Valley of Genius

by Adam Fisher

  Andy Grignon: The pioneers got the arrows. And collectively, the hive watched. They take the lessons learned and start to make profitable companies based on them.

  Ev Williams: I was a coder at the time, so I was like, Well, I’ll just build shit, and that was kind of fun for a while. I just didn’t leave the basement.

  Sean Parker: Everybody else got annihilated and left.

  The Return of the King

  iCame, iSaw, iConquered

  The dot-com boom was cold comfort to the Valley’s traditional hardware business. While NASDAQ was on a steep climb, Apple was facing bankruptcy. By 1997 Macintosh had sunk to a pathetic 2 percent share of the market—and Microsoft had the rest. That was the year Jobs finagled a return to the company which he had founded two decades before but had never actually controlled. This time he would be firmly in charge. The first thing that the older and wiser Jobs did was launch an advertising campaign, “Think Different,” which flattered the Apple faithful with comparisons to Albert Einstein, Buckminster Fuller, Pablo Picasso, and the like. Then he launched a new computer, the iMac, which piggybacked on the vogue for all things internet. The third launch was a clever new product aimed at the Napster generation. The iPod was a way to put an MP3 in your pocket. Apple’s update of Sony’s venerable Walkman idea proved to be a game changer, a completely new direction for the company. Last in the computer marketplace, Jobs was the first to realize that the whole of the consumer electronics industry was ripe for plunder. Apple was back, Steve Jobs was calling the shots, and this time it really would be different.

  Larry Ellison: Back in mid-’95 Steve was finishing up Toy Story at Pixar and running NeXT, the computer company he founded after he left Apple. Apple was in severe distress. It had gone steadily downhill during the ten years of Steve’s absence. The problems were now so serious that people were wondering if Apple would survive. It was all too painful to watch and stand by and do nothing.

  Trip Hawkins: At that period of time in the nineties, they really seemed like they were up the creek without a paddle.

  Michael Dhuey: What was keeping Apple alive was the Apple II. Luckily the Apple, because of its education market, kept selling year after year. That’s what propped up the company until Steve Jobs came back.

  Larry Ellison: We used to go for these long walks in Castle Rock State Park over by the coast. It cost $5 billion to buy Apple in those days, it was run by a fellow named Gil Amelio. I had raised the money. I was going to give Steve 25 percent of the company, and we were going to take it private and he was going to run it. And Steve said, “You know, Larry, I think I figured out a way I can get control of Apple without you having to buy it.” I’ll never forget this conversation as long I live. I said “Okay…” and then he said, “Yeah, I think I can get them to buy NeXT Computer and I’ll go on the board, and eventually the board will recognize that I’m a better CEO than Gil Amelio and I’ll become CEO.”

  Steve Wozniak: We bought NeXT because they had a real operating system and we desperately needed an operating system. Steve didn’t understand what an operating system was, or what its importance was, when he built the Mac.

  Jon Rubinstein: So I got to Apple in early 1997, right? And Steve hadn’t come back yet. I came in as part of the restructuring that Gil Amelio was doing. They acquired NeXT as part of that. So I kind of came into Apple as part of the acquisition.

  Larry Ellison: And then I went on the board.

  Jon Rubinstein: About seven months later they fired Gil. Fred Anderson was interim CEO for a couple months, and then Steve came back as interim CEO.

  Tom Suiter: At the time, there was a Wired magazine cover with the Apple logo on it and one word. It said, “Pray.” That was the dire straits that Apple was in. Everybody said, “Oh, they have like ninety days of cash left: They’re going to die.”

  Andy Hertzfeld: This is a little subtle and hard to understand, but Steve couldn’t have come back to Apple without the Pixar success. That enabled it, because it gave him the ability to not put everything on the line with Apple. Remember: When he came back he wouldn’t take the CEO job.

  Wayne Goodrich: Steve was the “iCEO.”

  Trip Hawkins: When Steve came back he was a different Steve. He had grown up a lot—but he could still bring it on in terms of insanely great creative thinking.

  Mike Slade: The first thing he did was a classic judo move. The “Think Different” campaign was brilliant, because it gave people permission to feel different and to feel good about the 2 percent market share that spring.

  Michael Dhuey: Jobs spent a month going around to see what were all the projects running at Apple. He decided to go back to a simple product line, because Apple at that time had a ridiculous number of products. The Macintosh had like twenty slightly different versions or something, it was just nuts.

  Jon Rubinstein: We convinced Steve that we should do a network computer.

  Michael Dhuey: The idea was, So what if we gave you a box and all you do is plug it into the internet and you’re on the internet and you don’t have to know anything about how computers work or the internet but you just use it? That was a really good idea, because the internet was the big thing then.

  Jon Rubinstein: The network computer evolved into the iMac, which was a very, very successful product for us.

  Tom Suiter: I’ll never forget the day he grabbed us and said, “I’ve got a little something I want to show you guys,” and so we leave the Mariani building and bounce across the street and go over to where Jony Ive’s studio was, and there are these things with shrouds on them and in a typical P. T. Barnum way, he pulls off the coverings and it’s the iMac in five Lifesaver color versions.

  Andy Grignon: That got Apple on people’s radars again, because computers at the time were boring beige boxes. Even at Apple in the midnineties we made boring beige boxes.

  Larry Ellison: Steve Jobs picked the colors of the original iMacs: “Sorry! No beige.”

  Tom Suiter: And they’re so cool and translucent and it’s like something from outer space. I remember saying, “I just want to lick them.”

  Michael Dhuey: It was sort of back-to-the-future. The iMac was kind of the replacement for the Apple II.

  Jon Rubinstein: That was the beginning of the turnaround for Apple.

  Mike Slade: And by late ’98 or early ’99 they had $4 billion in the bank. But it wasn’t iMacs, okay? The iMac didn’t make any money. It was mostly the expensive towers. The next campaign after “Think Different” was this thing where they make fun of Intel, and that’s because Steve was trying to appeal to the Photoshop weenies and get them to buy overpriced G3 and G4 towers. Okay, it was also PowerBooks, but mostly towers. It’s really simple, right? Sell the high-gross-margin stuff. It might as well be a clothing store.

  It took eighteen months for Apple to get back on its feet. Meanwhile, Tony Fadell, the young engineer who had cut his teeth at General Magic, was trying to get his own company off the ground. The idea was to do a line of MP3 players.

  Guy Bar-Nahum: I remember Tony walking around, like a loser in the Valley with a secret in his pocket. He’s the guy that had in his brain these two ideas: MP3s plus storage. There was a time when he was alone in the world with this. He was going around the Valley looking for people who would tolerate him, who would give him space, physical space, to sit in and draw.

  Yves Béhar: Tony had just come out of General Magic, and we had a meeting in South Park, and Tony got really, really animated and passionate and excited about digital music and moving forward. Essentially he was founding a company, and he wanted to go investigate the hardware and the software that could live around digital media.

  Tony Fadell: Hardware plus software plus services: General Magic was the first link that I ever saw like that. That influenced me for everything I did in my career since.

  Yves Béhar: And he raised money from Samsung, and we took a space on Broadway and Columbus and started sketching and drawing different hardware and essentially a whole
line of products: everything from home stereo systems to portable systems to DVRs. The whole product line would have a minimum amount of connectors and a very simple interface. The way Tony saw it was, “Let’s create a whole ecosystem of products that will replace the entirety of your home audio and video components.” And one of those things was a small portable MP3 music player.

  Guy Bar-Nahum: Tony was like a guy with a secret in his pocket walking around, like, “Look at this! Look at this! I have the iPod.” He didn’t call it the iPod, and there were a lot of missing pieces, right? But that basic enabling idea? He had it first.

  Yves Béhar: We had designed the whole system of products to be square with a circular interface that you sort of navigate around: basically a circle within a square. It was a design that we had scaled down to a small portable player, and up to a nice little cube stereo system.

  Tony Fadell: I never went off to the internet. When everyone went off to the internet I stayed doing devices.

  Yves Béhar: We had made a lot of progress: We had a great product lineup, we had some hardware designed, we had some mock-ups, the technology was aligning…

  Tony Fadell: And then the internet crunch happened.

  Yves Béhar: Just as it was for everyone else, it was impossible to find money to fund the next round for the company.

  Tony Fadell: No one wanted to fund it. They were like, “You are crazy, you should only be doing software, hardware is dead,” blah blah blah.

  Yves Béhar: There was a belief back then that hardware would disappear. Hardware was going to be totally annihilated by web pages, the internet, e-commerce.

  Silicon Valley was focused on the internet, but Apple had hardware coded in its DNA—and Jobs, like Fadell, awoke to the opportunity that Napster had created.

  Sean Parker: At the time, there may have been as many as four hundred million people actively trading MP3s and listening to music on their computers, and that meant there was a market for this thing called an iPod.

  Jon Rubinstein: Battery technology as well as display technology, driven by cell phones, was maturing. And so I kept going to Steve and going, “You know, Steve, I can’t do a better music player yet.” The trade-off was this: You get a large hard drive and a lot of songs, and it was huge and heavy and delicate, or it was really tiny and held five or ten songs. So neither of those products made sense. And so in February of 2001 I’m over in Japan for Macworld Tokyo, and every time I’m in Japan I go visit all the vendors. There was a handful of us that went on these supplier visits. We visited battery manufacturers because we need batteries for the notebook, and visited display manufacturers because we use displays for a lot of things, and we visited hard drive manufacturers because we use hard drives everywhere, and so we got to Toshiba. We had a meeting and we went through the hard drives for all the different products, and at the end of the meeting they go, “Oh, by the way, we’ve got this other thing we’re working on, but we don’t know what to do with it,” and that was the small form-factor hard drive.

  Guy Bar-Nahum: Now it’s still a mystery to me why Toshiba made a 1.8-inch diameter drive with five gigs capacity. Only the Japanese, God bless them, do things like that sometimes. They make a piece of technology that doesn’t have any justification in the market. At the time there was no industry to justify that illogical decision. The whole arc of development of the hard drive was for laptops—not handhelds.

  Jon Rubinstein: So I went back to Steve and said, “Steve, I think we can do this: The drives won’t be ready until late in 2001, but this is now doable, we can build a really cool product. It will be about the size of a pack of cards, and I need $10 million to do it, because I need to assemble a team and go build this out.” Steve said, “No problem, I’ll write you a check.” So I call Fred Anderson, the CTO, and made sure the check wouldn’t bounce, because you always had to double-check with Fred, and Fred said, “The check is good,” and so we started assembling a team to do it.

  Tony Fadell: So I am getting on a ski lift in Vail, and I get this call: “Hi, this is Jon Rubinstein from Apple,” blah blah blah. The very next week I had my first meeting with Jon.

  Jon Rubinstein: I said, “Hey, I’ve got this project I need some help on.” I didn’t tell him what it was but I said, “It’s a small consumer form-factor product.”

  Tony Fadell: I thought they wanted me to restart Newton or something. So I did not know what it was and they would not tell me. Then after I signed the NDA, it was, “We have iTunes, now we want iTunes-on-the-go. The MP3 players out there today suck, and we think we can make a better one. We know you make these kinds of devices, so can you come in and sketch what you would build?”

  Yves Béhar: And then one day Tony said, “You know, I’m going to take a contract, I’m going to work with Steve Jobs for six weeks. And if I can deliver this project for Steve in six weeks, we’ll see what happens.”

  Jon Rubinstein: I hired him as a consultant and it was, “Here’s what we’ve been looking at, and so now go thrash out what’s available to make all this happen.”

  Tony Fadell: I said, “Okay,” and then I worked nights, weekends, all day, and I let my start-up company just run and I went off and dove into trying to design what would become the iPod. So I had to learn about new chips and all the different things and put it together. What I remembered from my General Magic days is that you have to make sure that you do a lot of due diligence before going in, because if you commit to something they are going to expect that that is the way it turns out. So I did a ton of due diligence. I did as much as I could in that short amount of time. Six weeks later I pitch it to Steve.

  Jon Rubinstein: There was a key meeting. It’s me and Phil Schiller and Jony—there was a group of us, but Tony is the lead.

  Tony Fadell: Steve comes in the room, does not say a word, takes the checklist, throws it on the desk, and gives the vision for it.

  Ron Johnson: It was, “I want to make a music device and I want it to hold all your music, I want it to be digital, with great software so you could take your music everywhere.” I don’t think he had thought of “a thousand songs in your pocket” yet, but that was what he was imagining.

  Larry Ellison: He was obsessive about making an MP3 player easy to use, and affordable, and beautiful… all the things you’d think Sony would do.

  Tony Fadell: Then we flip to the next page of the checklist, and there was something about Sony. “And Sony, yes they are number one, but we are going to beat them up!” Next page…

  Larry Ellison: Steve had decided, rather brilliantly, “Why should I compete with Microsoft and bang my head up against the wall when I can compete with Sony instead?” We’d go on these long walks and said, “Who do you want to compete with: Microsoft or Sony? I’ll take Sony every day of the week, because I’m a software company, and Sony is not.”

  Jon Rubinstein: We knew that someone was going to replace the Walkman. Either we were, or they were.

  Tony Fadell: And he would just skip around, so it was just this back-and-forth; he was riding the tide of momentum.

  Larry Ellison: Apple is a software company, Microsoft is a software company, but Sony was a hardware company. You can kill a hardware company, because most hardware products, like an iPod, are 95 percent software.

  Tony Fadell: And then at the end I had all these little mock-ups. I had bought these modern-day calculators and all the MP3 players, tore them apart, and made little pieces, and I put the little bits all into the box and I said, “Okay, here are the different battery technologies we could use, here are the different storage types. Here are the different displays. Here are the different interfaces, boards, connectors,” and basically assembled the different options in front of him. I did three different options of “Here is what they could look like. Here is what the cost could be,” those kinds of things.

  Jon Rubinstein: Tony was coached: “Here’s the choices we’re going to present to Steve. Here’s the order you present them in. Here’s how you present it so that w
hen we come to the end, we get the right answer. Right?”

  Tony Fadell: For the final option, which a bunch of us thought was the best option, I made a Styrofoam model, with laser printouts of what I thought would be the right interface and everything, and then weighted the model so it felt about the right size and everything… I then had all the little blocks that would go inside, because I wanted to show that this was real enough. So I showed it to him. He picked it up and he was like, “Okay,” but then he said, “But I do not think this is the right user interface for it.” And then Phil goes, “Can we tell him?” and Steve looks at me and goes, “Yeah, we can trust him.” Because they were all Apple employees except me. I was a consultant. So Phil Schiller runs into Steve’s office, picks out a device, and has the device in his hand and says, “See that? Look at that wheel. We want something like that on it. Do you think you can do that?”

  Mike Slade: Phil had a Bang & Olufsen remote, because Phil was one of those guys with Bang & Olufsen stuff all over his house, and he brought in the remote and showed us the scroll wheel, which Bang & Olufsen never patented, by the way, and I remember being there going, “You’re right, this is cool, this is a really cool user interface.”

  Tony Fadell: I looked at it and figured out in my brain how they did it. I was like, “Sure. We can add that.” And Steve is like, “All right. We are going to commit to this project. We are going to do it, and we want you to be the guy.” And Jon looks at Steve and he goes, “Yeah, I will take care of it.” And I go, “Look, I have got a start-up company,” and Steve is like, “Do not worry about that. We will take care of it.” I was like, “Okay…” I did not know what that meant.

  Jon Rubinstein: I went back to Tony. In front of the whole team I said, “Okay, Tony, if you want to do this, you’ve got to join the company, I’m not going to do this with you as a consultant.” So I kind of twisted his arm to take the job, basically.