Inside Steve's Brain (21 page)

Apple used to be fiercely proprietary, fielding its own technology and shunning industry standards. During its early years, Apple used nonstandard technology for almost everything. Keyboards, mice, and monitors all used nonstandard connectors. But since Jobs has returned, Apple has become much more flexible and practical. It is shedding a lot of its baggage. Across the board, Apple uses as many standard components and connections as possible, like USB or Intel’s chips. The Mac even supports the two-button mouse.

Creativity is being open and flexible, and not protecting your business model. There’s got to be an element of reckless abandon, a willingness to bet the company on the next new thing. One example is Jobs’s decision to open the iPod to Windows. Initially, the iPod was conceived as Mac-only. Jobs wanted to use it as bait to snare Windows users. He hoped it would be an incentive to switch to the Mac. There was a long, hard debate inside Apple. “There was a long discussion,” said Jon Rubinstein, former head of Apple’s hardware and iPod divisions. “It was an important decision for us. We didn’t know what the effect was going to be, so we debated both sides of the argument, we played devil’s advocate.”

Rubinstein said they eventually decided that giving Windows users a taste of Apple’s technology would have a “halo effect”—it would give a saintly glow to the rest of the company’s products. “In the end the halo effect was much more important than losing a few Mac sales,” Rubinstein said. “The iPod would get people to go into stores, and they’d check out the Mac at the same time.” Rubinstein said the combination of retail stores, the iPod, Macs, and iTunes on Windows was all part and parcel of the same strategy. “They feed off each other,” he said. “They use iTunes on Windows and say, ‘that’s what it’s like on the Mac.’”
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Jobs introduced the first Windows-compatible iPod in July 2002. The iPod was formatted for Windows but it still needed a FireWire connection, which was rare on Windows computers. The real change occurred nearly a year later, when Apple enhanced the way the iPod connects to a Windows computer. In May 2003, with the introduction of the third-generation iPod, Apple added USB 2 connectivity instead of just the standard FireWire. Adding USB 2 was a hugely important shift for Steve Jobs. It marked a departure from his principle of making products primarily for the Mac platform. But it also had the most dramatic impact on sales. Prior to the May 2003 switch, Apple had sold one million iPods. But within the next six months, it sold another million iPods, and nearly three million more were sold within a year. In the next eighteen months, nine million more were sold. The iPod is now firmly a Windows device. All iPods are formatted for Windows—not the Mac—out of the box. But whereas Windows computers aren’t compatible with Mac file formats, the Mac is, and they have no trouble connecting to Windows-formatted iPods.

Likewise, other Apple devices are Windows-friendly. In 2007, Apple released its Safari browser for Windows: another attempt to create a halo effect around its software, especially as a lot of Windows users are using Safari on their iPhones. The iPhone works as well with Windows and Microsoft Outlook as it does on a Mac. AppleTV is Windows compatible, as are Apple’s Airport WiFi base stations. Apple’s old modus operandi of keeping its technology proprietary has been thrown out of the window. Jobs has fully embraced the world of Windows.

Sir Howard Stringer is trying hard to reinvigorate Sony, to bring back some of the vigorous inventiveness that built and defined the company, but the company seems to have lost its flair for innovation. Digital music is the perfect example. This is a business Sony should have owned. Sony invented portable music with the Walkman and continued to dominate the portable device market even after dozens of other companies turned out Walkman and Discman knockoffs. But in trying to protect its music labels, Sony crippled its early digital players. Amazingly, Sony’s digital Walkman couldn’t play MP3 files, even though that was the emerging standard for digital music. Instead, Sony forced users to convert their music to Sony’s proprietary ATRAC format, which understandably they were loathe to do. They already had reams of music in MP3 format on their computers, which couldn’t be played on Sony’s players.

Jobs’s willingness to try open-ended experiments and then refine the ideas isn’t seen at many other companies. At Sony, for example, managers often show up to meetings with a single screenshot and say, “This is our design.” One engineer, who’s worked closely with the Japanese giant for several years, said he saw this many times. Puzzled and slightly shocked, he’d ask how they arrived at that particular design: What were the choices they made? Why did they do it this way instead of that? But his questions would always be rebuffed with a curt “This is the approved design.”

“They think they are really innovative, but they’re scared to do anything new,” the engineer explained. “A huge part of it is getting the blame. They’re so terrified of making a mistake, they always go with what they’ve done before.”
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The same is true when it comes to hardware. When developing a product, Sony managers would often present a list of the features in competing products and use that as the blueprint. But by the time the Sony product came out, the market had moved on. Rubinstein told me that the iPod should have been Sony’s product. “The Sony Walkman changed how people listened to music,” he said. “How they [let that] slip through their fingers I’ll never understand. They should have owned it. The iPod should have been Sony.” Rubinstein said Sony didn’t develop the iPod because it was afraid of hurting its other products. “A lot of it is fear of killing your own products,” he said. “You don’t want to kill your products if they’re successful.”
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But Jobs isn’t afraid. He killed Apple’s most popular iPod model—the mini—at the height of its popularity in favor of a newer, thinner model, the nano. “Steve drives a lot of that,” said Rubinstein. “He’s a burn-the-boats kind of guy. If you burn the boats, you have to stand and fight.”
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Apple’s phenomenally successful retail stores are an unlikely but telling example of Apple’s innovation at work. The stores were born of necessity, inspired by the digital hub, and developed like all of Apple’s products—prototyped, tested, and refined.

Drive to your local upscale mall and chances are you’ll find an Apple Store. Nestled among the frilly Lane Bryants and Victoria’s Secrets, you’ll see a high-tech boutique full of shiny white plastic and silver metal. The store has no name—just a big, brightly lit Apple logo in the middle of a stainless steel facade. Below the store’s metal forehead, you’ll see a big wide-open window with an eye-catching display showcasing the latest iPhones or iPods.

Step inside and you’ll find the store is a modest size, not too big and not too small. It will be packed with people; they always are. There’s often a line to get in when the store opens, and there are a few stragglers reluctant to leave when it closes at night.

The store is very seductive. You feel like you’re in a vision of a Kubrickian future—full of gleaming space-age hardware. It is inviting and low key. You’re free to play around with everything on display, and you can hang around as long as you want. You answer some e-mail and play a couple of games. There’s no pressure to spend any money, and the staff is happy to answer any question, even the most basic. Later on in the evening there’s a class on video editing at a small theater at the back of the store. The class is free.

Apple opened its first retail store on May 19, 2001, in Glen-dale, California, and since then its chain of more than two hundred stores has become the hottest thing in retail.

Apple’s chain of stores is the fastest growing in retail history, reaching $1 billion in annual sales in just three years, besting the record previously held by The Gap. By spring 2006, the stores were making $1 billion every quarter.

The stores account for a big—and growing—chunk of Apple’s business, and are playing a key role in the company’s comeback. The growth of the stores coincided with the huge growth of the iPod. Customers went to the stores to check out the iPod, but stayed to play with the Macs—and sales of both took off.

The stores are insanely profitable. One Apple store can make as much money as six other stores in the same mall combined—and can pull in almost the same revenue as a big Best Buy store, but with only 10 percent of the floor space.

The stores are like high-end clothes boutiques. They are swish and stylish, selling a lifestyle, not a cheapo box. There is no pressure to spend, and the staff is friendly and helpful. The service makes all the difference. Apple’s stores are no-pressure hangouts where customers can play with the machines and leave without guilt, very unlike the cacophony and harsh lighting at the big box retailers. There are no aggressive salespeople ready to pounce and pressure customers into purchasing expensive accessories and unnecessary extended warranties.

This is basic stuff for some, but for a huge swath of the population, some friendly, simple guidance is key to making a sale. It’s amazing how important this is for gaining new customers who are unfamiliar with the technology. I recently overheard one potential customer asking if he needed a computer to use his new iPod. Another booked a session at the Genius Bar, which is normally reserved for troubleshooting, to learn how to plug her iPod into her computer and transfer music.

When a customer buys a new Mac, the machine is personalized for them, for free, before they leave the store. Staff will load up drivers for the customer’s printer or camera, and help set up an Internet connection. Switchers from Windows love this kind of hand-holding, and it’s vastly different from shopping at big box stores where the only contact is the security guard checking your bag or cart as you leave.

The stores are extremely busy. They are always full and often packed. According to Apple, they are some of the busiest retail stores in the industry, rivaling big grocery stores and popular restaurants. When Apple opens a new store, there’s always a line of fans who camp out the night before. Some fans travel to every opening in their area, and a dedicated few fly international or cross-country to big store openings in London, Tokyo, or California.

When Jobs returned to Apple, he knew that the company needed a retail presence just to survive. Before Apple launched its stores, its only direct contact with customers was at the Macworld conferences, which attracted at their height about 80,000 conference attendees to a pair of biannual meets. (These days, more than 80,000 people visit Apple’s stores every morning, and another 80,000 in the afternoon!)

In the mid-1990s, Macs were sold through mail order catalogs or at retailers like Circuit City or Sears, where they were often relegated to a dusty back shelf. Neglected and ignored, the Macs got scant attention. Sales reps steered customers to the Windows PCs up front. Things were so bad for Apple that some Mac fans took it upon themselves to staff the stores on nights and weekends as unofficial salespeople, trying desperately to sell Macs in their spare time.

In the late 1990s, Apple started experimenting with mini stores-within-stores at CompUSA, which was a minor success, telling Jobs that Apple needed to expand its high-street presence, while making shopping for a Mac a more Apple-like experience. But Jobs wanted total control, which he could achieve only if Apple opened its own stores. Jobs wanted “the best buying experience for its products, and thought that most of the resellers weren’t investing enough in their stores or making other selling improvements,” Jobs told the
Wall Street Journal
. Note Jobs’s telling phrase: “the best buying experience.” Like all of Jobs’s endeavors the stores are driven by the customers’ experience.

At the time, Jobs said 95 percent of consumers “don’t even consider Apple,” and the company needed a place with knowledgeable staff to show how the Mac could become the center of their lives. The stores would especially target Windows users. It would be a friendly place for them to check out Macs. An early tag line for the stores said, “5 down, 95 to go,” referring to the 5 percent Mac market share compared to Microsoft’s 95 percent.

Jobs was wary of getting burned in retail, so he did his usual trick of recruiting the best person he could find, who turned out to be Millard “Mickey” Drexler, president and CEO of The Gap. In May 1999, Drexler joined Apple’s board. Drexler’s “expertise in marketing and retail will be a tremendous resource as Apple continues to grow in the consumer market,” said Jobs in a press release. “He will add a completely new dimension to Apple’s board.”

Jobs then called Ron Johnson, a retail veteran who’d helped turn Target from a Wal-Mart also-ran into an up-market purveyor of affordable design. Johnson had recruited name-brand designers to design housewares for Target, which earned it the French-sounding nickname Tar-jay. “Eight years later, design is the cornerstone of their business strategy,” said Johnson, now Apple’s senior vice president for retail.
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Jobs hired Johnson, a big, friendly Midwesterner with floppy gray hair and a wide smile, in January 2000. His first three words to him were “Retailing is hard.” Jobs added, “We’re going to operate with a little bit of fear, because retailing is a hard business.”
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At first Johnson couldn’t tell anyone he was working for Apple. He used the alias John Bruce (a variation on his middle name) and a phony title to stop competitors from getting wind of Apple’s retail plans. Johnson didn’t start using his real name, even inside the company, until after Apple had opened several stores.

When Apple opened its first retail store in May 2001, most pundits thought the company was making a costly mistake. Gateway, the only other computer company with its own retail stores, was closing them down. Gateway’s stores weren’t attracting customers. Inexplicably, Gateway’s stores didn’t carry any inventory. Customers could check out the goods, but had to order them online, which killed the opportunity to make impulse sales. Instead, Gateway’s customers gravitated to the big box stores where they could compare offerings from different manufacturers—and buy what they wanted there and then.