When Steve Jobs and Steve Wozniak launched their Apple Inc. back in 1976, the match turned out to be one of the most successful. In the early days, the man acted as a bridge between the two strong personalities, Ronald Wayne.
However he got out very early from the partnership.
Wozniak and Jobs had known each other since a few years earlier, and they had both love for technology and computing, but two very different personalities. On the one hand, Wozniak was highly technical, an engineer by core, and only interested in the technology. But, instead, Jobs was a business person by nature, trying to figure out how technology could be commercialized and marketed to the masses, with his obsession with aesthetics.
Indeed, one of the greatest achievements of Apple has been the ability to make technology adopted at scale, as its devices, once a symbol of “Think Different,” turned into status quo objects and then into a must-have.
In that sence, the story of how Steve Jobs turned Apple upside down is all but linear.
In fact, while the first computer Apple launched was successful, the company’s revenues stalled later on, and that is when Steve Jobs was ousted from the company he had founded. To give a bit of context, in the years before he got ousted, Apple had brought in adult supervision in the hands of John Sculley.
John Sculley was first fascinated by Jobs and joined the company, then he became one of the people that wanted him out as Apple revenues started to slow down significantly. When Steve Jobs had to leave the company that wasn’t in good terms. Jobs sold his stocks and he went on to found NeXT computers and later also invest in Pixar.
How did he get back and turned Apple upside down?
It was the year 1997. Apple was experiencing a sharp sales decline:
Compared to 1996 the company’s net sales decreased by 28% and even more compared to just a couple of years before.
To understand the severity of the crisis, an article from NY Times dated March 28th, 1996 said:
Apple Computer said today that it expected to report a $700 million after-tax loss for its fiscal second quarter, a sign that the nation’s third-largest personal computer maker is in even deeper financial trouble than had previously been recognized.
The company said that more than half of the loss it was projecting for the quarter, which ends March 31, would come from write-downs against more than $1 billion in unsold products. An additional 25 percent would be related to restructuring costs, the company said, indicating that another wave of layoffs is imminent.
In its annual report, Apple stated:
Macintosh computer unit sales and peripheral unit sales decreased 27% and 33%, respectively, during 1997, compared with 1996, as a result of a decline in worldwide demand for most of the Company’s product families, which the Company believes was due principally to continued customer concerns regarding the Company’s strategic direction, financial condition and future prospects, and the viability of the Macintosh platform, and to competitive pressures in the marketplace
Apple had lowered its prices on many of its products. So even though the aggregate average revenue didn’t change much it still contributed to the sales decline.
Amelio, which was supposed to be a turnaround master was eventually replaced.
Indeed, Apple swiftly made a move and removed Amelio as CEO, and that is when Steve Jobs joined the company again, after being ousted in 1985.
Jobs was going back to Apple, and it wasn’t cheap for the company. As reported on the 1997 Annual Report:
In February 1997, the Company acquired NeXT. NeXT developed, marketed and supported software that enables customers to implement business applications on the Internet/World Wide Web, intranets and enterprise-wide client/server networks. The acquisition was accounted for as a purchase and, accordingly, the operating results pertaining to NeXT subsequent to the date of acquisition have been included in the Company’s consolidated operating results. The total purchase price, including the fair value of the net liabilities assumed, was $427 million of which $375 million was allocated to purchased in-process research and development and $52 million was allocated to goodwill and other intangible assets. The purchased in-process research and development was charged to operations upon acquisition, and the goodwill and other tangible assets are being amortized on a straight-line basis over two years.
Looking back at the Apple investment in NeXT and given its financial distress, it’s easy to understand that it wasn’t an easy choice. What made Apple go for it?
When Steve Jobs left Apple in 1985, it wasn’t in good terms. As soon as Steve Jobs left the company, he also announced he was going to start a new company, which would become NeXT.
As soon as Jobs made that announcement, Apple followed up with a suit!
To understand the strategic importance of NeXT for Apple as appleinsider.com pointed out “today many of us are using macOS daily and unaware that features such as the Dock were born in NeXTSTEP. We’re definitely all on the web, and even among those who know Tim Berners-Lee created the World Wide Web, few know he did it on a NeXT cube.” and it continued “If you ever develop apps for macOS or iOS, too, you can still see evidence of NeXTSTEP’s DNA: there are foundational elements in Objective-C that were created for NeXTSTEP and whose names begin with NS.”
At the time Apple was experiencing a substantial flaw in its software. Many fail to understand that the business success of Apple wasn’t just its hardware and aesthetics, but the software side played a key role.
When Steve Jobs pitched to Apple its NeXTSTEP (the software that powered NeXT computers); he won his way back to Apple.
As pointed out on macworld.com:
ump back to 1996, when Apple was looking for a replacement OS. Steve Jobs heard of this search and pitched NeXTSTEP to Apple executives. They liked what they saw, and in December of 1996, Apple announced it was purchasing NeXT with the goal of using NeXTSTEP as the foundation of a new Macintosh OS. Along with the announcement came news that Steve Jobs would be taking an advisory role in the company. In a stunning turn of events, the founder was back.
The team from NeXT that Jobs brought to Apple right away tried to adapt the software side from NeXT to the Apple OS. The project took the name of Rhapsody.
Long story short, Adobe (at the time a critical third-party developer for Apple at the time) didn’t support this project until Apple changed its plans. Until in 1998, Apple started to develop a new graphical interface for Rhapsody, called “Aqua,” which as pointed out by macworld.com during that project “the philosophical shift from Rhapsody to OS X took place.”
The shift to Aqua was critical to winning over the consensus of developers, that were and are a key ingredient to Apple’s success.
When Steve Jobs presented Aqua, the audience was stunned as it showed many new elements of the graphical interface. Apple understood it needed to release it and put it in the hands of as many people as possible.
What did Apple do? As macworld.com pointed out:
Apple set the price of “Mac OS X Public Beta,” as it was called, at $29.95—low enough for anyone could get it if they wanted, but high enough to exclude folks who might not be constructive to the beta testing process. The beta sold through Apple’s online store; the company later offered a $30 discount on the first full release of OS X (v10.0) when it shipped in 2001.
The way the company launched its beta is quite impressive. Rather than release a free version, Apple released its beta with a low price point, yet high enough to exclude those that would not be constructive sufficient to the future development.
However, what mattered was that finally, Apple had won over the consensus of developers, which started to test and report bugs, which made the software grow and improve quickly.
To understand the importance of that development, Apple’s entire software ecosystem has been built on top of that. Not only desktops devices, but also iPhone and iPods devices.
Therefore, Steve Jobs entered again in Apple as Interim CEO never left the company again.
To have a bit of context of the impact that Jobs brought to Apple. In 1998 the company was profitable again. However, Apple would gain momentum in sales again in the 2000s when Apple laid out a strategy that saw the launch of new products that hooked the consumers.
By 2004 the iPod would be a hit that fueled and got fueled by other music products consisting of iTunes Music Store sales, iPod-related services, and Apple-branded and third-party iPod-related accessories.
It was the fall of 2006 when Apple had been working on the launch of a product that would revolutionize the smartphone market. Steve Jobs had remarked several times there was nothing “smart” to that market. True, these phones had improved a lot compared to previous phones. However, they were still hard to use, not practical, and used primarily for business. Not a consumer device.
Steve Jobs would put an end at all that with the launch of the iPhone, which would become a massive commercial success. Still in 2017 iPhone sales accounted for most of Apple revenues. The story of the iPhone and how it got to be – from the technological standpoint – has been told many times.
Thus, this time I want to focus on the business story. How Steve Jobs, rather then the greatest visionary we all think, he might have been a great deal maker instead. Able to squeeze any industry he set up to disrupt, with deals that took advantage of already established oligopolies, cartel, and center of powers.
How he managed to do that is still a mystery to me. This time I want to focus on the deal that made the iPhone a wild success: the AT&T deal. The iPhone’s success isn’t just about a technological device that innovated and was years ahead of its competitors. This is the story of a tool, primarily subsidized by the carriers industry which without it would have probably never had taken off as he did, and it all starts with one of the most inaccurate predictions of our time, from Steve Ballmer, former Microsoft’s CEO.
Before Steve Jobs with the iPhone changed the rules of the game, the mobile phone industry represented a multi-billion dollar industry where the mobile carriers saw the handsets business as a commodity they could use. While that strategy had paid back in the past to bring in new subscribers, the whole industry needed a shake.
And Apple was ready to give that. One of the first players that understood that the iPhone could be a potential hit – or at least could revitalize their brand was Cingular (later AT&T). In an attempt to be branded as an “innovative company” and steal subscribers from ita rivals the time seemed right for Apple‘s deal. Before we get to that point, there is another step of the story to understand here.
As the story goes, Steve Jobs had understood he had to bet on the mobile market by producing its handset, which would be something in the middle between a phone and an iPod. That phone was Rokr, and it was in partnership with Motorola.
When the Rokr came out – noted cultofmac – “In the end, the Rokr E1 proved disastrous. With its cheap plastic design, poor camera, and a 100-song limit, it fell far short of the iPod’s promise of 1,000 songs in your pocket. Designed to make listening to your music easy, and pitched as the “iTunes phone,” it also failed on that front. The Rokr E1 required that users buy songs via iTunes, then transfer them to the device using a cable.“
The demo of Steve Jobs on the “iTunes phone” might well be considered the least successful one. Yet those mistakes would set the stage for the iPhone.
The Cingular team was the first to understand a change in the carriers’ business model. Where before handsets providers were a mere commodity used to lock as many new subscribers with cheap phones. There was a chance now to be perceived as an innovator in the space. And what partner would best fit this role than the company that had first disrupted the computer industry and then moved to the music industry?
Steve Jobs made a deal with AT&T, as reported by Wired “in return for five years of exclusivity, roughly 10 percent of iPhone sales in AT&T stores, and a thin slice of Apple’s iTunes revenue, AT&T had granted Jobs unprecedented power.“
However, Apple in return got a revenue-share model where it received $10 for every iPhone customer subscribing to an AT&T plan, plus total control over the design, manufacturing, and marketing of the iPhone. That was an unprecedented deal! That was the beginning of the end for the mobile carrier’s dominance over the smartphone companies – or at least Apple.
As of December 31, 2009, AT&T served 85.1 million wireless customers, compared to 77.0 million at December 31, 2008. Part of this staggering growth was also due to iPhone success.
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