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The world was opening up to Apple bit by bit, and vice versa. The iPod was Apple’s first mass-market consumer device, but it had come about because Steve and his team had taken one logical step after another: first iMovie, then a correction leading to iTunes, then the iPod. Steve’s patience, discipline, and vision had set Apple on a new course, one that was more complicated than its old path, which had simply involved the regular improvement of personal computers. Apple would now follow its explorations to their logical conclusion, even if this led the company into the heart of other industries. If Apple could successfully maneuver in the world of music, it might, under Steve’s leadership, be able to do so in other kinds of business as well. The grand scheme—bringing computing tools to people who could employ them creatively to enhance their lives and work—remained the same. But the breadth of Apple’s horizon had stretched.
As a mass-market consumer electronics device, the iPod would eventually be sold, of course, all the usual places: Best Buy, Circuit City, big-box department stores, and even the computer retailers like CompUSA. Steve disdained all these outlets. His obsession with his products continued well after they’d been manufactured. The tacky, low-margin hustle of these chains ran completely against the minimalist aesthetic of his products and the clean exuberance of his marketing. There was only one place where he really enjoyed seeing his products sold to the public: his own Apple stores, which had debuted four months ahead of the iPod.
Going back as far as the debut of the Mac, Steve had always groused about the way Apple computers were sold in its resellers’ stores. The way his computers were displayed and sold represented the very worst of what could go wrong when things weren’t done his way. The salespeople, always interested in quick turnover, seemed to make little effort to understand what was special about a Mac, and had less incentive to do so after IBM and its clones became dominant. Even at NeXT, Steve had talked to Susan Barnes about creating a different kind of computer store, one in which his high-end productions could be shown off to discerning customers.
In early 1998, just a few months after his return to Apple, he asked his chief information officer, Niall O’Connor, to come up with a proposal for an online store where Apple could sell its computers directly to customers, much like Dell Computer was doing then with such great success. O’Connor asked Eddy Cue, who was then an IT technician in the human resources division, to sketch out an initial version of what the store might look like from a programmer’s perspective. “I don’t think Niall thought I was his best person,” says Cue, “but he did think I could deal with Steve, for some reason.” Cue, who had never met Steve and knew little about e-commerce or retailing, sought advice from a number of people, including head of sales Mitch Mandich. “Give him your best ideas,” Mandich told him, “but it won’t matter because we’ll never do it. It would piss off the channels [the stores and distributors that had traditionally sold Apple’s computers].” One week later, Cue, O’Connor, Mandich, and others attended a meeting to review the initial proposal. Cue handed his presentation to Steve—he’d made it visual, because everyone had told him that Steve preferred visual presentations, and he’d put it on paper, because everyone had told him Steve hated sitting through slides, especially in small meetings. All the research seemed to have gone for naught. Steve looked at his pages, handed them back, and said, “These suck.”
Despite his gruff initial reaction, Steve asked the others in the room about Cue’s proposal, and about the basic idea of selling direct to customers online. The executives around the table started to talk about all the problems they could foresee with an online store—tying customized purchases into a manufacturing system that had been built to create computers with standardized configurations; not having any research indicating that customers actually wanted to buy computers this way; and, most worrisome, the potential for alienating Apple’s existing retail partners, like Best Buy and CompUSA. Mandich, who was senior enough to know that an interesting discussion was developing, kept silent. Finally, one of the senior guys opposing the idea spoke up. “Steve,” he asked, “isn’t this all pointless? You’re not going to do this—the channel will hate it.” Cue, who didn’t know any better, turned to him immediately. “The channel?” he exclaimed. “We lost two billion dollars last year! Who gives a fuck about the channel?” Steve perked up. “You,” he said, pointing at the senior exec, “are wrong. And you,” he continued, looking at Cue, “are right.” By the end of the meeting, he had asked Cue and O’Connor to create an online store where buyers could customize their purchases—and to have it completed in two months.
The online store went up on April 28, 1998. As Cue prepared to drive home that evening, he walked past Steve’s office to tell him they’d sold more than a million dollars’ worth of computers in just six hours. “That’s great,” said Steve. “Imagine what we could do if we had real stores.” Nothing would ever be enough, Cue realized. He liked the challenge.
STEVE LOVED GREAT stores. When on vacation in Italy or France, he would insist that Laurene join him in visiting Valentino, Gucci, Yves Saint Laurent, Hermès, Prada, and the like. Wearing the ragged cutoff jeans and Birkenstocks of a bohemian American tourist out for a long day of informal sightseeing, Steve would squire Laurene around exclusive shopping districts. After strolling into one of these bastions of fashion, he and his striking blond wife would head in completely different directions. While Laurene browsed distractedly, Steve would buttonhole the salesclerks and bombard them with questions: Why had they chosen to devote so little space to their merchandise? How did people flow through the store? He’d look at the stores’ interior architecture, wondering how the interplay of wood, arches, stairways, and natural and unnatural light helped set a mood that was conducive to spending outrageous sums of money. To Steve, these stores were pulling off something he had never been able to manage: they sold a lifestyle product at an absurdly high margin by presenting it in a beautiful and yet informative way. The presentation itself helped justify the higher prices a customer was asked to pay. The dreary aisles and dull salesmen of Circuit City and CompUSA were making no such argument for Apple.
In 1998, Steve convinced Gap CEO Mickey Drexler to join Apple’s board of directors. Then, in 2000, he hired Target’s vice president of merchandising, Ron Johnson, and made him part of the executive team, with a bold and simple mandate: Create the ideal store. “The Mac is unique,” Steve told me many years later. “The trick was to get it in front of people somewhere where they could see what makes it different and better, and to have salespeople who had something to say about it. We thought if we didn’t do that, we’d go broke.”
Johnson came from old-school retailing, but he was the right man for the job Steve had in mind. After earning his MBA at Stanford, Johnson chose to start his career unloading trucks for the Mervyn’s department store. He then moved up the ranks at Target before making his mark by commissioning the architect Michael Graves to design a teapot exclusively for the department store. Graves had designed a teapot for the Italian appliance icon Alessi in 1984 that was still a global bestseller a decade later, and Johnson wondered, “Why are beautiful objects not available to everyday people, but only to the well-to-do?” It was a question that could have popped full-form out of the brain of Steve Jobs.
When it came time to introduce Graves’s teapot, Johnson engineered an event that also could have been dreamed up by Steve: he rented out the Whitney Museum in New York City to “let the press see what design could be for everyday people.” The teapot, and a line of other merchandise designed by Graves exclusively for Target, set the department store on the path that eventually led to its becoming the high-end, urbane alternative to Walmart. When Jobs came calling, he wooed Johnson, who was not headed toward a CEO role at Target, with the same kind of promise of unlimited opportunity that had worked with Sculley: “You get to do it all,” Steve told him.
“I looked at it as a chance to work with one of the greatest creators ever,” Johnson told a group of Stanford MBA candidates during a 2014 interview, “but my friends in the Valley all thought that I was nuts. ‘You’re leaving Tar-jzeh [the Francofied pronunciation that both mocked and trumpeted the chain’s high-end position] and going to that loser company?” It was the year 2000, when Apple was still seen as a marginal player in the market for personal computers.
Throughout the interview process, and in Johnson’s early days at Apple, Jobs spent more time talking to him about personal matters than retail affairs. “The first time we met,” Johnson said, “we talked for two or three hours about all kinds of things. Steve was a very, very private guy. He had grown up fast, and he was only best friends with a handful of people. He told me, ‘I want to be good friends, because once you know how I think we only have to talk once or twice a week. Then when you want to do something you can do it and not feel that you have to ask permission.’ ”
For some time, Johnson was the only retailer employed by Apple. For weeks after his arrival, he sat in on the executive team meetings and mulled over what would make for the ideal store. The key was the customer experience, and as Johnson pondered this, every idea he came up with was counterintuitive. Stores that sell to a customer once every few years generally opt for cheap real estate in remote locations; but the ideal store, for customers and for a brand looking to make its mark, would be right at the center of things. Telephone support should be fine for such occasional customers, but face-to-face interaction is what people really want, especially with computers, which are a lot harder to understand than, say, a raincoat. Salespeople are motivated by commissions, but customers don’t want to feel pressured into buying something they don’t want. Johnson came up with almost a dozen of these ideas, each of which went against the heart of traditional retailing practice. According to Johnson, Steve supported all of his most far-reaching thoughts. “ ‘If you think something through hard enough,’ Steve would say, ‘you’ll get to the inevitable answer,’ ” remembers Johnson.
At Mickey Drexler’s suggestion, Jobs asked Johnson to develop a prototype for what an Apple retail store might look like. Commandeering a warehouse a couple of miles away from the Apple campus, Johnson built his prototype under the greatest secrecy. Much like an Apple computer under development, the prototype went through several iterations. It was a design project as much as anything, and Steve pushed for a minimalist, clean feel, with easy navigation around tables featuring Apple’s laptops and desktop computers.
By late 2000, Jobs and Johnson had a prototype they liked. But on a Tuesday morning in October, Johnson woke up with an epiphany: the layout of the stores, which revolved around areas selling particular product lines, was all wrong. Steve and the executive team had been discussing one subject endlessly in their Monday-morning meetings: the digital hub. Johnson realized that the stores should be laid out to match that concept, with an area built around music, and another built around movies, and so on. It was, once again, a counterintuitive thought—and yet it was also, once again, a thought that would serve customers better than the more common approach that Apple had been on the verge of embracing. That morning, Johnson joined Steve for a previously scheduled review of the prototype. On the car ride over to the prototype hangar, Johnson told Steve that he thought they’d gotten it all wrong. “Do you know how big a change this is,” Steve roared. “I don’t have time for this. I don’t want you to say a word to anyone about this. I don’t know what I think of this.” They sat for the rest of the short ride in silence.
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.
If Apple were to try to sell music itself, Steve would have to convince the heads of all five major record companies that an independent online store operated by Apple was their best, and perhaps their only, choice, given the sophistication of the digital onslaught they faced. Even then, given their temerity, he’d have to bend over backward to give them a comfortable way to try it out.
Selling music online was a complicated challenge. Apple’s engineers needed to adapt iTunes so the music could be bought and organized easily, so charges could be recorded and billed appropriately, and so purchased tracks were encrypted to prevent buyers from copying and sharing purchased music indiscriminately. This last bit, a measure that would protect the labels from further piracy, was actually the most straightforward. Software companies had been working to address such security problems for more than a decade, and had developed all manner of digital locks and online verification tricks to protect their own software. Depending on what the label heads would eventually decide they wanted, Steve could easily customize the encryption, or watermarking, of MP3 tracks. It was much easier for Apple to tame that technology into a simple, foolproof lock than it was for the labels.
The more significant challenge facing the store’s developers was billing. This seemingly simple problem was profound—existing billing systems might have cost music purveyors more for each transaction than the profit they could earn. This was in large part because of an issue that was becoming as vexing to the industry as piracy—namely, that online buyers were showing a preference for buying individual singles rather than higher-priced albums.
Napster’s own traffic had demonstrated this new consumer behavior. When music fans could download whatever music they wanted, they liked to cherry-pick their favorite tunes, rather than get an entire album. This was a complete reversal of what happened to the music business in the late 1960s and early 1970s, when the recording industry all but did away with the single and focused instead on albums that commanded a much higher unit price. Many artists embraced the change and recorded “concept” albums, such as the Beatles’ Sgt. Pepper’s Lonely Hearts Club Band, The Who’s Tommy, or Pink Floyd’s The Wall. But labels abused the concept and regularly released albums with just one or two strong tracks, knowing that committed buyers would spend $10 to $15 on the whole album just to get those tracks.
Steve knew that there was no turning back from the “Napster effect.” Now that listeners had the option, they would nearly always choose singles over the albums padded with forgettable tracks. Steve thought singles should sell for 99 cents, which more or less represented the imputed value of a track on an album, since the average conventional CD in the 1990s had a dozen or more tracks and sold for about $15. The price also appealed to Steve’s nostalgic streak, since it was the same price that he and others our age had paid for the 45 rpm singles we’d purchased in the 1960s.
There was one problem with Steve’s idea, however. Historically, Visa and MasterCard charged 15 cents, plus around 1.5 percent of the transaction value for a single purchase; while American Express charged 20 cents plus 3.5 percent of the transaction value. That’s not such a big deal when the sale price is in the tens or hundreds of dollars, but when a single song costs just 99 cents, a transaction fee of 17 to 24 cents would be ruinous.
If Apple was going to become a significant music e-tailer, it needed to figure out how to process charges for small purchases without forcing the credit card companies to radically alter their commission structures. (Apple wasn’t the first to face this conundrum of finding an affordable way to process and pay for non-cash “microtransactions” of less than a dollar. It had befuddled just about everyone except the phone companies, who solved it by aggregating their own internal accounting and billing for customers’ individual phone calls once a month.)
Eddy Cue figured out a couple of ways to get around the problem. First, he suggested that the iTunes music store periodically bundle groups of purchases from an individual customer to send to the credit card clearing companies as a single transaction, rather than post them individually. That wouldn’t always be possible, but as the store’s traffic increased, the credit card charges could be consolidated into fewer separate transactions. Also, Cue had the store offer a simple way for parents to set up “music allowances” to prepay for their kids’ purchases, which would provide up-front payments in large enough increments to cover the cost of reconciling transactions as they trickled in later.
These kinds of intricate answers delighted Steve. When Apple took on a major project, he wasn’t just concerned with the design and marketing. He wanted to know everything about the project, and he expected his employees to attack every conceivable problem—from design and engineering to seemingly mundane tasks such as packaging and billing—with creativity. Steve told me he was just as proud of the microtransaction solution as he was of the redesigned iPod models he would introduce in conjunction with the opening of the online store.
Cue’s team made another crucial decision: Apple would build the iTunes digital “storefront” right into the iTunes application, rather than create a public website to serve as its music retail site. If you look for “www.itunes.com” online, you come to an Apple.com marketing page for iTunes, which describes its many wonders but doesn’t allow you to buy music. The only way to get to the store is via the iTunes application, which at that time was available only for Macintosh computers. This appealed to Steve for several reasons. It gave Apple control of all the technology behind the store, and it cemented a direct commercial relationship with customers. The simple transaction of buying a song, and of handing over a credit card number to Apple in order to so, became part of what Steve had begun calling “the Apple experience.” As a great marketer, Steve understood that every interaction a customer had with Apple could increase or decrease his or her respect for the company. As he put it, a corporation “could accumulate or withdraw credits” from its reputation, which is why he worked so hard to ensure that every single interaction a customer might have with Apple—from using a Mac to calling customer support to buying a single from the iTunes store and then getting billed for it—was excellent. Steve had told me back in 1998 that the only reason for companies to exist was to build products; he was now using his company to build more than just products. Apple was now creating a holistic customer experience. Everything the company did, from technology development to the design of its stores, offline and on, was in service of that customer experience. Apple’s broad-based, intense focus on this was far ahead of its time, and would have wide cultural implications. After seeing and experiencing the uniform excellence of Apple’s products and service, customers would increasingly demand the same from other companies. Apple redefined the word “quality” and forced other companies to wrestle with the higher expectations of their customers.
There was another key short-term benefit to building the iTunes store into the iTunes application: the limited reach of the iTunes store would be reassuring to the nervous music industry executives Steve had to woo. Half a million iPods had been sold, enough to create a meaningful niche but not nearly enough to affect the broader economics of the entire music industry. After all, Mac users accounted for a measly 4 percent of all personal computer users. For once, that minuscule market share was a competitive advantage. Since online sales of digital music represented a fearsome change to the label chiefs, Steve went to them with a simple, seemingly safe proposition: Why don’t you experiment with selling music downloads, to gauge demand and learn the customer and marketing dynamics, in my safe and tiny “walled garden”?
Steve’s negotiating challenge was considerable. He needed every leader of the big five labels—Universal, EMI, Sony, BMG, and Warner—to sign on. He was probably right in presuming that any online store that couldn’t claim a huge selection across every major label was doomed to fail. And he was charging a stiff price in return for his end-to-end solution: 30 percent of every sale made on the iTunes Music Store.
Fortunately for Steve, he quickly found an ally: Roger Ames, the head of Warner Music, whom he knew through an executive at AOL named Barry Schuler. Ames, an unpretentious realist in a business that was then still floating on the fumes of past profits and successes, saw clearly what Warner could accomplish on its own technologically: “Absolutely nothing,” he says. “We didn’t have any real technologists at Warner. It’s a record company, not a tech company!” Convinced that Steve had the only reasonable solution to where the industry was headed, Ames introduced Steve to the leaders of the four other major record studios, starting with those he thought would be most receptive. Their progress was steady, if bumpy. The reluctance of the record company executives was palpable and understandable. Some still denied that digital distribution of music was inevitable, while the more pragmatic feared that they would lose pricing power over their own products by ceding distribution to an outside industry that they didn’t quite understand or trust. Steve listened to them, and modified the store and the digital protections on singles to their liking. He knew he couldn’t just impose a solution on the industry.
Steve also knew how to get what he wanted, and he negotiated with both carrot and stick. While he worked with the studio chiefs and led them to see that he truly did have a safe and complete solution designed for them by the very best technologists, he was also sure to remind them that the digital onslaught they were trying to ignore was inevitable and irrepressible. If they were worried about losing control, well, he invited them to just wait and see what might be wrought by the smarter, sneakier successors to Napster!
Of all the record company heads, Andy Lack at Sony was the most suspicious. Sony had its own consumer electronics division, with its own approach to selling portable digital music players that used a completely different compression and encryption scheme. Furthermore, everything in Lack’s decades of experience as a media executive at NBC and other places told him that iPod sales would soar if Apple could offer a full-service music store, and that the company would probably even sell millions more Macs as a result. If that was the case, why weren’t the music companies the ones getting a slice of Steve’s business, rather than the other way around? Other studio heads sensed this as well, and they—or the CEOs of their parent companies—made equity offers that would have created partnerships that went deeper than mere revenue-sharing on music tracks. But these were halfhearted, and Steve believed that the longer he held out, the more the record companies would see that they needed his solution.
Finally, Lack caved. On April 23, 2003, the iTunes Music Store opened for business with an inventory of 200,000 songs. During the very first week customers downloaded a million tracks, and by the end of the year Apple had sold more than 25 million songs.
JUST AS LACK had predicted, iPod sales soared, to the point where several of Steve’s lieutenants believed that the market of existing Macintosh users was nearing saturation. They argued that the next logical step in the expansion of the iPod was to create iTunes application software for Windows—which of course meant opening the iTunes Music Store to every computer user in the world, which was exactly what Steve had promised not to do.
Steve initially resisted the idea, for reasons that were both strategic and emotional. Steve had always wanted Macs to have distinctive features that consumers couldn’t get from a Windows PC. Also, he still wanted to see if the iPod itself might begin to drive up Mac sales—that part of Lack’s prediction had not yet come true. But Avie, Sina, Ruby, Fadell, and others argued that iTunes for Windows coupled with the iPod would give hundreds of millions of PC users a means to taste for themselves Apple’s more inviting approach to personal computing. The idea that the iPod could be a diminutive Trojan Horse to help Apple finally begin to win back some market share for Macintosh personal computers really intrigued Steve. After all, the team reminded him, wasn’t he the one who was always saying that if the company could pick up just a few points of PC market share, revenues would soar? Furthermore, even though the expansion would mean that PC users would use iTunes software on Windows, Apple would still control their entire digital music experience, from its iTunes software to its store to its iPod. As it had with iMovie, the team wore Steve down—quickly, this time—and convinced him to shift direction. Changing his mind now would pay off as much as it had then.
Just a few months earlier Steve had cajoled the music label chiefs into signing off on that “little,” Mac-only test of the iTunes Music Store. Now here he came again, wanting to expand the experiment to, oh, every other personal computer user in the entire world. He had to get their permission, because the terms they’d agreed to applied only to the smaller universe of Mac users. But in the few months in between, they had seen that what Steve had forecast was true: consumers really would forgo piracy if given an easy way to acquire digital tracks at a cost that seemed fair. This time they put up minimal resistance; their business was headed in the direction Steve had predicted, whether they liked it or not. The iTunes Music Store gave them a way to like it a little better than the alternatives.
Once again, Sony’s Andrew Lack felt he had no choice but to go along with others, even though he felt duped by the speed with which Steve expanded the iTunes Music Store’s market. Despite Sony’s ample content and history of great consumer electronics devices, its business units were stubbornly independent operating divisions that couldn’t possibly collaborate well enough to create any kind of “whole widget” alternative. Years later, Lack still bemoaned the weakness he thought the music studios had displayed in their negotiations with Steve. “The iPod was empty without the music,” Lack has said. “I felt strongly that without a dual revenue stream [in which Apple had to give a cut of iPod sales back to the recording companies] the music business was going to struggle. If they’d stuck together, there was a chance they could have gotten somewhere. It’s my greatest regret.”
On October 16, 2003, Steve announced that Apple was offering free downloads of the iTunes application for Windows PCs. For some of the Mac faithful, this was as shocking as Microsoft’s investment back in 1997. Most, however, saw it as a vindication of their faith that Apple software, and its entire approach to personal computing, was far superior to anything offered by the Windows juggernaut. Steve knew it, too; he gleefully made part of his announcement under a slide reading “Hell froze over.”
Within three days, a million Windows PC users had downloaded iTunes and purchased a million songs via the iTunes Music Store. By the end of the year, more customers were downloading music from Apple through their Windows computers than through Macs. What the team was beginning to call “the Apple experience” had begun to infect the world of Windows.
It is so hard to remember, given Apple’s string of hits, the resulting ubiquity of its later products, and the dominant role it eventually assumed in our culture, that this rise was entirely unexpected, and a surprise even to the people who engineered it. One little thing led to another. One success, one particular challenge, could spur thoughts about another product, or a different iteration of an existing product, or a whole new channel of revenue. As Steve liked to say, “You can only connect the dots of how things really happened in hindsight.” Eddy Cue remembers a day in late 2003 when he was waiting for a plane and he looked around the airport lounge at the other passengers waiting with him. Perhaps a dozen folks were listening to music on iPods, earbuds in place; a handful of people were working on PowerBooks with the distinctive white apple silhouette glowing from the back of the lid; and only one guy was tapping away at a laptop PC. “Holy shit, I thought,” Cue recalls. “We’re really onto something here. We didn’t really have time to lift our heads up and look around, you know? But there it was. It was cool.”
AS STEVE WAS so fond of saying at the end of his meticulously stage-crafted keynote speeches, there was “one more thing” in 2003. In the late summer, he passed a kidney stone and went to the doctor for an ultrasound follow-up, to ensure that there weren’t more. In forty-nine years, Steve had never had any serious medical conditions, and when a urologist saw a shadow on the ultrasound and called to urge him to come in for a follow-up visit, he ignored her request. To her credit, she harangued him, and, finally, he returned to see her in October for what he figured would be a routine scan. The results were shocking: he had what appeared to be a cancerous tumor on his pancreas, a scary prognosis that often means the victim has just a few months to live. The next day brought news that what Steve actually had was a slower-growing, more treatable condition—something called a pancreatic neuroendocrine tumor. Both he and Laurene heaved a half-sigh of relieve. But the emotional see-saw of the two days had been exhausting. It was only the beginning of a slow-motion process that would ultimately prove to be beyond Steve’s control. And it came at the very moment when his efforts to will his company to success were finally starting to pay off in unimaginable ways.
