Steve Jobs’s Miracle Year

This summer, I read Apple in China by Patrick McGee, which Stratechery called “one of the best books about Apple ever written”. It prompted me to look in more detail at Steve Jobs’s return to Apple in 1997.

I had assumed that Steve Jobs's return to Apple was inevitable, or at least smooth. Given what we know now, it feels obvious that Steve was the correct person to lead Apple, and it’s tempting to believe that everyone else knew this at the time. This could not be further from the truth.

The other story sometimes told is that Steve Jobs was playing 4D chess - that he had a carefully orchestrated master plan to get back to Apple. This is also not true. For most of the process, Jobs was convinced he didn't want to go back. Apple was a sinking ship, and he had no interest in being its captain. He only decided to take the CEO job after months of research, and only after he had a clear strategy for how to save the company.

So what exactly did Steve Jobs do to save Apple? Below, I’ve constructed a timeline of this period, to show what happened. I’ve come to believe that 1997 was something of an annus mirabilis for Jobs. It shows how quickly he could move, his brilliant (and unique) strategic insights, and how he made decisive calls that were ultimately proved correct.

The Wilderness Years

Steve Jobs was ousted from Apple in September of 1985. It took him 12(!) long and largely failure-ridden years to make his way back.

During his initial time at Apple (1976-1985), he and Woz had success with the Apple II (which sold millions of units). However, then Steve launched two failed computers in the Lisa (which sold only 10,000 units!), and the Macintosh (which was technically impressive, but commercially unsuccessful). These failures, along with his prickliness at work, ultimately led to him being fired from Apple.

He invested $12m of his own money into his NeXT venture, a company that failed to release a single successful computer to market. He had some success separately when Pixar IPOed in 1995, but as a technologist, his reputation was a shadow of what it would later become.

Before returning to Apple, Steve Jobs was primarily known as an excellent marketer who hadn't launched a successful computer in over 15 years.

  • 19 Jan 1983 - The Apple Lisa is launched to the public for US$9,995 (or $31,600 in 2024 money). The expensive price tag meant it only sold 10,000 units.
  • 22 Jan 1984 - Apple airs the iconic 1984 commercial during the Superbowl.
  • 24 Jan 1984 - Steve Jobs reveals the Macintosh on stage in Cupertino.
    • There was a lot of hype around the Mac, but by the end of 1984 it was selling only 10,000 units per month - not enough to sustain Apple.
  • 15 Sep 1985 - Steve Jobs is fired from Apple.

Apple in free fall

In 1996, Apple was in trouble. The company reported a loss of over $1B on revenues of $8.8B, and their cash reserves had dropped to just $500 million. Apple’s market share had dropped to 4% from a prior high of 18%, and their stock price had fallen 5x from $70 in 1991 to $14 in 1996.

Apple had misdiagnosed the problem as being primarily about capital efficiency. So they appointed a new CEO, Gil Amelio, and gave him a mandate to drastically cut costs so that Apple would be profitable again.

  • 5 Feb 1996 - Bloomberg Business Week publishes "Apple: The Fall of An American Icon".
  • Feb 1996 - Gil Amelio takes over as CEO of Apple.
  • Summer 1996 - Apple sells their factory in Colorado for $200M because they need the cash.
  • June 1996 - Apple raises $661M in a bond sale to strengthen their cash reserves.

Apple’s acquisition of NeXT

Apple ultimately bought NeXT because they needed an operating system, and their internal efforts were several years behind others in the market. Apple knew that their next computer would fail without an operating system that could rival Windows. NeXT had an excellent operating system, but few customers to sell to since most computer manufacturers were already shipping with the Microsoft Windows operating system.

It was surprising to see how quickly the NeXT acquisition happened. In less than a month, Steve Jobs went from demoing the NeXT operating system to Apple for the first time, to selling his company for $400M.

  • Nov 1996 - Apple and NeXT in mid-level talks initiated unknowingly by a NeXT employee.
    • At this point Apple was already planning to partner with Jean-Louise Gassée’s BeOS operating system.
  • 2 Dec 1996 - Steve Jobs sets foot on Apple’s campus for the first time since his ouster in 1985.
    • He gives a compelling chalk talk about the NeXTStep operating system to two Apple employees.
  • 10 Dec 1996 - NeXT and BeOS are both invited to pitch to Apple at the Garden Court Hotel in Palo Alto, in front of Amelio and 7 other execs.
    • Steve’s sales pitch was dazzling. He demoed how NeXT OS could play 4 videos at once.
    • Gassée of BeOS was underprepared for this meeting, and presented no new information since he assumed he had already won the deal.
  • ?? Dec 1996 - Steve Jobs and Gil Amelio negotiate the deal at Steve’s home in Palo Alto.
    • Steve tries to negotiate a board seat as part of the acquisition, but was unsuccessful.
    • NeXT had 300 employees at the time, and was losing money on only $50M per year in revenue.
    • Jobs was paid $130M in cash, and $37M in stock which he promised to hold for 6 months.
  • 20 Dec 1996 - Apple announces that they have  purchased NeXT for $400M
    • Gil Amelio is still CEO of Apple.
    • Steve Jobs is introduced as a part-time advisor. His title is “Advisor to the chairman”.
    • The Isaacson book claims he was still coy about whether he wanted the Apple CEO job at this point.

The beginnings of a strategy

It became clear in 1997 that Apple needed a new CEO, but no one wanted the job because of how badly Apple had been performing.

  • 7 Jan 1997 - Gil Amelio delivers  “the presentation from hell” at MacWorld
    • Amelio hadn’t prepared for the talk, and spoke uncharismatically with lots of technical jargon.
    • The McGee book says Amelio went on and on, to the point of Apple nearly running out of satellite time on its broadcast.
    • Steve (now an Apple employee again) was invited to speak, and received a raucous reception from the crowd. He opened with “this is our mission… to provide relevant, compelling solutions that customers can only get from Apple” - very CEO-like language, even though he wasn’t CEO.
  • 14 March 1997 - Gil Amelio lays off 4,100 employees, around a third of Apple's staff, to stem the bleeding.
  • 12–16 May 1997 - Jobs at WWDC pitches the “network computer” idea (at the San Jose Convention Center)
    • In his few months as an advisor at Apple, Jobs had been trying to figure out the answer to Apple’s woes. He was toying with the idea of building a “network computer” - a machine with no hard-drive, that goes to the internet to fetch all the data it needs (somewhat like a modern-day Chromebook).
    • This is where the famous “insult response” clip comes from.
  • June 1997 - Steve Jobs anonymously sells 1.5 million of his Apple shares for $22.5m.
    • This causes the stock to tank to a 12-year low.
    • This triggers the board to formally re-evaluate Gil Amelio’s position as CEO.
  • June 1997 - At a board meeting, with Amelio out of the room, board member Ed Woolard argues that Steve Jobs should take over as Apple's CEO.
    • Woolard calls Jobs and asked him to become CEO. Jobs declines because he isn't yet convinced that Apple can be saved, and he is already CEO of Pixar.
    • The board fires Amelio.
    • Fred Anderson (Apple’s CFO) becomes interim CEO while Jobs investigates different facets of the business. Jobs is told to be an “active advisor”.
  • July 1997 - Steve Jobs goes on a learning tour of Apple, and emerges from it with a much better plan for how to take Apple forward. These 4 weeks are when Steve really solved the Apple puzzle, and built the conviction he needed to lead Apple again. It also shows how busy/thoughtful he was on a day-to-day basis!
    • July 9 - Steve meets with Apple’s industrial design team, including Jony Ive
      • This is the meeting in which he drew out the simplified product lineup on a 2x2 grid with pro/consumer and desktop/portable on the axes. You can hear him explain it here a year later.
      • His idea was that Apple was failing because its product lineup was too complicated, and they needed to focus their attention on only 4 great products.
    • July 22 - R&D hardware meeting
      • Steve is worried that Apple staff are demoralized because Apple has a reputation for being slow. His diagnosis is that Apple is just unfocused. They are executing quickly on projects that don't matter.
    • July 25 - Software review meeting
      • Steve sees that Apple employees want to fall into line behind a coherent strategy, but so far there has been no clear vision coming from the C-suite.
    • July 26 - MacWorld planning meeting
      • Jobs believes there are still many die-hard fans who still love Apple, but they don't trust the management. At Mac World, he plans to announce a major reshuffle of the executive board to give Apple a reset.
    • July 29 - Desktop and display review meeting
      • He still believes his Network Computer idea will solve Apple's financial woes by being a best seller. He's confident about the 5-year plan, but doesn't know if Apple can survive the next 12 months.
    • Aug 1 - Software review meeting
      • He expresses that the Network Computer can't look like a "cheap TV". This line of product thinking is what ultimately became the iMac G3, the computer the saved Apple.
    • Aug 11 - Advertising meeting
      • He wants to create a sense of momentum, which he thinks he can do by launching a new ad campaign for Apple - this idea becomes Here's to the Crazy Ones.

Steve’s resurgence

Through the research meetings he was having, Steve came up with a plan for how Apple could be saved. He also saw that Apple still had talented people, but they were being underutilized. This is what ultimately convinced him to take the CEO job.

  • July 1997 - Board takeover
    • Steve Jobs told the board that they all (except Ed Woolard) needed to resign, or he would leave. The board agreed because they didn’t have better options - it would take the months to find a different CEO, and they realized that Steve Jobs represented the best chance of turning Apple around.
    • He also wanted to reprice Apple stock in order to keep top talent. He told the board they had to do this or else he would quit.
  • 5-8 Aug 1997 - Jobs keynote at MacWorld in Boston 
    • The MacWorld Steve had been preparing for: “Apple is executing very well on the wrong things” | “The plan has been wrong”.
    • Steve announces a shakeup of the board of directors.
    • Steve announces that Apple is partnering with Microsoft. There is a famous scene of Bill Gates towering over Apple, 1984-style.
      • The crowd booes that Internet Explorer will be the default browser on Apple computers.
  • 16 Sept 1997 - Steve Jobs is officially announced as interim CEO, rather than just an “advisor”.
  • 23 Sept 1997 - Steve Jobs hosts a town hall to Apple executives, and presents the new vision for Apple. 
    • He explains his plan to focus Apple's product lineup to just 4 great products.
    • He shows them the “heres to the crazy ones” ad for the first time.
    • Steve’s sage advice: “To me, marketing is about values. This is a very complicated world, it’s a very noisy world, and we’re not going to get a chance to get people to remember much about us. No company is. So we have to be really clear about what we want them to know about us.”
  • 28 Sept 1997 - “Here’s to the crazy ones” ad first airs on television
    • The concept had been started before MacWorld, but it hadn’t been completed.
  • 30 Mar 1998 - Apple’s Board announces Steve Jobs as permanent CEO.

A new era for Apple

The iMac G3 was unveiled on 6 May 1998, and started selling on August 15th 1998.

It represented the first major new product release since Steve Jobs returned to Apple, and Jony Ive became its lead designer. The computer sold 278,000 units in the first 6 weeks. Apple went from losing $878 million in 1997 to making $414 million profit in 1998 - the company was profitable again for the first time in 3 years.

When I say that 1997 was an annus mirabilis for Steve Jobs, it's because he accomplished several incredible feats for Apple which no other CEO had been capable of:

  1. He negotiated the sale of NeXT to Apple for $400M.
  2. He correctly diagnosed that Apple needed to sharply focus it's product line, and decided on the 4 products (2 x 2 grid) that Apple would focus on.
  3. He fired the board, and saved Apple short-term with a $150M cash injection from Microsoft.
  4. He launched "Here's to the crazy ones" - one of Apple's most iconic ad campaigns ever.
  5. He recognized Jony Ive's design talent and laid the foundation for the iMac G3, which would becomes Apple's best selling computer to date.

The rest is history.

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