Inside Apple: How America's Most Admired--and Secretive--Company Really Works (16 page)

Jobs never said whether or not he learned his promotional wizardry by studying Land. He made no secret of his admiration, however. He visited the great man in 1983, after he had been fired from Polaroid. According to former Apple CEO John Sculley, who visited Land with Jobs, the two bonded over their shared ability to envision world-changing products before the products had been built. A few years later Jobs rhapsodized about Land in an interview with
Playboy
. “Land was a troublemaker,” Jobs said. “He dropped out of Harvard and founded Polaroid. Not only was he one of the great inventors of our time but, more important, he saw the intersection of art and science and business and built an organization to reflect that.” He called the Polaroid board’s decision to kick Land out of his own company “one of the dumbest things I’ve ever heard of.” Jobs kept thinking about Land for years and
from time to time would bring him up, unbidden, still smarting at the lack of appreciation for one of the world’s great entrepreneurs and storytellers.

I
t isn’t just with the press that Apple carefully restricts access. Apple is just as selfish about lending its time or name to another company’s marketing efforts. It’s rare to see an Apple executive appear at a non-Apple product event and even rarer to find an independent academic who has studied Apple with Apple’s cooperation. The world’s most discussed company may well be the least observed, at least from the inside.

One academic who has analyzed Apple, Harvard Business School’s David Yoffie, is almost wistful about the subject. Yoffie teaches courses on strategy, technology, and international competition, topics that increasingly can’t be mastered without a deep knowledge of Apple. Indeed, Yoffie, who has been on the Harvard faculty since 1981, once was the academic world’s foremost authority on Apple, having roamed the halls freely in the early 1990s. “For my first case study on Apple, [then-CEO John] Sculley gave me total access for six to eight months, including tons of internal interviews,” Yoffie said.

Over time, Yoffie’s relationship with Apple grew complicated, leading to Steve Jobs having “mixed feelings” about him. Yoffie joined the board of Intel in 1989, yet he continued to comment publicly on various companies wearing his Harvard hat. “I was very critical of Apple in the 1997 to 2000 time frame,” he recalled, and he eventually fell victim to the “long memory” of Steve Jobs. As Apple’s fortunes improved, including after Apple
shifted to Intel chips for its Macintosh computers, Yoffie remained in the doghouse, despite having “changed my tune” and begun commenting positively on Apple. Said Yoffie: “[Jobs] said he’d be willing to let me come in once Intel and Apple had a formal relationship. Then he said, ‘No. You’ve been too critical.’ ”

In September 2010, Yoffie published an update on his Apple case study, his eighth revision since his first case when John Sculley was CEO. In reviewing Apple’s entire history, the case begins with a recent summary, gushing that “by almost any measure, Apple’s turnaround was a spectacular accomplishment.” Over the years Yoffie had become a tech-industry insider, serving on the boards of TiVo, Financial Engines, and Apple competitor HTC, in addition to Intel. For all his industry knowledge, Yoffie’s Apple case study doesn’t contain a Kt inancishred of original information. (He acknowledged the lack of new material, though he also noted that the paper won the European Case Clearing House award for best case study in 2011.)

Yoffie certainly isn’t alone among academics shut out of
Apple. Theoretical physicist Geoffrey West is the past president of the Santa Fe Institute and a darling of Silicon Valley intellectuals. He has devoted his recent research to the life and death of corporations. To his chagrin, Apple isn’t in his field of observation. “I have no knowledge of Apple as a company,” he said. “I only know I love their products. In my work Google pops up all the time. I almost never hear anyone talk about Apple in academic terms. Unlike Google and Amazon, I don’t even know anyone who works at Apple.”

L
ong before unveiling its first smartphone on January 9, 2007, executives at Apple already knew what they wanted to call the device.

The iPod music player, which launched on October 23, 2001, had in four years’ time become a nearly $8 billion business. The iTunes Store, Apple’s online pop-culture dispensary where consumers could purchase music, movies, and TV shows, had opened for business on April 28, 2003. It was generating annual revenues of almost $2 billion as Apple readied its smartphone. Obviously, the new device should be called “iPhone.”

One problem: The name iPhone already had an owner, the giant Silicon Valley company Cisco Systems.

The businesses of Apple and Cisco barely overlapped. Cisco made equipment that allowed big businesses and telephone companies to connect to the Internet. That equipment—routers, switches, and other gear a consumer
would never know anything about—is often referred to as the plumbing of the Internet. Cisco did own a small home-networking business, Linksys, and it later would stumble by paying $533 million for the maker of Flip video cameras, a product Apple would help put out of business—with, of all things, the capabilities of the iPhone. But on the eve of the launch of the iPhone, Cisco and Apple would barely have competed with each other. Both were prominent Silicon Valley neighbors. Cisco targeted businesses, Apple consumers.

In 2000, Cisco had acquired InfoGear, an Israeli company that had a product called an iPhone, which it had trademarked in 1996. This was before Apple started slapping an
i
in front of its product names, beginning with the iMac in 1998. Jobs never said exactly what the letter stood for, though in the iMac introduction he displayed a slide that read: “internet, individual, instruct, inform, inspire.” The many later
i
-labeled products never illuminated the meaning of the
i
. It just became Apple’s naming tic.

For Cisco’s part, the
i
actually meant something: It was selling a line of phones to companies that worked off the Internet, as opposed to Ma Bell’s system. Cisco had discontinued the original InfoGear product, but its Linksys division had begun using the name, according to Charles Giancarlo, a senior Cisco executive at the time. As Apple ramped up planning for its smartphone release, it called to inform Cisco that it would be naming its new product, for which it ha Nt inple d high hopes, the iPhone.

Giancarlo fielded a call directly from Steve Jobs. “Steve called in and said that he wanted it,” Giancarlo recalled. “He didn’t offer us anything for it. It was just like a promise he’d be our best friend. And we said, ‘No, we’re
planning on using it.’ ” Shortly after that, Apple’s legal department called to say they thought Cisco had “abandoned the brand,” meaning that in Apple’s legal opinion Cisco hadn’t adequately defended its intellectual property rights by promoting the name. To Apple’s way of thinking this meant the name iPhone was available for Apple’s use. Giancarlo, who subsequently joined the prominent Silicon Valley private-equity firm Silver Lake Partners, said Cisco threatened litigation before the launch. Then, the day after Apple announced its iPhone, Cisco filed suit.

The negotiation displayed some classic Steve Jobs negotiating tactics. Giancarlo said Jobs called him at home at dinnertime on Valentine’s Day, as the two sides were haggling. Jobs talked for a while, Giancarlo related. “And then he said to me, ‘Can you get email at home?’ ” Giancarlo was taken aback. This was 2007, after all, when broadband Internet was ubiquitous in homes in the US, let alone that of a Silicon Valley executive who had worked for years on advanced Internet technology. “And he’s asking me if I’m able to get email at home. You know he’s just trying to press my buttons—in the nicest possible way.” Cisco gave up the fight shortly after that. The two sides reached a vague agreement to cooperate on areas of mutual interest.

Giancarlo had been considered a candidate to replace John Chambers as CEO, and when he resigned from Cisco later that year, he witnessed the other side of Steve Jobs. Their frequent correspondence had stopped cold as soon as Cisco and Apple had agreed on terms, but Jobs called immediately when he heard of Giancarlo’s departure. Jobs, a charmer and master networker, wished him well in a way that conveyed total sincerity. Said Giancarlo: “You could have knocked me over with a feather.”

Apple would again ride roughshod over Cisco three years later when Apple decided that it wanted a new name for its mobile operating system, heretofore the “iPhone OS.” For nearly twenty years, Cisco had been referring to the core operating system for its equipment as IOS, for “Internet Operating System,” though the product had been fragmented by other offerings. The second time around Apple was more cordial if no less matter of fact with Cisco before taking the name for its own. This time the two companies reached a deal before Apple went public with the new name. Apple debuted its renamed iOS when Jobs unveiled the iPhone 4 in June 2010. Recalled an executive who was involved in the Apple-Cisco negotiations: “Jobs basically did what he wanted.”

F
rom the time Apple first lost its momentum, in the early 1990s, until it started to branch out beyond computers in the early 2000s, the company operated in an odd world of isolation. Its hardware was different, its software worked differently, and its market share was small. Apple ran apart from the rest of Silicon Valley, maintaining an underdog mentality well after it ceased being an underdog. Apple also had a long corporate memory: It harbored grudges from the time software developers shunned the Macintosh. In its darkest days, when Apple was dangerously close to being irrelevant, its institutional psyche retained the pride of having pioneered the personal computer. Even a downtrodden Apple thought of itself as more stylish than the beige world of Wintel Sld ioneered PCs—the powerful combination of Windows software powered by Intel chips. Even after it
regained its record for success, Apple retained the aloof, and often arrogant, bearing of an outsider.

Arguably because Apple did things its own way, forging a business model that is unique in so many ways, Apple also institutionalized a culture of playing by its own rules. Partners of all types, from suppliers to consultants to collaborators, find out soon enough that Apple’s playbook is the only one that matters.

It is one thing for a company to maintain an alternative culture within its own walls—an absolute monarch can usually control what happens in his own kingdom—but what happens when that value system, that way of doing business, comes into contact with other entities? These interactions often reveal the strengths and weaknesses of a company’s own operating system. Time and again, Apple has made being fed at a special table part of its business model, whether it is dealing with dinosaurs of old media in the music, movie, and publishing industries, partners in the telecommunications world, or suppliers who provide it with raw materials to manufacture their goods.

Apple has redefined the rules wherever it pleased. Its iTunes Store told music publishers what they could and couldn’t charge for songs. In exchange for two years of exclusivity on the iPhone, Apple told AT&T that Apple, and not the phone carrier, would control the user experience and even the branding on the phone—a reversal for the cellular business. Dissatisfied with the job Best Buy salespeople were doing selling Apple’s wares, Apple put its own employees into Best Buy stores. The retailer swallowed hard and effectively thanked Apple for its business. Application developers whine about the opaque approval
process for getting an app onto Apple’s App Store. But they continue submitting applications: By late 2011, the App Store had five hundred thousand apps and Apple had paid its developers $3 billion in sales revenue in three years—despite dictating another rigid set of terms, that Apple would always take a 30 percent cut and maintain total control over what went into its store.

As for its dealings with suppliers, what other companies might think of as valued business partners, Apple calls to mind how the United States “consulted” with NATO during the Cold War. Yes, there was an alliance. But there was only one superpower. Apple thinks nothing of sending a twenty-something-year-old engineer to Asia to explain to experienced manufacturers precisely how Apple wants something made. This simply is how Apple treats partners, loosely defined, of all stripes. “There is no such thing as a partnership with Apple,” said a former Apple executive. “It’s all about Apple.”

Whether it is textbook maverick behavior, an arrogance bred from success, or the consequence of being led for years by Steve Jobs, Apple decides when and how it will play with others. Jobs, after all, regularly parked in the handicapped parking place (while healthy) at Apple. He removed the license plates from his car for fear of being tracked. Bob Borchers, the former Apple marketing executive, offered as an example the way a typical Steve Jobs keynote presentation used the logos of other companies. “He always ended up doing a white logo on a black background”—in other words, the way Apple presents its own logo. “In many cases that is not within the brand guidelines for the partner, and in many cases the brand guidelines mandate that you have to have the circle-R, the
copyright logo. That always gets cropped out because it’s just unsightly.” It is behavior St indate Jobs wouldn’t have tolerated from another company—a violation of Apple’s branding rules is unforgivable—yet he didn’t even consider asking permission for his own presentations.

I
f Apple is rough with its friends, suffice it to say it is positively devilish with its enemies.

Its “Get a Mac” ad campaign, which ran from 2006 to 2009, stands out for its nastiness and brutality, a full-frontal assault on a competitor in an industry that typically stresses strengths over comparisons. If McDonald’s had attacked Burger King or Ford attacked Chrysler in such a way, audiences might have recoiled in horror, yet Apple was able to get away with this public ridicule.