Apple’s CEO, at last
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.Steve Jobs’ keynote address at Macworld on January 5 2000 was a milestone for two reasons.
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.
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.
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