Celebrating three decades of Apple

By Ina Fried
Staff Writer, CNET News.com
March 28, 2006 4:00 AM PT

In the 1970s, Steve Jobs and Steve Wozniak were going door-to-door at the UC Berkeley dorms selling "blue boxes"--electronic devices that tricked the telephone network into allowing free long-distance phone calls.

Luckily for the technology world, the duo cleaned up its act and started making computers.

Now, 30 years after its founding, Apple Computer has grown from a tiny start-up to a household name and cultural icon known as much for its iPod digital music players as its computers.

"The technology industry is fundamentally about change and no company can survive for long without reinventing itself," said Rick Rashid, head of Microsoft Research and developer of the Mach kernel, which serves as the open-source core of Mac OS X. "Companies that can survive for 30 years are the exception rather than the rule, and something to celebrate."

Apple has a brand name as recognizable as Coca-Cola and Federal Express and last year had a record $13.93 billion in annual sales and a $1.34 billion net profit.

Given the company's current success, it's easy to forget how it fell from the top of the tech heap in the 1990s and scuffled along as Microsoft grew into the largest software company in the world and PC makers such as Compaq Computer and IBM came to dominate the industry Jobs and Wozniak helped create.

But glossing over those years would make it difficult to describe just how remarkable Apple's current renaissance is. While Compaq now only exists as a brand name sold by Hewlett-Packard, and IBM no longer makes PCs, Apple is enjoying perhaps its finest hour. The iPod is a pop-culture phenomenon. And, incredible to some, Apple is having an easier time updating its flagship Macintosh operating system than Microsoft is having with Windows.

Some say there are no second acts in business, but Jobs & Co. are making mincemeat of that old chestnut.

Apple didn't invent the computer. But with the Apple II, which went on sale in April 1977, the company introduced a machine people actually wanted to use.

Even as the Apple II was still a star, Apple was hard at work on a pair of follow-ups, the business-oriented Lisa and its consumer sibling, the Macintosh. A team that included Bud Tribble, Andy Hertzfeld, Bill Atkinson and Jef Raskin was laboring away in a separate building at Apple headquarters, working on the project that would change the company.

"Who cares about the Apple II?" Steve Jobs asked Hertzfeld in February 1981, when he moved the young engineer from the Apple II group to the Mac unit. Jobs didn't even let Hertzfeld save the work he was doing on a new operating system. "The Macintosh is the future of Apple, and you're going to start on it now," Jobs said, according to "Revolution in the Valley: The Insanely Great Story of How the Mac Was Made," Hertzfeld's book on the Mac's early days.

With the Mac, Apple took innovations that had been lying around--the mouse, a graphical interface and the laser printer--and used them as a way to bring publishing to the masses.

The quirky Mac, with its small, 9-inch black-and-white screen and 3.5-inch floppy disks, quickly developed a legion of rabid enthusiasts, a phenomenon that came to be known as the "Cult of Mac."

"It was initially a conscious marketing strategy," said Leander Kahney, who authors Wired News' "Cult of Mac" column and has written a book of the same name. "There they were, going up against IBM. To differentiate it, they always portrayed the Mac as countercultural, the alternative to big companies and big government."

Of course, Apple enthusiasts don't pay heed to such talk of a marketing angle. "To them it's a rational choice," Kahney said. "It's just the best computer around."

Despite the hordes of Mac fans, the company that gave birth to the machine has largely been a loner.

Apple, at least under Jobs, has toiled away at products in secret, handling the hardware and software itself and unveiling its work only when ready--then returning to its secluded confines.

Over the years, the company has dabbled in licensing its operating system, but it's always decided to go it alone.

The company has struck many notable partnerships over the years, but most have fallen short of the original expectations. Apple's early decision to license its OS to Power Computing and Umax, as well as its chip alliance with IBM and more recent alliances with Hewlett-Packard and Motorola, all have soured in the end.

For all the praise Apple has enjoyed in recent years, the company barely survived its midlife crisis.

In the mid-1990s, Apple was losing hundreds of millions of dollars and had already replaced embattled CEO Michael Spindler in order to right the troubled ship.

'Audacious, daring, artistic'
The company looked many places for salvation. Apple almost bought Jean-Louis Gasse's Be, but Gasse wanted more than Apple would pay.

In the end, the company decided to acquire Jobs' Next Computer. He initially rejoined the company only as an adviser, but he quickly found himself back at the reins--first on a temporary basis, then as permanent CEO.

The move was fortuitous for both Apple and Jobs. Encores are rare in technology, and Jobs got a chance at redemption after being pushed out of the company in 1985 by John Sculley, the Pepsi executive Jobs helped recruit.

While others have handled many of the technical tasks throughout Apple's history, Hertzfeld said Jobs deserves much of the credit he gets.

"I think Apple would be more of an ordinary company without him--it would be much less audacious, daring and artistic," Hertzfeld said.

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Sure, the company has had some notable misses: the Newton operating system, for one, and in the Jobs II era, the Power Mac G4 Cube.

But its biggest bets in recent years have been solid hits.

The iMac, released shortly after Jobs' return, helped restore the company's reputation and renew excitement in Apple's products.

The candy-colored machine was followed by what arguably could be called Apple's biggest bet--its move to OS X, an entirely new Unix-based operating system. It was a long time in the making and was not an instant success.

The change helped restore Apple's reputation as a design leader and a company whose products often dictate trends, even if the computer maker has never seen its market share approach the dominant level Apple enjoyed during the Apple II era.

Moving from OS 9 to OS X was a painful transition, but in the end it has allowed Apple to update its operating system no less than four times while Microsoft has struggled to develop a successor to Windows XP. This point was brought home last week when Microsoft was forced to again delay the debut of Windows Vista, an operating system some have said borrows heavily from ideas already present in Mac OS X.

The tough transition also laid the groundwork for Apple's largest commercial success: the iPod.

The biggest driver of Apple's recent fortunes--music--was not an area in which the company was initially a leader. The early high-end iMacs had DVD playing drives, rather than CD burners.

But when Apple made its move into music, it did so wholeheartedly. First came iTunes, offering a dramatically simpler way to play and listen to music on a computer. Then, in October of 2001, and just as Microsoft was introducing Windows XP, Apple unveiled the iPod. It wasn't the first digital music player, or even the first with a hard drive. But the combination of a smaller size and an easy-to-use scroll-wheel interface allowed it to succeed where others had stumbled.

Though it quickly garnered critical acclaim, however, the iPod didn't become a smash business success until Apple added a Windows version, and shortly thereafter a Windows version of iTunes. The latter was greeted with huge posters reading "Hell Froze Over."

Expanding the 'Cult of Mac'
Another of Apple's bold moves was its 2001 entry into retail. As Gateway was pulling out of suburban shopping centers, Apple was scooping up prime retail space in high-end malls.

Though costly, the Apple stores exposed new customers to the company's wares and also served as a gathering point for the Mac faithful. Kahney said the outlets helped extend the Cult of Mac's physical presence from the formerly twice-a-year Macworld Expo to a constant and local happening.

"Now everyone is within spitting distance of an Apple retail store," Kahney said, pointing out that the sleekly designed stores are a mix of actual buyers, users seeking face-to-face help at the Genius Bars and a crowd of hard-core Apple fans that just "hangs out to observe the Mac-iness."

The stores have also served as a great showcase for the iTunes Music Store and iPod as those products have continued to evolve. During last year's holiday season, Apple had special personnel ready with handheld computers to deal with the crowds of people looking to walk out with the iPod Nano and the video iPod.

In a sign of just how dramatically Apple's fortunes have improved, the company's music business has become the subject of antitrust concerns because of its overwhelmingly dominant position.

There have been grumblings about Apple's dealing in the music arena, its refusal to license its copy protection technology to let other companies offer protected music on the iPod or let songs purchased via iTunes play on other devices. France is considering legislation to open up the market, while several smaller legal challenges are also pending.

Hertzfeld said he thinks Apple is making a mistake on that front. "The digital music industry demands a ubiquitous standard for copy-protected media, and FairPlay is the obvious choice, if only Apple would license it," he said. "It is disrespectful to your users to lock them in and artificially restrict their choices, and I don't think it (will) fly long-term," he said. He predicts Apple will eventually change course, but added, "I only hope it won't be too late."

The iPod, meanwhile, has inspired legions of companies to produce add-ons, creating a market that some say could top $1 billion. However, Apple has also moved into the space with its own accessories, and looked to grab royalties from other companies that build iPod gear. Many of the accessory makers have begun to diversify and make products for other players and cell phones, with some saying privately that their good fortune with the iPod may not last.

And while the iPod continues to dominate, rivals hope to head off Apple at the next technology pass. The company's hold on the music player market appears to be strong, though others see a potential opening as music gets more closely wedded to the cell phone or perhaps to some other kind of handheld computing or entertainment device.

Though much of the outside attention has been on the iPod and iTunes, Apple has once again been tweaking the Mac to make it ready for the next generation of products. When Jobs announced the Mac's big shift to Intel chips last year, he noted that the transition was less about the problems the company was experiencing with the current generation of chips and more about needing certain features in order to build the next generation of Macs. Not surprisingly, Jobs offered few hints as to what those features might be.

Apple and Jobs are inseparable in the public eye, and it's hard to imagine the company without him (though when he had a cancer scare in 2004, some were forced to). As crazy as it sounds, some even wonder if the charismatic executive could end up running Disney, since the entertainment giant is taking over Jobs' other cultural powerhouse, Pixar Animation Studios.

Apple without Jobs? Well, it happened before. But there's little doubt that Mac addicts hope it's a long time before it happens again.

CNET News.com editor Jim Kerstetter contributed to this report.