Apple’s Trillion-Dollar Ascent

Article By : Peter Burrows

Peter Burrows delivers a comprehensive look back at the actions that brought Apple to the trillion dollar mark

On a cross-Atlantic flight in 2008, I happened to sit down next to Kirk Kirkpatrick, a tech executive who’d worked for Apple early in his career. After hours of enlightening me on everything from the history of Yemen to the philosophy of Spinoza — turns out Kirk is a member of the Triple Nine Society, an organization for smart people that is 20 times more exclusive than Mensa — the conversation turned to Apple. With sales of its new iPhone soaring, I threw out what was then a preposterous question: Would Apple — then valued at less than $150 billion — be the first company to reach a $1 trillion market cap? “Yes, definitely,” said Kirk, without a hint of doubt.

His reasoning went thus: The world was only starting to go digital, so there was unlimited runway for growth. And Apple was the only big company truly devoted to making products that everyone from Apple’s geekiest engineers to the least geeky grandma would covet. It was also the only company with a software platform to tie those products together into one safe, simple, pleasant ecosystem. And this was just as important: Who was going to stop Apple from running the table with the world’s biggest-spending, most profitable customers? Beige-box makers like HP and Dell? Dysfunctional conglomerates like Sony? Fat and happy Microsoft? Hardly.

Obviously, Kirk’s prediction came true. As of this writing, Apple is worth $1.04 trillion.

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Having had a front-row seat for what is surely the most ridiculous comeback in business history — I began covering the company when it couldn’t find a buyer willing to spend even $10 billion — I’d add two more key reasons for its success.

First, Steve Jobs is the only person who figured out how to run a massive industrial giant while retaining the focus, culture, and urgency of a startup. And during the Jobs years, at least, Apple had a healthy disdain for Wall Street. Every executive says some version of “I don’t think about the stock price. If we do things the right way, it will take care of itself.” Jobs was a tyrant about getting products out in time for Apple’s next big “Steve-note” but seemed undisturbed about missing quarterly estimates. I remember asking him once if he was concerned that some semi-important decision (I think it had to do with whether Apple should allow people to unlock their iPhones) might cause the stock to go down. “Screw the shareholders,” he said.

I’m not normally a fan of the Great Man Theory of history, but it’s pretty hard to refute in Apple’s case. When I was handed the Apple beat in 1995, it had all the signs of a dying company. Losses were racking up. Even loyal customers, afraid the Mac would become obsolete, were moving to Windows 95. Morale was in the tank, and talent was leaving in droves. Put another way, it was a young reporter’s dream — a marquee company stuck in a macabre corporate drama with plenty of chatty sources willing to dish, from recently departed executives to disillusioned employees to board members trying in vain to stem the negative news flow.

From NeXT to Apple
All of that came to a halt on Dec. 20, 1996, the night that Apple hastily called a press conference to announce its purchase of Jobs’ NeXT Software. Jobs was only an advisor at first, but the leaks quickly fell to a trickle.

Apple's logo in the '90s

Apple’s logo in the ’90s

Within days, CEO Gil Amelio had begun implementing Jobs’ scorched-earth cost-cutting campaign that would wipe out 70% of Apple’s products, not to mention the company’s central R&D organization, the company-funded daycare center, and the generous sabbatical program. It was ruthless, but Jobs correctly understood that many of Apple’s best employees were willing to put up with anything — including Jobs — if it would make Apple the pioneering, put-a-dent-in-the-universe kind of company that it had been in the 1980s.

(Jobs himself wasn’t convinced that the company was fixable at first. I had the sense that after a decade of being treated as a washed-up has-been around Silicon Valley, he wasn’t willing to risk the fame that he’d just regained via the success of his other company, Pixar, whose debut blockbuster, Toy Story, had made him a billionaire. Indeed, Jobs didn’t agree to become permanent CEO of Apple again until 2000, when the company was growing again for the first time in years.)

Most Apple histories then jump to Jobs’ landmark deal with arch-rival Bill Gates the following August. But looking back at my clips, I think that the more important announcement came that November, when Jobs announced that Apple would begin selling directly over the internet rather than through its unwieldy distribution networks. In shockingly short order, Apple would go from being the most inefficient PC maker to the most efficient by far. I remember being impressed when Apple let me talk to the recent hire from Compaq who’d pulled that off. Tim something or other.

Tim Cook

Tim Cook

Going back in my file, I found an interview that I did with Tim Cook in 2000. He said that when he joined in 1998, Apple sold only 5% of orders the same day they were made. By 2000, that number exceeded 75%. Inventory went from more than 30 days to less than 10. Cook told me then, “The way Steve loves products, I love supply chain. It’s rocket science! I love it!”

It was an important clue to Apple’s future success that it wanted to be a leader in both innovation and in efficiency.

Conventional wisdom in those days was that companies should focus on developing a single strategic advantage — say, Dell’s mail-order efficiency or Silicon Graphics’ cutting-edge technology. Based on what he would require of his leadership team, it’s clear that he expected more. Long-time NeXT employees such as hardware wonk Jon Rubinstein and OS expert Avie Tevanian would make Apple the leader in those areas. Eddy Cue, a former customer service manager plucked from deep within Apple’s org chart, would lead development of that first e-commerce site and, later, the iTunes Store and App Store.

Jony Ive

Jony Ive

After trying to recruit a world-famous product designer, Jobs decided to stick with mild-mannered Jony Ive after seeing his early mockups of what would become the iMac. That product pretty much saved Apple by slowing the continuing market share losses, and Ive’s design team went on to become maybe Apple’s most matchless advantage.

Overgrown startup
Yet Jobs ran the company — or at least anything to do with product development and marketing — like an overgrown startup. He set himself up as the gatekeeper on almost all decisions, most of which were made at a Monday afternoon all-hands meeting. I never heard anyone complain about his slowing down the works unless it was to demand that a product be improved or even thrown back to the drawing board.

In critical areas, he was remarkably hands-on. In those early years, when he still needed the press’s help to change the zeitgeist around Apple, he was more involved in working with me on big stories than were his PR people. It got to the point that my wife would groan when the phone rang at 10 p.m. “Hi, it’s Steve,” I’d hear, and he’d answer any questions that I had from the day’s reporting. To his credit, he never seemed interested in brain-dead paeans to Apple’s greatness. He wanted smart articles that told the real story — because the real story was good and getting better.

The guts of the success, of course, were products — beautifully designed, perfectly timed devices that leveraged some new technology to turn a nascent market niche into a massive consumer market. With the iPod, it was the click-wheel and a 1.8-inch drive from Toshiba (Apple bought up exclusive rights, wiping out any chance of a quick response from copycats).

That script would be repeated time and again with the iPhone, the iPad, the Apple Watch, and, most recently, AirPods. While Apple earned its success, it also owes its competitors a thank you. Only the absence of a truly worthy opponent (with the possible exception of Samsung with its Android phones) made it possible for Apple to execute its hit-making strategy so deliberately.

In other areas, Jobs was a stone-cold management gangsta. When the company announced plans to launch its own retail chain in 2001, Dell was cleaning up with its direct sales approach while Gateway’s experiment in retail was beginning to bomb. I even edited a now infamous story for Businessweek entitled “Sorry, Steve, Here’s Why Stores Won’t Work.” Ugh.

A year later, he waltzed into the music industry and convinced record label heads who loved selling $17 albums that it was far better to sell songs for a paltry 99 cents than to continue sitting back as fans downloaded their tunes from piracy sites like Napster. Jobs knew that he had fear on his side. Moreover, he was a content owner, given his other role as CEO of Pixar. While he very well may have saved the recording industry, the move set the stage for the iPod empire that begat the far larger iPhone empire.

So many other companies fall victim to the innovator’s dilemma, but Apple never hesitated to trade short-term profits for long-term health.

What kind of company kills off its best-selling product to make way for a slightly better version, as Apple did when it killed the 20-month-old iPod Mini to make way for the iPod Nano? Or routinely strips out standard product features, fully aware of the initial fury that it would unleash from customers? Apple did this when it left the floppy drive out of the first iMac, the keyboard off of the first iPad, and the phone jack off of recent iPhones? (I thought that they’d gone too far with that last one. Now I think I see a whole lot of people walking around with those goofy-looking wireless AirPods in their ears).

“At its core, Apple really wants to do right for the customer,” says Loup Ventures managing director Gene Munster, a long-time Apple analyst. “They realize near-term irritation is going to make people happier in the long term.”

Far from perfect
Of course, Apple is far from perfect. Even after two decades of trying, the company still isn’t very good at creating end-user software. Its Maps and iCloud offerings haven’t slowed down Google’s Waze or Dropbox, and many experts consider Siri a laggard versus Google and Amazon’s Alexa.

Apple’s comeback may be the greatest comeback ever, but it never seemed a particularly joyous one. I always felt that working for or with Apple was like a Rorschach test.

Either you were (understandably) not interested in taking the abuse that it entailed or you found working with such a unique company worth the pain. And it was painful for many. While Jobs was never obnoxiously rude to me personally, he was ruthlessly self-interested. He’d think nothing of cancelling an interview if he didn’t like something that I’d written that morning. And while Apple made thousands of suppliers and partners successful, it had no compunction about pulling a contract from a small public company.

Apple’s handling of the options-backdating scandal in 2007 may have been the clearest glimpse into Apple’s amoral underbelly.

Like many other tech companies, Apple had illegally failed to report that it had changed the grant date for some employee stock options so they could be granted on a day that the stock was selling at a lower price, a maneuver that inflated their upside potential. Dozens of tech executives lost their jobs for using this as a recruiting tool. Not only had Jobs known about thousands of such employee grants, but he had received a massive grant on 7.5 million shares that were egregiously backdated. (He didn’t technically benefit from the backdating because Apple let him trade in the options — worthless due to the fall of Apple’s stock in the net bust of 2001 — for $75 million in stock. But if he’d kept them, he’d have made many billions more.) Yet Apple claimed that he was not guilty of any misconduct and pinned the blame on two former executives.

If Apple’s karma isn’t spotless, it’s never paid much of a price for its sins.

Steve Jobs in 2010

Steve Jobs in 2010

Of course, Jobs tragically died of pancreatic cancer in October 2011, but even his loss happened at a fortuitous time. “There’s never a right time for something like this, but Cook was the perfect guy to take the reins,” said Munster. It’s hard to believe now, but Apple’s market cap at the time was just $316 billion. Besides being a more diplomatic frontman, Cook was well-suited to oversee the harvesting of hundreds of billions of dollars of demand with new, improved versions of the iPhone and iPad.

Now, the company has enough cash to attempt whatever moonshot projects it can dream up. And even if it never comes out with another iPhone-scale megahit, it’s well-positioned to milk the 1.3 billion people composing its installed base via services, such as taking its cut on sales of music, apps, and on transactions made with Apple Pay. “We tell people they should own the stock just based on the massive amount of cash they’re going to generate every year — and I don’t think they’re done innovating,” said Munster.

So much for screwing the shareholders.

Peter Burrows

Peter Burrows has covered Silicon Valley for 25 years for publications including Businessweek, Bloomberg News, and MIT Technology Review. He wrote “Backfire: Carly Fiorina’s High-Stakes Battle for the Soul of Hewlett-Packard” in 2003.

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