Inside Steve's Brain (19 page)

Apple has brought to market a steady stream of innovations, including three of perhaps the most important innovations in modern computing: the first fully assembled personal computer, the Apple II; the first commercial implementation of the graphical user interface, the Mac; and, in 2001, the iPod— an Internet appliance for digital media disguised as a humble music player.

Apple produces blockbusters like the iMac, iPod, and iPhone, but there’s also been a long list of smaller, yet important and influential products like the Airport, a line of easy-to-use WiFi base stations that enabled Apple’s laptops to be among the first wireless notebooks, a trend that later went thoroughly mainstream, and the AppleTV, which links the TV in the living room with the computer in the den.

Apple has an unmatched reputation for innovation, but has historically been regarded as little more than an R&D lab for the rest of the PC industry. It may have created one innovation after another, but for many years it appeared unable to capitalize on its breakthroughs. Apple pioneered the graphical desktop, but Microsoft put it on 95 percent of the world’s PCs. Apple invented the first PDA, the Newton, but Palm helped turn it into a $3 billion industry. While Apple innovated, companies like Microsoft and Dell made the big bucks. In this respect, Apple has been compared to Xerox PARC, the copier company’s legendary research facility that more or less invented modern computing—the graphical desktop, Ethernet networking, and the laser printer—but failed to commercialize any of it. It was left to Apple to bring the graphical desktop to market, but it was Microsoft that really cleaned up.

Jobs, in fact, used to have a reputation for reckless innovation. He was so busy turning out the next groundbreaking product that he was unable to capitalize on the last one. Critics say he was charging ahead so fast, he recklessly failed to follow through on what he’d built. Take the Mac and the Apple II. By the mid-1980s, the Apple II was the PC industry’s most successful computer, with a 17 percent market share in 1981. But when the Mac came out three years later, it was completely incompatible with the Apple II. The Mac didn’t run Apple II software, and it didn’t connect to Apple II peripherals. Developers couldn’t easily port their Apple II software to the Mac—they had to do a complete from-the-bottom-up rewrite. And customers switching to the Mac had to start from scratch. They had to buy all new software and peripherals, at great expense. But Jobs wasn’t interested in building on the Apple II’s position of strength. He was interested in the future, which was graphical computing. “Jobs is a progenitor, not a nurse,” wrote former Apple executive Jean Louis Gassée.
⁶

Bill Gates never made these kinds of mistakes. Windows was built on top of Microsoft-DOS, and Office was built on top of Windows. Every version of Windows has been compatible with the preceding version. It’s been slow, steady progress—and money in the bank.

Until recently, Jobs did not have much of a reputation for follow-through. For most of its history, Apple was seen as creative, but companies like Microsoft and Dell were the ones that executed. Pundits distinguished between companies like Apple, which are good at product innovation, and companies like Dell, which practice “business innovation.” In the history of business, the most successful companies aren’t product innovators, but those that develop innovative business models. Business innovators take the breakthroughs of others and build on them by figuring out new ways to manufacture, distribute, or market them. Henry Ford didn’t invent the motorcar, but he did perfect mass production. Dell doesn’t develop new kinds of computers, but it did create a very efficient direct-to-consumer distribution system.

But Jobs’s reputation as a product genius without the ability to execute is unfair. The second time around at Apple, he’s proven to be a master of execution. Since Jobs’s return, Apple has been distinguished by superb execution—and orchestration—on all fronts: products, sales, marketing, and support.

For example, when Jobs took over in 1997, Apple was sitting on more than seventy days’ worth of product inventory piled up in warehouses. In November 1997, Jobs launched an online store linked behind the scenes to a Dell-like, build-to-order manufacturing operation. “With our new products and our new store and our new build-to-order, we’re coming after you, buddy,” Jobs warned Michael Dell.

Within a year, Apple’s inventory had been reduced from seventy days to one month. He recruited Tim Cook from Compaq to be Apple’s new chief operating officer, and charged Cook with simplifying Apple’s complex parts pipeline. At the time, Apple bought parts from more than one hundred different suppliers. Cook offshored most of Apple’s manufacturing to contractors in Ireland, Singapore, and China. Most of Apple’s portable products—the MacBooks, iPod, and iPhone—are now assembled by contractors based in mainland China. Cook dramatically reduced the number of basic component suppliers to about twenty-four companies.
⁷
He also persuaded parts suppliers to locate their factories and warehouses close to Apple’s assembly plants, enabling an extremely efficient just-in-time manufacturing operation. In two years, Cook reduced inventory to six or seven days, where it remains today.

Apple these days runs the tightest ship in the computer industry. In 2007, AMR Research, a market research company, named Apple the number-two company in the world for supply chain management and performance, after Nokia. AMR measured several metrics related to execution, including revenue growth and inventory turns. “Apple’s unparalleled demand-shaping capability lets its supply chain record spectacular results without sweating costs like everyone else,” AMR said. Apple beat Toyota, Wal-Mart, Cisco, and Coca-Cola.
⁸
Dell didn’t even make AMR’s list.

Jobs loves to boast that Apple runs a tighter ship than Dell. “We beat Dell on operational metrics every quarter,” Jobs told
Rolling Stone
. “We are absolutely as good of a manufacturer as Dell. Our logistics are as good as Dell’s. Our online store is better than Dell’s.”
⁹
However, it should be noted that Apple sells half as many computers as Dell and has a much simpler product matrix.

Jobs has also developed his own share of innovative business models. Take the iTunes music store. Until Jobs persuaded the music labels to try selling songs individually for 99 cents, no one had found a formula for selling music online to compete with the illegal file-sharing networks. Since then, the iTunes music store has become the Dell of digital music.

And then there are Apple’s retail stores, which are so unlike anything else in retailing, they’ve been called “experiential innovation.” Modern retailing is all about the shopping experience, and Apple’s low-key, friendly stores have added a new dimension to the experience of shopping for a computer (more on this later in the chapter).

Jobs appears to have an innate talent for innovation. It’s as though ideas occur to him in a flash, a bolt from the blue. The light bulb goes on, and suddenly there’s a new Apple product.

It’s not quite like that. That’s not to say there are no flashes of inspiration, but many of Jobs’s products come from the usual sources: studying the market and the industry, seeing what new technologies are coming down the pipe and how they might be used. “The system is that there is no system,” Jobs told
Business Week
in 2004. “That doesn’t mean we don’t have process. Apple is a very disciplined company, and we have great processes. But that’s not what it’s about. Process makes you more efficient.”

He continued, “But innovation comes from people meeting up in the hallways or calling each other at 10:30 at night with a new idea, or because they realized something that shoots holes in how we’ve been thinking about a problem. It’s ad hoc meetings of six people called by someone who thinks he has figured out the coolest new thing ever and who wants to know what other people think of his idea.”
¹⁰

Part of the process is Apple’s overall corporate strategy: What markets does it target, and how does it target them? Part of it is keeping abreast of new technology developments and being receptive to new ideas, especially outside the company. Part of it is about being creative, and always learning. Part of it is about being flexible, and a willingness to ditch long-held notions. And a lot of it is about being customer-centric. Innovation at Apple is largely about shaping technology to the customer’s needs, not trying to force the user to adapt to the technology.

The keynote speech Jobs gave at Macworld in San Francisco in January 2001 is remembered for the “one more thing” surprise ending: Jobs dropped the “i” from iCEO and became Apple’s full-time leader. But earlier in his speech, Jobs laid out Apple’s vision—a vision that would inspire more than a decade’s worth of innovation at Apple, and would shape almost everything the company did, from the iPod to its retail stores and even its advertising.

The digital hub strategy is possibly the most important thing Jobs has laid out in a keynote speech. The idea, which seems somewhat obvious now, had far-reaching implications in almost everything Apple did. It shows how adherence to a simple, well-articulated idea can successfully guide corporate strategy, and influence everything from the development of products to the layout of retail stores.

Clean-shaven and dressed in a black turtleneck and blue jeans, Jobs began his speech by painting a rather bleak picture of the computer industry. He noted that the year 2000 had been a difficult year for Apple and the computer business as a whole. (In March 2000, the dot-com bubble began to burst, and purchases of computer equipment fell off a cliff.) Jobs showed the audience a slide of a gravestone inscribed with BELOVED PC, 1976-2000, R.I.P.

Jobs noted that many people in the computer industry were worried that the PC was waning, that its place at the center of things was over. But Jobs said the PC wasn’t waning at all but was on the verge of its third great age.

The PC’s first golden age, the age of productivity, started around 1980, with the invention of the spreadsheet, word processing, and desktop publishing. The golden age of productivity lasted almost fifteen years and drove the industry, Jobs said as he paced the Macworld stage. Then in the mid-1990s, the second golden age of the PC, the age of the Internet, began. “The Internet propelled the PC both in business and personal uses to new heights,” Jobs noted.

But now, the computer was entering its third great age: the age of digital lifestyle, which was driven by an explosion of digital devices, Jobs said. He noted that everyone has cell phones, DVD players, and digital cameras. “We are living in a digital lifestyle with an explosion of digital devices,” he said. “It’s huge.”

Most important, the computer was not peripheral to this digital lifestyle, Jobs argued, but at the very center of it. The computer was the “digital hub,” the central docking station for all the digital devices. And by hooking digital devices to the computer, they became enhanced: the computer loaded music with an MP3 player, or edited video shot with a digital camcorder.

Jobs explained that he first began to understand the idea of a digital hub after Apple had developed iMovie, a video editing application. The iMovie application allows raw camcorder footage to be edited on the computer, which makes the camcorder much more valuable than it is alone. “It makes your camcorder worth ten times as much because you can convert raw footage into an incredible movie with transitions, cross dissolves, credits, soundtracks,” Jobs said. “You can convert raw footage that you’d normally never look at again on your camcorder into an incredibly emotional piece of communication. Professional. Personal. It’s amazing . . . it has ten times as much value to you.”

This all seems obvious now, but at the time, few people were using their computers for such tasks, and it definitely wasn’t mainstream. Jobs wasn’t alone in recognizing that the computer was becoming a lifestyle device. Bill Gates had discussed the “digital lifestyle” the same week during his speech at the Consumer Electronics Show in Las Vegas. Intel CEO Craig Barrett was also giving speeches noting that the computer is “really the center of the digital world.”

But Jobs’s articulation amounted to a mission statement for Apple. The “digital hub” was the recognition of a major trend in the computer industry and a prescription for Apple’s place in it. It allowed him to look at emerging technologies and consumer behavior, and formulate appropriate product strategies. (More on the digital hub in Chapter 7.)

Part of the process at Apple is to focus on products, the end goal that guides and informs innovation. Wanton innovation is wasteful. There must be a direction, something to pull it all together. Some Silicon Valley companies develop new technologies and then go in search of problems for those technologies to solve. Take the Internet bubble of the late 1990s. The bubble was defined by this kind of thinking. It was a carnival of worthless innovation—half-baked business ideas pumped into vast money-burning concerns in a misguided attempt to get big quick and beat the competition. Entrepreneurs launched websites for selling pet food over the Net, or built giant warehouses for delivering groceries by van, before there was any inkling customers wanted to shop this way. And it turns out they didn’t. No one wanted to get their groceries delivered from Webvan’s automated warehouses. The Internet bubble burst, taking with it businesses that had developed solutions to problems that didn’t exist.

“You need a very product-oriented culture, even in a technology company,” Jobs said. “Lots of companies have tons of great engineers and smart people. But ultimately, there needs to be some gravitational force that pulls it all together.”
¹¹