Jobs has inculcated the troops enough to last awhile without him. "The organization has been thoroughly trained to think like Steve," says someone with contacts among the Apple executive team. "That's why the six months went so smoothly. People could envision, 'This is what Steve would do.'"

Jobs, in fact, inspires far beyond Apple. Larry Page and Sergey Brin recently told The New Yorker that Jobs is their hero. When Jeff Bezos released Amazon.com's smooth, shiny Kindle 2, the Jobs envy was obvious. Venture capitalist Marc Andreessen, who co-founded Netscape, says he often evokes Jobs in his advice to entrepreneurs. He says, "The threshold for the release of the first product should be, 'What would Steve Jobs do?'"

Looking out on the next decade, Jobs may well be asking himself a variation of that very question: After creating more than $150 billion in shareholder wealth, transforming movies, telecom, music, and computing (and profoundly influencing the worlds of retail and design), what should Steve Jobs do next? Given his penchant for secrecy and surprise and his proven brilliance, it's a fair bet that he'll let us know when he's good and ready.

Reporter associate Doris Burke To top of page

Company Price Change % Change
Bank of America Corp... 16.16 0.00 0.03%
Apple Inc 101.32 0.74 0.74%
Salesforce.com Inc 60.30 4.59 8.23%
Facebook Inc 74.60 0.04 0.05%
Citigroup Inc 51.04 -0.02 -0.05%
Data as of 3:29pm ET
Index Last Change % Change
Dow 17,004.95 -34.54 -0.20%
Nasdaq 4,540.66 8.56 0.19%
S&P 500 1,988.91 -3.46 -0.17%
Treasuries 2.40 -0.00 -0.17%
Data as of 3:44pm ET
More Galleries
8 of the world's craziest fast food items American food chains operating abroad must cater to local tastes to succeed. The results are spectacular. More
Inside the $50,000 Emmys swag bags If getting nominated or presenting an Emmy award isn't prize enough, celebrities come away from TV's big night with luxury goods and vacations worth $50,000. Take a peek at some of this year's luxe giveaways. More
10 most expensive cars sold at Pebble Beach These multi-million-dollar cars sold for top dollar at this year's Pebble Beach collector car auctions. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.