Indeed, when Apple first released OS X in September 2000, the company called it a “public beta” version, implying that it was a work in progress. The price was $29.95—about a fifth of what was typically charged for a significant operating system upgrade. It was shrewd marketing, because it implied that early adopters would effectively be putting OS X through a shakedown cruise, and thus some bugs and glitches were to be expected. It also gave Apple a test period during which it could work out how to manage those online software upgrades. And during that period Avie’s team used the Internet to provide numerous updates that improved the software. This way of maintaining and fixing software would quickly become the industry norm. It also transformed customers’ expectations: no longer would they be willing to wait months for their software providers to fix a problem.
Given the breathing room that the success of the iMac had bought them, the UNIX core upon which they built their system, and their own coding expertise, Avie and his programmers had been able to shoot for the moon. So when OS X was finally ready to go, it could make the Mac do things no PC had ever been able to do. Users reveled in the obvious cosmetic improvements, like the ability to have video continue to play even as you used a mouse to move a window around the screen. And OS X was truly beautiful to behold, creating a screen with the illusion of three dimensions, where windows appeared to cast shadows on the layers of objects “behind” them. It still ran most old Mac programs, especially when their makers made a few slight modifications that could be downloaded and installed easily. But underneath it all was Unix, the core operating system that geeks love to tweak.
With OS X, then, Apple finally had a genuinely industrial-strength computing framework. Macs crashed far less than Wintel PCs. A single haywire program wouldn’t take down the whole system. The machines seemed almost immune to software viruses. And its basic file system was easy to navigate and gave users the choice of three different ways to view and locate files in a list format. Under the hood, OS X was the state-of-the-art software foundation for everything Steve would want to create in the years ahead.
AS RUBY SAID, the mission had been to save Apple. And in early 2000, it seemed by just about every measure available, that Steve and the team had accomplished that goal. They had rebuilt and revived the company’s suite of computers. They were starting to provide users with a solid and modern software foundation. Morale was high, and a sense of mission had been restored. Most important, Steve had visibly changed for the better as a leader and as a manager. Over the three and a half years since his return, he had come to recognize that taking this more incremental approach to computer development can result in the kind of equilibrium that allows you to build a business designed to thrive over the long haul.
Or so it seemed. In September 2000, Apple posted a dismal earnings report. Despite all these new products and fresh technology, the company’s sales continued to shrink. The stock price tumbled, falling from $63 in early September to $15 by the end of the year. Meager sales of the Cube were just the most obvious disappointment, but sales were stagnant across the board. It was beginning to look as if Steve had pushed the technology of personal computing just about as far as it could go. He had righted the ship, patched up Amelio’s holes, and gotten everyone rowing in the right direction. Apple was profitable again. But to complete Apple’s turnaround he would have to get back to the business of creating new kinds of products, the kind that puncture the equilibrium of an industry and create new business opportunities. Yet now, at the end of fiscal year 2000, Apple’s quarterly sales were less than when he’d arrived. And most of the gains shareholders had enjoyed since he returned had evaporated. As the headline of one of my Fortune stories put it, he was the graying prince of a shrinking kingdom. Something would have to change.
Chapter 10
Following Your Nose
It was Bill Gates who first mapped out the future of Apple. He did so on January 5, 2000, at the Consumer Electronics Show in Las Vegas, Nevada. Of course, he’d intended to lay out a game plan for Microsoft, not Apple. But that’s not the way things worked out.
CES was an up-and-coming trade show back then. For years it had been the gathering point for people making everything from car speakers to stereo systems to televisions, from electronic football games that beeped as you pushed the buttons to video cameras to home security systems. The arrival of computer companies transformed the event, and within a few years it would become the largest digital technology exposition of them all, drawing audiences upwards of 150,000 and all but paralyzing Sin City for a week each January. Apple didn’t attend CES. Steve preferred to announce his products in an environment he controlled.
Microsoft didn’t control CES, but it certainly overshadowed everyone else. Chairman Gates, who relinquished his CEO title to Steve Ballmer in 2000, gave the keynote speech eight years running. Gates was a natural choice as the show’s semipermanent celebrity speaker, and he used the dais as a bully pulpit. In 2000, Microsoft really was the computer industry. Some 90 percent of the world’s personal computers ran its Windows operating system. Its software managed not only desktop and laptop PCs but also the servers that stored and organized the data of the world’s biggest corporations, and that undergirded the information technology of most governmental bureaucracies. Inside ATMs and cash registers, at airline check-in counters, and on the decks of aircraft carriers, Microsoft software made the world’s most sophisticated technologies hum. If the consumer electronics universe was about to be thrown into turmoil, who better to hear from than the leader of the industry doing the disrupting?
That evening, Gates spoke to a standing-room-only crowd of more than three thousand people at the Las Vegas Hilton Theater, where he revealed how Microsoft would “usher in the ‘consumer-electronics-plus’ era.” PCs running the Windows operating system would become the central component of “home media centers” that would harness the Internet and interact with consumer devices and even household appliances, all loaded with Microsoft software. This would be a bonanza for consumers, he explained, because they would now get “personalized, convenient access to their favorite music, news, entertainment, family photos and email through an array of consumer electronics, including televisions, telephones, home and car stereos, and Pocket PCs.”
The speech was a forecast, a warning, and a blueprint. Gates posited a vision of what the home would look like after the realization and interweaving of a set of trends. There would be much more connectivity among devices, access to a new range of digital content and programming via the Internet, newly interactive video games played at home, and gizmos with responsive screens and software smarts to replace mere electronic gadgets with push buttons. This is what we are going to do to your world, Gates was telling the manufacturers of consumer electronics. It is coming whether you like it or not, because this is what digital technology does to an industry. So get on board, you old-timers tinkering with microwave ovens and car stereos and televisions and headphones. Here’s how you can fit in to your own future, which actually belongs to us!
Such was Microsoft’s power, at that moment, as the unquestioned ruler of the empire of computing. The company had so thoroughly infiltrated and then controlled every aspect of the world’s defining digital technology that it seemed obvious to most everyone attending CES that if this was the future Microsoft wanted, this was the future. The obvious implication that Gates left unsaid was that this would be an enormous bonanza for Microsoft, which, by establishing the specifications that all kinds of hardware manufacturers would need to follow, would ensure its own dominance in the next brave new world.