iGod - how Apple went bad, and made billions from doing it
A slim, middle-aged man in a polo neck and jeans strides on to the stage. He is engulfed. Waves of cheering roll up at him on his black altar. The chorus of joy comes both live, from his captive audience in San Francisco’s Moscone Center exhibition hall, and from cinemas around the world, where his sermon will be beamed via live satellite link.
His appearance, the crowds of thousands who have been awaiting his arrival for over an hour and the clusters of television cameras aimed towards him give the air of an evangelical Christian gathering. But Steve Jobs, CEO of Apple, isn’t here to heal or make the blind see. He’s here to change everything, yet again.
Apple's CEO Steve Jobs on stage in San Francisco's Moscone centre
His Apple stage shows are a news event unlike anything else. In the San Francisco venue, Wi-Fi is outlawed and there isn’t a laptop or palmtop to be seen – Jobs’s acolytes must be content simply to bask in his radiance. But in the BBC’s White City headquarters, where an entire cinema has been cleared and so many journalists are crammed in that people are standing in the aisles, it’s very different. The clatter of keys can be heard over everything Jobs says. They are spreading the word.
It’s every blogger for himself. They report Jobs’s utterances by the second – looking over their shoulders, you can see such banal observations as ‘He’s on stage, smiling!’ Everything he does is reported, dissected and commented on, even before he has finished speaking.
Like all the great preachers, Jobs has a magnetic stage presence. He salts his geek-speak with to-camera asides such as, ‘Now, I think this is really cool.’ YouTube videos of his speeches are watched millions of times and analysed minutely. The one-line blog website Twitter crashed last year due to the sheer number of one-line descriptions being uploaded as Jobs bounded on to the stage.
But it’s not just Mac obsessives who are so bewitched. Industry giants are hanging on his every word, too. Prior to Jobs’s speech, websites all over the world have inspected and reported Apple’s order sheets from electronics plants in Taiwan, Korea and China, trying to piece together the product he will announce.
In the past ten years, these stage shows have changed the lives of almost everyone who uses, or is affected by, computers, music, mobile phones, TV and technology in general. Which is all of us.
Today, Apple dictates the pace at which the technology market works. If other brands are the high street, Apple is the catwalk. If you never own an Apple device for the rest of your life, what you use instead will still have been influenced by the company’s products.
In the Seventies and Eighties, Jobs pioneered the personal computer. His company created the first truly consumer-friendly PCs. In 1998, Jobs’s brightly coloured iMac turned computers from functional to fashionable; 3.7 million were sold worldwide. Apple now controls six per cent of the worldwide computer market, having recently doubled its market share.
In 2001, the iPod turned MP3 players from a geek obsession into a mass-market phenomenon (with sales to date of over 140 million). In 2003, the iTunes Music Store proved that online music sales could be a viable business. High-street music stores have become almost redundant. More than four billion songs have been sold on the iTunes Store, which commands 70 per cent of the online music market. It is a monopoly without parallel in retail history. The songs it sells will not work on any other player but the iPod. Songs from other retailers won’t work on the iPod. And the iPod controls around three-quarters of the MP3 player market. It’s a perfect circle – all very far from the outsider company once lauded by Stephen Fry as the cosy, non-corporate alternative to Windows.
Unashamedly, Apple is now a money-hoovering machine. It’s worth $130 billion; every technology story relates to Apple. It has invented the market for gadgets that you use,
get bored of, then replace. Jobs has urged his faithful to buy a new iPod at least once a year.
At today’s sermon, Jobs is here to announce the iPhone – what aficionados dub ‘the God machine’. He unveils a projection of the device, and the applause is deafening.
It’s already known that the iPhone 2 will shortly go into production in Taiwan. Ten million iPhone 2s will have hit the shelves by the end of the year. On top of the iPhones already sold (around six million, judging by previous sales figures), it’ll mean another market falling at the feet of the rapacious Californian company. And Jobs beams, lapping up the applause.
Apple's headquarters at 1 Infinite Loop, Cupertino, California
The ex-hippy, non-meat-eating CEO might be worth £3 billion himself, but
he likes to show that 32 years after he co-founded Apple he still ‘thinks different’,
as the old company slogan put it.
But with Apple poised to strike blows both at Microsoft’s domination of the PC market and at the movie-rental industry, is the company really that ‘different’? Apple innovates in design, but increasingly it also pioneers many less desirable commercial ideas.
Take the iPhone. It’s the first mobile with a battery and SIM card that can’t be removed or replaced. This is simply to ensure users stay locked to one network and Apple’s revenues are safe; uniquely, the firm charges for the handset as well as taking a cut of the phone company’s income. Similarly, the iPod has a fixed battery. This wasn’t a necessary design feature. Millions didn’t dare to exchange their duds for semi-legal replacements – and paid for a new model instead. And then another.
And while Apple fans seem content with the company rushing its headline products to market, then upgrading them two months down the line, should we be? As Jobs’s stage shows are there to demonstrate, Apple is the leading light. But it’s no longer clear whether that fact is all that liberating.
What makes the new Apple, with its corporate-driven ideals, so remarkable is how far removed it is from the silicon-hippy idealist early days. The unveiling of what was to become Apple’s first product in 1976 could hardly have been in greater contrast. The auditorium at the Stanford Linear Accelerator Center near San Francisco was a dingy beige. Every one of the 275 men who made up the audience – and it was all men – sported standard-issue hippy long hair and beards. Some of them had been on pilgrimages to the Far East, or experimented with LSD. Others wore kaftans.
In time, 21 vast companies and personal fortunes worth billions would emerge from here. But in 1976, the gatherings known as the Homebrew Computer Club were still decidedly ramshackle. The motley crew shared a love of engineering, and what was regarded as an oddball belief: that computers would soon be in every home.
Among the group assembled that day was Steve Wozniak, a computer genius who worked on calculators at Hewlett-Packard. He chose this meeting to unveil something genuinely revolutionary. It was a beige motherboard containing 30 or so silicon chips soldered together, by Wozniak, outside of his working hours at Hewlett-Packard. Its ‘PROM’ chips stored a string of ones and zeros, laboriously typed in by hand, again by Wozniak. The ‘monitor’ programme he had written enabled you to type a letter on a computer keyboard and see it appear on a screen in front of you. This was the first computer in history that could perform this feat.
Out of loyalty, he’d offered it to HP the week before; they rejected it. So he was here to show it off to the room of nerds instead, alongside an old school friend, Steve Jobs. The friend was a grim-faced, bearded young man who seemed to be everywhere in the room at once.
Steve Jobs with one of the first Apple PowerBooks - in 1991, the machines captured 40 per cent of the market in three months
‘He was an intense young man with a thin beard and a thin frame and he was darting here and there in what the military would call a “target-rich environment”, meaning that anywhere he shot the gun, he won a prize,’ remembers Lee Felsenstein, who developed the first mass-produced portable computer and moderated the ad-hoc meetings. ‘In the “random access” sessions he was very active, moving about in a purposeful, agitated fashion while others were standing around in small groups. He
was always very determined and silent. Basically, he was in “learning mode”.’
The ‘Apple I’ machines that resulted from Wozniak’s prototype were assembled
in Steve Jobs’s garage. To pay for the first circuit boards, Wozniak sold his Hewlett-Packard calculator, which cost $500. Jobs sold his VW van, which raised just half that amount. The machines the pair went on to sell were far from what we imagine as a computer today – to make them work, you had to wire in a keyboard and connect a monitor yourself. At the time, the idea that ‘personal computing’ would be profitable seemed almost laughable. As a result, ideas such as the Apple I were freely exchanged at the Homebrew Club, despite being worth billions. No one had any idea that fortunes were being made as the discussions floated back and forth.
Steve Jobs, John Sculley and Steve Wozniak unveil the Apple II in 1982: the machine revolutionised home computing
As Felsenstein wistfully recalls, ‘Of course, Steve Jobs and Wozniak disappeared from the meetings when Apple got its funding. It was at a time when people were thinking, “I can’t go to the club any more and tell everybody what I’m doing, because there’s money at stake.”’ Jobs, it seemed, had been among the first to appreciate that nicety.
Forbes magazine regularly lists Jobs as one of the 100 richest people in America. He earned £100 million by the time he was 25, made the cover of Time magazine when he was 26, was forced out of Apple at the age of 30, then returned to revive it in the late Nineties with the launch of the iMac, eventually transforming it into themulti-billion-pound leviathan it is today.
Jobs is Apple. He oversees everything – from which prototypes to develop to the packaging of products, and even hiring the chefs to work at Apple’s gleaming, postmodern headquarters at 1 Infinite Loop, Cupertino, California. He’s so central to the company that the news that he’d had pancreatic-cancer surgery in 2004, which he survived, wiped 2.4 per cent off Apple’s share price. Jobs himself has so many shares in the company that recent market jitters saw the value of his stake fall $354 million within the space of a month. And the way he does business is the way Apple does business.
Almost 30 years after the Homebrew Club show-and-tell, 40 of Apple’s biggest customers have been flown into HQ. Among those present is Apple’s second-largest publishing client. Everyone is mesmerised, as usual.
One reason for their presence is unspoken – it’s a pilgrimage to meet the man who embodies Apple. For the few lucky enough to get close to him in the course of their work for Apple, his charisma is legendary. It’s so affecting to normal business brains that it’s routinely described as a ‘reality-distortion field’. After all, just booking a meeting with Jobs is a Byzantine process that takes up to four months. Most of Apple’s own employees will never see him throughout their careers except via his worldwide satellite broadcasts.
All those gathered sit wide-eyed watching Jobs as he expounds his latest views on their markets and what Apple could do for them. All apart from one, the publishing client, who has a laptop open on his knees. Employees who work with Jobs know what to expect. No deviation from utter rapt attention is tolerated. Jobs’s voice turns to ice. ‘If you closed that laptop,’ he hisses in his Californian twang, ‘you might learn something.’
‘People are terrified of him,’ says David Sobotta, a former director of federal
sales at Apple and the man who organised that particular meeting. ‘I was in a congressional hearing with a senior vice-president at Apple. The meeting with the congressmen was delayed and delayed, and my colleague turned to me and said, “You’ll have to be me in this meeting.” I said, “I can’t be you. This is a congressional hearing.” He replied, “I’ve a meeting with Steve this evening. I can’t miss a meeting with Steve.” Later, the hearing was cancelled – with relief, he upped and left.’
Jobs’s reputation for near-insane perfectionism and a control-freak management style hardly dent his reputation as CEO. But they don’t make comfortable listening, either. Of one annual sales conference, Sobotta recalls, ‘Steve was speaking to the bastepchild of the operation, the enterprise sales force, around 150 people selling to all
the enterprises across the Americas, including the federal government.
‘One of my staff, a 25-year Apple veteran, asked Steve why Apple didn’t advertise the new professional systems, the big aluminium towers. Steve said quite baldly, “We have an enterprise sales team to sell these. If I advertise, I can get rid of you guys.” We felt pretty low. You don’t get Steve Jobs very often. We felt hated, worthless. But then he strikes fear into everyone, up to the most senior executives. I went over to the offices of Tim Cook [Apple’s chief operating officer] and he said, “Let’s go this way. It doesn’t go in front of Steve’s office. We’re less likely to get into trouble.”’
Jobs was born unconventional. He was the illegitimate child of Joanne Schieble and Syrian Abdulfattah ‘John’ Jandali, 23-year-old students at the University of Wisconsin. Within months of giving up their baby son, the pair got married; they later had a daughter, Mona, whom they kept. The boy was named by his adoptive parents, Paul and Clara Jobs, a working-class couple from Santa Clara County, near San Francisco. They lived in the same house in Mountain View where their son would later hand-build the first Apple computers.
On graduation from high school, Jobs went to college in Portland, Oregon – and lasted precisely one term, unable to stick to rigid academia. Instead, he focused on the Homebrew Computer Club and became a technician at the videogame company Atari; the work paid for a philosophical odyssey to India that saw him returning with his head shaved, wearing Indian robes and having taken LSD. Just two years later, the unlikely combination of countercultural thinking and a visionary passion for technology led to the creation of Apple Computer.
As the company grew rapidly, history seemed to be repeating itself in Jobs’s personal life. At the age of 23, just like his biological parents, Jobs had an illegitimate child, Lisa, with his girlfriend Chrisann Brennan, which he struggled to accept. Already with millions in the bank, he’s said to have declared in a court document that he couldn’t be Lisa’s father as he was ‘infertile’. Eventually he did acknowledge paternity of Lisa, but went on to marry organic-foods businesswoman Laurene Powell, nine years his junior, at a wedding in 1991 presided over by Zen Buddhist monk Kobun Chino. Jobs has fathered three children with Laurene.
As Apple grew in the early Eighties, Jobs began another odyssey: trawling the globe for the best engineers, designers, software developers and marketing people capable of turning his vision into reality. Venture capitalist Jean-Louis Gassée was one of his early signings. He signed a contract in Switzerland to launch Apple France before becoming the head of product development in Cupertino.
How does he sum up his former boss? ‘Democracies don’t make great products. You need a competent tyrant.’
Gassée first met Jobs in February 1981. ‘I came to Cupertino to see the mothership and I was wearing a suit, shirt and tie. Steve was sitting cross-legged wearing his trademark jeans and black polo neck. I felt rather out of place.
‘How do you judge or attempt to assess someone as creative as Steve who is unparalleled in our industry? In my opinion he is an artist. He is the Yves Saint Laurent of the industry. He is a creator.
‘Of course artists and creators break rules, so what is all this whining about him? Everyone in Silicon Valley knows he is like this, but what do you want – an accountant? If you want an accountant, go to Dell.
‘I didn’t see what he was doing with the iPod. I thought, “Oh my God, it’s just another MP3 player.” But he understood the game better than anyone else, and putting the iPod and iTunes together made the difference.
‘Then when Steve decided to open Apple Stores, I thought again, “Oh my God, the industry is not ready for this.”
But guess what – the stores are now an icon of commerce. The sales per square foot are greater than Neiman Marcus and Saks on Fifth Avenue. I went to the Regent Street store in London, and they’ll take your purchase and credit card and process the sale on the spot without having to queue at the register. This is all down to Steve’s eye for design.’
Gassée eventually learned not to doubt Jobs. ‘I did a better job with the iPhone,’ he says. ‘I knew it was a BFD, as we say in Silicon Valley – meaning a Big Frigging Deal. Recently they announced the software-development kit [for third-party companies to develop applications for the iPhone], which will open the floodgates. Apple will sell those applications on the iTunes website to download securely
and automatically to your iPhone. The developer won’t have to do any kind of dirty business over royalties, which is very, very clever.
‘I laugh when I see the carriers getting all disturbed by the iPhone. But Steve is very serious when he is breaking convention. He should have had seven statues built for him by now: one for the Apple II [the refined successor to the original], one for the Mac, one for Pixar [the CGI film company Jobs bought in 1986], one for coming back and reviving Apple and the Mac, one for the iPod and iTunes, one for the Apple Stores and one for the iPhone.’
Jobs unveils MacBook Air - the thinnest laptop on Earth
Is Gassée’s somewhat over-the-top adulation rooted in the famous ‘reality-distortion field’ that surrounds Jobs? Engineer Bob Belleville, headhunted by Jobs from Palo Alto’s Xerox PARC, one of the most important centres for scientific research for technology companies, refuses to have his views on Jobs distorted. ‘I joined in 1982, and it was clear to me that the management at Apple had never taken him all that seriously, even though he was chairman. He wanted to run Apple but nobody thought he was able to do that.
‘Steve likes everything to be very concrete. He wants plastic models of it, he wants something that seems like it’s going to work, he wants the shipping box, the foam that protects it, the manual. He wants to feel it. And that makes it real for people.’
Belleville says Jobs was always very hands-on with projects, but he casts doubt on him being a lone innovator. ‘Steve’s creativity is really about his ability to bring somebody’s nothingness into existence. He would come to my desk and say, “Lunch.” And we would go off to a vegetarian restaurant a couple of blocks down from our office. On one of these lunches, late in 1983, he said, “What do you want to do next?” I said, “I want to build a laser printer.” He replied, “What’s that?” I said, “It’s a box. And out of it comes any page you can imagine.”
‘Then he came to my office again and he asked me if I knew about Adobe. I told him I didn’t know about it, but he said it was a company that was going to build printer software. I said “Let’s go” and we saw some output.
‘Within weeks we bought 20 per cent of Adobe. Apple sold Adobe some years later for something like $100 million – we’d paid about $100,000. We shipped the laser printer with the Adobe software. We produced a machine which enabled desktop publishing. ‘That’s how his creativity is in a different order to other people’s. He senses what other people want before they want it.
‘Throughout the process, he never suffered fools gladly. I’ve always wondered if this was partly because he wasn’t raised by his genetic parents. Some children have a very strong sense of when they’re being lied to. The only people who deal with him well are people who are very, very genuine. If he has people who are uncertain of who they are, he will show them up. He does it instantly.’
Jobs’s mind games can be brutal. Says Belleville, ‘I had to make hard decisions in engineering about what product sample to build and what not to build for a mass of people who were very enthusiastic about their ideas. A lot of them didn’t like the way I did it. I had a lot of people working for me. At least half of them on Monday hated me, and by Friday the other half hated me.
‘So whenever Steve wanted to get my goat, he would come to me and say, “Let’s have a little walk.” So we went outside and sat on a kerb and he said, “Everybody hates you.” It didn’t matter to him that 80 per cent of the people hated him at any given time. But that’s the kind of treatment you get from Steve. You were left feeling like ****, simple as that – wandering around in an absolute daze for two hours before getting back to work. ‘The people who get abused by him and get thrown out are probably healthier than most of us. Three years and a couple of months is all I made.’
As it turned out, Belleville’s Apple was merely the beginning. Jobs lured marketing guru John Sculley from Pepsi in 1983 to become Apple’s CEO, with the enticement, ‘Do you want to spend the rest of your life selling sugared water, or do you want a chance to change the world?’
A year later, Apple started its think-big approach with a £1 million Ridley Scott-directed Super Bowl television commercial entitled ‘1984’. Two days later an emotional Jobs introduced the Macintosh, the first successful computer with a graphical user interface.
The Jobs-Sculley relationship went downhill during the industry-wide sales decline at the end of 1984. Within months Jobs was out of his own company following a boardroom power struggle. He started NeXT to develop computer hardware and software – a decade later Apple bought NeXT for £200 million, and soon afterwards appointed him interim CEO. Jobs was back where he wanted
to be. He rid the company of projects he didn’t rate. Crucially, he canned dozens
of different beige-coloured Apples and replaced them with a single unit, the iMac G3, in vivid ‘Bondi Blue’ and later in other (now ghastly-looking) colours. Created by visionary British designer Jonathan Ive (as was the iPod – see panel), this computer was built for fun.
Since that moment, Apple has been consistently successful. But the change in its business plan has been marked. Jobs has focused everything on a ‘vertical strategy’. iTunes is the supreme example. The business model of the iTunes Store is designed to exist in isolation, without rivals. It sells locked songs in AAC format, which won’t play on any player except the iPod. Most big record labels still demand that songs be sold in protected formats, so rival online music retailers largely sell in Microsoft’s PlaysForSure protected Windows Media format. This won’t play on the iPod.
It’s a feedback loop: iPod owns three-quarters of the portable player market, so iPod owners buy songs from iTunes. The more songs from iTunes one owns, the more likely one is to stick with the iPod, since the only way to convert the songs into another format is to ‘transcode’, a complicated process that damages the already sub-CD sound quality of iTunes songs. Buy into the iTunes Store and you’re Apple’s for life. Online stores from Virgin, Coca-Cola and other big brands have tried to break that loop, failed – and closed down one by one.
Apple's iPhone has turned the mobile phone market on its head
The launch of the iPhone was typical of the new company. Apple made mobile-phone operators bend to its will in terms of revenue (Apple reportedly gets a ten per cent cut of user charges, utterly unprecedented in the history of telecoms) and in the way it made consumers fork out an unheard-of £270 before contract. It was also classic Apple marketing: Apple briefings at the time insisted the iPhone had ‘great’ battery life. It was only when you bought one that you realised you had to charge it every day if you wanted to use it both as a music player and a phone.
The first iPod had just 5GB of memory, enough for around 100 albums. It cost £350 and was plagued by faults – it routinely erased itself, and the battery life started off bad and rapidly progressed to abysmal. But such was the cult that sprang up around it, and its easy-to-use software, that no one seemed to mind.
Every one of these business calculations has been at Jobs’s behest. Apple is a publicly quoted company answerable to shareholders, but accountants never get in the way of Jobs’s drive for perfection.
‘The design and build process for a product is a pretty set length of time,’ says Sobotta. ‘If you make changes during that period you have to end up changing the way you ship the product from China. Instead of going by boat you might have to go air-freight. There were some unbelievable costs attributed at the time I was at Apple to Steve making last-minute changes to products. It was millions of dollars. His precision overruled everything.
‘Apple products have that finish and that perfection that other products don’t get. The bean-counters don’t rule Steve; Steve rules the bean-counters. The weakness in all this is that one human being only has so much ability to interact with so many projects. For example, if Steve is focused on iTunes, it will be really great. If Steve doesn’t pay any attention to the word-processing package, it may not be so good. The biggest challenge is the bottleneck.’
Steve Jobs obsessively controls Apple's media image, to the extent of suing websites who dare to leak information in advance of his stage shows
And Jobs doesn’t just control the product, he controls the message, too. One of the reasons why his stage shows are such cult viewing is that they’re the only way we get to hear about the new products. Websites that dare to publish leaked information are crushed without mercy – Apple has prosecuted AppleInsider, PowerPage and Think Secret over the past year or so, alleging they have used confidential information from within Cupertino; it has also used subpoenas to try and make the sites divulge their sources. Kurt Opsahl, senior staff attorney at the Electronic Frontier Foundation, which defended the bloggers, says, ‘I am not aware of another technology company that is so strongly opposed to pre-release news coverage of its products. Indeed, many companies welcome such coverage.’
As he has done with several books since, Jobs attempted to block the publication in 2000 of The Second Coming Of Steve Jobs, which portrayed him in extremely unflattering terms as a control freak with violent mood swings. Although he failed to prevent it from going on sale, Jobs succeeded in having a feature on the book pulled from Vanity Fair. ‘That actually surprised me for its naivety,’ says its author, Alan Deutschman, today. ‘Jobs used his power as an advertiser
to intimidate magazines, and had used his power as a celebrity to help control coverage. But when you’re publishing a book, there is no advertising. The worst thing that Random House could ever do would be to allow interference. When Jobs called the CEO of the parent company to try to stop the book being published, that was passion overcoming the rational approach to the problem.’
It’s doubtful Jobs will change his habits any time soon. He’s already on to the next project. He has unveiled a film-download service that works with his Apple TV device, another first – with existing film-download services, the movies can only be viewed on the computer that did the downloading; with the Apple version, you’ll be able to view them on your TV set. Once again, Jobs and Apple are staying one step ahead when it comes to bridging the worlds of technology and entertainment. And whatever product Apple chooses to announce next, one thing is certain – sight unseen, cinemas around the world will fill with people desperate to find out what it might be.
Additional reporting by Paul Henderson in LA
