Silicon Insider:The Core Truth on Apple

B U R L I N G A M E, Calif., Oct. 3, 2000 -- A couple years ago I wrote a fairly massive tome covering the entire history of Apple Computer up to the return of Steve Jobs. There were two things I noticed during the years I spent researching and writing the book.

One was that Apple fanatics were almost entirely devoid of long-term memory — no matter how many times the company exploited their ardor, or hoisted shoddy products on them, or simply ignored them, they would instantly forgive and forget everything once the news out of Cupertino turned positive.

The second was that Apple Computer’s history was not a narrative line, but a series of circles, in which the company repeated the same victories and disasters over and over. Hence the title of the book, named (appropriately after the entrance road to Apple Headquarters), Infinite Loop.

There was a third thing I learned about Apple came after the book was published. It was that Apple true believers — “Macolytes” I called them — will not bear any criticism of their company or its co-founder.

Thus, like Mike Moritz (The Little Kingdom) before me and Alan Deutschman (The Second Coming of Steve Jobs) today, I was accused of everything from being an agent for Bill Gates to being consumed with jealously for my old elementary schoolmate Steve Jobs. It was even suggested that I was enemy of human liberty, having sided with the dark powers of totalitarianism (i.e., Windows)

For that reason, I doubt that anyone who is true Apple fanatic, who has drunk the rainbow Kool-Aid and who thrills at the very words “Think Different,” will believe a word I have to say. But for everyone else, here are the thoughts of someone whose first computer was an Apple III, and who has studied, written about and even worked for, Apple literally since the day it began.

The Bloom is Off the Rose

Let’s start with the announcement last week from Apple that its fourth quarter earnings would be “substantially below” Wall Street estimates — as low as 30 cents per share instead of the predicted 45 cents. Worse, this softening was not geographic, as Intel’s had been in Europe, but everywhere.

September demand from the education market — long Apple’s mainstay — for the iMac was a disappointment, and the new PowerMac G4 cube hasn’t jumped off store shelves the way Apple (and reviewers) predicted.

Worst of all, none of Apple’s big Windows competitors seem to be showing any similar trouble.

The market, as you know, went nuts at the news, slashing the value of Apple’s stock in half, from $53.50 to $29.13, stripping away almost all the gains it had made since Jobs purged Gil Amelio. The stock is still falling as I write.

No doubt this was overreaction, and we can assume that some of those losses will be regained in the days to come. Nevertheless, the bloom is off the rose. The incredible run-up Apple stock has enjoyed since Steve’s return is over, and the sheen of success that had enveloped the company has been tarnished.

When Apple Goes Bad

A temporary setback? Don’t be too sure. Unlike, say, Hewlett-Packard, Apple has always been a company that deals poorly with failure. When things go bad at Apple, they go very bad.

I’ll admit that I was as surprised as anyone by the news. It had taken me a while to come around to trusting again in Apple. Having written about all of Jobs’ many cruelties and sins over the years, I had a hard time believing he’d become Mahatma Gandhi.

And long after my fellow editors were convinced that Apple was about to regain its leadership of the computer world, I was still arguing that the company was not yet on solid ground. Nor was I overwhelmed by the iMac, which struck me as merely Mac Redux, further proof that as a product designer Jobs was a one-trick pony doomed to create the same machine (with the same flaws in ergonomics and memory) over and over again.

Still, it was hard to argue with the rising revenues and skyrocketing stock price, and most of all, with the fact that Jobs had brought excitement back into the dreary, beige box world of personal computing. The exquisite G4 cube was the last straw: I found myself, against all my better instincts, once again seduced by the Apple charm. I could feel the old Homebrew fire kindled in me once more.

Core Truths of Apple

But last week’s news brought me back to reality, drawing away the soft blanket of Apple amnesia that was covering me. I was reminded of all that I knew about Apple. To wit:

Steve Jobs can’t run companies. Jobs has proven that he is a genius at motivating teams of people to produce extraordinary products. In fact, he may be the greatest project team leader in the history of high tech. That is no small achievement.

But it does not translate to being the CEO of a giant corporation. Jobs failed the first time running Apple, failed at Next, and only succeeded at Pixar because the company worked around him. He succeeded in the short term during this, his second Appletenure, because he ran the whole company as a product team. That only works so long.

Why is he a poor CEO? Because he’s mercurial, insufficiently engaged by the more boring (but crucial) operations like distribution, and ultimately, because he’s a pretty nasty piece of work.

In the best of all scenarios, Jobs would hire a competent CEO and focus on product development — but his ego would soon lead him to undermine his replacement. Steve Jobs is Apple’s Alcibiades: the company can’t live without him — or with him.

Apple is a small fish; and the pond is going dry. Like that other great marketer, Jerry Sanders of AMD, Jobs has a genius for making Apple seem more important than it is. Even after all the successes of the last two years, Apple is still where it was during the Spindler era. It is a niche player, with an anomalous operating system, trying to survive in a market dominated by giant corporations like Compaq, Dell and IBM.

Apple gets a lot of attention by being cheeky, stylish, and having a marginally better OS, but it is up against a monolith nine times its size, with all the economies of scale, the distribution, and the marketing reach that comes with such size.

Grandma may love her iMac, as does the ad agency down the street, but corporate America still buys Windows. Now that Apple has upgraded its customer base it has no place to go. And to make matters worse, the rise of PDAs, palmtops, embedded controllers, etc., promises in the next few years to render the PC industry into a backwater business filled with commodity products — hardly the place to be a pricey innovator.

Style ain’t enough. In all the excitement over blueberry iMacs, what went unnoticed was that Steve Jobs and Apple had made a brilliant, but dangerous, bet. Nobody has a better eye for style in technology than Jobs. He showed that 20 years ago with the Apple II, and again a decade later with the Next computer.

But Jobs’ genius, in his Apple restoration, was to realize that his gift perfectly matched the endgame of the PC industry. He would make personal computers cool and stylish again — he would turn them into fashion.

And he did just that, sparking a renaissance in product design throughout American industry. But he who lives by fashion dies by it as well. In making computers into couture, Jobs also made them more ephemeral than they already were. Cool people, Apple’s market, are already bored with the iMac.

Thus, Jobs created an insatiable hunger for novelty that now even Apple, even with its splendid new cube, can’t satiate. In the process, he hastened the entire personal computer industry towards its end.

Can Apple Keep Up?

Apple, of course, isn’t dead yet. I still have a Mac on my office desk. My mother-in-law owns an iMac and my oldest son wants one for Christmas (and he’ll probably get it). Meanwhile, the company is preparing its next generation of computers. No doubt they’ll be great looking.

But with falling profits and plummeting stock, and having hastened the end of the desktop PC era, Steve Jobs has put Apple again in a precarious position. When the end does come, the big companies will have the necessary capital to transition into the multitude of new industries that will evolve out of the PC. The products of these new markets will be, thanks to Apple, stylish and beautiful.

What an irony it will be if Apple, cranking out ever — less profitable commodity iMacs, its stock depressed, cannot afford to follow.

Michael S. Malone, once called “the Boswell of Silicon Valley,” is editor of Forbes ASAP magazine. His work as the nation’s first daily high-tech reporter at the San Jose Mercury-News sparked the writing of his critically acclaimed The Big Score: The Billion Dollar Story of Silicon Valley, which went on to become a public TV series. He has written several other highly praised business books and a novel about Silicon Valley, where he was raised. For more, go to Forbes.com. And you can talk back to Silicon Insider via e-mail or through an ongoing bulletin board.