Then they walked back.
3
Vertical
In January 2009, in the midst of uncertainty about Apple’s future, the heir apparent to the throne asserted himself in a way he’d never before dared. Just a couple of weeks after Jobs started his medical leave, Tim Cook defined his own vision for Apple during a conference call with Wall Street analysts.
The call began like any other. Apple’s chief financial officer, Peter Oppenheimer, ran through the company’s quarterly performance. Then Cook joined him to take questions. Typically, the analysts focused their queries on the company’s products, services, and strategies. This time the circumstances were far from business as usual. Jobs was on sick leave without much of an explanation, and rumors that he had cancer again were rampant. Few were surprised when the first question was about Cook’s leadership.
“I just want to know how you’ll run the company differently,” asked Ben Reitzes, with Barclays Capital. “Tim, do you feel like you would be the likely candidate if the worst-case scenario were to happen, were Steve unable to return?”
Investors were already familiar with the broad strokes of Cook’s background and expertise, and they knew he could operate the company without a problem. But that wasn’t what Reitzes was asking. What he and the others really wanted to know was—did Cook have what it took to be Apple’s CEO?
Oppenheimer jumped in immediately to give Apple’s standard answer: “Steve is the CEO of Apple and plans to remain involved in major strategic decisions and Tim will be responsible for our day-to-day operations.”
Cook could have left it at that, but for some reason on that day, the normally reserved executive was moved to step out of his mentor’s shadow. “There is extraordinary breadth and depth and tenure among the Apple executive team,” he began in his usual steady, quiet tone. “We believe that we are on the face of the earth to make great products and that’s not changing. We are constantly focusing on innovating.”
He then summarized Apple’s principles. “We believe in the simple not the complex. We believe that we need to own and control the primary technologies behind the products that we make, and participate only in markets where we can make a significant contribution.”
As he spoke, Apple’s conference call service recorded every word.
“We believe in saying no to thousands of projects so that we can really focus on the few that are truly important and meaningful to us. We believe in deep collaboration and cross-pollination of our groups which allow us to innovate in a way that others cannot.”
The conviction in his voice grew stronger as he emphasized Apple’s drive for excellence. “We have the self-honesty to admit when we’re wrong and the courage to change. And I think regardless of who is in what job those values are so embedded in this company that Apple will do extremely well.” Cook finished by stressing how Apple was doing the best work in its history.
Until now, investors hadn’t really known Cook. They knew that he worked like a machine and was extremely smart. They also liked him. Cook always treated them with respect and took their questions seriously. But they didn’t know what made him tick. Now they did. There was no question that he got Apple. What drove him was Apple. The spontaneity of his speech made its eloquence even more impressive and profound. In one instant, he silenced any doubters about his commitment and passion for the company. He also proved himself to be a better self-marketer than he appeared to be. His manifesto became known as the “Cook Doctrine.”
Jobs was irate when he heard about the earnings call. He had told Nocera a year earlier that he was making a concerted effort to give his executive team more exposure to show the breadth of the leadership. But it depressed him that Apple was doing so well without him. During the first three months of Jobs’s absence, Apple reported a 15 percent increase in quarterly profit even as other companies continued to suffer from the recession. In the following quarter, it sold more than six times as many iPhones as it did a year earlier. Apple’s shares rose more than 80 percent to $142 since late January.
In reality, it was impossible for any manager to effect change in a company so quickly. Any accomplishment of Apple’s was still the result of the work that had been done before Jobs left. But because the growth happened under Cook’s leadership, he received most of the credit for the company’s strong performance. Apple employees were also happier under Cook, who gave teams more freedom over strategy and product development. Everyone wanted their CEO back; he was their visionary leader, after all. But the calmer work environment was a nice respite. Cook didn’t yell and scream like Jobs.
Five months into Jobs’s leave of absence, Cook became one of the most sought after candidates in executive searches. Worried about Apple’s ability to retain him, Wall Street began throwing out the possibility of Cook taking over permanently and Jobs becoming chairman. At minimum they thought he should be invited onto the board of directors.
“At this point,” said Piper Jaffray’s Gene Munster, “losing Tim Cook would be a bigger deal to investors than if Steve Jobs stepped aside.”
Such praise was intolerable for Jobs, who considered himself indispensable. As much as he loathed the attention on his illness, part of him found it reaffirming that the world considered his well-being so crucial to the company’s health. He had been deeply disappointed back in 2004 when the stock fell only 2 percent after he announced his surgery.
“That’s it?” he had asked.
Jobs returned to Apple at the end of June just as he had said he would. On his first day, he threw a series of tantrums, ripping people apart and tearing up marketing plans. When Jobs heard about the press’s sterling evaluation of Cook’s performance, he hit the roof. Cook had done an excellent job, but the leadership and skill he showed in doing so was unsettling. He was also still sore about the “Cook Doctrine.” Jobs chewed him out in a meeting with other executives.
“I’m the CEO!” Jobs yelled.
Cook was unfazed. You didn’t work for Jobs as long as he had without developing immunity to such outbursts. The number-two man obligingly slipped back into the shadows, seemingly content to let Jobs regain control over the company.
Jobs’s reentry was rough on everyone. After months of freedom, employees had to readjust to Jobs’s intense scrutiny as he again reigned over product development meetings. Though some had wondered if he’d become more laid back as a result of his illness, the answer was no, at least where work was concerned. If anything, he pushed harder than ever. His primary focus upon his return: the iPad.
After redefining computers, digital music players, and cellular phones, this was his next revolution. If Apple could pull off the iPad, the company would cement its reputation as one of the greatest of all time. A successful new product would also pull the public’s attention back to Jobs and complete his legend after beating cancer for the second time.
Initially, Jobs and his team had considered the device to be primarily for the education sector. One initial idea to build a buzz around the iPad was to give them away to key influencers like Nobel laureates. Jobs had always had an interest in education because he thought of it as an important way to empower individuals. He had such strong ideas about the subject that he had even once toyed with the idea of opening a school for the children of Apple employees on campus.
But as development of the iPad continued, it became apparent that it could be used much more broadly. Amazon’s Kindle was becoming a must-have device. YouTube was becoming even more popular. There were also many uses for corporations and institutions in industries like logistics and medicine. Once the iPad launched, developers were sure to come up with clever apps for the device just as they had with the iPhone.
“We’re discovering new uses every day,” Ive enthused in the months before launch. As the sales team emphasized, there was no reason to give them away. The device would sell itself. The marketing team was so confident that it raised the starting price of the device to $499 from its original plan of $399.
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Not everyone shared that excitement. When Jobs showed a prototype at a management retreat, some executives privately wondered who would buy it. Why would you need one in addition to a laptop and phone? Who wanted to carry more stuff?
Jobs unveiled the iPad to the public for the first time on January 27, 2010, at the Yerba Buena Center for the Arts, in San Francisco. In the audience was the surgeon who had performed his liver transplant as well as the surgeon who had operated on his pancreas in 2004. They sat next to his wife, his son, and his sister. As Bob Dylan’s “Like a Rolling Stone” rippled through the audience, the lights dimmed. Jobs appeared from the left side of the stage dressed in his usual black turtleneck and jeans. After soaking in the standing ovation for a moment, a beaming Jobs began.
“We want to kick off 2010 by introducing a truly magical and revolutionary product today.”
There was no mistaking the importance he placed on the product he was about to unveil. “Everybody uses a laptop and/or a smartphone. And the question has arisen lately. Is there room for a third category of device in the middle?”
Jobs talked about how such a device would have to be better than a laptop or a smartphone at performing key functions like Web browsing and email. Otherwise, it would be no better than a netbook, he said. “Netbooks aren’t better at anything. They’re slow, they have low-quality displays, and they run clunky old PC software,” he declared. “They’re just cheap laptops. And we don’t think that they’re a third category device.”
As he prepared to reveal the iPad, his voice dropped to a hush. “But we think we’ve got something that is. And we’d like to show it to you today for the first time. And we call it the iPad.”
In the slide behind him, the word “iPad” landed with a thud, kicking up some dust between an image of an iPhone and a MacBook.
Jobs spent the rest of the presentation showing off its features. To demonstrate how the iPad could be used casually in a living room, he sat down on a black leather Le Corbusier armchair behind him and picked up the iPad lying on the Eero Saarinen side table next to it. It was just like him to have designer furniture ready for a stage demo that was meant to show how approachable the iPad was. “Using this thing is remarkable. It’s so much more intimate than a laptop and it’s so much more capable than a smartphone with this gorgeous large display!”
He saved the news of the price until the end of the presentation. Making reference to pundits who had been predicting that Apple would sell the device at $999, Jobs announced that he would sell it at $499. On the slide behind him, the phrase “$499” crashed down on an empty screen, shattering the number “$999.” The crowd broke out into lengthy applause.
The cover of the next issue of the Economist featured Jobs holding an iPad, wearing a robe and a halo.
Jobs was a master evangelist. About a week later, he took a trip to Manhattan to meet with the New York Times, the Wall Street Journal, and Time. The meetings would serve two purposes. One goal was to help change the tide of public opinion. The other was to get them excited about the iPad, so they would commit to developing news apps for it. Having good content would be crucial in selling the device.
Jobs first met with the top fifty executives of the New York Times Company over dinner at Pranna, a fancy Southeast Asian restaurant near Madison Square Park. Jobs had always had an affinity for the newspaper because he shared its politics, and he had already started conversations with the management about a partnership. After ordering a mango lassi and a vegan penne pasta—neither of which was on the menu—he demonstrated the iPad and talked about how it could serve the future of media.
The executives were not so easily influenced. To make the newspaper available on the iPad, Apple wanted a 30 percent cut of the revenue. Even harder to stomach, Apple wouldn’t share subscribers’ information unless they explicitly gave permission to do so. That was potentially debilitating for publishers. Not only would it give Apple enormous leverage in the industry; it also would make it impossible for media companies to mine their subscriber lists for names, email addresses, credit card numbers, and other valuable information that helped them attract advertisers and target new offers to readers.
“If you don’t like it, don’t use us,” Jobs said in response to a circulation manager who tried to argue with him. “I’m not the one who got you in this jam. You’re the ones who’ve spent the past five years giving away your paper online and not collecting anyone’s credit card information.”
At News Corporation the following morning, he found Rupert Murdoch, the owner of the Wall Street Journal, to be more receptive. Over a private breakfast in one of the executive dining rooms, Murdoch and his digital chief, Jon Miller, told Jobs that they wanted the Journal to be available on the iPad on day one. It was welcome news for Jobs. He didn’t share Murdoch’s politics, but he respected his entrepreneurship. They also discovered a few common interests, such as their love for sans serif fonts. When they finished talking, they walked together to a meeting room on the third floor, where a couple dozen of the Journal’s top editors and managers were waiting to interview Jobs. According to conditions that were set by Jobs’s staff, the meeting was off the record, and the invitation list was kept secret. The room was also stocked with wheat bagels, cream cheese, hot chocolate, Smartwater, and Yogi licorice tea—all items that his staff had ordered. As usual, Jobs barely touched any of it.
The first question challenged a decision that Apple had made. Why was it not supporting Adobe Systems’ Flash Player? Flash was the most popular technology for delivering video on the Web and was heavily used for animation and advertising, but Apple was instead supporting an emerging open-standard technology called HTML5, which lacked some of Flash’s features.
Apple’s anti-Flash policy wasn’t new. The iPhone didn’t support the technology, either. But Flash had become more relevant with the iPad because people expected to be able to watch online videos on the bigger device. “We think it’s an old and clunky technology,” Jobs told the editors, adding that the software was the biggest cause of crashes on Macintosh computers. “We don’t spend a lot of energy on old technologies. We spend a lot of energy where the vectors are going.”
Jobs’s response was unsatisfying for editors. While they were excited about the iPad’s potential to showcase their content in a new way, the device’s lack of support for a technology they depended on complicated things.
Jobs passed out iPads, so the editors could try them out for themselves. When he looked like he was about to wrap up the session, one person asked the question that had been hanging in the air. “Steve, how are you feeling and when will you come back to work full time?”
“I’m already back full time,” he said, repeating a line he had used before. “I’m vertical and loving every day of it.”
Afterward, when Jobs stayed to talk to editors, no one stuck their hand out to shake his hand. They had been forewarned that Jobs did not want to make physical contact with anyone. He was on immunosuppressant drugs after his transplant, and he was worried about contracting diseases.
All in all, the Wall Street Journal meeting was successful. Over lunch, Murdoch talked about the iPad with some of his executives. “This is a really significant device. It’s going to change the media world,” he said, telling them that he expected them to build an app that was better than anyone else’s on the day of the launch. Soon after, Apple arranged for a few iPads that the newspaper could use to develop its app. According to Apple’s rules, the iPads were enclosed in a bolted case and chained to a table in a windowless room. A small team of developers worked so hard on the app that some of their colleagues joked that they were missing spring.
When Apple released the iPad in early April, analysts were disappointed by the initial sales. Apple had sold just three hundred thousand of them on the first day. The company considered the results to be respectable, but the figure was significantly lower than Wall Street’s estimates. As with any brand-new product, it took time before people un
derstood the iPad’s use enough to want to make room for it in their lives. Some of Apple’s most important products, including the iPod and iPhone, had had slow starts.
Unsurprisingly, many of the early adopters were in the technology industry. A lot of them were app developers in Silicon Valley, who found an immediate use for the iPads as a travel companion on the plane or a sleek tool for presentations when they were pitching venture capitalists. Die-hard Apple enthusiasts parroted, “It’s so magical and revolutionary!”
Public opinion about the iPad began changing once reviewers tried out the device. Mossberg and the New York Times’s David Pogue both raved. Michael Arrington, the influential editor and founder of blog site TechCrunch, declared it better than his most optimistic expectations. “This is a new category of device. But it also will replace laptops for many people,” he wrote. Though Jobs had demonstrated the iPad as a couch device, Arrington noted that it was “a perfectly usable business device.”
Apple sold a million iPads in less than a month, twice as fast as the first iPhone’s sales.
A bitter fight, however, was brewing between Apple and Adobe over Apple’s lack of support of Flash. Jobs didn’t even want developers to use Adobe software that would allow them to deliver Flash applications as native iPhone and iPad apps. Without Flash, users would see a blank space instead of the videos or interactive content they were supposed to see.
Publicly, Jobs argued that Apple wanted apps that were tailor-made for its devices. The company didn’t want apps that compromised on features just so they would be compatible with all of the devices in the market. Jobs also claimed that Flash performed poorly on mobile devices, shortened their battery life, and created security problems.
Haunted Empire: Apple After Steve Jobs Page 5