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1Apple in 2008

Introduction

In 1997, Apple Computer was in deep trouble. The

company that had pioneered the personal com-

puter (PC mar!et with its easy-to-use Apple II in

197" and introduced the #irst $raphical user inter-#ace (%&I with the 'acintosh in 19" was bleedin$

red in!. Apple)s worldwide mar!et share, which had

been #luctuatin$ between 7* and 9* since 19",

had sun! to *. +ales were declinin$. Apple was on

trac! to lose 7" million on reenues o# 7 billion,

on top o# a 7/ million loss in 1990. In uly 1997,

the co#ounder o# the company, +tee obs, who had

been #ired #rom Apple in 19"2, returned as C34. At

an inestor con#erence, 'ichael 5ell, C34 o# 5ell

Computer, was as!ed what obs should do as head

o# Apple. 5ell 6uipped I)d shut it down and $ie the

money bac! to shareholders.81

y ://", the situation loo!ed ery di##erent.

Apple was on trac! to boo! record sales o# more than

: billion and net pro#its o# close to .7 billion.

The stoc! price, which had traded as low as 0 a

share in :// was about 17/, with the mar!et capi-

tali;ation at 1/ billion, which #ar surpassed that o#

5ell Computer which was about 1 billion. 5riin$

the trans#ormation were stron$ sales o# Apple)s iPod

music player, music downloads #rom the iTunes

store, and Apple)s iPhone. In addition, stron$ sales o#

Apple)s i'ac laptop and des!top computers hadli#ted Apple)s mar!et share in the &nited +tates PC

busi- ness to ".2*, up #rom a low o# under * in

://.:

Apple now ran!ed third in the &nited +tates PC mar-

!et behind 5ell with :* and

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Case 1 Apple in ://" C14

to ?o;, but it did to obs. obs persuaded a reluctant

?o; to #orm a company and sell the machine. The

location o# the company was +tee obs) $ara$e. obs

su$$ested they call the company Apple and their #irst

machine, Apple I. They sold about :// computers at

000 each. The price point was pic!ed as somethin$o# apran!.

The Apple I had seeral limitationsE no case, !ey-

board, or power supply bein$ obious ones. It also

re6uired seeral hours o# laborious assembly by hand.

y late 1970, ?o; was wor!in$ on a replacement

to the Apple I, the Apple II. In 4ctober 1970, with

the Apple II under deelopment, obs and ?o; were

introduced to 'i!e 'ar!!ula. 4nly , 'ar!!ula

was already a retired millionaire, hain$ made a

small #ortune at =airchild and Intel. 'ar!!ula had

no plans to $et bac! into business anytime soon, buta isit to obs) $ara$e chan$ed all that.

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company)s C34, ill %ates. %ates, still in his early

:/s, persuaded I' to adopt a 10-bit processor

(ori$inally I' had been considerin$ a less-power#ul

"-bit processor.

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Andy

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mar!et had $rown, stabili;ed at "*. The company

had a stron$ balance sheet and was the most pro#it-

able personal computer manu#acturer in the world.

5urin$ this period eFecuties at Apple actiely

debated the merits o# licensin$ the 'ac operatin$

system to other computer manu#acturers, allowin$them to ma!e 'ac clones. +culley was in #aor o#

this moe. +o was 'icroso#t)s ill %ates, who wrote

two memos to +culley layin$ out an ar$ument #or

licensin$ the 'ac 4+. %ates ar$ued that the closed

architecture o# the 'acintosh preented indepen-

dent inestment in the standard by third parties,

and put Apple at a disadanta$e a$ainst the I' PC

standard.

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portable, the Poweroo! noteboo!, which was

shipped in late 1991 and $arnered ery #aorable

reiews, and the Apple Kewton handheld computer,

which bombed. =i#th, Apple entered into an alliance

with I', whose mana$ers reali;ed that it had lost

its hold on the PC mar!et to companies such asIntel, 'icroso#t, and Compa6.

The I' alliance had seeral elements. 4ne was

the decision to adopt I')s Power PC microproces-

sor architecture, which I' would also use in its

own o##erin$s. A second was the establishment o#

two @oint enturesE Tali$ent to create a new oper-

atin$ system, and Oaleida to deelop multimedia

applications. A third was a pro@ect to help I' and

Apple machines wor! better to$ether.

Althou$h +culley)s $ame plan helped to boost the

top line, thebottom line shrun! in 199 due to a com-bination o# low $ross mar$ins and continuin$ hi$h

costs. In 199, +culley le#t Apple.

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The Return of Steve Jobs

=ollowin$ Amelio)s departure, +tee obs was

appointed interim C34. In April 199", he too! the

position on a permanent basis, while stayin$ on at

PiFar as C34. obs moed 6uic!ly to #iF the bleedin$.

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pro#essionals and i'oie #or consumers. KeFt was

iBi#e, a bundle o# multimedia pro$rams preinstalled

on eery 'ac, which included i'oie, i5G5, iPhoto,

%ar$a$e and, and the iTunes di$ital @u!eboF. Apple

also deeloped its own ?eb browser, +a#ari.

'eanwhile, Apple continued to update its com-puter lines with eye-catchin$ o##erin$s. In ://1,

Apple introduced its Titanium Poweroo! % note-

boo!s. Cased in Titanium, these ultrali$ht and #ast

noteboo!s #eatured a clean post-industrial loo! that

mar!ed a distinct shi#t #rom the whimsical loo! o#

the i'ac and ioo!. As with the i'ac, onathan

Ie)s desi$n team played a central part in the prod-

ucts deelopment. A core team o# desi$ners set up

a desi$n studio in a +an =rancisco warehouse, #ar

away #rom Apple)s main campus. They wor!ed #or

siF wee!s on the basic desi$n, and then headed toAsia to ne$otiate #or widescreen #lat panel displays

and to wor! with tool ma!ers.17

The Titanium noteboo!s were #ollowed by a rede-

si$ned des!top line that appealed to the company)s

$raphic desi$n customers, includin$ the o##erin$ o#

ele$antly desi$ned ery wide screen cinema displays.

In ://, Ie)s desi$n team came out with yet another

ele$ant o##erin$, the i'ac %2 computer, which PC

Magazine described as a simple stunnin$ all in one

desi$n.81" This was #ollowed in ://" with the release

o# yet another stron$ desi$n, the ultra-thin 'acoo!Air that wei$hed @ust pounds and was only /.70 o#

an inch thic! at its widest point.

=or all o# Apple)s undisputed desi$n eFcellence

and the loyalty o# its core user base, $raphic artists

and students, durin$ the early :///s Apple)s $lobal

mar!et share remained anemic, trailin$ #ar behind

industry leaders 5ell,

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C1 ,ection A usiness Beel CasesE 5omestic and %lobal

older applications on Intel-based 'acs. 'oreoer,

Apple went a step #arther by issuin$ a utility pro-

$ram, !nown as oot Camp, which enabled 'ac

owners to run ?indows JP on their machines. oot

Camp was included was part o# 4+ J Beopard, and

allows 'ac owners to run ?indows JP or Gista i#they should so chose.

Deiews o# Apple)s Intel-based machines were

$enerally #aorable, with many reiewers notin$ the

speed improement oer the older PowerPC 'acs.:/

In the #all o# ://0, Apple reported that its transition

to an Intel-based architecture was complete, some

siF months ahead o# schedule. The moe to Intel

architecture may hae helped Apple to close the price

di##erential that had lon$ eFisted between ?indows-

based PCs and Apple)s o##erin$s. Accordin$ to one

analysis, by +eptember ://0, Apple)s products weresellin$ at a discount to comparable product o##erin$s

#rom 5ell and

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The iPod 6e5ol%tion

In the late 199/s and early :///s, the music indus-

try was $rapplin$ with the implications o# two

new technolo$ies. The #irst was the deelopment o#

ineFpensie portable 'P players that could storeand play di$ital music #iles, such as 5iamond 'edia)s

Dio, which was introduced in 1997 and could hold

two hours o# music. The second was the rise o# peer-

to-peer computer networ!s, such asKapster, Oa;aa,

%ro!ster, and 'orpheus, that enabled indiiduals to

e##iciently swap di$ital #iles oer the Internet. y the

early :///s, millions o# indiiduals were download-

in$ music #iles oer the Internet without the permis-

sion o# the copyri$ht holders, the music publishin$

companies. =or the music industry, this deelopment

had been deastatin$. A#ter years o# steady $rowth,$lobal sales o# music pea!ed in 1999 at ".2 billion,

#allin$ to : billion in ://. 5espite the #all in

sales, the International =ederation o# the Phono-

$raphic Industry (I=PI claimed that the demand

#or music was hi$her than eer, but the decline in

sales re#lected the #act that the commercial alue o#

music is bein$ widely dealued by mass copyin$ and

piracy.8:(

The music industry had tried to counter piracy

oer the Internet by ta!in$ le$al action to shut down

the peer-to-peer networ!s, such as Kapster, and#ilin$ lawsuits a$ainst indiiduals who made lar$e

num-bers o# music #iles aailable oer the Internet.

Its suc- cess had been limited, in part because peer-

to-peer networ!s o##ered tremendous utility to

consumers. They were #ast, immediate, and enabled

consumers to unbundled albums, downloadin$ @ust

the trac!s they wanted while i$norin$ @un! #iller

trac!s. And, o# course, they were #ree.

The music industry was desperate #or a le$al

alternatie to ille$al downloadin$. Its own initia-

ties, introduced in ://:, had $ained little traction.

'usicKet, which o##ered son$s #rom ?arner 'usic,

'%, and 3'I, had a sin$le subscriptionplanE 9."2

a month #or 1// streams and 1// downloads. A#ter

/ days downloads eFpired and could not be played.

Pressplay, which o##ered music #rom +ony, &niersal,

and 3'I, had #our subscription plans, #rom 9.92

to :.92 a month, #or up to 1,/// streams and 1//

downloads. The hi$her subscription #ee serice #rom

Pressplay allowed users to burn up to :/ son$s a

month onto C5s that would not eFpire, but no more

than two son$s could be burned #rom any one artist.:2

Then alon$ came the iPod and iTunes. These

products were born out o# an oersi$htE in the late

199/s, when consumers were startin$ to burn their

#aorite C5s, 'acs did not hae C5 burners, or

so#tware to mana$e their di$ital music collections.

Deali;in$ the mista!e, C34 +tee obs orderedApple)s so#tware deelopers to create the iTunes

pro$ram to help 'ac users mana$e their $rowin$

di$ital music collections. The #irst iTunes pro$ram

led to the concept o# the iPod. I# people were $oin$

to maintain the bul! o# their music collection on

a computer, they needed portable 'P players to

ta!e music with themNa +ony ?al!man #or the

di$ital a$e. ?hile there were such deices on the

mar!et already, they could only hold a #ew do;en

son$s each.

To run the iPod, Apple licensed so#tware #romPortalPlayer. Apple also learned that Toshiba was

buildin$ a tiny 1."-inch hard drie that could hold

more than 1,/// son$s. Apple 6uic!ly cut a deal

with Toshiba, $iin$ it eFclusie ri$hts to the drie

#or 1" months. 'eanwhile, Apple #ocused on desi$n-

in$ the user inter#ace, the eFterior stylin$, and the

synchroni;ation so#tware to ma!e it wor! with the

'ac. As with so many product o##erin$s uneiled

since obs had returned to the helm, the desi$n team

led by onathan Ie played a piotal role in $iin$

birth to the iPod. Ie)s team wor!ed in secrecy in +an=rancisco. The members, all paid eFtremely well by

industry standards, wor!ed to$ether in a lar$e open

studio with little personal space. The team was able

to #i$ure out how to put a layer o# clear plastic oer

the white and blac! core o# an iPod, $iin$ it tre-

mendous depth o# teFture. The #inish was superior to

other 'P players, with no isible screws or obious

@oins between parts. The serial number o# the iPod

was not on a stic!er, as with most products, it was

ele$antly etched onto the bac! o# the deice. This

attention to detail and desi$n ele$ance, althou$h not

with cost implications, was to turn the iPod into a

#ashion accessory.:0

The iPod was uneiled in 4ctober ://1 to miFed

reiews. The price o# 99 was si$ni#icantly aboe

that o# competin$ deices, and because the iPod only

wor!ed with Apple computers, it seemed destined

to be a niche product.

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?indows. A#ter it was introduced in mid-://:, sales

too! o##.

y this time, obs was dealin$ with a bi$$er

strate$ic issueNhow to persuade the music compa-

nies to ma!e their music aailable #or le$al down-

loads. obs met with eFecuties #rom the ma@orlabels.

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mar!et, and a lon$ tail o# small enterprises that

produce unbranded or locally branded white boF8

computers, o#ten sellin$ their machines at a si$ni#i-

cant discount to $lobally branded products.

Amon$ the lar$er players, consolidation has been

a theme #or seeral years. In ://:,