We need more great founders

Cross posted from the Engineering Entrepreneurship blog.

Successors to successful founders rarely do as well, according to two Bain consultants who’ve studied the topic.

The headline in Monday’s WSJ made it clear:

The Company Founder’s Special Sauce
No one leads a firm as effectively as the person who started it.
By CHRIS ZOOK and JAMES ALLEN
Dec. 18, 2016 5:03 p.m. ET

‘The Founder,” a new film starring Michael Keaton, tells the story of McDonald’s Corporation founder Ray Kroc as he turns a few small restaurants into a ubiquitous international chain. It’s a tale of founder-driven corporate growth—something that has become too rare today. This breed of entrepreneurial spirit makes for a good story, but it’s also crucial for the economy.

Research we published in July finds that of all newly registered businesses in the U.S., only about one in 500 will reach a size of at least $100 million in revenue. A mere one in 17,000 will attain $500 million in revenue and sustain a decade of profitable growth. Despite their rarity, these successful firms are a bedrock of the U.S. economy.

A study out earlier this year from Bain & Company, where we work, shows that over the past 15 years founder-led companies delivered shareholder returns that are three times higher than those of other S&P 500 companies.

Such performance can sometimes continue long after a founder leaves. We analyzed examples of sustained success at 7,500 companies in 43 countries, visiting many in person, to determine what made them stand out. Great founders imbue their companies with three measurable traits that make up what we dubbed “the founder’s mentality.”

Those three traits: insurgency (i.e. disruptive innovation), obsessive focus on customers, and permeating the vision of the founder throughout the entire organization.

I have not had a chance to read their research, but it rings true. I did my dissertation on Apple, once led by Steve Jobs — perhaps the most unique founder of the 20th century; in America, only Henry Ford, Tom Watson Sr., Hewlett & Packard and maybe Howard Hughes come close.

Jobs was driven to make “insanely great” products, to the point of being a tyrant (slightly more human after he had kids). Since his death five years ago, they’ve had mediocre leadership and nothing they have done has come close (something us shareholders must lament).

One caveat: while I lionize great founders — and aspire to be a good founder once again — there is an important confound. Firms have their best people, best ideas, greatest disruption and greatest impact during their initial growth phases; a second round of growth and disruption (as in the Jobs II era, 1997-2011) is virtually unheard of. Big companies don’t grow as much as small ones, nor is the CEO (of any stripe) able to have the same impact. (And unlike Jobs, most tech founders have their greatest impact in this initial period, not running the stable successful mature company).

Still, nothing I’ve seen this year does as good a job summarizing the great debt society owes to those who roll the dice, take great chances and endure years of high-stress intensity to create a new company. The decline in US startups is troubling not only for economic growth, but for the lost opportunities for employees, customers and complementors as well.

30 years of changing the world

Thirty years ago today, Steve Jobs unveiled the Macintosh. I didn’t see it live, but I bought the Time magazine report and put myself on the waiting list later that week.

It wasn’t much of a computer. At $2500, the Mac 128 was an overpriced and underpowered toy that didn’t do much other that matrix-print doodles. As I showed in my dissertation, it was another three years before Apple had something that could compete credibly with the IBM AT, and by that point the wheels were falling off of Apple as an organization as a series of mediocre CEOs replaced Jobs.

That said, Apple Computer changed the world — not once, but several times over. And nearly all these breakthroughs occurred when Steve Jobs was in charge.

Other firms changed the world, too. From the PC era, that would include IBM, Intel, Microsoft, Compaq, Visicorp and Lotus Development. When cellphones became smartphones, Nokia, Symbian and Research in Motion helped define the category before Apple released its first phone in 2007.

Some companies did a better job of created a technology (or product category) than a sustainable business. The first Palm PDA was an incredible breakthrough, but in the end, the world didn’t want a PDA, it wanted an all-in-one communication and computing device.

Just like aerospace engineers during the space race, I’m pleased to have lived through this era with a front-row seat. I’m also pleased to (so far) never have owned a Windows machine, which (given the PC industry’s ongoing decline) is a record that I’m likely to sustain to the end (Windows or mine).

Bill still wants to be Steve

Bill Gates still wants to be Steve Jobs — even though Steve is dead.

How else can we explain why Chairman Bill (or rather, his trusty sidekick and CEO, Steve Ballmer) is opening a new Microsoft store today in Valley Fair, the same Silicon Valley mall as one of the earliest Apple stores — the store where the media go to take photos of people lining up to buy an iPhone.

Today’s opening marks the 12th Microsoft store. (With a decade-long head start, Apple now has more than 300.) In 2009, Microsoft bragged it would open up retail stores “right next to Apple,” and 6 miles away from Apple HQ certainly counts.

However, Microsoft is bribing people (or rather celebrities) to generate traffic at both ends of the age spectrum. On Thursday, the QB of the first decent 49er team, 55-year-old Joe Montana, is making a 5pm appearance. On Friday, the 30-something duo The Black Keys is performing a free concert (free to customers, not to Microsoft) while on Saturday one of the teen heartthrob Jonas Brothers is doing the same.

I don’t see the point, but then I’ve never seen a Microsoft store and (other than an office suite) haven’t used their products for a decade. However, after visiting the LA store, Greg Sandoval of CNET wrote:

Offering techies a stage to show off power points isn't a bad way to get people in the store.

Still, Microsoft has a long way to go before challenging Apple. Not only does Apple dominate in the number of stores, but some doubt whether Microsoft possesses Apple's sense of style or can create the same first-class shopping experience—even with all the mimicking. There's also this: consumers shop at Apple because for decades now they have loved Apple products.

Microsoft hasn't been anywhere near so successful at duplicating that kind of customer loyalty.

Some “experts” claim we should want our kids to emulate Bill and not Steve. I think Steve did a better job of understanding — and more importantly, anticipating — what excited people, while Bill produced credible incremental improvements funded by monopoly rents. Now Bill is semi-retired to count his money and (ala Carnegie and Rockefeller) burnish his reputation for posterity.

Apple sans Steve Jobs will eventually lose that élan. That’s little consolation to shareholders of Microsoft, who’ve watched Steve Ballmer (charitably) lead the company sideways since taking over as CEO.

The retail strategy that worked for Steve Jobs is not going to work for Steve Ballmer. Apple store’s worked because (as Elaine Misonzhnik put it) “The stores are experiential rather than simply a machine for moving goods.”

Sony failed at retail stores because their products failed to excite people. With the important exception of Kinect, Microsoft has also failed to excite people as customers slowly defect from its platform to the Mac, tablets, Android, the iPhone and other non-Windows platforms. Among the 4Ps, Microsoft needs to focus on product, not place.

Steve Jobs, 1955-2011

Eight years after he was diagnosed with pancreatic cancer, and less than two months after resigning as CEO, Apple Chairman Steve Jobs died today.

Even in his absence, Apple Inc. is showing the perfect sense of style that Steve imbued to the company he co-founded 35 years ago. The website shows a picture of Steve

which then leads to a simple message

Steve Jobs
1955-2011

Apple has lost a visionary and creative genius, and the world has lost an amazing human being. Those of us who have been fortunate enough to know and work with Steve have lost a dear friend and an inspiring mentor. Steve leaves behind a company that only he could have built, and his spirit will forever be the foundation of Apple.

If you would like to share your thoughts, memories, and condolences, please email rememberingsteve@apple.com

The company issued a brief official statement:

October 5, 2011

Statement by Apple’s Board of Directors
We are deeply saddened to announce that Steve Jobs passed away today.

Steve’s brilliance, passion and energy were the source of countless innovations that enrich and improve all of our lives. The world is immeasurably better because of Steve.

His greatest love was for his wife, Laurene, and his family. Our hearts go out to them and to all who were touched by his extraordinary gifts.

The San Francisco Chronicle was the first to post (as is common for newspapers) the pre-written obit, updated with today’s news, and accompanied by seven photos. (The San Jose and New York papers were slower to respond, and the Los Angeles Times obit, while it had interesting tidbits, was not nearly as good.)

Even having read most of the Apple histories, I learned a few things from the Chronicle’s story. While Steve (son of an unwed graduate student) didn’t have a lot in common with his adoptive father,

[Steve Jobs] considered it lucky that his dad, a machinist, moved the family to Mountain View when Jobs was a boy and gave him a workbench in their garage.

"My father, Paul, was a pretty remarkable man," Jobs said in a 1995 oral history for the Smithsonian Institution. "(He) was kind of a genius with his hands (who) spent a lot of time with me ... teaching me how to build things, how to take things apart, put things back together."

Both the LA and SF obits talked about his rivalry with Bill Gates — Gates praising Jobs in the former and Jobs scorning Gates in the latter.

My own life was changed by Jobs and his creation, the Macintosh. From its release in 1984, I sought to make my living around this magnificent machine, which I did for 16 years until becoming a full-time college professor in 2002.

Of course the Jobs I era (1977-1986) at Apple was separated from the Jobs II era (1997-2011) by a string of horrible CEOs who did their best to destroy the company. (Convinced they were going to succeed, I went back to grad school to learn a new trade). Beyond what I’ve said earlier, there is little I can add to these and other testimonials to the contribution Jobs made to the computer, electronics, entertainment and publishing industries.

The Chronicle summarized his contribution thusly:

Jobs was considered by many to be the greatest corporate leader of the last half century, and indeed his numerous successes rank him alongside Ford, Disney and Edison as a giant of American business.

Both the Chronicle and the Times quoted Jobs’ thoughts on death from his famous 2005 Stanford commencement speech as did the local ABC affiliate. Here is the longer quote in context:

No one wants to die. Even people who want to go to heaven don't want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life's change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true.

Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

My prayers go out to Steve’s widow, Laurene, his two teenage daughters and his two adult children.

Insanely Great

Steve Jobs is still retired, but earlier today I heard an interesting commentary on the role that he played not only for Apple but the industry.

The source was Leo Laporte, who hosts a technology-oriented radio show on weekends here. For almost 30 years, I’ve had a love-hate relationship with computer journalists (typically over their bias, lack of technical knowledge and opinionated self-importance) but I’d have to rank Laporte as one of the best — and perhaps the best in the electronic media.

What caught my attention was when Laporte listed all the things that Apple didn’t invent but perfected

• Apple II (1977) was not the first PC (1975 or perhaps 1974)
• Mac (1984) was 3 years after the IBM PC (1981)
• iPod (2001) was not the first MP3 player
• iTunes was not the first music software
• iPad (2010) trailed Chairman Bill’s failed efforts at making a tablet by a decade; and
• the iPhone (2007) was not the first smartphone

Laporte was exactly right — many forget what Apple did to change the world because we forgot what it was like before Apple changed it.

Reading between the lines, none of these Apple breakthroughs happened during the Jobs interregnum (1985-1997). Apple did do a few important things during this period — QuickTime and the first PowerBook — but I think it’s easy to argue that none rise to the level of the Mac, the iPhone or the iPad.

As Laporte noted, Steve Jobs was not about making wads of money but changing the world. He once exhorted his workers to be “insanely great” which is how Apple transformed existing product categories into something new. (Management scholars might say Apple created the Dominant Design.)

Also as Laporte noted, the world that Apple created is probably different than the world that would have existed without Apple.

I’ve read every major book published about Apple in the 20th century, and a few of the later ones. The early histories make clear two things. First, Steve and Steve and the early employees were about changing the world. Secondly, their vision was creating computing for the masses, i.e. making computing personal. (And arguments about whether the Mac stole from PARC miss the point that Xerox was never going to change the world with a $15,000 workstation targeted at the Fortune 500.)

If you look at Atari and Commodore and some of the other early consumer PC pioneers, they had a completely different DNA. They were about selling lots of products, but they didn’t really care whether they got used or not. (The Commodore 64 was a powerful machine for its day, but without decent software I suspect most got stored in a closet as ours eventually did.)

Instead of just peddling boxes, Apple created the K-12 education market, a market they owned until (post-Steve) fears about its future (and the abandonment of the Apple II) created an opening for Dell to sell commodity PeeCees. Of course, much of this success accrued to Apple’s benefit, with half of US college students wanting a Mac over a PC.

Meanwhile, the decentralized third party software ecosystem concept of the Apple II has been replicated over and over — in the IBM PC, Macintosh, Windows, Xbox/PS/Gameboy, the iPhone, iPad and Android to name a future. The idea that you make a cool box, distribute APIs and wait for third parties to provide the missing pieces is now the norm for any software-enabled device.

As someone who now teaches bioscience students — many of whom will go into drug discovery and medical devices — I want to see how we can translate and infuse this passion for making a difference into their careers. People tend to hold up Steve Jobs as a brilliant product designer — and industry strategist — but we tend to forget the part about his focus on changing the world.

End of the Jobs II era

Steve Jobs resigned as CEO today, marking the end of the 3rd and final act of a career that transformed the the computer, consumer electronics, mobile phone and entertainment industries:

• Apple (Jobs I): 1976-1985
• NeXT: 1985-1996
• Apple (Jobs II): 1997-2011 (continuing as non-executive chairman)

In between, he also bought control of Pixar in 1986 for $10 million, making his personal fortune 20 years later by selling the company for a cool $7 billion.

As Walt Mossberg notes, it’s hard to think of a single individual who had as much impact on the business world across the last 30 years. Steve brought us the Apple II, Mac, iPod, iPhone, iPad and even a new campus for Apple. Steve Jobs has had better years (e.g. 2007 or 2010) than most IT industry CEOs have had careers.

Apple has been central to half my life. I was late to the Apple II, not using one until I shared an apartment with a fellow newspaper reporter with an Apple II+. However, I bought my Mac the first week they went on sale in 1984 and have owned one in some form or another for the next 27 years. I also ran a Mac-only software company from 1987-2002, wrote for Mac trade magazines and did my PhD dissertation on the tail end of Apple’s sad decline during the dark ages between the two eras of Steve Jobs.

Despite these long ties to Apple, I didn’t buy Apple stock when Steve returned to Apple. Big mistake: if I’d put in $10,000 — my standard IRA side bet — it would be worth $1.7 million today.

Aged 56, Steve Jobs still isn’t dead, and perhaps he will remain an active chairman for a few years. Apparently he’s remaining on the Disney board as its largest shareholder, monitoring the $4.5b (7.4%) stake that will provide an ample college fund for his three youngest kids. (His out-of-wedlock daughter Lisa graduated from Harvard 11 years ago). He also has 5.5 million Apple shares worth nearly $2b.

As we pundits predicted years ago, the efficient but unexciting Tim Cook gets to be CEO, and the market was not happy. It’s even big news in South Korea. But in 2013 or 2014, Cook will become chairman/CEO and Steve will surrender what is clearly his most precious child, which recently was the world’s most valuable company.

His youngest kids are (approximately) aged 13-20, so they got a few more years with their famous dad. Jobs’ news came on my late father’s birthday, so I’m reminded that even adult children will miss their father and cherish the time that have with him during his final days.

Beyond that, what else can the man do? His first authorized biography is coming out in November, so does he need to write his own memoirs? Set up for Laurene a charitable foundation to rival that run by Melissa Gates?

Whatever it is — and however much time he has — Steve Jobs the man has certainly earned his retirement, and he seems strategic enough in his thinking to figure out how to spend it wisely now that he has nothing left to prove.

Update: YouTube now has video of Steve’s original January 1984 introduction of the Macintosh.

Naming Steve’s legacy

Steve Jobs is promoting a new Cupertino HQ for Apple, perhaps his most enduring legacy to the company.

A local newspaper columnist solicited suggestions for a nickname for the futuristic building design, and in Sunday’s Merc revealed the three finalists he (and three journalist buddies) selected from the submissions:

• Fruit Loop
• The Halo
• The Core

Of course, he’s a reporter and (as he wrote in response to my email) “This is about having fun.” Still, the list suggests a lack of understanding of branding, positioning and (my own specialty) punmanship.

Semifinalists that didn’t make it into the finals were:

• The Glass Donut
• SteveHenge
• Apple Saucer

The (drinking) journalists’ committee ruled out all the i-series names, including iSite, iO (after the moon), and iCycle. They had earlier ruled out Jobsite and Eden.

The problem is that the finalists lack the emotional core of some of the more abstract names (SteveHenge, Eden) and the cleverness of the i-names. (The building will only be used for 25-35 years before it needs remodeling, and I’m sure people will remember the iPhone by then.)

My sentimental favorite is SteveHenge, because this is literally the office that Steve built — after rescuing the company from the near-death condition he found it in 14 years ago. Perhaps the ruins will even be examined four millennia hence.

As a business historian, however, I think the name that best summarizes Jobs’ 30+ legacy for the PC industry is Eden. The intended imagery is the Apple of temptation from the Garden of Eden, and of course the paradise-like working conditions that the coddled employees of high-margin Silicon Valley companies enjoy (at least until they get Mark Hurd as a boss.)

Probably unintentionally, it evokes the second book published on Apple Computer, Frank Rose’s West of Eden, which picks up where the seminal first book (Little Kingdom by Michael Moritz) leaves off.

The subtitle for West of Eden is “The End of Innocence at Apple Computer,” because it covers how Steve Jobs was forced out in his power struggle with John Sculley, the man who admittedly almost single-handedly wrecked the company. What more fitting a tribute to Steve Jobs do we need?

Time to say goodbye to Steve Jobs?

A day after his appearance to sell iCloud to developers, Steve Jobs emerged from seclusion Tuesday night to sell his vision of a new 12,000 employee corporate campus to Cupertino politicians.

Apple has been HQ in Cupertino for more than 30 years, most recently at the Infinite Loop facility originally intended to house R&D employees but one that housed most of the company during the cutbacks of the darkest days of the 1990s.

Steve Jobs doesn’t make many public appearances nowadays because (one presumes) he’s really really sick. He doesn’t do trade shows or general press interviews although he was able to make it three months ago when the POTUS flew into town.

When his time is scarce, Steve Jobs doesn’t do anything by chance or whim. That he showed up to wow the part-time council members (monthly salary: $730/month) in a small town of 50,000 suggests that this is really important to him.

And even for a company as insanely profitable as Apple, the spaceship motif campus (a round Pentagon) to replace the old HP facilities on the 150-acre site is over the top.

So my guess — and it’s only a guess — is that Steve wants to create a permanent, tangible legacy for his life that will outlive people’s recollections of his role transforming the PC, mobile phone and tablet industries. The new facility will be a lasting testimony to the success of Apple during the early 21st century, just as the PanAm and Rockefeller and Carnegie and other buildings testified to the success of their respective patrons.

Maybe Steve will eventually return as Apple CEO. Maybe he’s just hedging his bets in case his health doesn’t improve as he and his family pray will occur.

But with or without the bronze statue of Steve out in front — ala Walt Disney at Disneyland — Steve already has more of a legacy than ten CEOs randomly selected from the Fortune 500. He doesn’t need a building or statue as proof.

John Sculley, a refreshingly honest screwup

The blog Cult of Mac has an interview with former Pepsi salesman John Sculley in which he admits he was in over his head during his decade as Apple CEO of Apple Computer (1983-1993), as part of a larger interview praising the genius of Steve Jobs.

When I was writing the final draft of my dissertation almost exactly a decade ago, I credited Sculley with almost single-handedly destroying Apple. He lacked the technical skills and management abilities to make the operational decisions necessary to run the company, and then he doubled down when he named himself CTO in March 1990. As I wrote back in the summer of 2000:

Sculley was right in judging that this job was crucial to Apple’s innovation strategies. But he apparently did not consider how engineers would react to being led by a Wharton MBA whose previous job had been marketing soft drinks — let alone the possibility that he was technically over his head. As late as July 1992, when asked what he would have done differently, Sculley’s first response was that he would have become CTO even earlier:

I would have taken on the job of chief technology officer years ago. I wish I’d done that, and not waited so long. I should have done that probably when Steve Jobs left [in 1985]. The problem is, I didn’t know enough about the computer industry then, I’d only been in it a few years, and I’m not sure I could have succeeded at it then. But I waited too long on that one, and it should have been at least two years earlier (Yoffie 1992).

Sculley’s tenure as chief technical officer brought disaster, not only with the money wasted on unused technologies, but also the opportunity cost of technologies not developed and the hemorrhaging of invaluable software engineers.

Perhaps the biggest mistake was as CTO he encouraged most of the best software engineers to go to the “pink” team and then on to Taligent — while others left for General Magic — working on products that never shipped and with most never returning to Apple.

In his 1999 book, former Apple consultant (later FrontPage entrepreneur) Charles Ferguson wrote:

I had seen John Sculley up close as he wrecked Apple. Sculley was a reasonably smart, charming man. But he had an enormous ego, he knew virtually nothing about technology, and he was competing against Bill Gates, who was obviously much smarter, tougher, and more committed. Watching Sculley go up against Gates was rather like watching a rich playboy who was ordering his yacht to attack a carrier battle group.

In the recent Cult of Mac interview, Sculley makes it clear that he didn’t know how much he didn’t know:

I didn’t know really anything about computers nor did any other people in the world at that time. This was at the beginning of the personal computer revolution, but we both believed in beautiful design and Steve in particular felt that you had to begin design from the vantage point of the experience of the user.

Yes, few outside Xerox or SRI understood the implications of a GUI-based personal computer — or the idea that a computer would be primarily used for information processing rather than calculating — but there were plenty of people who knew a lot about computers. In 1983, Apple was six years old, the PC was 8 years old, and larger computers had been around for decades. (At that point, I’d been programming computers for over a decade.)

Jobs’ first choice for CEO was Don Estridge, creator of the IBM PC, who was posthumously named person of the decade in 1991 by PC Magazine. Estridge would have been a brilliant choice, but he decided to stay at IBM, and then was among 135 people killed two years later when a Delta L-1011 crashed at DFW.

Instead, Apple chose Sculley, who then forced out Jobs and remained CEO until sacked himself in 1993. He never ran another tech company again, although he served as a consultant, investor and board member for various startups.

Even if in 1983 Sculley didn’t know what he didn’t know, at age 71 he’s now following Harry Callahan’s maxim:

Looking back, it was a big mistake that I was ever hired as CEO. I was not the first choice that Steve wanted to be the CEO. He was the first choice, but the board wasn’t prepared to make him CEO when he was 25, 26 years old.

They exhausted all of the obvious high-tech candidates to be CEO… Ultimately, David Rockefeller, who was a shareholder in Apple, said let’s try a different industry and let’s go to the top head hunter in the United States who isn’t in high tech: Jerry Roach.

They went and recruited me. I came in not knowing anything about computers. The idea was that Steve and I were going to work as partners. He would be the technical person and I would be the marketing person.

The reason why I said it was a mistake to have hired me as CEO was Steve always wanted to be CEO. It would have been much more honest if the board had said, “Let’s figure out a way for him to be CEO. You could focus on the stuff that you bring and he focuses on the stuff he brings.”

Remember, he was the chairman of the board, the largest shareholder and he ran the Macintosh division, so he was above me and below me. It was a little bit of a façade and my guess is that we never would have had the breakup if the board had done a better job of thinking through not just how do we get a CEO to come and join the company that Steve will approve of, but how do we make sure that we create a situation where this thing is going to be successful over time?

My sense is that when Steve left (in 1986, after the board rejected his bid to replace Sculley as CEO) I still didn’t know very much about computers.

Even if Sculley has no career to protect, such a personal sense of accountability is refreshingly candid. In religion, philosophy and literature, both enlightenment and redemption come to those who fully repent of their mistakes.

Now if we could only get failed politicians (and past presidents) to do the same

Sorry, Steve

Steve Jobs made a few announcements yesterday, and as usual, probably every man woman and child on the planet has heard the news about new and improved iPods etc. Heck, you can even find a few hundred articles that talk about his decision to ditch the mock turtleneck.

Most of it was the expected better, faster, cheaper. The Nano I bought last month (on a special promo) is now smaller and has a clip. The youngest member of our household is hoping that the iPod Touch will be drop-shipped from the North Pole in late December. (Steve finally admits that the iPT is just an iPhone Lite). The AppleTV is no longer a hackable Unix-based stripped-down Mac, but (if rumors about its use of iPhone OS are to be believed) an iPT without a screen.

However, I think the new iTunes movie policy is crazy: no sales, $1 for renting a TV episode, and $5 for renting a movie. Maybe he’s just greedy or not serious; I don’t know.

Maybe it’s because the studios are fighting him and demanding ridiculous royalties; certainly the decision of CBS and NBC to boycott the effort suggests the studios are not cooperating, although the NBC recalcitrance (even pre-Comcast) is déjà vu all over again.

Movie rentals are a commodity. Right now I rent my movies for $1 from a kiosk at my grocery store. In other cases, I pay $0 to rent movies or TV episodes from the library, or $0 to watch TV episodes on a website.

Meanwhile, Netflix will gladly rent me movies and some downloadable content for $9/month. That includes downloads to a Wii, PS3, Xbox360, iPad or AppleTV.

Why would I want to pay $5 for a single movie rental? If the studios conspire to embargo movies from the discounters for 60 days — and somehow avoid antitrust scrutiny — then it might be possible to charge a premium for hot new releases. Otherwise, it’s hard to see how anyone — save perhaps rich Silicon Valley elites who have more dollars than sense — would pay more than $2-3 for a download that’s available in so many other ways for a heck of a lot cheaper.

Right and wrong

Steve Jobs announced the new line of Apple iPods today, and my predictions were both right and wrong. (I was in class and then meetings and so only now have been able to catch up with the video broadcast).

Of course, the big news was that Steve Jobs is not dead yet — as he said “I’m vertical” — publicly admitting to the liver transplant from a donor who died in a car accident. He did look haggard, 10 years older than his last public appearance, and was on stage less than 15 minutes.

Before he stepped away from the pdoium, he made a few announcements:

• iPhone: 30 million sold
• iPhone App Store: 75,000 apps, 1.8 billion app downloads (not including updates).
• iTunes 23 countries, 8.5 billion songs, 100 million customers, #1 retailer in the world
• iTunes LP: “Some of us here are old enough that we actually bought LPs. It was great, because you not only got the music but you got great photography, you got liner notes, you got essays. Who could forget some of these classic albums?”

Of my product predictions, the major one was clearly wrong: I’m not buying the new iPod Touch this week because (despite my prediction) there is no new iPod Touch. Rumor has it that a product is planned but has been delayed due to component problems.

One minor prediction was more on target: Users hate the proprietary headphones on the iPod Shuffle so much that there is now an adaptor to allow third party headphones. It sounds like the main plan is to license rights to the proprietary controls to headphone makers (presumably royalty bearing, raising consumer prices), so it’s not clear this really solves the problem. As they say, the devil is in the details.

The Return of Steve

Something I had missed yesterday: the FT (and others) read the tea leaves — that by quoting Steve Jobs and calling him CEO, the iCEO is back:

Apple quoted Jobs and referred to him as the company’s chief executive in a press release touting the sales of 1m next-generation iPhones in their first weekend of availability.

It was the first time Jobs had been heard from in his official capacity since January, when he announced that he would need to take time off for unspecified medical issues. The company had not said in what capacity he would return.

“This effectively tells us he’s back in the job” with a backhanded disclosure, said Yair Reiner, an Oppenheimer & Co. analyst. “The intention here is to try to take Steve Jobs and not make him the lead of the story any more, to really try to refocus the investment community and Apple customers on the products and the expanding group of executives.”

And, in fact, Reuters reported Jobs visited the Apple campus Monday:

Jobs, who has been on medical leave since January, was seen by a Reuters reporter leaving the Apple campus in Cupertino, California dressed in his trademark black turtleneck and jeans. He walked out chatting with another person before climbing into a black car that then drove off.

The liver transplant rumor (leaked at a time when Apple was basking in favorable product publicity) has been confirmed. Jobs got his transplant at Methodist University Hospital in Memphis, which has one of the shortest waiting times in the country (less than 4 months).

The ethics of Apple’s non-disclosure (or misleading statements) rages on. Here is a quote from the FT:

“Some would argue that the liver transplant is the fix and is good news,” said Kirk Hanson, executive director of the Markkula Center for Applied Ethics at Santa Clara University. “Some would argue the liver transplant is bad news and ought to be disclosed to shareholders. It’s a close call and depends a lot on the specific medical details.”

Is anyone else struck by the irony of Mr. Hanson’s pronouncement? (Hint: where did SCU get the seed grant that created his center? And where did the donor get his wealth?).

Steve's hormone imbalance

From a Jan. 5 Apple press release containing an open letter from Steve Jobs:

As many of you know, I have been losing weight throughout 2008. The reason has been a mystery to me and my doctors. A few weeks ago, I decided that getting to the root cause of this and reversing it needed to become my #1 priority.

Fortunately, after further testing, my doctors think they have found the cause—a hormone imbalance that has been “robbing” me of the proteins my body needs to be healthy. Sophisticated blood tests have confirmed this diagnosis.

The remedy for this nutritional problem is relatively simple and straightforward, and I’ve already begun treatment. But, just like I didn’t lose this much weight and body mass in a week or a month, my doctors expect it will take me until late this Spring to regain it. I will continue as Apple’s CEO during my recovery.

From an exclusive story in Saturday’s Wall Street Journal:

Steve Jobs, who has been on medical leave from Apple Inc. since January to treat an undisclosed medical condition, received a liver transplant in Tennessee about two months ago. The chief executive has been recovering well and is expected to return to work on schedule later this month, though he may work part-time initially.

Mr. Jobs didn't respond to an email requesting comment. "Steve continues to look forward to returning at the end of June, and there's nothing further to say," said Apple spokeswoman Katie Cotton.

When he does return, Mr. Jobs may be encouraged by his physicians to initially "work part-time for a month or two," a person familiar with the thinking at Apple said. That may lead Tim Cook, Apple's chief operating officer, to take "a more encompassing role," this person said. The person added that Mr. Cook may be appointed to Apple's board in the not-too-distant future.
...

At least some Apple directors were aware of the CEO's surgery. As part of an agreement with Mr. Jobs in place before he went on leave, some board members have been briefed weekly on the CEO's condition by his physician.

From an earlier Bloomberg exclusive, January 16:

Apple’s Jobs Said to Be Considering Liver Transplant
By Connie Guglielmo, John Lauerman and Dina Bass

Jan. 16 (Bloomberg) -- Apple Inc. Chief Executive Officer Steve Jobs is considering a liver transplant as a result of complications after treatment for pancreatic cancer in 2004, according to people who are monitoring his illness.

Patients with Jobs’s condition can survive for 20 years or more from the time of their original cancer diagnosis, and the surgery often gives good results, said Steven Brower, professor and chairman of surgery at Mercer University School of Medicine in Savannah, Georgia. Brower hasn’t treated Jobs and doesn’t know details of his condition.

Jobs, who appeared increasingly thin and frail throughout 2008, hasn’t provided details about his condition. In a statement released Jan. 5, Jobs said he was suffering from a “hormone imbalance” and that the remedy for his weight loss was “relatively simple.” On Jan. 14, he announced that he was taking a five-month medical leave because his health issues were “more complex” than he originally thought.

In a telephone interview today, Jobs said he won’t comment further on his health.

“Why don’t you guys leave me alone -- why is this important?” Jobs said.

Apple spokesman Steve Dowling declined to comment. The company’s board members -- including Intuit Inc. Chairman Bill Campbell, former U.S. Vice President Al Gore and Google Inc. CEO Eric Schmidt -- either couldn’t be reached or declined to comment.

...
Surgery

Jobs said in 2004 that he underwent surgery to remove a neuroendocrine islet cell tumor, a rare, slow-growing type of cancer that affects as many as 3,000 people in the U.S. annually. These tumors are distinguished by their tendency to overproduce hormones such as insulin. Excess hormones can lead to low blood sugar, low blood pressure or other symptoms.

Neuroendocrine tumors that originate in the pancreas, as Jobs’s did, often spread to the liver. One option doctors have in these cases is to perform a liver transplant, Brower said.

“It’s one of the tumors for which transplantation can be considered,” said Brower, who is a member of the American Society of Clinical Oncology. “It’s rare, but it’s sometimes done.”

Jobs underwent extensive abdominal surgery when his tumor first appeared. He may have undergone a Whipple procedure, in which parts of his pancreas, small intestine, stomach and bile duct would have been removed, to try to rid his body of all cancerous tissue. The pancreas often ceases functioning after such surgery and needs to be removed.

Treatment Outcome

Brower said the transplant might work out well in a patient whose neuroendocrine cancer began in the pancreas, in part because this tumor type often spreads only to the liver and grows so slowly. Even after having had a Whipple procedure, a patient might expect to have good quality of life, he said.

“The outcome can be quite good,” he said. “With immunosuppressive drugs, the patient can expect to have a significant, durable life expectancy.”

Some liver transplant patients get part of an organ from a living donor. After the operation, the livers of the donor and recipient grow back to normal size.

A patient getting a liver transplant for a neuroendocrine tumor that has spread from the pancreas might get a partial organ, Brower said. Complete organs that come from cadavers are in short supply, and are generally reserved for patients with liver failure, cirrhosis or certain kinds of liver cancer, he said.

From USA Today, January 26, 2006:

Doctors have found ways to extend the lives of patients who have liver and pancreatic tumors, two of the most difficult cancers to treat.

At a meeting Friday in San Francisco of four leading medical societies, researchers noted that liver transplants can be lifesaving for some liver cancer patients.
...
Yet few patients — only 21% — are lucky enough to receive liver transplants ...

Liver transplants are rare partly because not enough organs are available. There were 6,169 liver transplants in the USA in 2004, according to the United Network for Organ Sharing. Nearly 2,000 people await transplants every year, says Robert Merion, a University of Michigan professor and transplant surgeon who was not part of the study.
...
Doctors from Germany also announced at the San Francisco meeting that certain drugs can help pancreatic patients live slightly longer. Pancreatic cancer afflicts 32,180 people a year and kills 31,800, the cancer society says.

From the University of Maryland Medical Center:

Transplant Center
Liver Transplant Program

Patients with end stage liver disease who have failed standard medical and surgical therapy can be considered for liver transplantation. Signs and symptoms of end stage liver disease include jaundice, ascites, edema, variceal bleeding, low platelet count, fatigue, severe itching and worsening mental confusion. A number of acute and chronic diseases of the liver can result in end stage liver disease. Appropriate patient selection is paramount to the overall success of liver transplantation.

Due to limited availability of donor livers, the procedure is contraindicated for patients who are unlikely to survive the procedure or receive long-term benefit. Patients are considered individually and their candidacy is assessed by a formal multidisciplinary evaluation process.

I’ve tried to give Apple and Jobs the benefit of the doubt, but it appears that Apple and/or Jobs released intentionally misleading information up through his January 14 announcement of a 5½ month medical leave.

Steve Jobs' return

Speculation (fueled by the WSJ) is that Steve Jobs will return today, and that he’ll announce the iPhone 3.0. All Apple will say is that marketing SVP Phil Schiller is doing the keynote at this week’s WWDC, and that Jobs will be back at the end of the month.

The WSJ article includes a health update:

While Mr. Jobs has been on sick leave, some Apple directors have gotten weekly updates about his medical condition from the CEO's physician, according to a person familiar with the matter. Mr. Jobs's recovery "is coming along" and he is on schedule to return to work later this month, said this person, who has seen Mr. Jobs in recent weeks.

"He was one real sick guy,'' added this person. "Fundamentally he was starving to death over a nine-month period. He couldn't digest protein. [But] he took corrective action.''

Mr. Jobs occasionally has come into Apple's headquarters since his leave began, said a person who has seen him there.

We don’t know if this is the last health scare he’ll have during his career, but it’s great to hear that Steve Jobs the father and husband has come back to health.

As I’ve said before, I hope Jobs does not return as CEO. The company has learned to operate without Steve, as has the investor community. There will need to be a succession to Steve someday, and this is the natural time to do so. Also, Steve has created three great businesses for Apple (Apple II, the Mac and the iPhone) and a hit machine at Pixar; what’s left to prove?

Steve could stay on as a non-executive chairman for a year or a decade. He could still be involved in new product decisions and the occasional rollout. He could even be part of an office of the CEO, with a special responsibility for new product strategies.

The problem with Steve stepping down — now or later — is that no one at Apple (or almost anywhere else) matches Steve Jobs for charisma. For 30 years, Jobs has been making people not only believe, but want to believe. The Apple products have been good the past decade, but Steve made them even more exciting.

Since a charisma transplant is not possible, and the Apple ranks do not suggest a logical replacement, I don’t know what will happen next. Before Jobs returned to Apple, the company suffered when lead by two charisma-deprived CEOs (Spindler, Amelio) who were clearly not up to the task. Neither Schiller nor COO Tim Cook will ever fill Jobs’ shoes as company spokesman.

If Jobs does reduce his role, the company must also start grooming a successor for Cook. The two men have been the heart of the company for a decade, and with Jobs stepping back, the company is even more dependent on his continuing performance and health. As Jobs’ bouts with pancreatic cancer remind us, no one knows how long he’ll be on this earth, so companies must plan for the unthinkable (sudden death) or inevitable (age and retirement).

That old house

The Mercury News and Fortune have been covering Steve Jobs efforts to tear down the 1926 mansion on his Woodside property. Steve bought the 17,250 square foot Spanish colonial (and land) in 1984 — long before he got married — lived there briefly, but is now raising his kids in Palo Alto

Jobs got approval Tuesday to demolish the mansion. (Fortune reports that Jobs was too weak to sit through a many-hour meeting).

The Merc notes that the old mansion would cost $13.3 million to restore — $5 million more than building a newer, smaller, more energy efficient home.

Not surprisingly, the Merc gives lots of air time to demolition critics — who have done nothing to purchase an economic stake in the future of this private property, but seek to tell other people what they can do with their property.

What I found even more troubling, however, is that both the Merc and an earlier Fortune photo spread blatantly advertised how they trespassed on Jobs’ land in search of a “story.” I guess it’s long past time for Jobs to have to hire security guards to keep sightseers from wandering through the old house (and then suing him if they fall through a rotted floorboard).

Note to overseas readers: “This Old House” is an American TV show (and media empire) in which the celebrity remodeling team shows up to lovingly restore an aging home to the delight of the grateful homeowner.

Steve Jobs' replacement

The WSJ had a fascinating exclusive Friday on what’s happening at Apple at the midpoint of Steve Jobs’ planned medical leave. No one seems to have followed up on the story (yet).

Since Jobs and Apple aren’t talking, the WSJ reporters stitched together 2nd and 3rd hand accounts of how Apple is being run by COO Tim Cook as acting CEO with help from Jobs at home. The portrait is one of Jobs reviewing key details on current projects, as well as working on the future roadmap:

People privy to the company's strategy say Apple is working on new iPhone models and a portable device that is smaller than its current laptop computers but bigger than the iPhone or iPod Touch.

The article said that Apple expects Jobs to come back in June [my guess: to announce iPhone #3] and that the board is talking directly to Apple’s doctors.

The closing paragraph is the most intriguing:

Shaw Wu, an industry analyst at Kaufman Bros., says investors are prepared for the possibility that Mr. Jobs could play a reduced role. "Most investors have factored in a management transition," he said. "What people are expecting is that Steve Jobs would retain a chairman role, and Tim Cook would formalize his role."

I disagree that the market has factored this in: Apple with Jobs gone (or on his way out) is a much slower growth company that Apple of the past decade, which means the 23% stock growth this year would need a correction.

However, this prediction rings really, really true. Apple has gotten used to Steve not being there every day, Steve still has his finger in the pie and as chairman has the final say, but eventually he can let go. If there’s any point in the next few years when he’s going to give up day-to-day control, this is when it will happen.

Qualcomm did something like this when the only CEO it had ever known — Irwin Jacobs — gave up the reins in 2005 after exactly 20 years. He abdicated in favor of his son Paul Jacobs, who had trouble escaping the shadow of his legendary father. Irwin spent not quite four years as non-executive chairman, and then when everyone saw the company was running fine without him, quietly stepped down for good last month.

The problem is, Qualcomm is a systems and infrastructure company, and Apple is a consumer products company. It needs a product fanatic pushing the envelope on new designs, and neither Cook nor SVP Phil Schiller are it. So as I noted last August, if Cook is CEO they need a passionate product guru.

Mark Papermaster (poached from IBM) is finally starting work at Apple on April 24, when he will be SVP of Devices Hardware Engineering, reporting to the CEO. (Devices, of course, are Apple’s high-growth product lines like the iPhone). I know nothing about him other than his resume, but Papermaster (or one of the other product-related SVPs) is where Apple’s leadership will have to come from if Jobs decides (or is forced) to fade away into the sunset.

Life is more than just shipping products, and I hope that Steve will have some post-Apple time (whether now or a decade from now) to spend with his family.

Steve Jobs' medical leave

AP and others are reporting Steve Jobs’ decision to take a medical leave of absence for the next 5½ months. InformationWeek (from Silicon Alley Insider) reprints the email Jobs sent to coworkers. The key excerpts:

During the past week I have learned that my health-related issues are more complex than I originally thought.

In order to take myself out of the limelight and focus on my health, and to allow everyone at Apple to focus on delivering extraordinary products, I have decided to take a medical leave of absence until the end of June.

I have asked Tim Cook to be responsible for Apple's day to day operations, and I know he and the rest of the executive management team will do a great job. As CEO, I plan to remain involved in major strategic decisions while I am out.

As before, our prayers go with Jobs and his family.

A few less billions for Steve

An AP story notes that as he has for the past decade, Steve Jobs continues to take a $1 salary from Apple, with his compensation in stock. While that a savvy (and high accountability) decision in previous years, in 2008 that didn’t work so well as Apple shares tanked — as did most of the rest of the market.

AP says Jobs’ holdings of Apple shares went from more than $1b to about $500m in 2008. In addition, his 7.3% stake in Disney (from the sale of Pixar) fell “more than $1 billion” to $3.2b. Overall, the approximate numbers suggest a drop in net worth of $1.5 billion in 2008 — not enough to kill himself over (as he appears to be fighting for his life).

In the Forbes 2008 rankings of billionaires, his total wealth was estimated at $5.7b, #61 on the list. However, that was based on stock holdings as of Feb. 11, 2008 when Apple stock was at $129.45, about 35% below where it began 2008. Disney stock, on the other hand, bounced back and forth within a ± 8% trading range most of the year until Oct. 1, when (like other stocks) the bottom fell out. Of course, both AAPL and DIS have another month to bounce back before Forbes freezes its calculations for the 2009 rankings.

Macworld without Steve, Steve without Macworld

Live from the MacWorld Expo.

I stopped getting free all-conference badges when my speaking gig ended in 1998, and I haven’t paid to see the keynote in a while. So the substitution of senior VP Phil Schiller for Steve Jobs in today’s intro didn’t directly impact me. (The decision of Apple to pull out — likely dooming the Expo to die next week or in a year — will have a more direct impact, particularly now that Moscone Center is just a day trip.)

However, I think few people appreciate how big a deal the annual January show was for exhibitors. As an exhibitor from 1988-1993, preparing for the Expo always ruined the Xmas break. In only exception was in 1990, when Apple product delays forced the show from January to April, saving my company.

If there was pressure on third party Mac vendors, it was even greater for the star of the show. Within Apple, the pressure over the normally slow late December period was particular hard on those around Steve Jobs who helped prepare his legendary demos, and likely on Jobs himself. Largely unremarked in Jobs’ statement yesterday was his opening sentence:

For the first time in a decade, I’m getting to spend the holiday season with my family, rather than intensely preparing for a Macworld keynote.

A column in the UK Guardian from three years ago really captures what it took for Jobs and his retinue to prepare such events. The author, onetime iTunes product manager Mike Evangelist, has shared other observations about Jobs’ preparation on his blog, which certainly jive with other stories I’ve heard.

But Jobs didn’t keynote today, and Apple says it won’t be back at the Expo again. Instead, it will do splashy intros at events that it controls at other times of the year.

One column that I read yesterday noted that January is a terrible time for a consumer products company like Apple to introduce major new products. Update Thursday 1pm: After the keynote, NYT columnist David Pogue talked to Schiller, who elaborated on the misfit between Macworld Expo and Apple's annual product cycle.

I presume Jobs will do other elaborate keynotes this year, if for no other reason than to prove the naysayers wrong, something he’s enjoyed doing for 30 years. That is, assuming his health issues are as minor as he made them sound yesterday.

The actual news of Jobs’ health could be told in 50 words or less — and, as always with Apple, nobody who knew anything was talking.

So instead, the press instead focused on the issue of full disclosure, rehashing the 35 year old mantra of “what did he know and when did he know it.” Of course if there’s anything the press doesn’t like, it’s public figures not telling them all the information they want (as they unilaterally define it) when they want to know it. (Been there, done that.)

As always, Apple’s timing was perfect. By releasing the announcement early in the morning — both on the first work day of 2009 and the day before the Expo — it guaranteed multi-day coverage of the Expo and advance publicity for Apple’s announcement by Schiller. In addition to raising the stock by 4%, the brief press releases garnered 100s (if not 1000s) of stories on the web plus coverage on TV.

In the Wall Street Journal, Jobs got a cover photo (above the fold) and a story on the second front that had 4 paragraphs of news and 12 paragraphs of reaction. His photo was also above the fold on the front page of the SF paper and below the fold on the cover the New York Times.

In San Jose, our local rag had two stories on the front page, plus a column. One story played it straight, while the other attacked Apple’s secretiveness by using experts to make the point. Meanwhile, the column by Chris O’Brien (who I usually agree with) lit into Jobs and Apple like a journalist scorned:

Can we trust Apple going forward? The company disclosed Jobs' original cancer diagnosis only after he had been treated and was on the road to recovery. Now the company is backpedaling and spinning in the hopes that we won't notice the latest inconsistencies.

To earn back the trust of investors and customers, Apple needs to come straight out and acknowledge that Jobs' health is a material issue. It needs to state publicly that it will provide timely disclosure of his condition.

If Jobs wants to keep his privacy, he's entitled to do that. But in that case, he should step aside, focus on getting better, and let someone else take the helm.

Yes, as throughout most of his life, Jobs has erred on the side of privacy over candor. And yes, he’s not been fully forthcoming about his health issues, pushing the envelope on withholding information that bears on the company’s future and its stock price.

At the same time, Jobs and his doctors don’t know how it’s going to turn out, so there’s nothing he can say that will tell investors what they really want to know: will he remain the company’s active and vibrant CEo throughout 2009 and into 2010? I imagine that wild speculation (and intentional rumors to manipulate the stock) have reinforced the views of those within Apple who believe in the Zen-like “less is more” philosophy about Steve Jobs the man.

Meanwhile, market feedback has worked just as we would hope that it would. Institutional investors and analysts were not happy about the vagueness of last month‘s announcement, and while Jobs joked about it, it was clear that Monday’s announcement — however delayed — was forced upon Apple.

So Apple (and Steve Jobs) will only share as much information as they want to share, when they want to share it. As with other business kerfuffles, I have one thought for the press: get over it!

Steve Jobs: stop speculating, I'm not dying

In a statement this morning, Steve Jobs says that his doctors have found why he was losing weight: a “hormone imbalance” that is “relatively simple” to remedy. Both Jobs and the board promised to tell investors if Jobs is ever unable to do his job. (Was that so hard?) Apple stock is up 3% on the news on a day when the overall market is down.