Everyone knows Steve Jobs pulled off one of the outstanding corporate turnarounds in U.S. history, and that he did it on the strength of cool products.
What they may not realize is that Jobs was a master of bare-knuckled business strategies from the old school.
It’s true that Jobs’ legendary perfectionism and insistence on simplicity and elegance for Apple’s products were the qualities of an aesthete. But his goal was to create products that could command premium prices and ensure rich profits.
Apple’s reputation for nearly flawless manufacturing quality, not merely its svelte engineering, is what enables the company to make premium pricing look like a value proposition. Apple devices may cost more, but they always seem to work. In its most recent fiscal year, Apple’s profit margin was more than 21%; at Hewlett-Packard, the world’s biggest PC manufacturer, it was 7%.
Jobs pushed the principle of “planned obsolescence” to new heights. Apple’s annual upgrades of its products — “refreshes” in the language of its fans — generate sales of millions of units as owners of one year’s MacBook or iPhone line up to buy the newest version, even when the changes are incremental.
Ironically, it’s the unique combination of Jobs’ showmanship, eye for detail and instinct for business strategy that may make it hard to identify his rightful place in business history. After his retirement as Apple CEO in August, you could hear him being compared to Thomas Edison and Henry Ford.
The truth is that, although his name appears on hundreds of Apple patents, Jobs was not known as an inventor. Unlike Ford, he didn’t develop a revolutionary manufacturing model. But that’s not to say he didn’t cast a very long shadow.
His legacies include making the human factor — the way a device looks, feels, weighs and insinuates itself into our lives — an indispensable element of consumer electronics design, refining the distribution and display of digital content to the point that he disrupted a business model for entertainment and information that in some respects had lasted for a century, and showing that high manufacturing standards don’t cost money, but make money.
As a technology executive, Jobs was always on the lookout for something new. In 1979, he accepted a small investment in Apple from Xerox in return for a guaranteed look inside Xerox’s famed Palo Alto Research Center (PARC), where brilliant young scientists had developed the first personal computer and other revolutionary technologies.
Learning that he had been kept from seeing PARC’s best stuff, he pitched a fit and got a second tour, which introduced him and his engineers to graphical computer displays and other innovations that promptly got incorporated into Apple products.
The original iMac illustrated the peculiar virtues and drawbacks of Jobs’ approach to new technology. It was the first consumer PC to ship without a floppy-disk drive. Instead it had a high-speed Internet port, reflecting Jobs’ conviction that the network was supplanting the disk as a storage medium.
But it was far ahead of his time, for neither Internet connections nor capabilities were yet up to the task. The first iMacs also lacked CD burners because the make-your-own-CDs revolution had escaped Jobs’ notice.
He would soon leapfrog the CD era with iTunes — which led to the iPod, helping to usher in the digital music era.
Jobs’ well-known control-freak ethos accounts for the closed approach binding Apple’s mobile devices and their content — songs purchased from the iTunes store can’t be played on competing companies’ devices, for example.
In iPod’s earliest days, many thought this would doom the device to irrelevance: “Five years from now, Apple will have 3 to 5 percent of the player market,” Rob Glaser, the founder of RealNetworks, predicted in 2003. At the time, Glaser’s company owned the competing digital music service Rhapsody.
But there was strategic method in Jobs’ madness: Simplicity and consistency, he perceived, would draw customers to legal digital music downloads.
The App Store, through which Apple keeps a vise grip on outside software written for the iPhone, iPad and iPod Touch, is the ultimate expression of Jobs’ desire for order. Programs can be distributed through the App Store only after they’re approved by Apple, which takes a 30% cut of their revenue — another Jobsian exploitation of a very un-Zen business strategy.
This walled-garden approach to consumer applications is harshly at odds with the open architecture of the Web. It has given makers of less constricted smartphones and tablet computers a selling point — possibly their only selling point — against the iPhone and iPad.
Has it worked? Apple’s iPods still account for about 75% of the player market. iTunes accounts for 25% of all U.S. music sales, encompassing digital downloads and CDs.
What we think of Steve Jobs five or 10 years from now may have a lot to do with how his heirs at Apple manage the inevitable transitions ahead in digital technology.
Jobs has left them many useful lessons. Indeed, when his return to Apple as an informal advisor to then-CEO Gil Amelio was announced in 1996, the company was a few wheezing breaths from extinction.
In September 1996, he visited The Times for lunch in his role as head of Pixar, the digital animation studio he created after acquiring the computer graphics unit of Lucasfilms in 1986. Flanked by Pixar’s chief technologist, Ed Catmull, and John Lasseter, director of the studio’s hit “Toy Story,” he picked at his vegetarian plate and shunned questions about his old company.
“That’s my former life,” he said. “The great thing about being involved with Pixar is that I don’t have to think about any of that.”
Once reinstalled as Apple CEO, Jobs succeeded in part by ignoring advice from learned competitors. In 1985, Microsoft’s Bill Gates had advised then-Apple CEO John Sculley that the company’s only hope for survival was to license outside computer companies to manufacture Mac “clones” featuring Apple’s Macintosh operating system.
But Jobs, perceiving correctly that the clones were cannibalizing Apple’s own sales without doing anything to improve the product, shut down the business. The end of the clones presaged Apple’s resurgent manufacturing and technology leadership under Jobs.
Jobs also ruthlessly pared back Apple’s product lines; the jettisoned products included the Newton, a kludgy hand-held tablet computer — an iPad well ahead of its time. But the simplified inventory became the foundation for fresh expansion, starting with the translucent blue $1,299 iMac in 1998 (followed by its candy-colored cousins and iBook laptop a few months later).
It may be that the essential ingredients in Apple’s business model have been the drive and charisma of Steve Jobs. Apple’s faithful will say that the team of executives he put in place will follow in his footsteps.
And so they will, until a new technology emerges that demands his unique vision, authority and credibility. What then?
Michael Michael Hiltzik’s column appears Sundays and Wednesdays. His latest book is “The New Deal: A Modern History.” Reach him at email@example.com, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.