Steve Jobs on Microsoft Deal: Apple’s turnaround plan

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(music) (music) Well, good morning. I'm a corporate president, CEO of Mac Publications. This is a exciting newly formed joint venture between Ziff Davis and IDG, which is now

responsible for publishing MacWeek and Macworld, and I'd like to welcome you all on behalf of Boston and Macworld Expo. You know more than any other computer company, Apple continues to attract a great deal of media attention. Today is no exception for me, and I expect for many of you. The last year in the Mac market felt like being a bit of an emotional roller coaster: your highs and optimism, fulbright; troughs of near despair. As of the resume, this turnaround strategy jubilation: Apple approved to rationalize its product line, amid progress with its OS strategies, and then

concern as negotiations with the MICE disease appeared to stall. But for all the followers of the Mac market, and nearly every possible solution every other Apple has made, analyzes and dissected, there's certainly no shortage of pundits here to give advice, give the... give Amelia, Apple's former CEO, want to mark to me his frustration with the media coverage. My response was Apple will be facing these and bigger problems when media stopped caring. (applause)

(music) Despite all the issues and problems of the past couple of years, the passion and loyalty remain. People want lean Apple Macintosh market to be successes and return to a state of sustained profitability and growth. Today I will spare you my solutions for Apple, though having been in this market for over a decade, I've certainly some of some strong views. It's much more important that we all hear a vision for the Macintosh platform, for Apple and other senior executives in the industry, what are future plans for hardware and software, what will persuade independent

software and hardware vendors that the Apple market represents a solid business opportunity. I want to leave Macworld Expo at the end of the week with evidence a Macintosh platform is still one of the most exciting segments of the computer industry. I want my belief reinforced that the Macintosh platform is not just relevant in today's marketplace. That's the

leading edge of technology. To start us off in the right direction is an individual who really needs little introduction. (music) (applause) We know since the 31st Macintosh, so please join

with me now. I'm welcome from Apple Computer, Steve Jobs. (applause) (music) (applause) (applause) (applause) Thank you very much for that warm welcome. Now I guess I'm gonna have to

give a speech. I came today to give you a status report on what's going on and to try to fill you in on some of the steps we're taking to get Apple healthy again. As you know, I'm the chairman and CEO of a company called Pixar, and thank you. I, like a lot of other people, are pulling together to help Apple get healthy again, and I am extraordinarily confident that that is going to happen. Now why I started to get involved: a lot of people gave me advice, and some of the advice that was the most popular was Apple has become irrelevant.

There was a great one that was Apple can't execute anything, and another one was the Apple culture is anarchy; you can't believe no one could manage it. You've read all these things in the press, and after four weeks, here's what I found: quite the opposite of these things. Actually, Apple is not irrelevant, is as relevant as it used to be everywhere, but in some incredibly important market segments it's extraordinarily relevant, and I want to share some of that with you today. Apple is executing wonderfully on many of the wrong things. The ability, the organization that

executes is really high, though. I mean, I've met some extraordinary people at Apple; there's a lot of great people at Apple. They're doing some of the wrong things because the plan has been wrong. And lastly, what I found is rather than anarchy, I found people that can't wait to fall into line behind a good strategy. There just hasn't been. (applause) What I see is the makings of a very healthy company, with some extraordinarily talented people who are still just as passionate and committed to the dream of computing as they ever

were, that need to come together and get a great plan and then start to execute it. That's exactly what's been happening over the last four weeks. Now what's the fundamental problem? I think the fundamental problem is a little more subtle. I think this is a symptom, but in a nutshell... whoops, excuse me... in a nutshell, that's it. Right? Apple sales in 1995 were 11.1 billion; in '96, they were 9.5 billion; and then this year they'll be, you know, 7 billion plus or minus a little bit. That's the problem or the symptom depending on how you look at it

and that needs to be stabilized and turned around, and people are working very hard to do that. So what are some beginning steps that we're gonna take? One of the first ones has to be to start at the top. Apple's done a lot of change at the bottom, and I think this change needs to start at the top with the board of directors focused on — focus on relevance. Apple needs to find where it is still incredibly relevant and focus on those areas; it needs to figure out what its core assets are and best more in them. Apple has neglected

its core assets for a while. It has to forge some meaningful partnerships, not just partnerships and press releases, and it needs to define some new product paradigms, and we've got some great ideas. I'm not going to be talking about products today, so I just want to let you know that we have some wonderful ideas that you'll be hearing about between now and the end of the year. So let's talk about some of these Board of Directors. Apple had a very decent group of people as the Board of Directors; they worked very, very hard for Apple, but I think with Apple in the situation it finds itself, it was time for a change, and the directors agreed with that. We have put together a new

Board of directors that I would like to announce to you today: there are two members of the prior board that we are extremely pleased are going to stay on the new board. The first of those is Edward. Ed is the chairman and former CEO of DuPont. I've gotten to know Ed over the last several weeks, and I think he's terrific and has provided a tremendous amount of leadership during this very critical time for Apple. Next is Gareth Chang. Gareth is the president of Hughes International. Again, he's been on the (music) he's been on the Alpha Board for a short while, and Gareth brings a tremendous international experience to Apple in

particular in Asia, which is a very important market and a high-growth market for Apple. And then we're going to add four new board members. The rest of the prior board has resigned, and we're going to add (applause) members to carry the company forward. The first is Larry Ellison, CEO. I hope that wasn't a boo. I'm here. Larry started Oracle in his garage about a year after we started Apple. It's grown to be the second largest software company in the world. We would like to do

a lot more in terms of software, and we thought having some software industry expertise would be a good idea on the board. Second board member, Jerry York, former CFO of IBM. And Jerry did a lot of the turnaround work at Chrysler and IBM, and is extremely well known and respected in the financial community for his work. The third new board member is Bill Campbell, CEO of Intuit. (applause) (music)

In addition to being CEO of Intuit, he was formerly the vice president of sales and marketing for Apple during some of its heyday and also ran Claris, and is very familiar with some of the successes and some of the failures that Apple has had. And I think he'd be an extremely good board member. And lastly, I am joining the board as well. (applause) I'd like to just take a moment and thank the outgoing board members. I think it has not been an easy job to be a board member of Apple over the last few

years, and these are very decent people, and they've been trying very hard to do the right thing for the company. And to welcome our new board members, I think we have a really exciting task ahead of us to help the management team and guide Apple back to health and to prosperity. And so I hope you'll agree that this is a pretty sweeping change. We're adding a tremendous amount of industry expertise. We are not naming a chairman at this time. We're going to wait till we have a new CEO and sort things out. When that happens at that time, now I put, I put together a little video if you'd like. I'll show it to you that just... I asked the board, we asked the board members a few questions, and you can just maybe do a little, a little familiar with them. Would you like to see it? (applause)

A board has been associated with the past and past us but failure. New board brings home the new group of people on the Apple board are all computer insiders. We've all been in the computer industry. Everyone knows that the computer industry changes at the speed of light tonight. Now we have people who clearly can help us articulate and understand where the ninjas are, what Apple can compete and successfully win. So a lot of times we try to focus on ourselves. We engineer ourselves internally, and we forgot sometimes who pays the bills. It's the customer out there that pays the bills. You know, one of the things that bothered me years ago is when they raised prices. I thought that that was of the

the... it made me think that Apple didn't understand the outside world. I think Apple needs to worry less about competing with Microsoft and worry more about doing things that are different. That's back to innovation. It's back to creativity. It's back to vision. No one's really, until we get the revenues and the cost back in line, and that means we got to start growing the revenues again. Companies have to look at everything they're doing and determine, you know, what our core competencies are, what are the core parts of the business. In a sense, Apple is jointly trying to do too many different things. We need to focus on a

handful of things and do them really, really well. Well, I was on the Citicorp Board in 1991. The price of the stock was $9 a share, and there were many negative articles being written about Citicorp, was going bankrupt. The price today is $130, mainly because we did the fundamental things that were necessary to focus on the customer and focus on having a highly successful business. At Citicorp, we had to take nearly four billion dollars out of the cost structure to get Citicorp fully competitive, particularly with the Japanese. I've seen it at DuPont. I've seen it at IBM. I've seen it at Citicorp. The success starts to generate

additional success. Well, the confidence has to start with a clear vision: what are we trying to accomplish, what are we trying to do? You take that vision down to a strategy. People have to look at it and say, yes, they can do that. When a company like the energy—you can't do anything to the company. So I think we're Steve and the new board members, first thing we need to do is inject new energy, new thoughts. Apple has very strong positions in two market segments: first education and secondly creative content. What other computer system has twenty to twenty-five million loyal, enthusiastic computer users just building on that place there?

Dedication, bringing out great products. Whenever you have a strong position in a market segment, you can capitalize on that. You know, Apple is the only lifestyle brand in the computer industry. It's the only company that people feel passionate about. You know, my company Oracle, it's a huge company; IBM's a huge company; Microsoft's a huge company, but no one has incredible emotions associated with our companies. Only Apple is really a lifestyle brand, and companies can spend billions of dollars to build a brand. Apple does not have to do that; it's already been done. The important thing is that we've begun to build products that are wonderful in aura. Steve would say insanely great, and it's time to duckbill.

Insanely great products. The biggest thing you can do is go out, buy a Mac. Do I use a Mac? Absolutely, I use a Mac. I have three of them in my home. I've been using a Mac since 1984, and I'm not about to stop. I pop it on every single machine that we have ever produced, and I can tell you no one can change me in terms of personally what machine I will use. It's gotta be a Mac. (Applause) (Music) So, as you can see, this is a pretty diverse group of people, a lot of deep industry expertise who come together to

say, "Hey, this world's a lot better place with a healthy Apple computer in it." Okay, next market focus. Yeah, I can't get anyone to tell me the definitive market share number for Apple, but it's around 7% from all I can gather. And the question is, where is Apple relevant? Where is Apple still the dominant player? Which market segments? And our two. The first one I call creative content; it's publishing, design, pre-press, etc. It's creative professionals using computers, and what's interesting is Apple is still

the dominant market leader for creative professionals by far. It's like 80% of the computers used in advertising and graphic arts, design, pre-press—all Macintoshes. And 64, what percent is the best number I could find—64% of all internet websites are created using a Mac. It's amazing, but we haven't been doing a good enough job here. As an example, there are something like 10 to 15% of Mac sales which can be traced directly back to people using Adobe Photoshop as their power app. Right, when was the last time

you saw Adobe and Apple co-marketing Photoshop? You know, when was the last time we went to Adobe and said, "How do we make a computer that'll run Photoshop faster?" These things haven't been as cohesive as they should have been, and I think we're going to start proactively focusing much more on how we do this. The second market is one that's very close to my heart: education. Apple put the first computers in education, Apple did it again with the Macintosh, and

Apple is still the dominant leader in education now. I'm gonna ask a question about, who is the largest education company in the world? Who's the largest education company in the world? Yeah, the answer is Apple. Apple is the single largest education supplier in the world. AIG—it's a supplier to education in the world, single largest education company in the world. I've asked a hundred people at Apple this and only two have thought of a pathetic—it's incredible the position Apple still has in education. Sixty percent of all computers in education

are Apples. Sixty-four percent of computers teachers use are Macs. It's a two to two and a half billion dollar business for Apple every year. What an incredible foundation to build off of, what an incredible legacy to build off of. And so you're gonna see Apple proactively focusing much more on these two markets where it is very relevant, and both of these markets are growing over 20 percent a year. Now Apple's share is shrinking in these markets slowly, but I think you're gonna see that stabilize and turn around, and you're gonna see Apple grow with these markets because it's gonna do a much better job of focusing where its

relevance is and where its legacies lie. Next, core assets. As you know, Apple's greatest core asset is you all. It's the group of 20 to 25 million active users that believe that Apple products and Macintosh is still the best in the world. (Applause) I don't think we've been doing a good enough job taking care of you. Have you called the—I mean, I call the support lines myself. I've gotten very acquainted with the whole signal, and so I think

we're gonna see some changes there soon, and I apologize for (Applause). Right now, let's get a little more analytical, and I want to say sort of from a more analytical standpoint, what are Apple's core assets? And there's two of them that I've been able to uncover. The first one is the brand itself, and the second is the Mac OS. Now, the brand, if you asked—what are the five greatest brands in the world? If you went out, you asked professionals this question, you know, I think Nike would be on everybody's list,

Coca-Cola would be on everybody's list, Disney would be on everybody's list, and Apple would be on everybody's list. We have one of the world's greatest brands, and we haven't paid much attention to it in the last several years, and I think you're gonna see that start to change. Now, I want to focus on the Mac OS. The Mac OS is an incredibly core asset to Apple and we've been walking all over it. I mean, most people think that we're about to abandon the Mac OS. Most people think that, you know, System Macintosh OS 8, which we just released, was codenamed Tempo, as you know, right? So we just released Tempo. Most people think our

Next release next year, which is codenamed Allegro, will come out. But then our next release will be Requiem. The Mac OS is still the best thing in the world. It is still the best thing in the world. There are over 20 million active users. The numbers a little closer to 25 million. There are thousands of development developers, and there's a billion and a half dollar software industry built around this thing. This is one of the core assets of the company, and we are going to invest a lot more in it because we think it is an incredible asset and it has yet to really be fully exploited. Apple is about the Mac OS.

We're gonna be doing other things because we're creative people, but at the core, Apple is about the Mac OS. And all of the fears that I've heard of people that were banding it are absolutely not true. Our latest release, Mac OS 8, I've got some really good news for you. We released this thing two weeks ago and we have already sold 1.2 million (applause) (music) — but four times greater than what our forecast was. So we're scrambling to ship everything, and if it takes a little bit to get yours, please, I

apologize for that, but we are scrambling. And this number is going up. I mean, that shows no sign of abating. So things are going very well with OS 8. Now I'd like to talk about meaningful partners. Apple lives in an ecosystem and it needs help from other partners. It needs to help other partners, and relationships that are destructive don't help anybody in this industry as it is today. So during the last several weeks, we have looked at some of the

relationships, and one has stood out as a relationship that hasn't been going so well but has the potential, I think, to be great for both companies. And I'd like to announce one of our first partnerships today, a very, very meaningful one. And that is one with Microsoft's. The discussions actually began because there was some patent disputes and rather than (applause) rather than repeating history, I'm

extremely proud of both companies that they have resolved these differences in a very, very professional way. And this has led, I think, to an overall relationship that we're announcing today that's got several parts to it, and we're extremely excited about. First part of it is a patent settlement cross license. The two companies have reached a full cross license for all patents that exist and put patents that are filed within the next five years, and it has been a very serious patent settlement. The second part of this is Microsoft is committing to release Microsoft Office on Macintosh for the next five years.

(applause) (music) (applause) They are going to release the same number of major releases as they release on Windows during that time. Their first release is going—they're gonna target to have it out near the end of the year. It might slip a few months in the next year, but they're working real hard on it and it looks very, very good. Next, we have taken a look at browsers out there, and Apple has decided—Apple has decided to make Internet Explorer its default browser on the Macintosh. (music) Since we believe in choice,

choice, we're going to be shipping other internet browsers as well on the Macintosh, and the user can, of course, change their default should they choose to. But (applause) we believe that Internet Explorer is a really good browser and we think it's going to make a fine default browser. Java: we are going to be collaborating with Microsoft on Java to ensure that we can get the best from each other and ensure that there's compatibility between our virtual machines, and we think that that will serve everybody's interests. And lastly, Microsoft is making an investment in Apple. Microsoft is buying a hundred and fifty million

dollars worth of Apple stock at market price. It is non-voting shares, and they (applause) and they've agreed not to sell them for at least three years. So what this means is is that Microsoft is going to be part of the game with us as we restore this company back to health, have a vested interest in that stock price going up. (applause) We're going to be working together on Microsoft Office, on Internet Explorer, on Java, and I think that it's going to lead

to a very healthy relationship. So it's a package announcement today. We're very, very happy about it. We're very, very excited about it. And I happen to have a special guest with me today via satellite downlink, and if we could get him up on the stage right now that I've done in my career and has been

the work that I've done with Steve on the Macintosh. Whether it's the first introduction or doing products like Mac Excel, these have been major milestones, and it's very exciting to renew our commitment to the Macintosh. We have over eight million customers using Microsoft software on the Macintosh. We make it very easy for people to use Macintosh to take their documents and work with all kinds of machines. We're very excited about the new release we're building. This is called Mac Office 98. We do expect to get it out by the end of this year, and we've got some,

some real exciting features. It's a product that's gonna require no setup. It's going to be an easy transition for people in the past, and I think it's going to really set a new benchmark for doing a good job, performance, and exploiting unique Mac features. In many ways, it's more advanced than what we've done on the Windows platform. We're also excited about (applause), and we've got a very dedicated team that's down in California that works on that product, and the code is really specially developed for the Macintosh. It's not just a port of what we've done in the Windows environment. So we think

Apple makes a huge contribution to the computer industry. We think it's going to be a lot of fun helping out, and we look forward to the feedback from all of you as we move forward doing more Macintosh software. Thanks. (applause) Thank you. You know, where we are right now is we're shepherding some of the greatest assets in the computer industry, and if we want to move forward, it's the Apple healthy and...

prospering again. We have to let go of a few things here. We have to let go of this notion that for Apple to win, Microsoft has to lose. (applause) To embrace the notion that for Apple to win, Apple has to do a really good job. And if others are going to help us, that's great, because we need all the help we can get. And if we screw up and we don't do a good job, it's not somebody else's fault; it's our fault. So I think that's a very important perspective. I think if we...

want Microsoft Office on the Mac, we better treat the company that puts it out with a little bit of gratitude. We'd like their software. The era, the era of setting this up as a competition between Apple and Microsoft is over, as far as I'm concerned. This is about getting Apple healthy. This is about Apple being able to make incredibly great contributions to the industry, to get healthy and prosper again. (applause) The last perspective I'd like to leave with you on this is, you know, sometimes...

points of view can really make you look at things differently. When we hear a new point of view like, for me, when I was looking at the statistics and it hit me that Apple is the largest education company in the world, that was like a bolt of lightning. That's huge! What an incredible base to build off of. Another bolt of lightning is that Apple plus Microsoft equals 100 percent of the desktop computer market. (applause) Whatever Apple and Microsoft agree to do, it's a standard. And I think that you'll be seeing us work with Microsoft more...

because they're the only other player in the desktop industry, and I think you'll be seeing Microsoft want to work with Apple more because Apple is the only other player in the desktop industries. So I hope we have even more cooperation in the future because the industry wants it. Lastly, I want to just talk a little about Apple and the brand and what it means, I think, to a lot of us. You know, I think you always had to be a little different to buy an Apple computer. When we shipped the Apple II, you had to think differently about computers. When computers were these things you saw in movies, they occupied giant rooms. They...

weren't these things you had on your desktop. You had to think differently because there wasn't any software at the beginning. You had to think differently when a first computer arrived at a school where there'd never been one before, and it was an Apple too. I think you had to think really differently when you bought a Mac. It was a totally different computer, worked in a totally different way, used a totally different part of your brain, and it opened up a computer world for a lot of people who thought differently. You were buying a computer with an installed base of one. You had to think differently to do that, and I think you still have to think differently to buy an Apple computer. And I think the people that do buy them do think differently, and they are the...

creative spirits in this world. They are the people that are not just out to get a job done, they're out to change the world, and they're out to change the world using whatever great tools they can get. And we make tools for those kinds of people. So hopefully what you've seen here today are some beginning steps that give you some confidence that we too are going to think differently and serve the people that have been buying our products since the beginning, because a lot of times people think they're crazy. But in that craziness, we see genius, and those are the people we're making tools for. Thank you very much. (applause) (music)

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