Inside Steve's Brain (3 page)

The pair hammered out the deal over a cup of tea in Jobs’s kitchen at his house in Palo Alto. The first question was the price, which was based on the stock price. The second question concerned the stock options held by his NeXT employees. Amelio was impressed that he was watching out for his staff. Stock options have traditionally been one of the most important forms of compensation in Silicon Valley, and Jobs has used them many times to recruit and retain key staff, as discussed later in Chapter 5. But in November 2006, the SEC launched a probe into more than 130 companies, including Apple, that embroiled Jobs in accusations of improperly backdating options to inflate their worth. Jobs denied knowingly breaking the law, and the SEC investigation is still ongoing.

Jobs suggested they go for a walk, a surprise to Amelio but a standard Jobs tactic.

“I was hooked in by Steve’s energy and enthusiasm,” Amelio said. “I do remember how animated he is on his feet, how his full mental abilities materialize when he’s up and moving, how he becomes more expressive. We headed back for the house with a deal wrapped up.”
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Two weeks later, on December 20, 1996, Amelio announced that Apple was buying NeXT for $427 million. Jobs returned to Apple as a “special advisor” to Amelio, to help with the transition. It was the first time Jobs had been at the Apple campus in almost eleven years. Jobs had left Apple in 1985 after a failed power struggle with then-CEO John Sculley. Jobs had quit before he could be fired, and he had set up NeXT as a direct rival to Apple, hoping to run Apple out of business. Now he thought it might be too late to save Apple.

At first Jobs was reluctant to take on a role at Apple. He was already CEO of another company—Pixar, which was just starting to take off with the enormous success of its first movie,
Toy Story
. With his success in Hollywood, Jobs was reluctant to get back into the technology business at Apple. Jobs was tiring of cranking out technology products that were quickly obsolete. He wanted to make things that were longer lasting. A good movie, for example. Good storytelling lasts for decades. In 1997, Jobs told
Time
:

“I don’t think you’ll be able to boot up any computer today in 20 years. [But]
Snow White
has sold 28 million copies, and it’s a 60-year-old production. People don’t read Herodotus or Homer to their kids anymore, but everybody watches movies. These are our myths today. Disney puts those myths into our culture, and hopefully Pixar will, too.”
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Perhaps more important, Jobs was skeptical that Apple could stage a comeback. He was so skeptical, in fact, that in June 1997 he had sold the 1.5 million shares he’d received for the NeXT purchase at rock-bottom prices—all except for a single symbolic share. He didn’t think Apple had a future worth more than one share.

But in early July 1997, Apple’s board asked Amelio to resign following a string of terrible quarterly financial results, including one that resulted in a loss of three-quarters of a billion dollars, the biggest loss ever for a Silicon Valley company.
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The common perception is that Jobs ousted Amelio after backstabbing him in a carefully engineered boardroom coup. But there’s no evidence to suggest that Jobs planned to take over the company. In fact, the opposite seems to be true. Several people interviewed for this book said Jobs initially had no interest whatsoever in returning to Apple—he was too busy with Pixar, and he had little confidence that Apple could be saved.

Even Amelio’s own autobiography makes it clear that Jobs had no interest in taking the helm at Apple, if you ignore Amelio’s assertions to the contrary. “He had never intended that the deal would include his giving Apple any more than some portion of his attention,”
⁹
Amelio wrote. Earlier in his book, Amelio noted that Jobs wanted to be paid in cash for the purchase of NeXT; he didn’t want any Apple stock. But Amelio insisted on paying a large portion in shares because he didn’t want Jobs walking away. He wanted Jobs committed to Apple, to have “some skin in the game,” as he put it.
¹⁰

Amelio does accuse Jobs several times of engineering his dismissal so that he, Jobs, could take over, but presents no direct evidence. It’s more comforting for Amelio to blame his dismissal on maneuvering by Jobs than on the more straightforward explanation that Apple’s board had lost confidence in him.

After firing Amelio, Apple’s board had no one else to turn to. Jobs had already been dispensing advice to the company in his role as special advisor to Amelio (nothing particularly Machiavellian about that). The board asked Jobs to take over. He agreed to—temporarily. After six months, Jobs adopted the title of interim CEO, or iCEO, as he was jokingly referred to inside Apple. In August, Apple’s board officially made Jobs the interim CEO while it continued to look for a permanent replacement. Wags noted that instead of Apple acquiring Jobs when it purchased NeXT, Jobs had acquired Apple but had cleverly arranged it so that Apple paid him.

When Jobs took over, Apple sold about forty different products—everything from inkjet printers to the Newton handheld. Few of them were market leaders. The lineup of computers was particularly baffling. There were several major lines—Quadras, Power Macs, Performas, and PowerBooks— each with a dozen different models. But there was little to distinguish between the models except their confusing product names—the Perfoma 5200CD, Perfoma 5210CD, Perfoma 5215CD, and Perfoma 5220CD.

“What I found when I got here was a zillion and one products,” Jobs would later say. “It was amazing. And I started to ask people, now why would I recommend a 3400 over a 4400? When should somebody jump up to a 6500, but not a 7300? And after three weeks, I couldn’t figure this out. If I couldn’t figure this out... how could our customers figure this out?”
¹¹

One engineer I interviewed who worked at Apple in the mid-1990s remembers seeing a poster-cum-flow-chart pinned to a wall at Apple’s HQ. The poster was titled HOW TO CHOOSE YOUR MAC and was supposed to guide customers through the thicket of choices. But it merely illustrated how confused Apple’s product strategy was. “You know something is wrong when you need a poster to choose your Mac,” the engineer said.

Apple’s organizational structure was in similar disarray. Apple had grown into a big, bloated Fortune 500 company with thousands of engineers and even more managers. “Apple, pre Jobs, was brilliant, energetic, chaotic, and nonfunctional,” recalled Don Norman, who was in charge of Apple’s Advanced Technology Group when Jobs took over. Known as the ATG, the group was Apple’s storied R&D division and had pioneered several important technologies.

“When I joined Apple in 1993 it was wonderful,” he said to me in a telephone interview. “You could do creative, innovative things. But it was chaotic. You can’t do that in an organization. You need a few creative people, and the rest get the work done.”
¹²
According to Norman, Apple’s engineers were rewarded for being imaginative and inventive, not for the difficult job of knuckling down and making things work. They would invent all day, but rarely did what they were told. As an executive, this would drive Norman crazy. Orders would be handed down, but incredibly, six months later nothing had happened. “It was ridiculous,” Norman said.

John Warnock of Adobe, one of Apple’s biggest software partners, said that changed quickly when Jobs returned. “He comes in with a very strong will and you sign up or get out of the way,” Warnock said. “You have to run Apple that way— very direct, very forceful. You can’t do it casually. When Steve attacks a problem, he attacks it with a vengeance. I think he mellowed during the NeXT years and he’s not so mellow anymore.”
¹³

Within days of returning to Apple as the iCEO, Jobs got to work. Once he’d committed, Jobs was in a hurry to fix Apple. He immediately embarked on an extremely thorough survey of each and every product Apple made. He went through the company piece by piece, finding out what the assets were. “He needed to do a review of pretty much everything that was going on,” said Jim Oliver, who was Jobs’s assistant for several months after he returned to the company. “He talked to all the product groups. He wanted to know the scope and size of the research groups. He was saying, ‘Everything needs to be justified. Do we really need a corporate library?’ ”

Jobs set up shop in a big conference room and called in the product teams one by one. As soon as everyone had convened, it went straight to work. “No introductions, absolutely not,” Peter Hoddie recalled. Hoddie is a hotshot programmer who went on to become the chief architect of Apple’s QuickTime multimedia software. “Someone started taking notes. Steve said: ‘You don’t need to take notes. If it’s important, you’ll remember it.’ ”

The engineers and programmers explained in detail what they were working on. They described their products in depth, explaining how they worked, how they were sold, and what they planned to do next. Jobs listened carefully and asked a lot of questions. He was deeply engaged. At the end of the presentations, he would sometimes ask hypothetical questions: “If money were no object, what would you do?”
¹⁴

Jobs’s review took several weeks. It was calm and methodical. There were none of the outbursts for which Jobs is infamous. “Steve said the company has to focus, and each individual group has to do the same,” Oliver said. “It was quite formal. It was very calm. He’d say, ‘Apple is in serious financial straits and we can’t afford to do anything extra.’ He was fairly gentle about it, but firm.”

Jobs didn’t cut from the top. He called on each product group to nominate what should be cut and what should be kept. If the group wanted to keep a project alive, it had to be sold to Jobs—and sold hard. Understandably, some of the teams argued to keep projects that were marginal, but were perhaps strategic, or the best technology on the market. But Jobs would frequently say that if it wasn’t making a profit, it had to go. Oliver recalled that most of the teams volunteered a few sacrificial lambs to which Jobs responded, “It’s not enough.”

“If Apple is going to survive, we’ve got to cut more,” Oliver recalled Jobs saying. “There were no screaming matches. There was no calling people idiots. It was simply, ‘We’ve got to focus and do things we can be good at.’ ” Several times Oliver saw Jobs draw a simple chart of Apple’s annual revenues on a whiteboard. The chart showed the sharp decline, from $12 billion a year to $10 billion, and then $7 billion. Jobs explained that Apple couldn’t be a profitable $12 billion company, or a profitable $10 billion company, but it could be a profitable $6 billion company.
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Over the next several weeks, Jobs made several important changes.

Senior Management.
He replaced most of Apple’s board with allies in the tech industry, including Oracle mogul Larry Ellison, who’s also a friend. Several of Jobs’s lieutenants from NeXT had already been given top positions at Apple: David Manovich was put in charge of sales; Jon Rubinstein, hardware; Avadis “Avie” Tevanian, software. Jobs set about replacing the rest of the executive staff, with one exception. He kept Fred Anderson, the chief financial officer, who had recently been hired by Amelio and wasn’t considered old guard.

Microsoft.
Jobs resolved a long-running and damaging patent lawsuit with Microsoft. In return for dropping charges that Microsoft ripped off the Mac in Windows, Jobs persuaded Gates to keep developing the all-important Office suite for the Mac. Without Office, the Mac was doomed. Jobs also got Gates to publicly support the company with a $150 million investment. The investment was largely symbolic, but Wall Street loved it: Apple stock shot up 30 percent. In return, Gates got Jobs to make Microsoft’s Internet Explorer the default web browser on the Mac, an important concession as Microsoft battled Netscape for control of the Web.

Jobs started talks with Gates personally, who then sent Microsoft’s chief financial officer, Gregory Maffei, to hammer out a deal. Maffei went to Jobs’s home and Jobs suggested they go for a walk around leafy Palo Alto. Jobs was barefoot. “It was a pretty radical change for the relations between the two companies,” said Maffei. “[Jobs] was expansive and charming. He said, ‘These are things that we care about and that matter.’ And that let us cut down the list. We had spent a lot of time with Amelio, and they had a lot of ideas that were nonstarters. Jobs had a lot more ability. He didn’t ask for 23,000 terms. He looked at the whole picture, figured out what he needed. And we figured he had the credibility to bring the Apple people around and sell the deal.”
¹⁶

The Brand.
Jobs realized that while the products sucked, the Apple brand was still great. He considered the Apple brand as one of the core assets of the company, perhaps the core asset, but it needed to be revitalized. “What are the great brands? Levi’s, Coke, Disney, Nike,” Jobs told
Time
in 1998.
¹⁷
"Most people would put Apple in that category. You could spend billions of dollars building a brand not as good as Apple. Yet Apple hasn’t been doing anything with this incredible asset. What is Apple, after all? Apple is about people who think outside the box, people who want to use computers to help them change the world, to help them create things that make a difference, and not just to get a job done.”

Jobs held a "bake-off” between three top advertising agencies for Apple’s account. He told them to pitch a big, bold re-branding campaign. The winner was TBWA/Chiat/Day, who had created Apple’s legendary 1984 Super Bowl ad for the first Mac. As a result, TBWA created the “Think Different” campaign in close collaboration with Jobs. (More on “Think Different” in Chapter 4.)

The Customers.
Jobs figured Apple’s other major asset was its customers—about 25 million Mac users at the time. These were loyal customers, some of the most loyal customers of any corporation anywhere. If they continued to buy Apple’s machines, they were a great foundation for a comeback.