From iTunes to the iPod







The original iPod, 2001



Connecting the Dots

Once a year Jobs took his most valuable employees on a retreat, which he called “The Top 100.” They were picked based on a simple guideline: the people you would bring if you could take only a hundred people with you on a lifeboat to your next company. At the end of each retreat, Jobs would stand in front of a whiteboard (he loved whiteboards because they gave him complete control of a situation and they engendered focus) and ask, “What are the ten things we should be doing next?” People would fight to get their suggestions on the list. Jobs would write them down, and then cross off the ones he decreed dumb. After much jockeying, the group would come up with a list of ten. Then Jobs would slash the bottom seven and announce, “We can only do three.”

By 2001 Apple had revived its personal computer offerings. It was now time to think different. A set of new possibilities topped the what-next list on his whiteboard that year.

At the time, a pall had descended on the digital realm. The dot-com bubble had burst, and the NASDAQ had fallen more than 50% from its peak. Only three tech companies had ads during the January 2001 Super Bowl, compared to seventeen the year before. But the sense of deflation went deeper. For the twenty-five years since Jobs and Wozniak had founded Apple, the personal computer had been the centerpiece of the digital revolution. Now experts were predicting that its central role was ending. It had “matured into something boring,” wrote the Wall Street Journal’s Walt Mossberg. Jeff Weitzen, the CEO of Gateway, proclaimed, “We’re clearly migrating away from the PC as the centerpiece.”

It was at that moment that Jobs launched a new grand strategy that would transform Apple—and with it the entire technology industry. The personal computer, instead of edging toward the sidelines, would become a “digital hub” that coordinated a variety of devices, from music players to video recorders to cameras. You’d link and sync all these devices with your computer, and it would manage your music, pictures, video, text, and all aspects of what Jobs dubbed your “digital lifestyle.” Apple would no longer be just a computer company—indeed it would drop that word from its name—but the Macintosh would be reinvigorated by becoming the hub for an astounding array of new gadgets, including the iPod and iPhone and iPad.

When he was turning thirty, Jobs had used a metaphor about record albums. He was musing about why folks over thirty develop rigid thought patterns and tend to be less innovative. “People get stuck in those patterns, just like grooves in a record, and they never get out of them,” he said. At age forty-five, Jobs was now about to get out of his groove.

FireWire

Jobs’s vision that your computer could become your digital hub went back to a technology called FireWire, which Apple developed in the early 1990s. It was a high-speed serial port that moved digital files such as video from one device to another. Japanese camcorder makers adopted it, and Jobs decided to include it on the updated versions of the iMac that came out in October 1999. He began to see that FireWire could be part of a system that moved video from cameras onto a computer, where it could be edited and distributed.

To make this work, the iMac needed to have great video editing software. So Jobs went to his old friends at Adobe, the digital graphics company, and asked them to make a new Mac version of Adobe Premiere, which was popular on Windows computers. Adobe’s executives stunned Jobs by flatly turning him down. The Macintosh, they said, had too few users to make it worthwhile. Jobs was furious and felt betrayed. “I put Adobe on the map, and they screwed me,” he later claimed. Adobe made matters even worse when it also didn’t write its other popular programs, such as Photoshop, for the Mac OSX, even though the Macintosh was popular among designers and other creative people who used those applications.

Jobs never forgave Adobe, and a decade later he got into a public war with the company by not permitting Adobe Flash to run on the iPad. He took away a valuable lesson that reinforced his desire for end-to-end control of all key elements of a system: “My primary insight when we were screwed by Adobe in 1999 was that we shouldn’t get into any business where we didn’t control both the hardware and the software, otherwise we’d get our head handed to us.”

So starting in 1999 Apple began to produce application software for the Mac, with a focus on people at the intersection of art and technology. These included Final Cut Pro, for editing digital video; iMovie, which was a simpler consumer version; iDVD, for burning video or music onto a disc; iPhoto, to compete with Adobe Photoshop; GarageBand, for creating and mixing music; iTunes, for managing your songs; and the iTunes Store, for buying songs.

The idea of the digital hub quickly came into focus. “I first understood this with the camcorder,” Jobs said. “Using iMovie makes your camcorder ten times more valuable.” Instead of having hundreds of hours of raw footage you would never really sit through, you could edit it on your computer, make elegant dissolves, add music, and roll credits, listing yourself as executive producer. It allowed people to be creative, to express themselves, to make something emotional. “That’s when it hit me that the personal computer was going to morph into something else.”

Jobs had another insight: If the computer served as the hub, it would allow the portable devices to become simpler. A lot of the functions that the devices tried to do, such as editing the video or pictures, they did poorly because they had small screens and could not easily accommodate menus filled with lots of functions. Computers could handle that more easily.

And one more thing . . . What Jobs also saw was that this worked best when everything—the device, computer, software, applications, FireWire—was all tightly integrated. “I became even more of a believer in providing end-to-end solutions,” he recalled.

The beauty of this realization was that there was only one company that was well-positioned to provide such an integrated approach. Microsoft wrote software, Dell and Compaq made hardware, Sony produced a lot of digital devices, Adobe developed a lot of applications. But only Apple did all of these things. “We’re the only company that owns the whole widget—the hardware, the software and the operating system,” he explained to Time. “We can take full responsibility for the user experience. We can do things that the other guys can’t do.”

Apple’s first integrated foray into the digital hub strategy was video. With FireWire, you could get your video onto your Mac, and with iMovie you could edit it into a masterpiece. Then what? You’d want to burn some DVDs so you and your friends could watch it on a TV. “So we spent a lot of time working with the drive manufacturers to get a consumer drive that could burn a DVD,” he said. “We were the first to ever ship that.” As usual Jobs focused on making the product as simple as possible for the user, and this was the key to its success. Mike Evangelist, who worked at Apple on software design, recalled demonstrating to Jobs an early version of the interface. After looking at a bunch of screenshots, Jobs jumped up, grabbed a marker, and drew a simple rectangle on a whiteboard. “Here’s the new application,” he said. “It’s got one window. You drag your video into the window. Then you click the button that says ‘Burn.’ That’s it. That’s what we’re going to make.” Evangelist was dumbfounded, but it led to the simplicity of what became iDVD. Jobs even helped design the “Burn” button icon.

Jobs knew digital photography was also about to explode, so Apple developed ways to make the computer the hub of your photos. But for the first year at least, he took his eye off one really big opportunity. HP and a few others were producing a drive that burned music CDs, but Jobs decreed that Apple should focus on video rather than music. In addition, his angry insistence that the iMac get rid of its tray disk drive and use instead a more elegant slot drive meant that it could not include the first CD burners, which were initially made for the tray format. “We kind of missed the boat on that,” he recalled. “So we needed to catch up real fast.”

The mark of an innovative company is not only that it comes up with new ideas first, but also that it knows how to leapfrog when it finds itself behind.

iTunes

It didn’t take Jobs long to realize that music was going to be huge. By 2000 people were ripping music onto their computers from CDs, or downloading it from file-sharing services such as Napster, and burning playlists onto their own blank disks. That year the number of blank CDs sold in the United States was 320 million. There were only 281 million people in the country. That meant some people were really into burning CDs, and Apple wasn’t catering to them. “I felt like a dope,” he told Fortune. “I thought we had missed it. We had to work hard to catch up.”

Jobs added a CD burner to the iMac, but that wasn’t enough. His goal was to make it simple to transfer music from a CD, manage it on your computer, and then burn playlists. Other companies were already making music-management applications, but they were clunky and complex. One of Jobs’s talents was spotting markets that were filled with second-rate products. He looked at the music apps that were available—including Real Jukebox, Windows Media Player, and one that HP was including with its CD burner—and came to a conclusion: “They were so complicated that only a genius could figure out half of their features.”

That is when Bill Kincaid came in. A former Apple software engineer, he was driving to a track in Willows, California, to race his Formula Ford sports car while (a bit incongruously) listening to National Public Radio. He heard a report about a portable music player called the Rio that played a digital song format called MP3. He perked up when the reporter said something like, “Don’t get excited, Mac users, because it won’t work with Macs.” Kincaid said to himself, “Ha! I can fix that!”

To help him write a Rio manager for the Mac, he called his friends Jeff Robbin and Dave Heller, also former Apple software engineers. Their product, known as SoundJam, offered Mac users an interface for the Rio and software for managing the songs on their computer. In July 2000, when Jobs was pushing his team to come up with music-management software, Apple swooped in and bought SoundJam, bringing its founders back into the Apple fold. (All three stayed with the company, and Robbin continued to run the music software development team for the next decade. Jobs considered Robbin so valuable he once allowed a Time reporter to meet him only after extracting the promise that the reporter would not print his last name.)

Jobs personally worked with them to transform SoundJam into an Apple product. It was laden with all sorts of features, and consequently a lot of complex screens. Jobs pushed them to make it simpler and more fun. Instead of an interface that made you specify whether you were searching for an artist, song, or album, Jobs insisted on a simple box where you could type in anything you wanted. From iMovie the team adopted the sleek brushed-metal look and also a name. They dubbed it iTunes.

Jobs unveiled iTunes at the January 2001 Macworld as part of the digital hub strategy. It would be free to all Mac users, he announced. “Join the music revolution with iTunes, and make your music devices ten times more valuable,” he concluded to great applause. As his advertising slogan would later put it: Rip. Mix. Burn.

That afternoon Jobs happened to be meeting with John Markoff of the New York Times. The interview was going badly, but at the end Jobs sat down at his Mac and showed off iTunes. “It reminds me of my youth,” he said as the psychedelic patterns danced on the screen. That led him to reminisce about dropping acid. Taking LSD was one of the two or three most important things he’d done in his life, Jobs told Markoff. People who had never taken acid would never fully understand him.

The iPod

The next step for the digital hub strategy was to make a portable music player. Jobs realized that Apple had the opportunity to design such a device in tandem with the iTunes software, allowing it to be simpler. Complex tasks could be handled on the computer, easy ones on the device. Thus was born the iPod, the device that would begin the transformation of Apple from being a computer maker into being the world’s most valuable company.

Jobs had a special passion for the project because he loved music. The music players that were already on the market, he told his colleagues, “truly sucked.” Phil Schiller, Jon Rubinstein, and the rest of the team agreed. As they were building iTunes, they spent time with the Rio and other players while merrily trashing them. “We would sit around and say, ‘These things really stink,’” Schiller recalled. “They held about sixteen songs, and you couldn’t figure out how to use them.”

Jobs began pushing for a portable music player in the fall of 2000, but Rubinstein responded that the necessary components were not available yet. He asked Jobs to wait. After a few months Rubinstein was able to score a suitable small LCD screen and rechargeable lithium-polymer battery. The tougher challenge was finding a disk drive that was small enough but had ample memory to make a great music player. Then, in February 2001, he took one of his regular trips to Japan to visit Apple’s suppliers.

At the end of a routine meeting with Toshiba, the engineers mentioned a new product they had in the lab that would be ready by that June. It was a tiny, 1.8-inch drive (the size of a silver dollar) that would hold five gigabytes of storage (about a thousand songs), and they were not sure what to do with it. When the Toshiba engineers showed it to Rubinstein, he knew immediately what it could be used for. A thousand songs in his pocket! Perfect. But he kept a poker face. Jobs was also in Japan, giving the keynote speech at the Tokyo Macworld conference. They met that night at the Hotel Okura, where Jobs was staying. “I know how to do it now,” Rubinstein told him. “All I need is a $10 million check.” Jobs immediately authorized it. So Rubinstein started negotiating with Toshiba to have exclusive rights to every one of the disks it could make, and he began to look around for someone who could lead the development team.

Tony Fadell was a brash entrepreneurial programmer with a cyberpunk look and an engaging smile who had started three companies while still at the University of Michigan. He had gone to work at the handheld device maker General Magic (where he met Apple refugees Andy Hertzfeld and Bill Atkinson), and then spent some awkward time at Philips Electronics, where he bucked the staid culture with his short bleached hair and rebellious style. He had come up with some ideas for creating a better digital music player, which he had shopped around unsuccessfully to RealNetworks, Sony, and Philips. One day he was in Colorado, skiing with an uncle, and his cell phone rang while he was riding on the chairlift. It was Rubinstein, who told him that Apple was looking for someone who could work on a “small electronic device.” Fadell, not lacking in confidence, boasted that he was a wizard at making such devices. Rubinstein invited him to Cupertino.

Fadell assumed that he was being hired to work on a personal digital assistant, some successor to the Newton. But when he met with Rubinstein, the topic quickly turned to iTunes, which had been out for three months. “We’ve been trying to hook up the existing MP3 players to iTunes and they’ve been horrible, absolutely horrible,” Rubinstein told him. “We think we should make our own version.”

Fadell was thrilled. “I was passionate about music. I was trying to do some of that at RealNetworks, and I was pitching an MP3 player to Palm.” He agreed to come aboard, at least as a consultant. After a few weeks Rubinstein insisted that if he was to lead the team, he had to become a full-time Apple employee. But Fadell resisted; he liked his freedom. Rubinstein was furious at what he considered Fadell’s whining. “This is one of those life decisions,” he told Fadell. “You’ll never regret it.”

He decided to force Fadell’s hand. He gathered a roomful of the twenty or so people who had been assigned to the project. When Fadell walked in, Rubinstein told him, “Tony, we’re not doing this project unless you sign on full-time. Are you in or out? You have to decide right now.”

Fadell looked Rubinstein in the............