CASE STUDY. Defying Doom at Apple – Defying doom

CASE STUDY

Defying Doom: Apple

Apple: focus, focus, focus

Apple can be studied from many different perspectives. I would like to use Apple as a great example of a company maintaining focus, especially after the return of Steve Jobs in January 1997 as a part time advisor to the CEO.[1] Jobs finally took over again a few months later, first as interim CEO (iCEO) and finally (it took almost two years to drop the interim title) as CEO of Apple with an annual salary of $1.

1. Apple’s burning platform

By 1996, Apple was in a very challenging situation. Steve Jobs found himself facing a very urgent financial and competitive situation, and decided to set a clear vision for Apple’s future. Apple’s market share had fallen to 4 per cent from a high of 16 per cent in the late 1980s.

In February 1996, Gil Amelio was named the new CEO of Apple, and during his first year, the company lost $1 billion and the stock price fell to a low of $14 from a high of $70 back in 1991. Results for the final quarter of 1996 were showing an annual sales decline of 30 per cent compared with the year before.

The industry in general was questioning Apple’s ability to recover from its current situation, suggesting that it had lost its technology strategy, was in a crisis situation and was slowly killing its brand.

When Jobs finally took over as iCEO, the company was only 90 days away from bankruptcy.

2. Apple: focusing on the products

Several key decisions were taken in a short period of time. Steve Jobs clearly recognized that the main problem Apple was facing was around its products. Focus is not just identifying key priorities but also being able to stop other “important” projects to keep the company aligned. One of the first key decision Jobs took was to kill Newton, the digital personal assistant that offered handwriting recognition capabilities.

Another key decision was to kill the Apple clones. Apple had been licensing its operating system to other computer manufacturers from which Apple would get a $80 licensing fee instead of the almost $500 in profit Apple was getting from the computers it manufactured and sold directly. Jobs saw the gravity of the mistake they had made in allowing other companies to produce substandard hardware on which to run Apple’s operating system. In July 1997, when new software for the operating system was released, Jobs did not offer it to the clone manufacturers.

Jobs decided to revisit the whole product strategy for Apple and in a short period of time decided to cut 70 per cent of the existing products and models. Surprisingly, all engineers in the company, even those whose products were being cancelled loved the idea, because they saw clear direction behind the decisions. One of these decisions was that Apple finally got out of the printer and server business.

Jobs eliminated excess product lines and also cut several novel features in the new operating system that Apple was working on. He also decided to outsource manufacturing of everything from the circuit boards to the finished computers. As a consequence, key suppliers were reduced from more than 100 to 24. The company closed more than half of its warehouses, halving its inventory from two months to less than one month.

Once a year, Jobs would take his most valuable employees on a retreat to figure out what the company should focus on over the coming years. At the end of the meetings he would try to identify the top 10 things they would be working on. People would argue strongly to get their ideas on the list. At the end, once they had come up with a list of the top 10 priorities, Jobs would typically slash the bottom seven and just pick up three. He would say, with utmost conviction: “We can only do three”.

It is also known that in his last days, Jobs met with Larry Page from Google and Mark Zuckerberg from Facebook to insist that focus was the most important element to consider for the success of a company. A company should choose and stick to three to five key products and kill everything else that distracts the team and its energy.

This ability to focus saved Apple from bankruptcy. Two years after Jobs’ return, Apple would turn a $309 million profit for the full fiscal year of 1998.

The following pages describe the sequence of product launches carried out by Apple during Jobs’ tenure. This mapping emphasizes Apple’s ability to focus the whole company’s portfolio around a few key products only and on the next big launch of a single product.

2.1. iMac — May 1998

In May 1998, Apple introduced the iMac, a desktop computer aimed at the home consumer. It was an all-in-one product with keyboard, monitor and computer ready to use out of the box. It was the first computer to eliminate the floppy disk and also replaced the CD (compact disc) tray with a CD slot-load drive. Design was a clear obsession of Jobs’ and this new computer had a translucent casing to allow users to see all of the detailed care behind every component within the computer. The iMac became the first new iconic product of Jobs’ era and was announced on 6th May 1998 in Cupertino.

2.2. The iPod — October 2001

Steve jobs had a vision for the personal computer. It would become a digital hub and would allow users to connect many different devices to it, and manage music, pictures, videos and all digital content. This would reposition the PC in such a way that all different types of devices would be connected to it to manage one’s “digital life”. This was the idea behind iTunes, a software program that easily allowed users to store, reproduce and manage digital content.

It was the right time to make a portable digital music player to hold one’s music. The iPod was probably the most successful product that really marked the turning point in Apple’s history. The iPod would be very simple since all of the management of the music would be performed on the PC, through iTunes. Apple worked for several years on the idea and the iPod was finally revealed to the public on 23rd October 2001. It was a simple storage device that could hold a thousand songs, fit in your pocket, had a simple scroll wheel to search and select the right music, a battery that could last for many hours, and it could synchronize thousands of songs in just a few minutes by downloading the music from the PC. The device was so simple that it did not even have an on/off switch. The device would become dormant when not in use and would wake up again when touched.

Once again, design played a key role for the product. The first version was only available in white and it took several months until another color was introduced, once again showing Apple’s ability to remain focused.

Despite the fact that the original iPod was introduced in October 2001, it was not until January 2004 that Apple introduced the iPod Mini, and not till January 2005 that the iPod Shuffle was introduced.

The success of the iPod and iTunes was unpredicted. Twenty million iPods were sold in 2005. In 2007, iPod sales represented 50 per cent of Apple’s revenues, and in February 2006, the iTunes Store had sold 1 billion songs.

2.3. The iTunes Store — April 2003

The combination of the iPod and the iTunes software became a very powerful weapon for Apple and this combination became a key success factor for Apple’s future. Apple went one step further to revolutionize the music industry by introducing the iTunes Store, where anyone could purchase any song (and not necessarily the entire album, as had been the case in the past) for just $0.99. The iTunes Store was revealed to the public on 28th April 2003 with 200,000 tracks available to download. Convincing everyone in the traditional music value chain was a difficult task, but the concept succeeded, no doubt aided by the fact that the whole music industry was suffering from massive numbers of illegal downloads of digital music and receiving nothing in exchange.

2.4. The iPhone — January 2007

Jobs was concerned about potential cannibalization of iPod sales by the phone industry. He had already seen how the phone industry had damaged the camera business by introducing camera features into most smartphones.

It was not until January 2007 at Macworld in San Francisco that the iPhone was revealed to the public. It was positioned by Jobs himself as a single device that brought together three fantastic products: i) a widescreen iPod with touch controls; ii) a revolutionary phone; and iii) a breakthrough Internet communication device.

The original price for the iPhone was $500, making it the most expensive phone on the market. It did not have a keyboard. By the end of 2010, Apple had sold more than 90 million iPhones and took more than half of all profits generated by the cell phone manufacturing market worldwide.

Eighteen months later, in July 2008, an application store was developed to offer thousands of applications created by thousands of developers around the world to iPhone users. This move set a new playing field for the entire phone manufacturing business, forcing all traditional phone manufacturers to follow Apple’s strategy.

2.5. The iPad — January 2010

After the launch of the iPhone it seemed to be the right moment to work on a tablet. This project was dormant within Apple and had been on the table and in the back of Jobs’s mind for more than five years. After many debates around design, functionality and manufacturing challenges, the iPad was launched to the public in San Francisco on the 27th January 2010. It became the perfect product to fill the gap between a traditional PC and the iPhone. The Wall Street Journal wrote, “The last time there was this much excitement about a tablet, it had commandments written on it.”

The product was a very light, portable and simple device to read a book, surf the web, listen to music, watch a video or use thousands of applications that boosted the usefulness of the product.

In less than a month, more than a million iPads were sold, doubling the speed of sales of the iPhone. By March 2011, only nine months later, Apple had sold 15 million iPads. Two years later, on 2nd March 2011, Apple launched the iPad 2, also in San Francisco. The most significant improvement was the detachable cover with a magnetic hinge.

2.6. The iCloud — June 2011

Mobile Me was an unsuccessful attempt to launch a cloud based-product in the summer of 2008. The idea behind the product was that the PC would no longer be the storage device for movies, pictures, music or email. All this digital information would be stored in “The Cloud” or a set of servers managed by a third party who provided access to all the content from any device. It took Jobs and Apple three years to get the idea into the right product, and in June 2011, at Apple’s Worldwide Developers Conference, the iCloud service was launched.

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This focused strategy around a few products worked very well. In May 2000, Apple’s market capitalization was a 20th of that of Microsoft. Ten years later, in May 2010, Apple became the most valuable technology company in the world and by September 2011 Apple’s market capitalization was worth 70 per cent more than Microsoft.