The End of Innocence at Apple: What Happened After Steve Jobs Was Fired
· By Frank Rose
· April 23, 2009 |
· 7:06 am |
It seems unthinkable today — but more than two decades ago, when personal computers were still new and everybody listened to music on a Walkman, Steve Jobs was cast out of Apple. The year was 1985. IBM and Microsoft dominated the world of computing. The revolutionary Macintosh, launched with such fanfare just a year earlier, appeared to be foundering. And Jobs, the guiding force at Apple from the beginning, seemed not just expendable but a threat to the company he’d built. In West of Eden — a national best-seller when it was first published in 1989, now updated in a new edition available on Amazon —Wired contributing editor Frank Rose tells how it went down. In part one of this two-part essay, excerpted from the introduction to the new edition, Rose recalls the downward spiral Apple fell into after Jobs was dismissed.
Apple has a lot of great qualities, but openness has never been one of them. This January, when it became obvious that its CEO was seriously ill, that lack of candor spawned a crisis. Less than five years earlier, Steve Jobs had undergone surgery for a rare form of pancreatic cancer. He’d recovered well, but now his increasingly gaunt appearance was fueling the Wall Street rumor mill.
Apple’s stock, which a year earlier had been trading at nearly $200 a share, was bouncing up and down in the $100 range. Reporters were calling MDs to check the credibility of the latest corporate health bulletin. Legal experts were publicly debating the board’s responsibility. Even the SEC, newly risen from a long, deep slumber, was said to be investigating.
Over the past decade, Apple has become one of America’s greatest corporate success stories — and Jobs, who co-founded the company back in 1976 and been expelled from it less than a decade later, has been hailed as the man who engineered its triumph.
At a time when one technology giant after another — Dell, Microsoft, Motorola, Sony, Sun, Yahoo — has stumbled, Apple seems to be doing everything right.
It’s not just that the company is making money, or that it’s just re-entered the Fortune 100, or that it’s kept growing at 40 per cent per year even as it hit $33 billion in sales — though in the teeth of the worst recession since at least the early 1980s, those two accomplishments alone would be remarkable. It’s that Apple has become a cultural icon. Apple sells us lustrous white laptops and impossibly slim music players and software that transforms bedrooms into recording studios and cell phones that function as fabulous electronic toys and wireless hubs — wireless hubs! — that look like desktop flying saucers.
Apple has confronted first the music labels and then the mobile phone carriers, forcing change on two of the world’s most monopolistic and hidebound industries. Apple papers our cities with dancing silhouettes and exhorts us in banners to “think different.” Apple is not just a source of profits; it’s a source of joy.
But spin the time machine back a quarter-century. In the mid-1980s, when many of Apple’s current enthusiasts had yet to be born, the man now credited with all this was ejected from his company in the power struggle that West of Eden recounts. Defrocked and disillusioned, the young Jobs—he’d turned 30 just a few months earlier — had to watch in exile as his expulsion was celebrated on Wall
Street and in the media.
Yes, people agreed, Jobs was brilliant, but he was far too reckless and impulsive to suit the Fortune 500 corporation Apple had become. He was an entrepreneur, and sooner or later the entrepreneurs had to go so their companies could settle down to business. John Sculley, the suave
East Coast marketing executive Jobs had recruited from PepsiCo less than three years before, took for himself the mantle of Apple’s visionary leader. Nearly everyone pretended not to notice how badly it fit.
For awhile, all went well. Sales were up. The new regime got great press. Macintosh, the revolutionary personal computer Jobs and his team had built and launched with such fanfare in 1984, regained its momentum. Sculley penned a best-selling book and took on celebrity status. He even invented a new techie term: PDA, for personal digital assistant.
But there were problems. In 1988, Apple jacked up its prices and Macs suddenly stopped selling. The product line proliferated willy-nilly, confusing customers and blurring the image. And when Sculley’s much-heralded PDA, the Newton, finally appeared in 1993, its wretched performance and dismal sales made it the Edsel of Silicon Valley. Sculley was soon out.
His replacement, a hard-charging, German-born Apple executive named Michael Spindler, lasted less than three years. In February 1996, with losses piling up and market share plummeting, the board brought in Gil Amelio, the CEO of National Semiconductor, to run the company.
Amelio had a reputation as a turnaround expert, but essentially he was just a numbers guy, devoid even of the pretense of charisma. Under his watch,
· Apple appeared to fall into a death spiral.
· By early 1997 it had just 3.3 per cent of the personal computer market and its stock was down to $14 a share.
· The venture that was supposed to change the world seemingly had but one hope left: to be a takeover target.
· "When a company has as strong a brand and consumer franchise as
Apple, it is very hard to destroy it," technology analyst Richard
Shaffer told the New York Times. "But it can be done.” And from 1985 to 1997, it very nearly was.
Almost inadvertently, however, Amelio made one smart move: He bought NeXT, the computer company Jobs had started after Sculley showed him the door. NeXT was never terribly successful: Its hardware was gorgeous but far too expensive for the education market it was intended for, and by now it was focusing exclusively on software. But functioning software was something Amelio desperately needed, and for $425 million he got it—and Jobs in the bargain.
Seven months later, in July 1997, Amelio was sacked. The topmost exec left standing was the CFO, who announced that the board would conduct a search for a new chief executive, that Jobs would serve as an advisor to the board, and that no one should even think about the company becoming profitable again any time soon. At this point, Apple was running on momentum alone; the idea that anyone could turn it around seemed almost absurd.
Save the Company
· By Frank Rose
· April 22, 2009 |
· 7:25 am |
It seems unthinkable today — but more than two decades ago, when personal computers were still new and everybody listened to music on a Walkman, Steve Jobs was cast out of Apple. The year was 1985. IBM and Microsoft dominated the world of computing. The revolutionary Macintosh, launched with such fanfare just a year earlier, appeared to be foundering. And Jobs, the guiding force at Apple from the beginning, seemed not just expendable but a threat to the company he’d built. In West of Eden — a national best-seller when it was first published in 1989, now updated in a new edition available on Amazon —Wired contributing editor Frank Rose tells how it went down. In part two of this two-part essay, excerpted from the introduction to the new edition, Rose explains how Jobs could be the fall guy one decade and Apple’s savior the next.
For Jobs, 1997 was shaping up to be a propitious year. Pixar, the little computer animation studio he’d bought a decade earlier, had had the second-highest-grossing film of 1995 with Toy Story, its first release. The year after that, Apple had bought NeXT, the computer startup he’d founded after John Sculley showed him the door, and brought him back as a special advisor. Now, with Apple’s latest CEO ousted and nobody left to challenge him there, he simply assumed power.
First he negotiated a truce with Microsoft, Apple’s one-time nemesis: To help keep its wounded rival alive, Microsoft agreed to buy $150 million in non-voting stock and to continue producing its all-important Office software for Macintosh. He put Jonathan Ive in charge of design and brought in Tim Cook, Compaq’s self-styled “Attila the Hun of inventory,” to run manufacturing, setting up the team that has run the company under his aegis ever since. (Cook is now interim CEO while Jobs is on leave.)
Jobs reconstituted the board, bringing in industry professionals like Intuit CEO Bill Campbell, an Apple veteran, and Larry Ellison, the CEO of Oracle. Then he allowed the board to name him “interim” CEO, but he accepted no pay and reserved the right to walk away at any moment. The message was clear: Apple needed him more than he needed Apple.
Over the next few months, more changes followed — each of them a repudiation of one Sculley initiative or another. The number of product lines was winnowed from 15 to four. The retail channel was streamlined: Instead of selling through competing chains in a misguided drive for “shelf space,” sales were unified through an exclusive national dealer.
Marketing was focused around a single message — the “Think Different” campaign from Chiat/Day, the newly rehired ad agency behind the unforgettable “1984” TV spot that had launched the Mac. The licensing deals that enabled other manufacturers to undercut Apple with Mac clones were terminated. Operating expenses were cut nearly in half. Within months, Apple was back in the black.
It was a stunning performance, made all the more so by the fact that in the time since then it has been repeated every year but one. But the numbers don’t answer the critical question: How did Jobs go from the out-of-control kid who lost a boardroom showdown in 1985 to the leader who took command in 1997 and has steered the company with uncanny precision ever since?
Various explanations have been offered, none of them terribly satisfactory. Jobs did pick up some experience during his years in exile. Running NeXT and Pixar, he acquired on his own the business education he’d hoped — naively, as it turned out — to get from Sculley. But even in the ’80s, he’d known more than Sculley and his lieutenants, most of them from a background in packaged goods rather than computers, were willing to admit.
The operational efficiencies Jobs began to introduce in the latter half of 1997 were for the most part the same tech-savvy changes he’d pushed for in the first half of 1985: slash inventory, shut warehouses, run manufacturing close to the bone. Nor has his style changed dramatically, though the gray in his hair may make it seem more palatable. Driven, obsessive, relentless, controlling, stubborn, messianic: Essentially, the Jobs you saw in 1984 is the Jobs you get today. It’s the rest of us who have changed.
A lot of it has to do with our attitude toward technology. Personal computers in the ’80s were exotic beasts, as pregnant with threat as with promise. As late as 1987 I had to tailor a magazine profile of Alan Kay, the computing pioneer, to satisfy an editor who didn’t
“believe in” computers — whatever that meant.
Because of their obvious utility, PCs were becoming accepted in corporate America—not for senior executives, who had secretaries to do their typing, but at least for the white-collar worker drones who needed to manipulate spreadsheets and such. In order to be deemed “safe,” these machines had to be as clunky and dreary as possible, and until Compaq made clones acceptable they had to bear the IBM logo as well. To anyone in business or finance, Macintosh seemed at best a toy and Jobs weirdly erratic.
But it went deeper than that. Jobs liked to trumpet his ambition to change the world, and by the mid-’80s that no longer struck most people as reasonable or even desirable. Those were the Reagan years. Idealism wasn’t dead, but certainly it had changed its stripes. Faced with the choice, as the Mac team had it, of being a pirate or joining the navy, most of the population seemed ready to line up and enlist. As presented by Tom Cruise in Top Gun, the number-one box office smash of 1986, the navy didn’t even look half-bad. But in the end, as the music industry has learned to its chagrin, piracy is always more appealing.
We live today in an Apple world. Whether or not we use a Mac — and more and more of us do, to the point that Apple entered 2009 with nearly 10 per cent of the US personal computer market — we work and play in the environment that Jobs and his team defined a quarter-century ago.
Long before there was a blogosphere there was desktop publishing — a development so ground-breaking it’s difficult to conceive of the one without the other. The do-it-yourself revolution that began with the little 128K Macintosh and its PageMaker software has spread to graphics, photography, music, video, and nearly every other creative endeavor. Flickr, YouTube, Wikipedia, del.icio.us, almost the entire panoply of sites and services known as Web 2.0 — there is a tiny spark of Jobs in each of them.
The lesson of Jobs’ ouster and redemption is twofold. First, never count anyone out — certainly not anyone as determined and intelligent as Jobs. In pulling off one of the greatest second acts in American business, he has not merely confounded his critics, he has induced mass amnesia. Second, savor authenticity. The Jobs who led the Macintosh crew in 1984 was self-centered, imperious, arrogant, unyielding, and flawed in myriad other ways — but more importantly, he had genuine passion and the crucial ability to instill it in others. This made him far more compelling and ultimately more successful than the string of glossy-tongued managers who followed. Rough edges, it turns out, are there for a reason.
by Erick Schonfeld on April 25, 2009
On March 18, 2008, Steve Jobs was deposed by the SEC during its investigation of Apple’s stock option backdating scandal. The deposition was never made public until Forbes published it on Friday, after obtaining it through a Freedom of Information Act request. (Full deposition embedded below)
Jobs explains his reasoning for why he asked the board for mega grants of options for both himself and his top executives, but claims ignorance of the mechanics of how that was done after the board approved the grants themselves. (It was the falsifying of board minutes for a meeting that never occurred, not the backdating per se, that got Apple’s former general counsel Nancy Heinen into hot water with the SEC—this deposition was for a case against her). There aren’t too many revelations on the legal front in the document.
But the document provides the first detailed account of the incident from Steve Jobs himself in his own words. What comes through in the deposition is how Jobs sees himself and his’ fierce loyalty to those who work for him. For instance, after selling NeXt to Apple in 1997, his initial reason for acting as a consultant was to get “some of the NeXt people into some jobs where they could help Apple.” He himself was reluctant at first to take on the CEO role at Apple because he didn’t want the people at his other company, Pixar, to “think I was abandoning them.”
Then when it came time to reward his “ultra key” executives with one million options each, two of them were from NeXT. While he was taking care of his top lieutenants by trying ti “surprise and delight them with what a career at Apple could be”, he was “hurt” that Apple’s board didn’t do the same for him. So he had to have a little talk with them about swapping his 20 million then-underwater options for 7.5 million new ones, which they did.
I’ve excerpted some of the juicier bits from the deposition below. Some names were redacted in the original, but I’ve reinserted them in brackets where it is obvious who Jobs is talking about I’ve also bolded some parts for emphasis. (In the transcript, “A” is Jobs).
1. On coming back to Apple and becoming CEO in 1997:
Q: And I guess, just to go back in time then, I want to just try to understand a little bit the transition from having the title consultant to becoming CEO. Could you just describe that transition for me?
A: Well, when Apple bought NeXT, Apple was pretty messed up. It was pretty easy to see. And I was trying to help in my arm’s length role. I was trying to help Apple by getting some of the NeXT people into some jobs where they could help Apple, and that’s pretty much all I was doing.
.Q: Okay, Did the board in fact fire [Gil Amelio] the following week?
Q: And did you take on the role then as CEO?
Jobs: Well, no, I did not. I was very concerned that Pixar was a newly public company with shareholders, employees, and I felt that - - to my knowledge there had never been a CEO of two public companies before. So I felt if I took the job, the Pixar shareholders and employees would think I was abandoning them.
Jobs. And I decided I just - - that I couldn’t do that. So I took the title of interim CEO and agreed to come back for 90 days to help recruit a full-time CEO.
Q. How did that recruitment effort go?
A. I failed.
Q. And when you say you failed, is it that you didn’t find anyone that you thought would be suitable to take on the role?
A. Yes. Apple was not in good shape and everybody knew it and the kind of candidates that we were being offered up by the headhunters were not very talented.
Q. Okay. In other words, not the sort of people who could turn Apple around?
Q. Okay. So after that 90 days, what happened next?
A. Well, it just kind of slid into the fact that I stayed. I kept the interim CEO title for quite some time, a number of years.
2. On the origins of the 4.8 million-share mega grant to Apple’s top executives:
A. Apple was in a precarious situation in that we’d, you know, had the internet bubble busting, and I thought that Apple’s executive team and the stability of Apple’s executive team was one of its core strengths. And I was very concerned because Michael Dell, one of our chief competitors, had flown Fred Anderson, our CFO, down to Austin, I guess, him and his wife, I think, to try to recruit him. And I was also concerned that [REDACTED] and [REDACTED] two very strong technical leaders, were also very vulnerable.
So I was very concerned that Apple could really suffer some big losses on its executive team with the business environment we were in and the competitors coming after our people.
. . . Well, I talked with the board almost every meeting about, you know, key personnel, because I think that’s the key asset Apple has, is its talent
. . .
Q. All right. And who did you consider to be these ultra key people?
A. [Timothy Cook] who at the time I think was our Executive Vice President of Operations, maybe sales and operations, actually. Fred Anderson, our CFO. [Jon Rubinstein] head of hardware. [Avi Tevanian] head of software.
Who am I forgetting? I think those were the four key ones.
Two of those ultra key people, Rubinstein and Tevanian, came from NeXT. Jobs helped them get hired by Apple after the sale of NeXT in the first place, and then rewarded them down the line with options on one million shares apiece. Today, Rubinstein is competing against Apple in his role as the executive chairman of Palm, which is backed by Elevation Partners, where Anderson is a partner. That’s gratitude for you.
3. On the question of whether Apple was trying to pick a grant date for the options to maximize the return to the executives, Jobs tries to dismiss how important a role that played in the process.
Q. And sort of in this framework of options being, in part, a retention tool, is the idea to try to get a lower price so that there is the potential to maximize one’s profits on the options?
A. You know, this has come up before. I have to tell you, for these options to be worth anything, the stock has to go up so much compared to a dollar or two at the beginning . . . And so if these guys were going to realize the kind of money they could make elsewhere by staying at Apple, you know, they were going to have to make tens of millions of dollars. These guys are really senior guys. Several of them, you know, could be CEOs of a few big companies and a few medium-size companies.
So for them to realize that kind of a gain here, it’s a lot more than a small variation in a strike price.
Nevertheless, with one million shares each, every $1 increase translated into a $1 million gain and a million dollars is still a million dollars. But Jobs wasn’t just rewarding his lieutenants, he was trying to keep them. The “mega grants” were designed to be one big grant instead of smaller grants every year.
4. Jobs explains the reasoning behind his compensation strategy:
One of the things that I felt was that rather than giving them shares once a year, as is common in some companies, I would rather give them four years’ worth of stock upfront. . . . the key thing is if the stock goes up, which we always hope it does, then the golden handcuffs are dramatically increased, which is what I was hoping would happen.
And on the subject of his own grant of 7.1 million options at the time, Jobs says that he negotiated so hard for it because he felt he wasn’t getting the recognition he deserved:
Q. Could you just tell me a little bit about the process of how this all came to be?
A. Well, it was a tough situation, you know. It wasn’t so much about the money, because a very small percentage of my net worth is from Apple.
A. But everybody likes to be recognized by their peers, and the closest that I’ve got, or any CEO has, is their Board of Directors. And as we’ve seen in the discussions of the past hour, I spent a lot of time trying to take care of people at Apple and to, you know, surprise and delight them with what a career at Apple could be - - could mean to them and their families. And I felt that the board wasn’t really doing the same with me.
A. So I was hurt, I suppose would be the most accurate word, and, you know, the board had given me some options, but they were all underwater. They weren’t underwater necessarily because of our performance, but, you know, the bubble had burst in the dot-coms, and here I had been working, you know, I don’t know, four years, five years of my life and not seeing my family very much and stuff, and I just felt like there is nobody looking out for me here, you know.
Q. Right. Okay.
A. So I wanted them to do something and so we talked about it.
Steve Jobs is the co-founder and CEO of Apple and Pixar.
“Innovation distinguishes between a leader and a follower.” -Steve Jobs
Steve Jobs regularly makes most rosters of the rich and powerful. It…Learn More
Cupertino, California, United States
April 1, 1976
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