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: