Steve Jobs

  Apple Falling

  For a few years after Jobs was ousted, Apple was able to coast comfortably with a high profit margin based on its temporary dominance in desktop publishing. Feeling like a genius back in 1987, John Sculley had made a series of proclamations that nowadays sound embarrassing. Jobs wanted Apple “to become a wonderful consumer products company,” Sculley wrote. “This was a lunatic plan. . . . Apple would never be a consumer products company. . . . We couldn’t bend reality to all our dreams of changing the world. . . . High tech could not be designed and sold as a consumer product.”

  Jobs was appalled, and he became angry and contemptuous as Sculley presided over a steady decline in market share for Apple in the early 1990s. “Sculley destroyed Apple by bringing in corrupt people and corrupt values,” Jobs later lamented. “They cared about making money—for themselves mainly, and also for Apple—rather than making great products.” He felt that Sculley’s drive for profits came at the expense of gaining market share. “Macintosh lost to Microsoft because Sculley insisted on milking all the profits he could get rather than improving the product and making it affordable.” As a result, the profits eventually disappeared.

  It had taken Microsoft a few years to replicate Macintosh’s graphical user interface, but by 1990 it had come out with Windows 3.0, which began the company’s march to dominance in the desktop market. Windows 95, which was released in 1995, became the most successful operating system ever, and Macintosh sales began to collapse. “Microsoft simply ripped off what other people did,” Jobs later said. “Apple deserved it. After I left, it didn’t invent anything new. The Mac hardly improved. It was a sitting duck for Microsoft.”

  His frustration with Apple was evident when he gave a talk to a Stanford Business School club at the home of a student, who asked him to sign a Macintosh keyboard. Jobs agreed to do so if he could remove the keys that had been added to the Mac after he left. He pulled out his car keys and pried off the four arrow cursor keys, which he had once banned, as well as the top row of F1, F2, F3 . . . function keys. “I’m changing the world one keyboard at a time,” he deadpanned. Then he signed the mutilated keyboard.

  During his 1995 Christmas vacation in Kona Village, Hawaii, Jobs went walking along the beach with his friend Larry Ellison, the irrepressible Oracle chairman. They discussed making a takeover bid for Apple and restoring Jobs as its head. Ellison said he could line up $3 billion in financing: “I will buy Apple, you will get 25% of it right away for being CEO, and we can restore it to its past glory.” But Jobs demurred. “I decided I’m not a hostile-takeover kind of guy,” he explained. “If they had asked me to come back, it might have been different.”

  By 1996 Apple’s share of the market had fallen to 4% from a high of 16% in the late 1980s. Michael Spindler, the German-born chief of Apple’s European operations who had replaced Sculley as CEO in 1993, tried to sell the company to Sun, IBM, and Hewlett-Packard. That failed, and he was ousted in February 1996 and replaced by Gil Amelio, a research engineer who was CEO of National Semiconductor. During his first year the company lost $1 billion, and the stock price, which had been $70 in 1991, fell to $14, even as the tech bubble was pushing other stocks into the stratosphere.

  Amelio was not a fan of Jobs. Their first meeting had been in 1994, just after Amelio was elected to the Apple board. Jobs had called him and announced, “I want to come over and see you.” Amelio invited him over to his office at National Semiconductor, and he later recalled watching through the glass wall of his office as Jobs arrived. He looked “rather like a boxer, aggressive and elusively graceful, or like an elegant jungle cat ready to spring at its prey.” After a few minutes of pleasantries—far more than Jobs usually engaged in—he abruptly announced the reason for his visit. He wanted Amelio to help him return to Apple as the CEO. “There’s only one person who can rally the Apple troops,” Jobs said, “only one person who can straighten out the company.” The Macintosh era had passed, Jobs argued, and it was now time for Apple to create something new that was just as innovative.

  “If the Mac is dead, what’s going to replace it?” Amelio asked. Jobs’s reply didn’t impress him. “Steve didn’t seem to have a clear answer,” Amelio later said. “He seemed to have a set of one-liners.” Amelio felt he was witnessing Jobs’s reality distortion field and was proud to be immune to it. He shooed Jobs unceremoniously out of his office.

  By the summer of 1996 Amelio realized that he had a serious problem. Apple was pinning its hopes on creating a new operating system, called Copland, but Amelio had discovered soon after becoming CEO that it was a bloated piece of vaporware that would not solve Apple’s needs for better networking and memory protection, nor would it be ready to ship as scheduled in 1997. He publicly promised that he would quickly find an alternative. His problem was that he didn’t have one.

  So Apple needed a partner, one that could make a stable operating system, preferably one that was UNIX-like and had an object-oriented application layer. There was one company that could obviously supply such software—NeXT—but it would take a while for Apple to focus on it.

  Apple first homed in on a company that had been started by Jean-Louis Gassée, called Be. Gassée began negotiating the sale of Be to Apple, but in August 1996 he overplayed his hand at a meeting with Amelio in Hawaii. He said he wanted to bring his fifty-person team to Apple, and he asked for 15% of the company, worth about $500 million. Amelio was stunned. Apple calculated that Be was worth about $50 million. After a few offers and counteroffers, Gassée refused to budge from demanding at least $275 million. He thought that Apple had no alternatives. It got back to Amelio that Gassée said, “I’ve got them by the balls, and I’m going to squeeze until it hurts.” This did not please Amelio.

  Apple’s chief technology officer, Ellen Hancock, argued for going with Sun’s UNIX-based Solaris operating system, even though it did not yet have a friendly user interface. Amelio began to favor using, of all things, Microsoft’s Windows NT, which he felt could be rejiggered on the surface to look and feel just like a Mac while being compatible with the wide range of software available to Windows users. Bill Gates, eager to make a deal, began personally calling Amelio.

  There was, of course, one other option. Two years earlier Macworld magazine columnist (and former Apple software evangelist) Guy Kawasaki had published a parody press release joking that Apple was buying NeXT and making Jobs its CEO. In the spoof Mike Markkula asked Jobs, “Do you want to spend the rest of your life selling UNIX with a sugarcoating, or change the world?” Jobs responded, “Because I’m now a father, I needed a steadier source of income.” The release noted that “because of his experience at Next, he is expected to bring a newfound sense of humility back to Apple.” It also quoted Bill Gates as saying there would now be more innovations from Jobs that Microsoft could copy. Everything in the press release was meant as a joke, of course. But reality has an odd habit of catching up with satire.

  Slouching toward Cupertino

  “Does anyone know Steve well enough to call him on this?” Amelio asked his staff. Because his encounter with Jobs two years earlier had ended badly, Amelio didn’t want to make the call himself. But as it turned out, he didn’t need to. Apple was already getting incoming pings from NeXT. A midlevel product marketer at NeXT, Garrett Rice, had simply picked up the phone and, without consulting Jobs, called Ellen Hancock to see if she might be interested in taking a look at its software. She sent someone to meet with him.

  By Thanksgiving of 1996 the two companies had begun midlevel talks, and Jobs picked up the phone to call Amelio directly. “I’m on my way to Japan, but I’ll be back in a week and I’d like to see you as soon as I return,” he said. “Don’t make any decision until we can get together.” Amelio, despite his earlier experience with Jobs, was thrilled to hear from him and entranced by the possibility of working with him. “For me, the phone call with Steve was like inhaling the flavors of a great bottle of vintage wine,” he recalled. He gave his assurance he w
ould make no deal with Be or anyone else before they got together.

  For Jobs, the contest against Be was both professional and personal. NeXT was failing, and the prospect of being bought by Apple was a tantalizing lifeline. In addition, Jobs held grudges, sometimes passionately, and Gassée was near the top of his list, despite the fact that they had seemed to reconcile when Jobs was at NeXT. “Gassée is one of the few people in my life I would say is truly horrible,” Jobs later insisted, unfairly. “He knifed me in the back in 1985.” Sculley, to his credit, had at least been gentlemanly enough to knife Jobs in the front.

  On December 2, 1996, Steve Jobs set foot on Apple’s Cupertino campus for the first time since his ouster eleven years earlier. In the executive conference room, he met Amelio and Hancock to make the pitch for NeXT. Once again he was scribbling on the whiteboard there, this time giving his lecture about the four waves of computer systems that had culminated, at least in his telling, with the launch of NeXT. He was at his most seductive, despite the fact that he was speaking to two people he didn’t respect. He was particularly adroit at feigning modesty. “It’s probably a totally crazy idea,” he said, but if they found it appealing, “I’ll structure any kind of deal you want—license the software, sell you the company, whatever.” He was, in fact, eager to sell everything, and he pushed that approach. “When you take a close look, you’ll decide you want more than my software,” he told them. “You’ll want to buy the whole company and take all the people.”

  A few weeks later Jobs and his family went to Hawaii for Christmas vacation. Larry Ellison was also there, as he had been the year before. “You know, Larry, I think I’ve found a way for me to get back into Apple and get control of it without you having to buy it,” Jobs said as they walked along the shore. Ellison recalled, “He explained his strategy, which was getting Apple to buy NeXT, then he would go on the board and be one step away from being CEO.” Ellison thought that Jobs was missing a key point. “But Steve, there’s one thing I don’t understand,” he said. “If we don’t buy the company, how can we make any money?” It was a reminder of how different their desires were. Jobs put his hand on Ellison’s left shoulder, pulled him so close that their noses almost touched, and said, “Larry, this is why it’s really important that I’m your friend. You don’t need any more money.”

  Ellison recalled that his own answer was almost a whine: “Well, I may not need the money, but why should some fund manager at Fidelity get the money? Why should someone else get it? Why shouldn’t it be us?”

  “I think if I went back to Apple, and I didn’t own any of Apple, and you didn’t own any of Apple, I’d have the moral high ground,” Jobs replied.

  “Steve, that’s really expensive real estate, this moral high ground,” said Ellison. “Look, Steve, you’re my best friend, and Apple is your company. I’ll do whatever you want.” Although Jobs later said that he was not plotting to take over Apple at the time, Ellison thought it was inevitable. “Anyone who spent more than a half hour with Amelio would realize that he couldn’t do anything but self-destruct,” he later said.

  The big bakeoff between NeXT and Be was held at the Garden Court Hotel in Palo Alto on December 10, in front of Amelio, Hancock, and six other Apple executives. NeXT went first, with Avie Tevanian demonstrating the software while Jobs displayed his hypnotizing salesmanship. They showed how the software could play four video clips on the screen at once, create multimedia, and link to the Internet. “Steve’s sales pitch on the NeXT operating system was dazzling,” according to Amelio. “He praised the virtues and strengths as though he were describing a performance of Olivier as Macbeth.”

  Gassée came in afterward, but he acted as if he had the deal in his hand. He provided no new presentation. He simply said that the Apple team knew the capabilities of the Be OS and asked if they had any further questions. It was a short session. While Gassée was presenting, Jobs and Tevanian walked the streets of Palo Alto. After a while they bumped into one of the Apple executives who had been at the meetings. “You’re going to win this,” he told them.

  Tevanian later said that this was no surprise: “We had better technology, we had a solution that was complete, and we had Steve.” Amelio knew that bringing Jobs back into the fold would be a double-edged sword, but the same was true of bringing Gassée back. Larry Tesler, one of the Macintosh veterans from the old days, recommended to Amelio that he choose NeXT, but added, “Whatever company you choose, you’ll get someone who will take your job away, Steve or Jean-Louis.”

  Amelio opted for Jobs. He called Jobs to say that he planned to propose to the Apple board that he be authorized to negotiate a purchase of NeXT. Would he like to be at the meeting? Jobs said he would. When he walked in, there was an emotional moment when he saw Mike Markkula. They had not spoken since Markkula, once his mentor and father figure, had sided with Sculley there back in 1985. Jobs walked over and shook his hand.

  Jobs invited Amelio to come to his house in Palo Alto so they could negotiate in a friendly setting. When Amelio arrived in his classic 1973 Mercedes, Jobs was impressed; he liked the car. In the kitchen, which had finally been renovated, Jobs put a kettle on for tea, and then they sat at the wooden table in front of the open-hearth pizza oven. The financial part of the negotiations went smoothly; Jobs was eager not to make Gassée’s mistake of overreaching. He suggested that Apple pay $12 a share for NeXT. That would amount to about $500 million. Amelio said that was too high. He countered with $10 a share, or just over $400 million. Unlike Be, NeXT had an actual product, real revenues, and a great team, but Jobs was nevertheless pleasantly surprised at that counteroffer. He accepted immediately.

  One sticking point was that Jobs wanted his payout to be in cash. Amelio insisted that he needed to “have skin in the game” and take the payout in stock that he would agree to hold for at least a year. Jobs resisted. Finally, they compromised: Jobs would take $120 million in cash and $37 million in stock, and he pledged to hold the stock for at least six months.

  As usual Jobs wanted to have some of their conversation while taking a walk. While they ambled around Palo Alto, he made a pitch to be put on Apple’s board. Amelio tried to deflect it, saying there was too much history to do something like that too quickly. “Gil, that really hurts,” Jobs said. “This was my company. I’ve been left out since that horrible day with Sculley.” Amelio said he understood, but he was not sure what the board would want. When he was about to begin his negotiations with Jobs, he had made a mental note to “move ahead with logic as my drill sergeant” and “sidestep the charisma.” But during the walk he, like so many others, was caught in Jobs’s force field. “I was hooked in by Steve’s energy and enthusiasm,” he recalled.

  After circling the long blocks a couple of times, they returned to the house just as Laurene and the kids were arriving home. They all celebrated the easy negotiations, then Amelio rode off in his Mercedes. “He made me feel like a lifelong friend,” Amelio recalled. Jobs indeed had a way of doing that. Later, after Jobs had engineered his ouster, Amelio would look back on Jobs’s friendliness that day and note wistfully, “As I would painfully discover, it was merely one facet of an extremely complex personality.”

  After informing Gassée that Apple was buying NeXT, Amelio had what turned out to be an even more uncomfortable task: telling Bill Gates. “He went into orbit,” Amelio recalled. Gates found it ridiculous, but perhaps not surprising, that Jobs had pulled off this coup. “Do you really think Steve Jobs has anything there?” Gates asked Amelio. “I know his technology, it’s nothing but a warmed-over UNIX, and you’ll never be able to make it work on your machines.” Gates, like Jobs, had a way of working himself up, and he did so now: “Don’t you understand that Steve doesn’t know anything about technology? He’s just a super salesman. I can’t believe you’re making such a stupid decision. . . . He doesn’t know anything about engineering, and 99% of what he says and thinks is wrong. What the hell are you buying that garbage for?”

  Years
later, when I raised it with him, Gates did not recall being that upset. The purchase of NeXT, he argued, did not really give Apple a new operating system. “Amelio paid a lot for NeXT, and let’s be frank, the NeXT OS was never really used.” Instead the purchase ended up bringing in Avie Tevanian, who could help the existing Apple operating system evolve so that it eventually incorporated the kernel of the NeXT technology. Gates knew that the deal was destined to bring Jobs back to power. “But that was a twist of fate,” he said. “What they ended up buying was a guy who most people would not have predicted would be a great CEO, because he didn’t have much experience at it, but he was a brilliant guy with great design taste and great engineering taste. He suppressed his craziness enough to get himself appointed interim CEO.”

  Despite what both Ellison and Gates believed, Jobs had deeply conflicted feelings about whether he wanted to return to an active role at Apple, at least while Amelio was there. A few days before the NeXT purchase was due to be announced, Amelio asked Jobs to rejoin Apple full-time and take charge of operating system development. Jobs, however, kept deflecting Amelio’s request.

  Finally, on the day that he was scheduled to make the big announcement, Amelio called Jobs in. He needed an answer. “Steve, do you just want to take your money and leave?” Amelio asked. “It’s okay if that’s what you want.” Jobs did not answer; he just stared. “Do you want to be on the payroll? An advisor?” Again Jobs stayed silent. Amelio went out and grabbed Jobs’s lawyer, Larry Sonsini, and asked what he thought Jobs wanted. “Beats me,” Sonsini said. So Amelio went back behind closed doors with Jobs and gave it one more try. “Steve, what’s on your mind? What are you feeling? Please, I need a decision now.”

  “I didn’t get any sleep last night,” Jobs replied.

  “Why? What’s the problem?”

  “I was thinking about all the things that need to be done and about the deal we’re making, and it’s all running together for me. I’m really tired now and not thinking clearly. I just don’t want to be asked any more questions.”