Apple’s Road to a Trillion Dollar Company
In late 1996, while serving as an outside adviser to Apple and their executive committee, I was called in to meet with then CEO Gil Amelio. During this meeting, he asked me about the idea of acquiring NeXT and bringing Steve Jobs back to work with him as a consultant to this project. The idea was to use the NeXT OS core for the new Mac OS and build on this.
At this time, Apple was in severe financial trouble and Amelio and the board felt they needed a complete reset if they were to save Apple. When Gil asked me this question, I was positive about the role NeXT could play since I had followed the NeXT OS developments from afar. I knew it was a highly sophisticated OS and was extremely scalable and told him that this made sense.
However, I was not sure if the idea of bringing Steve Jobs back to Apple was a good one. In fact, I told Gil that once Steve was in the door, he would strive for more influence and leadership roles and could never be just an outside consultant. But Amelio and their board felt the risk was worth it and, in hindsight, it goes down as one of the more brilliant moves by any board in business history.
By MacWorld Boston in August in 1997, Steve Jobs was fully entrenched as what he called the iCEO ( the “i” stood for interim) and was very much serving as its top leader. I met with Jobs well before this on his second day back at Apple in his new leadership role and asked him how he was going to save Apple. Apple was still in real financial trouble, and he told me that the first thing he was going to do is to go back and meet the needs of their core customers-these included the graphics professionals, Desktop Publishers, engineering and people who needed a Mac for key professional needs. He then added that he would focus on Industrial Design. I remember leaving that meeting questioning the need to make Industrial design a strategic goal of a new Apple, but that clearly has become one of the more essential reasons why Apple is thriving today.
That Day in 1997
That MacWorld in Boston will go down as one of the most critical events in Apple’s history. Besides being the place where Jobs, in his new role back at Apple, delivered his first keynote since coming back to the company he co-founded, it also served as the place where a significant announcement was made that would give Apple a financial lifeline and a give Jobs and team some breathing room to try and drive Apple’s future.
During this keynote, Steve Jobs brought in by satellite feed, Bill Gates, who announced that Microsoft would invest $400 million in Apple. When Gates came onto the screen, many in the crowd booed which consisted of many Apple faithful as Bill Gates was considered the enemy. But had Microsoft not made that investment, Apple most likely would have had to declare bankruptcy six weeks later and would have had more trouble delivering a turn around faster than it took. Indeed by 1998, with the introduction of the candy-colored iMacs, Apple had its next hit and began moving forward again.
Although many of the Apple faithful booed when Gates was announced, I knew how vital this cash infusion would be for Apple’s recovery. While it was stated as a stock purchase, I already knew that part of the deal was to also give Microsoft a royalty-free license to the concept of a GUI that was legally part of Apple’s IP portfolio. This info was not was not public at the time, and I never commented on this aspect of the deal, but I knew how important that was for both Apple and Microsoft since it took away any potential legal action from Apple going after Microsoft on the GUI issue completely.
Strategically, this was smart for Microsoft as well. It has been well documented that Mac users were among the most profitable for Microsoft as the Mac Office group was one of the brighter stars from a profit perspective inside Microsoft. One could view Microsoft wanting to see Apple continue to serve their customer base, and even grow it, was good for Microsoft when it came to Office. Also, while Apple had only 2% market share in computers at the time, making sure Apple survived also helped alleviate any potential anti-trust issues Microsoft could have run into if they were the only computer OS on the market.
Fundamentals of the Journey
There are multiple reasons for Apple’s recovery. I have been covering Apple professionally as a business and tech analyst for 37 years and have watched them closely in their good times and bad. Here is my perspective on how Apple achieved this trillion dollar milestone. Apple’s real core competency and success come down to at least six fundamental cornerstones of their business model.
- Consistent vision to drive an entire ecosystem of hardware, software, and services across all devices and platforms. On many of my discussions with Jobs, he overemphasized that Apple is a software company and his big goal was to create great software that people love and will use. While he knew how vital hardware was and made industrial design a cornerstone in the creation of all of his devices, his laser focuses on software and giving the development tools needed to developers to create great apps and services was, and still is, at the heart of his vision and Apple’s ultimate success.
- They are a master of creating next-generation man-to-machine interfaces. With the Mac, Apple introduced the GUI, and mouse and created a new way to interact with a computer. At the time. Microsoft DOS and text UI’s dominated the market, but the Mac’s GUI revolutionized the man-to-machine interface and forever changed the PC market. Then with the iPod, Apple introduced the clickwheel for navigation and with the iPhone and iPad Apple introduced touch and more recently Voice with Siri. These interfaces are being extended across all devices except the Mac where Apple resists adding touch to this computer.
I predict their next UI hit will come through adding AR glasses to their hardware line that is powered by the iPhone and introduces gestures and relies heavily on gestures and voice for navigation when using this unique eyewear.
- Operational excellence. While Steve Jobs gets all the credit for vision and his role in championing Apple’s products, Tim Cook’s role while Chief Operating Officer where he built a world-class supply chain cannot be overestimated. And the framework from what Cook built starting around 2000 is still the foundation for Apple operational brilliance. Before Cook took over the supply chain, it was a mess. Interestingly, Cook’s role as COO has served him well as a CEO. He is one of the only CEOs in tech that understands firsthand the entire ecosystem of what it takes to build world-class products and still has makes his mark on their current operations and supply chain.
- Jobs’ decision to instill his vision and Apple’s cultural identity into his current leadership. One of the more masterful things Jobs did was to invest a great deal of time with key leaders to make sure Apple’s future would be prosperous after he was gone. He was first diagnosed with liver cancer around the 2002-2003 time frame and at that time was faced with his mortality. While he did seek treatment and even had a liver transplant, he knew his days could be numbered. From that point on, he doubled down in tutoring Cook, Schiller, and other top leaders to make sure his vision and the spirit of Apple would continue even if he could not be there to make it happen himself. I have dealt with people at Apple for 37 years, and some of them are still there. They all know the Apple way and what it takes to make Apple successful. That is due to the serious tutoring by Jobs himself in those leaders and is a fundamental reason why Apple has reached this significant milestone.
- Industrial Design. When Jobs told me that Industrial design would be essential to Apple’s future, I pretty much did not get it. At the time, Apple’s Macs looked more like PC’s, and I could not envision what Jobs could do to make a Mac much better. But once the new candy-colored iMacs came out in 1998, I began to get a glimpse of how industrial design could help Apple come back from the abyss. Indeed, under Jony Ive, Apple has created some of the most iconic tech products in the market and makes industrial design a critical element of Apple’s success.
- Adding Services as a Business Pillar. One of the problems hardware companies have is that once a product is sold, there are no additional sales to be made outside of any peripherals or perhaps cables needed to operate them. Early on, Apple understood the idea of creating a service model tied to their devices so they could get additional revenue even after they sold a particular hardware product. The services business brings in about $30 billion a quarter and would be a Fortune 100 company if it was ever spun out. Services are a crucial factor for Apple’s ongoing success and, while Steve Jobs helped drive the basic service model, Tim Cook and his team have evolved it into an earning powerhouse. More importantly, it serves as an additional way for Apple to earn big bucks and use any hardware they sell as a way to deliver additional services to the customers.
There are other factors involved with Apple’s overall success, but the six mentioned above are central to why Apple recovered from a near-death experience and has hit that trillion dollar valuation milestone this week.
While there are challenges ahead for Apple, given what Apple has created in the way of a great OS, great hardware designs, a deep services offering and a world-class team of leaders, I see no reason why Apple can’t continue to innovate and grow in the near future.