Thursday, May 29, 2003

Steve Jobs Sings a New Tune

STANFORD GRADUATE SCHOOL OF BUSINESS—Steve Jobs, the co-founder of Apple Computer and one of Silicon's Valley's most successful college dropouts, wowed an overflow crowd at Stanford's Bishop Auditorium Thursday in the academic year's final View From the Top lecture.

Dressed in his usual long-sleeved black tee-shirt, jeans, and sneakers, the 48-year-old former wunderkind showed off Apple's iTunes Music Store with the excited air of a kid bragging about a new toy, defended his company's risky venture into retailing, and said Pixar Animation Studios, which he also runs, is close to becoming financially independent.

Jobs, who is known in the Valley as a very hardball manager, shared industry war stories and advised the business students to be, well, nice.

"When I was younger and had to fire someone, I didn't think twice about it," he said. But with a few decades in business and the painful experience of being fired from the company he founded behind him, Jobs now says, "Even if someone has really screwed up and someone else should have fired him last year, you need to remember that he's going to have to go home and tell his wife and kids that he's been fired and no longer has a job."

Jobs being Jobs, however, couldn't resist a few jabs at former Apple management. When he rejoined the company as interim CEO, "Apple was 90 days away from bankruptcy," after having made such poor moves as pioneering firewire (a fast connection between peripherals and PCs) "and then forgetting to include it in Macs," Jobs said.

Most of the talk, though, was forward looking, focusing on Apple's current strategy and Jobs' other love—Emeryville, California-based Pixar.

The two companies, he said, are an interesting match—and a challenge to manage simultaneously. "Apple is the most creative of the PC companies; Pixar is the most technologically advanced entertainment company." Apple releases new products every few months, and top execs make 10 major decisions a day. "But the Holy Grail for Pixar is releasing one product—a movie-a-year, and as CEO I might make three really critical decisions a year, and they are very hard to change."

Early on, it became clear that technological bravura, even when coupled with creative genius, wasn't enough to sustain a company that took four years to make Toy Story, its first hit. Pixar's lengthy product cycle, Jobs said, risked disaster. After all, animated movies are very expensive and if Toy Story had flopped, the company might have failed.

By 2005, Pixar will reach the movie-a-year target—but not by radically shortening development time. Instead, the company will expand and multi-task. By 2006, Jobs hopes, the company will be able to finance itself, and retain a much greater share of profits it now splits with Disney.

Apple, Jobs said, will expand its retail chain to about 70 stores by the end of the year. "Customer feedback is off the charts." Asked why Apple can succeed in retailing, while a similar venture by Gateway has struggled, Jobs said his stores have better locations, better-trained staffers and products that are not simply commodities. "The problem (with staff at most computer retail outlets) is that no one knows anything," Jobs said.

Sure, that sounds like boasting, but most PC makers spend little on research and development, leaving that to Intel and Microsoft. Consequently, PCs tend to be differentiated much more by price than by technology or innovative features. Apple, on the other hand, survives because its products are different. Consequently, Apple needs to staff its stores with people who can explain the company's technology in a reasonably knowledgeable way. And because Apple's installed base is much smaller than that of the Wintel world, it had to spend more on high-traffic locations, where people were likely to wander in. "We're going after the 95 percent of the population that doesn't own a Mac," Jobs said. Gateway, by contrast choose cheaper locations in strip malls and so on, seeing the stores as more of a conscious destination.

Jobs was relaxed and animated throughout his talk, but clearly had the most fun showing off iTunes. The pop music download service sold one million tracks at 99 cents each during its first week in business and has a library of about 200,000 songs.

Noting that some artists refuse to give Apple rights to their work unless the company requires consumers to buy and download entire albums (something Apple refuses to do), Jobs said "our minds were blown" when we realized that half of the tracks sold in the first month were sold as albums.

There's been quite a bit of speculation about the terms of Apple's agreements with the record companies, an issue Jobs shed no light on. But he did say, "we don't make a lot of money on this, though we do sell a few more iPods."

Looking forward, Jobs expects the iTunes collection to double in the next few months and promised a Windows version of the iTunes jukebox later this year.