Apple Inc. the Steve Jobs Effect

MarketLine Case Study Apple Inc. The Steve Jobs Effect

Reference Code: ML00001-080

Publication Date: February 2012

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Apple Inc.: The Steve Jobs Effect ML00001-080/Published 02/2012

© MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED Page | 1 OVERVIEW Catalyst In 2009, Steve Jobs, co-founder of Apple, was named CEO of the decade by Fortune Magazine. This case study will examine the effect that Steve Jobs had on the company and, following his death in October 2011, will question how the company will cope with the loss going forward. Summary  Steve Jobs and Steve Wozniak founded Apple Computer in April 1976 with the creation and release of Apple I. The company became incorporated in January 1977.

 The early Apple computers showed Steve Jobs' innovative flair. The Apple I proved Jobs’ determination to succeed, while the Apple II was the company’s first computer aimed at the mass market.

 Amid unsuccessful product launches, a power struggle ensued within the company and led to the resignation of Steve Jobs in 1985.

 Away from Apple, Jobs continued to succeed, with the acquisition of the visual effects company Pixar. He also went on to found NeXT Inc., a company that manufactured computers designed for the higher education market and, later, the business market.

 The foundation of NeXT Inc. paved the way for Jobs’ return to Apple. Jobs became CEO of Apple in 1997, following the company’s acquisition of NeXT Inc. The NeXT operating system became the foundation for modern Macintosh computers.

 Under the leadership of Jobs, Apple transformed from a computer company to a consumer electronics company with the launch of innovative products such as the iPod and iPhone.

 Steve Jobs' unique leadership style and hands-on approach to running Apple has been widely analyzed. This style of leadership led to him being named Fortune Magazine’s CEO of the decade at the end of 2009.

 The company grew rapidly under Jobs, with this being reflected in the company financials and Apple's brand value.

 Following ill health, Steve Jobs resigned from the CEO post in August 2011. Hours after the announcement, Apple shares dropped by 5%.

 Steve Jobs died on October 5th, 2011.

Apple Inc.: The Steve Jobs Effect ML00001-080/Published 02/2012

Overview ...... 2

Catalyst...... 2

Summary ...... 2

Analysis...... 5

Steve Jobs and Steve Wozniak created Apple Computer in 1976 ...... 5

Early innovations highlighted Steve Jobs' determination to succeed...... 5

Steve Jobs left the company in 1985 ...... 5

Steve Jobs returned to the company and became CEO of Apple ...... 6

Jobs announced a partnership with Microsoft...... 6

Numerous product innovations followed the return of Steve Jobs to the company ...... 6

Steve Jobs was made Fortune Magazine’s CEO of the decade in 2009...... 8

Apple Inc. grew rapidly under Jobs ...... 9

Apple were trading at a loss prior to Jobs’ return to the company ...... 9

Net profit increased following Jobs’ return to the company ...... 10

Apple Inc.’s brand value has increased under Steve Jobs ...... 11

Steve Jobs became an icon of the company...... 12

Conclusions...... 13

What Implications will Steve Jobs' death have on Apple Inc.? ...... 13

Appendix ...... 14

Definitions...... 14

Sources ...... 14

Further Reading...... 14

Ask the analyst ...... 15

About MarketLine ...... 15

Disclaimer...... 15

Apple Inc.: The Steve Jobs Effect ML00001-080/Published 02/2012

Figure 1: iMac G3 (1998) ...... 6

Figure 2: Apple revenue breakdown for fiscal year 2011 (year-end September)...... 7

Figure 3: Apple Inc. net profit/loss 1992–2000 (year-end September) ($m) ...... 9

Figure 4: Apple Inc. net profit 1998–2000 (year-end September) ($m) ...... 10

Figure 5: Apple Inc. net profit/loss 2001–11 (year-end September) ($m) ...... 10

Figure 6: Brand value of Apple Inc. 2006–11...... 11

Apple Inc.: The Steve Jobs Effect ML00001-080/Published 02/2012

© MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED Page | 4 ANALYSIS Steve Jobs and Steve Wozniak created Apple Computer in 1976 Steve Jobs and Steve Wozniak founded Apple Computer in April 1976 with the creation and release of Apple I. The company became incorporated in January 1977. Early innovations highlighted Steve Jobs' determination to succeed The original Apple computer, the Apple I, was designed by Steve Wozniak, with Steve Jobs suggesting that it could become a marketable product. Jobs contacted a local computer store, Byte Shop, which ordered 50 of the machines, on the condition that it came fully assembled. Jobs, in a display of his enthusiasm for the product, ordered the components required to construct the Apple I computer promising to pay suppliers on time with the money they would earn from the purchase order. Jobs and Wozniak delivered the computers on time, paid the suppliers and had profit left over. Jobs and Wozniak went on to gain the backing of A. C. Markkula who lent them $250,000 to form Apple Computer on April 1st, 1976.

In 1977, Jobs and Wozniak introduced the Apple II; a computer aimed at the mass market. This became one of the first successful lines of personal computers, with the company’s sales increasing from $2 million in 1977 to $600 million in 1981, the same year that Apple went public. By 1983, Apple Computer was listed in the Fortune 500; the fastest a company had ever joined the list.

Not all of the early innovations were quite so successful, with the Apple III and Lisa computers, introduced in 1980 and 1983, respectively, failing to make an impact on the commercial personal computer market. However, in 1981 Jobs and a small number of Apple engineers began to work on a new project, the Macintosh. This was launched in January 1984 and went on to set the benchmark for the design of contemporary computer operating systems (OS). Steve Jobs left the company in 1985 Following the unsuccessful Apple III and Lisa computers, the company slumped. This led to a power struggle within the company with the board backing chief executive officer (CEO), John Sculley, and Jobs being asked to resign. Jobs subsequently sold his 6.5 million shares in Apple. In a PBS documentary in 2011, Jobs maintained that he hired the wrong CEO when he took on Sculley, stating that “he destroyed everything I had spent 10 years working for.”

Jobs founded NeXT Inc. in 1985 Following his departure from Apple, Jobs went on to acquire the visual effects company Pixar. Furthermore, in September 1985, Steve Jobs founded NeXT Inc., a company that manufactured computers designed for the higher education market and, later, the business market. Sales of these computers were relatively limited; however, its innovative OS became extremely influential.

Apple Computer acquired NeXT Inc. in 1996 In December 1996, Apple acquired NeXT Inc. for $400 million. Apple had abandoned its Copland OS early in 1996 and had been looking for a new platform for it computers. By acquiring NeXT, Apple began to ship products with the NeXT OS. This OS became the foundation for OS X, the software used in modern Macintosh computer systems.

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© MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED Page | 5 Steve Jobs returned to the company and became CEO of Apple Whilst Jobs had been away from the company, Apple had begun to struggle, largely due to being unable to compete with companies that used Intel chips and Microsoft software; a trend that was beginning to dominate the marketplace. By 1997, the company had generated losses of almost $2 billion in two years. Furthermore, the share price was at its lowest level and the company was onto its third CEO in four years – Gil Amelio.

In July 1997, Amelio was ousted from the company and, just eight months after Apple bought NeXT, Jobs was appointed interim CEO, becoming permanent CEO in January 2000. Jobs announced a partnership with Microsoft Soon after being appointed as interim CEO in 1997, Jobs announced that Apple would enter into a partnership with Microsoft. This involved a five-year obligation from Microsoft to publish Microsoft Office for Macintosh along with a $150 million investment in Apple. Furthermore, Internet Explorer was made the default browser for the Macintosh. During this announcement, Steve Jobs stated that the company had to let go of the notion that “for Apple to win, Microsoft has to lose.” Numerous product innovations followed the return of Steve Jobs to the company Under the guidance of Jobs, the company branched out, diversified, and improved its products. Steve Jobs also cut some products, ending the Newton handheld computer, which was struggling, and reduced the number of Mac models. Furthermore, Jobs canceled licensing contracts that Apple had with third-party manufacturers so that Macintosh clones could no longer be created.

The iMac was introduced in 1998 One of the first innovations following Steve Jobs' return was the development and introduction of the iMac in 1998. This all-in-one Macintosh desktop computer proved successful for the company, selling approximately 1.8 million iMac units in the 1999 fiscal year. The introduction of the iMac also brought about a new focus on the aesthetics of Apple products.

Figure 1: iMac G3 (1998)

SOURCE: Wikipedia M A R K E T L I N E

Apple Inc.: The Steve Jobs Effect ML00001-080/Published 02/2012

© MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED Page | 6 The creation of the company’s iOS range of products was a huge success The Apple iPod, a portable media player, was introduced to the market in 2001. Since then, the product has been updated with new models including the iPod Nano (2005), video iPod (2005), and the touchscreen iPod Touch (2008). Jobs wanted to create a digital music player that would be aesthetically pleasing to the eye, and went on to directly supervise the design and implementation of the user interface. He felt that there was a gap in the market for a product such as the iPod.

The company made forays into music distribution with the introduction of the iTunes Music Store in 2003. This effectively revolutionized the music industry with the signing of five major record companies to Apple’s music download service. Jobs and his team encouraged the big record labels to sell recordings for $0.99. The store was quick to become the market leader, with 1 million songs being downloaded in the first week. Furthermore, the iTunes Store enticed consumers to buy iPods, as songs could be downloaded to Apple music players.

Steve Jobs continued to redesign the consumer electronics industry with the introduction of the iPhone in 2007. The company sold 11.6 million iPhones in fiscal year 2008. The iPhone now makes up a huge bulk of the company’s revenues, with sales of the iPhone and related services accounting for over 43% of net sales in fiscal year 2011.

The introduction of the iPad tablet computer in 2010 has been similarly successful. This was designed as a platform for media such as movies, books, music, apps, games, and the Internet. By the time the iPad 2 was launched in March 2011, over 15 million iPads had been sold.

The introduction of the iOS products was the most successful era for Steve Jobs and Apple. The company, which was renamed Apple Inc. in 2007, has diversified and expanded to sell a range of consumer digital products which have been seen as innovative in their field. The majority of revenues now come from iOS products.

Figure 2: Apple revenue breakdown for fiscal year 2011 (year-end September)

Mac

iPod

Other music related products iPad

iPhone

Peripherals & other hardware

SOURCE: Apple Annual Reports 2011 M A R K E T L I N E

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© MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED Page | 7 Steve Jobs was made Fortune Magazine’s CEO of the decade in 2009 At the end of 2009, Steve Jobs was named as CEO of the decade by Fortune Magazine. His hands on approach to business and his exacting standards have been widely discussed.

Jobs’ leadership style was dynamic Jobs drew both admiration and criticism for his leadership style, with much being made of his demanding approach. Fortune magazine described him as “one of Silicon Valley’s leading egomaniacs.”

During Steve Jobs' early years with the company, he became known for his hands-on approach and interfering in tiny details. His standards with regard to product design were very high and he was highly critical; such criticism was sometimes scathing. However, he was seen to provoke strong loyalty from his colleagues.

The term reality distortion field (RDF) was used to describe Jobs’ leadership style RDF was a term first used to describe Steve Jobs’ charisma in 1981; it was later used to describe how his keynote speeches were perceived. The term was said to depict Steve Jobs’ ability to convince those around him to believe in something using his charisma, marketing skills, self-assurance, and persistence. RDF was alleged to distort an audience’s perceptions of difficulty and scale, and as such make them believe that almost anything is possible. Such optimism by Jobs was said to contribute to loyalty being instilled in both his colleagues and Apple fans.

Apple Inc.: The Steve Jobs Effect ML00001-080/Published 02/2012

© MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED Page | 8 Apple Inc. grew rapidly under Jobs Prior to Steve Jobs returning to the company in 1997, Apple had been trading at a loss for a couple of years. In the three years following Jobs’ return, net profit was seen to increase. The brand value of Apple was also seen to increase rapidly following Steve Jobs return to the company. Apple were trading at a loss prior to Jobs’ return to the company The net profit of the company was fluctuating in the years running up to the return of Steve Jobs, with a loss being recorded in 1996–97.

Figure 3: Apple Inc. net profit/loss 1992–2000 (year-end September) ($m)

800 600 400 200 0 1992 1993 1994 1995 1996 1997 -200 -400 -600 -800 -1000 -1200

SOURCE: Apple Annual Rports M A R K E T L I N E

Apple Inc.: The Steve Jobs Effect ML00001-080/Published 02/2012

© MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED Page | 9 Net profit increased following Jobs’ return to the company In the years immediately following Steve Jobs’ return to Apple, net profit was seen to increase markedly.

Figure 4: Apple Inc. net profit 1998–2000 (year-end September) ($m)

900

800

700

600

500

400

300

200

100

0 1998 1999 2000

SOURCE: Apple Annual Rports M A R K E T L I N E

Furthermore, following the introduction of the iPod in 2001, which was followed by a range of iOS products including the iPhone and iPad, net profit rose considerably.

Figure 5: Apple Inc. net profit/loss 2001–11 (year-end September) ($m)

30000

25000

20000

15000

10000

5000

0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -5000

SOURCE: Apple Annual Reports M A R K E T L I N E

Apple Inc.: The Steve Jobs Effect ML00001-080/Published 02/2012

© MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED Page | 10 Apple Inc.’s brand value has increased under Steve Jobs In BrandZ’s Top 100 Global Brands, Apple has risen from number 29 in 2006 to number 1 in 2011 under the management of Steve Jobs.

Figure 6: Brand value of Apple Inc. 2006–11

2006 2007 2008 2009 2010 2011 0

SOURCE: BrandZ’s Top 100 Global Brands M A R K E T L I N E

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© MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED Page | 11 Steve Jobs became an icon of the company Jobs made a huge comeback when he returned to the company in 1997 after nearly 12 years away. He brought with him a new OS that became the foundation of modern Macintosh computers. He also led the transformation of the company from a computer company to a consumer electronics company, with forays into music distribution and the introduction of the iconic iPods, iPhones, and iPads. The introduction of such innovative products led the way for changes in the marketplace.

Much has been made of Steve Jobs approach to product design and leadership. He has been described as "inspirational," "persuasive," and "innovative," to name but a few terms. PC Magazine’s Lance Ulanoff has even gone as far as to say “Jobs was Apple.” The fact that he was named Fortune’s CEO of the decade is testament to his effect on the company and the consumer electronics industry as a whole.

Apple Inc.: The Steve Jobs Effect ML00001-080/Published 02/2012

© MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED Page | 12 CONCLUSIONS What Implications will Steve Jobs' death have on Apple Inc.? On August 24th, 2011 Jobs resigned as CEO of Apple Inc., remaining on the board to offer guidance to new CEO Tom Cook. Steve Jobs died on October 5th, 2011.

It has been argued that Apple will suffer from the loss of Steve Jobs. His leadership style was widely renowned, as was his willingness to hold products back that he did not feel were ready and to discard those he disliked. Furthermore, the way Jobs delivered his keynote addresses at product launches was extensively referred to as "Stevenotes" in reference to his ability to deliver inspirational speeches and create excitement around a product.

Hours after the announcement that Steve Jobs was to resign, Apple shares dropped 5%. However, this is a relatively small drop when the importance of Jobs to the company is considered. The fact that Jobs had been away from the company on medical leave since early in 2011 was probably a factor in the drop not being a major one. Following the announcement in January 2011 that he would be on indefinite medical leave, company shares were seen to drop by 6%. Drops in share price indicate the extent to which Steve Jobs was seen as the driving force of Apple, and suggests a lack of confidence by some investors in what the future may hold for the company without Jobs to guide it.

It is likely that the departure of Steve Jobs will not be felt by the company in terms of products for a number of months. Jobs had already overseen the next Apple products to be released. Furthermore, some commentators believe that the company will not face any drop in profits as a result of the death of Steve Jobs. While his departure from the company was felt in 1985, this was in an atmosphere of internal fighting and product failures. The company as it is today has been propelled to a new level under Jobs' guidance, and it has been argued that Steve Jobs' taste, design, and marketing skills have become ingrained in the company.

Apple Inc.: The Steve Jobs Effect ML00001-080/Published 02/2012

© MARKETLINE THIS PROFILE IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED Page | 13 APPENDIX Definitions Operating System (OS): The software that supports a computer's/smartphone’s basic functions, such as executing applications. Sources http://theweek.com/article/index/218526/how-steve-jobs-resignation-will-affect-apple-5-predictions http://www.nytimes.com/2011/10/06/business/steve-jobs-of-apple-dies-at-56.html?pagewanted=all http://www.eweek.com/c/a/Mobile-and-Wireless/Apples-Steve-Jobs-Had-Huge-Impact-on-Mobility-Technology-881457/ http://www.macworld.com/article/161970/2011/08/steve_jobs_impact.html http://online.wsj.com/article/SB10001424052702304447804576410753210811910.html http://estevejobs.com/2011/05/steve-jobs-the-top-9-events-that-shaped-his-success/ http://estevejobs.com/2011/04/steve-jobs-how-he-became-the-master-of-innovation/ http://investor.apple.com/sec.cfm#filings http://money.cnn.com/2009/11/04/technology/steve_jobs_ceo_decade.fortune/index.htm http://www.cnbc.com/id/44808657/Steve_Jobs_Impact_on_Apple_Past_and_Future Further Reading MarketLine (2011) Industry Profiles: Global Mobile Phones

MarketLine (2011) Industry Profiles: Mobile Phone in the United States

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Apple Inc.: The Steve Jobs Effect ML00001-080/Published 02/2012

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