Inside Apple: How America's Most Admired--and Secretive--Company Really Works

by Adam Lashinsky

  There was one more feature to show—which neither Schiller nor any other executive referred to as “one more thing”—and that wa kaont sizes the Siri personal assistant feature of the new iPhone. Forstall demonstrated Siri, as he had done for Steve Jobs a few weeks before. Forstall pointedly referred to Siri as a “beta” product, one that wasn’t necessarily finished but was ready for widespread customer use. That marked two subtle departures for Apple: the public release of a beta product—a favorite Google technique, the better to test and adapt to user behavior—and the adoption of a brand name of a company Apple had acquired. In the past, when Apple had acquired a company and then put its technology to work, Apple had subsumed the company and rebranded its handiwork. The mobile advertising start-up Quattro had become iAd. Streaming tunes provider Lala Music was now part of Apple’s iCloud offering. SoundJam, which created digital jukebox software, long ago had given way to iTunes. But Siri, the name of the start-up Apple acquired in 2009, survived.

  Letting a beta product out of the protective cocoon of Apple before it was perfect was just one of the ways that October 4 will be remembered as a defining moment in the transition from Apple’s Golden Age to whatever comes next. (Apple had released beta products before, but it was not the norm.) There were other telling details: Instead of a showman on stage, there was an IBMer. Instead of all the product names being tagged with the lowercase i (which might as well stand for having been “inculcated” into the Apple system), another company’s creation was allowed to steal the show. Was iAssistant unavailable? Would it have mattered if it were? (Siri is Norwegian for “beautiful woman who leads you to victory.”)

  It’s tempting but inadvisable to carry this pivot-point-of-history analysis too far. Steve Jobs was heavily involved in nurturing Siri and the engineering team that created it. Moreover, Jobs had presided over similar events in the past that had been evolutionary rather than revolutionary. Also, for all its elevated importance in the new iPhone, Siri represented a continuation of a recent Apple strategy of quietly making targeted acquisitions of people and technology (as opposed to fully formed or revenue-gushing products) and integrating them into Apple offerings. More would come. In 2011, Apple made a handful of acquisitions it didn’t announce. And past acquisitions had yet to see the light of day. It paid $253 million in 2010, for example, to a Canadian mapping company called Poly9, presumably to better control the mapping technology in its mobile products and services.

  But there was no escaping the gaping hole Jobs left. Tim Cook’s debut as CEO was workman-like but absent of whimsy. He is earnest and forceful, but the words that come out of his mouth sound scripted, because they are, rather than magical, the way they sounded when his predecessor spoke from on high. Unlike Cook, Forstall has a glimmer in his eye when he speaks. And the nerds must have taken note when Forstall mentioned his own history with artificial intelligence while praising Siri. Yet when Forstall demonstrated the “humble personal assistant,” he asked it only easy questions he knew Siri could answer. Would Steve Jobs have challenged Siri by asking a question that would have elicited a dazzling but unhelpful response, just to show the whiz-bang feature’s limitations? We’ll never know.

  Adulation was expected, but no one could have anticipated the personal nature of grief that people around the world felt when Steve Jobs died. Few of the millions who grieved for him knew him personally. He was not a movie star or statesman or athlete. Yet one million people signed an online tribute page to him on Apple’s website. Mothers brought their kbror statesma children by his house to pay their respects—so that their children could one day tell their grandchildren of this brush with greatness. Love for Jobs was strong, and love for his company was stronger, even among those who don’t like companies. As Jobs neared the end of his life, a grassroots protest movement with anarchist undertones mushroomed into mass demonstrations against Wall Street specifically and capitalism generally. Right-wing critics delighted in pointing out that the protesters used their iPhones to take pictures and their MacBooks to create propaganda. Capitalism of the Apple variety was okay, Goldman Sachs not so much.

  The fact that a company worth $360 billion is embraced as revolutionary and not derided as “the man” or “the establishment” is directly attributable to Jobs and the bond consumers felt with him. Maintaining this paradoxical relationship between Apple’s market value and the perception of its products will be a tall order for Tim Cook. Today Apple is that rare company that enjoys an emotional connection with a wide-ranging array of consumers. As the company takes its first baby steps away from Jobs’s graveside, it is instructive to remember that this bond was not always widespread. I, for one, was a longtime skeptic, and the way that I was won over speaks volumes about how Jobs seduced the world.

  The story of Apple’s resurrection resonates with me because it coincides with my tenure in Silicon Valley. I moved to California in the summer of 1997 to start a new column about technology stocks in the hometown newspaper, the San Jose Mercury News. It was an exciting time for the tech industry, the investing public, and most certainly for me, having arrived in California from Chicago, where the tech scene amounted to the lumbering giant Motorola and not much else. A bubble was just then inflating, and an entire nation was puckering up to help blow.

  Online discount brokerages like E*Trade, DLJ Direct, and Charles Schwab made investing in tech stocks a breeze. Armchair and professional investors alike were snapping up newly issued shares of fledgling companies like Netscape, Amazon.com, Yahoo!, and Excite. The most powerful info tech companies by far—Microsoft, Intel, Oracle, and Cisco—were seen as engines of the new economy. Sun Microsystems, Dell, and Compaq were surging as well. Even Hewlett-Packard, the stalwart tech shop that had provided the mythic underpinning of a “Silicon Valley” when its founders launched their start-up in a garage near the campus of Stanford University, was humming along. The Internet tailwind was filling all sails.

  But not Apple’s. Jobs had recently returned, and that summer my new employer went gaga over his every move. The firing of Gil Amelio was front-page news. So was the Microsoft investment. The appointment of Steve Jobs as interim CEO was celebrated the same way. I didn’t get it. I certainly understood that Apple was a big local story: Its rise was the stuff of industry legend. It employed thousands of local newspaper readers, and many of the paper’s subscribers were loyalists of Apple’s elegant products. Apple also was the scrappy hometown team; Microsoft already was the Valley’s sworn enemy, even before the browser wars with Netscape that would begin the following year. A collective cheer for underdog Apple could be heard around the newsroom—and the rest of Silicon Valley—coupled with an implied hiss for the vulgar villain from Seattle.

  I brought an outsider’s perspective to the hullabaloo about Apple, wondering silently if all the fuss was warranted. I hadn’t used a Mac since col kMacs plege, eight years earlier. The computer I bought with my own money was an IBM clone (from Gateway) running Microsoft software. When I joined Fortune magazine four years later, I was so stuck in my Windows ways that although Fortune’s editorial staff used Macs I requested a PC.

  I wasn’t the only one shunning Apple; the rest of the world used PCs, too. Apple was for loyalists, for artists and other creative types, as well as for educators, with whom Apple had crafted particularly close ties. The business world and average consumers who wanted to surf the Web or balance their checkbook used PCs.

  Over time, however, I started to use some Apple products—just like everyone else. I downloaded iTunes onto my PC and used it to sync with my iPod, the first portable music player I’d loved since the Walkman. Then I got an iPod Touch and additional iPods (a Nano, a Mini, and even one of those tiny Shuffles that attaches to a shirt collar). Eventually I became one of those people who wanders into an Apple store for no apparent reason, admiring the elegant machines and chatting up the sales staff. Finally, I bought an iMac for my home, unwittingly acknowledging that I was the target demographic for Apple’s uproarious
“Mac vs. PC” ad campaign that mocked the uncool complexity of PCs compared with the hip simplicity of Macs.

  The hoopla in Silicon Valley surrounding Apple’s activities that summer of 1997 notwithstanding, it is shocking in hindsight just how unimportant Apple was at the time. Steve Jobs was fond of saying that when he returned to Apple, the company at one point was ninety days away from insolvency. On August 9, 2011, Apple first passed ExxonMobil as the most valuable company in the world, at $342 billion. As for Microsoft, the once-pitied Apple had passed its erstwhile foe a year earlier and quickly widened the gap in market value by more than $100 billion. In 2011, a flailing if still wildly profitable Microsoft was the tech giant that looked increasingly irrelevant.

  Most companies have just one point of entry, one product to catch a customer. It is only in hindsight that I can see the subtlety with which I was converted from a PC-using apostate and the way that my conversion mirrors one of the greatest entrepreneurial runs in modern American business. Research In Motion makes smartphones. Dell makes computers. That plucky little Canadian company Kobo makes e-readers. Apple has category-killing products in each of these and several other categories. In retrospect, Apple had us at “iPod.” We’re all inside the AppleVerse now, meaning Apple’s challenge isn’t finding new customers anymore but instead figuring out what amazing new products to sell us.

  The clues to understanding whether Apple can maintain its stratospheric trajectory without Steve Jobs will at first appear in its organization chart and then in the company’s posture with partners and competitors. In the near term, Apple must quickly adjust to the loss of the ultimate key man. Further out, it must figure out how to adjust to the absence of its entrepreneur in chief by tweaking Apple’s unusual management structure to welcome in and nourish outside entrepreneurs. That or somehow magically transforming its existing leadership into entrepreneurially minded executives. Can it evolve, in other words, from an autocracy to an incubator?

  Common sense suggests that Apple simply cannot cope, in the long term, with the loss of Steve Jobs. Jobs identified himself as an entrepreneur. (His death certificate liste k

  So in the post-Jobs era, Apple is a massive entrepreneurial enterprise, but its people generally are not entrepreneurs—and they are not encouraged to be. The entrepreneurs Apple acquires typically don’t stick around for more than a couple of years. Andy Miller of Quattro, Bill Nguyen of Lala, and Dag Kittlaus of Siri all left, despite having had rich, productive experiences at Apple, where there truly was room for only one entrepreneur. Today, instead of an entrepreneur born and bred in Silicon Valley in the executive suite, Apple has an emeritus business historian from Harvard lecturing about long-dead entrepreneurs. It is undeniably a cause for concern.

  An unsung attribute of Steve Jobs that Apple also will miss is his role as a masterful networker and gatherer of information. Had times gotten really rough, Jobs would have made a fine journalist. He furiously worked the phones, calling up people he’d heard were worthy and requesting a meeting. No one turned down the chance to meet with Jobs, of course, and he used the opportunity to soak up information. His uncanny insight into trends in business and technology weren’t a fluke. Jobs worked hard for his market intelligence.

  Jobs played reporter until near the end of his life. On June 28, 2011, he sent word through former Adobe CEO Bruce Chizen that he wanted to speak to the young CEO of a start-up called Lytro, where Chizen was an adviser. Lytro was pioneering a consumer “light-field” camera that used sensors to automatically refocus blurry photos. It was potentially breakthrough technology and of obvious interest to Apple, whose iPhones and iPads had cameras. The company’s CEO, Ren Ng, a brilliant computer scientist with a PhD from Stanford, immediately called Jobs, who picked up the phone at home and quickly said, “If you’re free this afternoon maybe we could get together.” Ng, who is thirty-two, hurried to Palo Alto, showed Jobs a demo of Lytro’s technology, discussed cameras and product design with him, and, at Jobs’s request, agreed to send him an email outlining three things he’d like Lytro to do with Apple. “What struck me the most was how clear his communication was,” recalled Ng. “His eyes were just so brilliant. His glasses kind of levitated off his nose. I told him we drew a lot of inspiration from the iPad. He really smiled. It was clear it resonated.”

  The rest of the crew at Apple either is too busy to schmooze or was always discouraged by Jobs from doing it, lest they get too big for their britches or too distracted from their Apple work. Recall his not altogether accurate quip about “not letting Forstall out of the office.” Scott Forstall does get out, but Jobs was serious about the sentiment. He circulated; Apple executives stuck to their knitting. A closed system doesn’t easily absorb ideas from outside its cone of silence. Jobs supplied Apple its ideas, but he was one of a kind.

  Other challenges abound, especially the fact that no matter how much Steve Jobs might have resisted the characterization, Apple is a big, compl k a Othericated company now. Its marketing remains fanatically clear, clever, and effective. But Apple is in all senses of the expression a multinational company selling multiple products. The days of fitting all its products on a conference room table are behind it. Even the product tabs at the top of the Apple.com home page are instructive. They read: Store, Mac, iPod, iPhone, iPad, iTunes, Support. Clear and straightforward, yes, but these diverse categories represent far more balls in the air than Apple had a decade ago.

  A diverse company calls for depth of management, and the moment Steve Jobs stepped down the weaknesses of Apple’s organizational structure, which worked so well under Jobs, became apparent. Tim Cook had overseen sales for years, for example, and Apple already was searching for a sales chief. (A top Google executive, Dennis Woodside, turned down an offer to take up the position in the fall of 2011.) Jobs personally oversaw advertising for Apple. Phil Schiller has added that responsibility to his portfolio, but that will stretch him thin, and advertising—as opposed to product marketing—is not Schiller’s bedrock experience. Apple has begun working out meaningful quirks. Weeks after Cook became CEO, Apple dropped the word “Mac” from Bob Mansfield’s title, recognizing that his responsibilities included device engineering, too. Craig Federighi, the head of Mac software, reported to Jobs and now reports to Cook. But Scott Forstall is the king of the software hill at Apple. His role needs clarification, such as formally putting all software under him.

  Jobs’s death also left Apple’s board without a chairman again. A month later, co–lead director Art Levinson, a former CEO himself, assumed the chairmanship. At the same time, Disney CEO Robert Iger joined the Apple board, deepening the Apple-Disney relationship.

  Key Apple practices increasingly will come under pressure. When Apple slightly missed Wall Street’s earnings projections in October 2011, the company attributed a falloff in iPhone 4 sales to rumors about an expected new phone. Allowing the rumor mill to affect sales is not the Apple way. Indeed, it is unheard of. What’s more, fear of reprisal from Jobs was one reason employees (and ex-employees) kept their mouths shut. Tongues will become looser over time at Apple.

  It will be intriguing to see how Apple will adjust its PR strategy in a post-Jobs world. Apple has more than enough money to continue to purchase and place its ads on the back cover of any magazine it likes, literally and figuratively. But the company has lost its best resource for landing Apple on the front cover. In the near future, the news media will cooperate with Apple on whatever it wants. The story is that good, with or without Jobs. But now his reality-distortion field has been deactivated, and eventually journalists will push back against Apple’s stingy approach to public relations.

  Partners naturally will push back, too, as they become increasingly well versed in the tactics Apple deploys against the likes of Cisco, the phone companies, and countless others. Five years from now, will a CEO devote days to rehearsing a three-minute presentation when the ultimate prize is not an audience with Steve Jobs? It seems unlikely. Ironically, Apple will confront a
paradoxical image problem. In contrast to the outpouring of love for Steve Jobs after he died, the Apple family expressed outrage at the unsparing portrayal of his dark side in his authorized biography by Walter Isaacson, which was released nineteen days after Jobs’s death. A similar fate could await Apple. Customers rightly love Appl ktlyography e for the delight its products bring them. But Apple’s ubiquity increasingly will enable the many stories of its roughness, with partners and employees alike, to shift beyond the business realm and into the public psyche.

  Confronting these complex issues, Apple undoubtedly will continue to defy so many of the management precepts taught in business school. However, the answer to what Apple’s future will be is unlikely to come from businessthink. Instead the best answer may come from theology, for the difference between a true belief system and idolatry is that a true belief system outlasts its founder. Steve Jobs wanted Apple’s values to survive him, though even his friends and admirers suspect he took some devilish pleasure in envisioning the whole thing going to pot again without him to pull the strings.

  There are things Apple can do to carry on, but this would require the company that revolutionized the computer, the smartphone, and the MP3 player to be willing to revolutionize itself. Change will not come easily to one of the world’s most valuable companies. If Apple’s presumably incredible pipeline of products is the company’s tailwind, “If it ain’t broke, don’t fix it” will be a headwind that could turn treacherous in the years ahead.

  Its executives must learn not to ask the question “What would Steve do?” and instead just do what they think is best. In fact, Tim Cook said at an employee celebration of Jobs’s life that Jobs’s parting advice to Cook was “to never ask what he would do; just do what’s right.” If Cook doesn’t intend to be the final word on matters of taste or software architecture, then he’ll have to designate who will be. Otherwise Apple will devolve into the fractious company that Steve Jobs never allowed it to be. If Apple can truly continue to behave like a start-up, then it will need to become less arrogant and bullying and more paranoid and respectful. Otherwise, it will inevitably become more like Microsoft, which too often resembles the snow leopard Jobs rejected for the packaging of Apple’s software: fat and lazy.