In September 1997, Steve Jobsthe mastermind of the Apple I, the Apple II, and the

Macintosh became Apples interim CEO after 12 years in exile. Jobs immediately
recruited a new board of directors, including his personal friend Larry Ellison, the
CEO of Oracle, and Jerry York, the former CFO of IBM. For Apple to survive into the
next millennium, Jobs knew that he would have to take a new approach. Jobss first
task was to figure out a strategy that would reposition Apple in the evolving
personal computer industry. The PC industry had changed dramatically since Jobs
left Apple in 1985. All of the old formulas followed by his predecessors had
underestimated the intensity and rapidity of change in the industry. Jobs did not
intend to make the same mistakes.
After returning as Apples leader, Steve Jobs moved quickly to shake things up. On
August 6, 1997, he announced that Microsoft had agreed to invest $150 million in
its longtime rival and confirmed its commitment to developing core products, such
as Office, for the Mac through August 2002. While the Apple faithful booed and
hissed, the news sent Apples stock to a 52-week high, and Apples board soon
signaled its faith in Jobs by deferring the search for a permanent CEO.
Macs Jobs, who had long opposed cloning, abruptly brought the Macintosh licensing
program to an end. Since the announcement of the first licensing agreement, clones
had reached 20% of Macintosh unit sales, while the value of the Mac market had
fallen 11%. Convinced that clones were cannibalizing Apples installed base, Jobs
refused to license Apples latest OS to the major clone manufacturers. In addition,
Apple spent $110 million to acquire the assets of leading cloner Power Computing,
including its license for the Mac OS. Jobs also strengthened and consolidated
Apples product range, reducing the number of lines from 15 to three. In November
1997, Apple introduced the G3 Power Macs, a series of high-end computers that
were based on a powerful new PowerPC chip. G3 systems, which were targeted at
business users, could also be used as network servers. Macintosh shipments
increased in the quarter following their launch for the first time in two years. In May
1998, Apple followed up with a line of G3 PowerBooks, which was also well received.
The PowerMac G4 Cube, however, was priced too high for consumers at $1,799
(monitor not included), and Apple suspended its production and sale just a few
months after its release in July 2000. Jobss greatest coup was the launch of the
iMacthe Internet-age computer for the rest of us in August 1998. Priced at
$1,299, the iMac was Apples first entry in the low-priced consumer market. The
iMac lacked a floppy disk drive but incorporated a low-end CPU combined with a
CDROM drive and modem, all housed in a distinctive translucent teal-and-white
case. It also supported plug-and-play peripherals, such as printers, that were
designed for Wintel machines. (Previous generation machines required peripherals
that were built for the Apple platform.) The iMac was Jobs at his best. Jobs initiated
the project shortly after taking over at Apple and pushed it to completion in only 10
months. In his words, the iMac was designed . . . to deliver the things consumers
care about mostthe excitement of the Internet and the simplicity of the Mac. Jobs

saw the iMac as a breakthrough product, just like the original Mac, and he hoped
that it would restore the luster to Apples brand. To promote the iMac, Apple
launched a $100 million advertising campaign, its largest ever. Billboards went up
across the U.S., announcing, I think, therefore iMac, and after Apple expanded the
line to include five fruit flavors (blueberry was the most popular), candycolored
iMacs danced across TV screens nationwide, to the musical accompaniment of the
Rolling Stones. Plenty of free publicity, generated by the first exciting new Apple
product in years, helped Apple sell 278,000 iMacs in the first six weeks. Discounting
by retailers pushed sales to 800,000 by the end of the year. According to one study,
32% of iMac purchasers were new computer buyers, while 13% were replacing
Wintel machines.
Three and a half years after its launch, the original iMac had sold more than 6
million units (compared with over 300 million PCs sold during the same time frame).
In January 2002, Jobs announced a new iMac with a new futuristic design, including
a flat-panel display. The basic model cost $1,300 and included a 700-megahertz
PowerPC G4 chip, 128 megabytes of memory, a 40- gigabyte hard drive, a mono
speaker, and a built-in CD burner. With two FireWire ports and five USB ports, Apple
positioned the new iMac as a digital hub for cameras, camcorders, MP3 players,
and other digital accessories. While some critics called the new iMac a continuation
of Apples form fetish, Time Magazine ran a cover story praising its performance
and design. The iMac line was only the most lavish example of Jobss efforts to
reenergize Apples image. Soon after coming on board, he rehired TBWA Chiat/Day,
the agency that designed the ads for the original Mac, and began to promote Apple
with the quirky Think different campaign, which featured iconoclastic visionaries
such as Albert Einstein and John Lennon. Jobs and TBWA Chiat/Day also sought to
repeat their success in launching the Mac with a memorable Super Bowl spot in
1984.50 While the first ad had cleverly played off George Orwells vision of a
totalitarian future, casting Apple as a spirited insurgent against massive IBM, the
1999 version enlisted Hal, the human-like computer from the movie 2001, to pitch
Apples cause.
Jobs hoped that Apples reinvigorated image would bring back large numbers of
independent software developers. But ISVs did not immediately flock back to Apple.
Jobs had planned to launch a new OS in early 2001 that would be incompatible with
most existing Mac programs. While Microsoft had a huge installed base, many ISVs
were uncertain about the volume opportunities for a new, incompatible Mac. To
lessen the migration problem for customers, Jobs decided to ship each new
computer with two operating systems: its older Macintosh OS (version 9), which
would run Mac applications, as well as the new Mac OS X.51 The new operating
system was UNIX-based, technically advanced, and offering a much more stable
operating environment than previous Mac platforms.
Apple also redoubled its efforts to woo and support important developers, assigning
an evangelist to look after each of its partners. Some developers noticed the

change. Apple quickly lined up 400 ISVs who committed to deliver 1,200
applications for OS X. According to a senior executive at Adobe Systems, which sold
around $300 million in Macintosh software each year, In the last few years it was
impossible for any developer to work with them. We couldnt rely on anything they
said. We were absolutely convinced they were going to die. However, he
continued, there had been a 180-degree turnaround since Jobs had taken
charge.52 According to Apple, the number of participants in its developer program
increased by 75% in 2001 alone and included UNIX as well as traditional Mac
developers.53
Other products In February 1998, Jobs shut down two divisions producing Apples
Newton and a portable computer aimed specifically at the education market. Apple
had spent roughly $500 million to develop these products over six years. This move
was part of Jobss campaign to streamline Apples business, which also slashed new
project plans by 70%. In 2000, Apple expanded into the peripherals market with
devices like the iPod, a $399 portable digital-music player, and software including
iPhoto, iMovie, and iTunes. All of these products received high praise in the press,
but worked only with a Macintosh.
Internal changes Jobs made it a top priority to improve Apples operating
efficiency. One of his first moves was to cut company perks, forcing most employees
to travel coach and ending Apples popular paid sabbatical plan. Jobs also pruned
Apples organization, eliminating units that duplicated efforts and centralizing
responsibility for functions, such as marketing, in companywide groups. Following
restructuring efforts that had begun in 1996, Apple continued to reduce headcount,
close facilities, and outsource manufacturing tasks. Apple also developed a close
relationship with Taiwan-headquartered Foxconn Electronics, a contract
manufacturer with 2001 revenues of $18 billion. Apple outsourced to Foxconn the
manufacturing of iMacs for worldwide distribution. Though its factories tended to be
in less developed countries, Foxconn opened several design centers in the U.S. in
order to be closer to its major clients such as Cisco, Compaq, Dell, and IBM as well
as Apple.
Jobs also revamped Apples distribution system, eliminating thousands of smaller
outlets and expanding Apples presence in national chains. In November 1997,
Apple launched a Web site to sell directly to consumers for the first time. While the
Web site did not offer lower prices, it allowed customers to order custom-designed
systems. In announcing this move, Jobs showed off a bulls-eye plastered across a
picture of Michael Dell and declared, Were coming after you, buddy. In late 2001,
Apples online store accounted for 43% of its sales, either directly to end users or
through dealers. On May 19, 2001, Apple opened the first Apple Computer retail
store in McLean, Virginia, in an attempt to sell more effectively than it could at the
warehouse electronics stores, where Macs competed for shelf space with other
major brands. At the end of 2001, Apple had 27 company-owned boutiques in major
cities and high-traffic suburban malls across the U.S., and planned to construct 73

more over the next several years. In the last quarter of 2001, Apple lost $8 million
on $48 million in sales. Critics compared Apples retail foray to Gateways battered
Country Stores, where unit sales were half of what they were in 1998. Gateway
shuttered 62 of its 337 stores in 2001. However, the Apple stores attracted 800,000
customers in the month of December 2001. Apple claimed 40% were new
customers.
By early 2002, many of Jobss efforts were paying off. Apple had $4.3 billion in cash
and short term investments. Inventory was down to less than two days worth of
sales, and Apple had cut its cash conversion cycle from 53 to 22 days. At a time
when other PC companies were cutting research expenditures, Apple increased its
2001 R&D budget to 8% of net sales, up from 5%. However, Apples 2001 sales of
$5.4 billion were down 32% from the previous year. Its net loss of $25 million
included an operating loss of $344 million offset by $217 million in interest and
other income and $88 million in non-current gains. Some analysts attributed the
2001 dip to normal product cycle fluctuations prior to the new iMac release. Others,
however, claimed that Apple had lost strength in its core niche markets while it still
lacked mainstream consumer support. In the education market, for example,
Apples market share fell from 46% to 23% between 1995 and 2000, due in part to
Apples poorly timed reorganization of its K-12 sales system at the very height of
the 2000 school selling season.