When they arrived at the hangar, Steve spoke to the assembled group: “Well,” he said, “Ron thinks we’ve designed our stores all wrong.” Johnson waited to hear where this line of thought would go. “And he’s right,” said Steve, “so I’m going to leave now and you should just do what he’s going to tell you to do.” And Jobs turned around and left.
Later that day, after he’d returned to the Apple campus, Johnson went to see Steve. “You know,” Steve told him, “you reminded me of something I learned at Pixar. On almost every film they make, something turns out to be not quite right. And they have an amazing willingness to turn around and do it again, till they do get it right. They have always had a willingness to not be governed by the release date. It’s not about how fast you do something, it’s about doing your level best.”
The first stores opened in Tysons Corner, Virginia, and Glendale, California, in May 2001. They featured Apple’s iMacs, Power Macs, iBooks, and PowerBooks, plus an array of software, a small selection of “how-to” books, some peripheral equipment from other manufacturers like printers and hard disk drives, and an assortment of cables and other accessories. The reaction was fairly uniform: Steve had made a foolish mistake. BusinessWeek excoriated the stores as yet another example of Steve’s extravagance. One critic after another pointed to the fact that Gateway, perhaps the most marketing-savvy of all the Wintel PC makers, had recently shut down its own chain of more than one hundred retail stores because of poor sales. But just as Jobs had no use for typical market research when formulating product strategy, he dismissed Gateway’s misadventure as irrelevant. “When we started opening stores, everyone thought we were crazy,” he told me. “But that was because the point of sale had lost its ability to communicate with the customer. Everybody else was selling computers that were the same thing—take off the bezel or company nameplate and it’s the same box made in Taiwan. With so little differentiation, there was nothing for the salespeople to explain except the price, so they didn’t have to be very sophisticated, and those stores had tremendous turnover in their sales force.”
The Apple stores fared fairly well from the beginning, but primarily as havens for those who already loved Apple and its high-priced gear. Early traffic patterns revealed just how deeply the company needed a transformative new product. Basically, Apple had a demographic problem—adolescents and young adults didn’t think the company or its products were as cool as their parents did. Part of the reason was that Apple’s iMacs and iBooks, as beautiful and compelling as they were, were still too pricey for kids to buy on their own: only their baby boomer parents could afford to write a check or whip out a credit card and bring one home. At the stores, Apple had nothing of its own to sell that appealed directly to the Generation X- and Y-ers.
Enter iTunes and the iPod. With their introduction, the stores quickly became the perfect medium for demonstrating Apple’s new digital hub concept. Highly trained salespeople—on salary, not commission—showed customers how to use their iMacs and iTunes to “rip, mix, and burn” their own customized audio CDs. Others taught Mac owners how to use iMovie to edit digital movies. The stores offered group lessons in how to transfer playlists and albums to an iPod, even though it was a very simple process. “The people who work in our stores are the key,” Steve said. “And our turnover is very low for retail. So our power is in our people.”
As the stores attracted more visitors, Apple expanded its sales of digital cameras, camcorders, speakers, audio amplifiers, headphones, printers, hard drives, CD-ROM burners, and the like made by other manufacturers. Slowly but steadily, over the years, the stores would become the most successful retail outlets in the world, when measured by sales per square foot. Jobs pushed Johnson to be increasingly audacious with the architecture of the stores, which eventually led to iconic features like the cube of glass in front of the GM building in midtown Manhattan. “Steve was the best delegator I ever met,” Johnson said at Stanford. “He was so clear about what he wanted that it gave you great freedom.”
MUSIC REVIVED THE company. Between iTunes, its “Rip Mix Burn” ad campaign, and the iPod itself, Apple was finally generating heat with younger buyers. But the momentum and the insouciant advertising gnawed at some older folks in the music and film business. In 2002, long after the offending ads had ceased running, Disney CEO Michael Eisner complained in a hearing before the U.S. Senate Commerce Committee that Apple was guilty of openly touting illegal behavior. “They are selling the computer with the encouragement of the advertising that they can rip, mix, and burn,” he said. “In other words, they can create a theft and distribute it to all of their friends if they buy this particular computer.” Steve was livid when he read the transcript, but felt somewhat vindicated after Eisner was widely ridiculed for his somewhat naïve comment. The tone of Apple’s ad campaign walked a fine line, but Steve actually sympathized with Eisner and the record labels. He understood the perils of piracy, both as a computer industry executive and as the owner of a movie studio. He had sued Microsoft for what he believed was its theft of the Mac’s desktop graphical user interface, and, like everyone in Silicon Valley, he was paranoid about intellectual theft.
In fact, Steve was so attuned to the piracy issue that he knew the issue might help him sell his next big music idea—the iTunes Music Store. Steve believed, with some justification, that iTunes was a more elegant form of digital music management than anything else on the market. And he knew that an iTunes music store, if properly designed, could give the consumers such a fluid and simple way to buy music that they would stop stealing tracks via Napster and the like, which were cumbersome applications that opened up a person’s computer to all manner of potential security issues.
The creation of this particular online “store” is a crucial turning point in the evolution of Steve Jobs. It represents the moment when Steve’s ambitions for Apple first stretched beyond Cupertino. Up until this point, everything Steve had done had been within the confines of Apple’s own operations. He had stabilized the company, focused its mission, rebuilt the staff, shaped a core leadership group of first-rate executives, and produced the striking new iMac and a modern new operating system. Every step he’d taken had naturally proceeded from what came before, ensuring that the company was on a solid foundation in its core business even as it wandered into the uncertain future. Now he was about to make a bet that Apple’s bedrock was so strong that it could move beyond its own walls and start looking for opportunities that would reshape the businesses of others.
To accomplish this, Steve would have to work on two fronts, both inside and outside the company. Inside, he would need to have his engineers customize Apple’s digital compression and distribution technology in a way that would solve problems the music industry couldn’t handle on its own. More expedient options, like buying an existing online retail music distribution website and “Apple-izing” it to get a running start, wouldn’t work because such sites didn’t yet exist. Nor did it make any sense to simply grant a license to the music labels to promote, sell, and deliver music directly to iTunes users, given how technologically inept the companies had shown themselves to be with their repeated, compromised efforts to sell their wares online. Sony Music, for example, made a hash of its early stab at selling digital music that would play only on players made by its parent, Sony Electronics. Not only did it offer very little music from the other big record companies, but Sony also made the tracks it sold unplayable on personal computers, which was where the lion’s share of consumers played digital tracks at that time.