It's time for music, it's time for revolution

The reason Steve Jobs was called back to lead Apple in 1998 was actually quite simple. The company had lost its way. First in terms of products, and eventually financially as well. The last great year was the 1995 financial year, when the company had revenues of over $11 billion and earned $424 million, representing a turnover growth of over 20% compared to the previous year. That was the last good news.

In the same year, Microsoft released the groundbreaking Windows 95, which sold extremely well and was able to compete with Macintosh, causing PC prices to plummet. Apple not only saw a dramatic drop in sales, but also began to operate at a loss. In 1996, it lost $816 million, followed by another billion a year later, effectively wiping out most of the profits it had earned over the previous fifteen years of its existence. When Jobs returned to the helm in 1998, dramatic cuts deepened the decline in turnover to just under $6 billion, roughly half of what it was in 1995, but Apple was back in the black, earning $309 million in 1998. Everything looked great, and the new iMac computers were selling well.

The idyll lasted until 2001, when the scenario repeated itself. Turnover fell dramatically, the company fell into the red in the first fiscal quarter and lost $195 million. And here’s the thing: Apple’s first fiscal quarter of 2001 corresponds to the end of the year, i.e., pre-Christmas sales, in which Apple simply bombed.

The reason is simple: computer sales are stagnating again. And the biggest blow is yet to come: in the fall of 2001, Microsoft is set to release a new operating system called Windows XP. Everyone is gearing up for it, PC sales are stagnating, users are postponing investments in new computers in anticipation of the changes that XP will bring, Microsoft is preparing the largest advertising campaign in its history, magazines are full of enthusiasm for the new operating system, which is set to replace six years of changes from Windows 95, 98, Me, and 2000 with one compact, appealing, and modern system that is supposed to surpass everything Apple has ever created.

One of the causes was the bursting of the internet bubble. This generally led to a depression in the “digital” markets. As if by magic, companies stopped investing not only in acquisitions and purchases of new technologies, but also in development and marketing. While in 2000, seventeen technology companies advertised during the most expensive time slot during the Super Bowl, in 2001, after the dot-com bubble burst, there were only three companies. The companies’ problems also affected freelancers, hired creative workers who represented the typical user base of Apple computers at the time. There was less work and therefore less willingness to buy new computers.

Apple wasn’t the only one with problems. As the Wall Street Journal noted, PC sales in the US grew by only 6.4 percent in the last quarter of 2000, the lowest since 1993, when Gartner began tracking computer sales. And while global growth of 17 percent was expected, actual sales growth was only 10 percent. In addition, the market proved to be highly volatile and unstable in terms of brand confidence. While Dell grew by 37% and HP by 20%, Compaq fell by 8.7% (which later resulted in HP buying it) and Gateway fell by 7.1%. But that was nothing compared to Apple’s results. Apple’s computer sales fell by 50% in the US and 40% worldwide. Analysts agree that Apple is currently only managing to sell computers to its own user base and is not gaining any new users. Analysts argue that the company is unable to generate economies of scale when its market share does not exceed 3%—and it does not. It will not succeed as long as it relies on a processor series that is not used elsewhere in the industry. This is something that Apple’s management is also aware of.

In addition, analysts believe that the personal computer market is approaching saturation. Sales are being driven more by Europe and Asia, rather than the US, where Apple is strongest.

At this point, it is also becoming clear that the iMac has missed its target audience. There are several reasons for this. First of all, it is clear that Mac OS 9, introduced in October 1999, is not as big a hit as expected, because it still lacks memory protection and preemptive multitasking, something that the Windows world had already dealt with better at that time. Apple introduced the ninth version of its operating system under the slogan “The best Internet operating system ever,” but this refers more to the difficulties of Windows with the Internet at the time than to its own perfection. The system now supports online updates and multiple users, improves search and support for central password storage in Keychain, but from the user’s point of view, these are minor improvements that do not outweigh the difficulties of running multiple applications simultaneously. In addition, the theory that people would want to edit video on their computers did not prove true. Many users left their videos unedited or entrusted them to semi-professional studios, mostly individuals equipped with computers, who turned wedding videos into a few watchable minutes with simple subtitles. Even with iMovies, video creation was not so easy and fun that it satisfied users. At the turn of the millennium, another trend was much more widespread: creating music compilations on CD. What did a boy give his girlfriend when he wanted to show his romantic spirit? He created a compilation of romantic hits for her. The car belonged to a collection of songs and fairy tales for children, while the Discman belonged to the right motivational tunes for the gym, studying, walking the dog, and a number of other activities where people got used to blocking out the noise of the city with their personal music players. In addition, at that time, the transition from cassette tapes to CDs was culminating, and with the right software and hardware, their production was significantly easier and of higher quality, even in amateur conditions. In Czechia, CD burners fell below CZK 10,000 in 2000 and within two years fell well below CZK 5,000, becoming widely available.

However, the iMac has a problem with its burner. Do you remember the dilemma of whether it would be difficult to find slot-loading drives that were up to date? Well, those difficulties did indeed arise. It was not until February 2001 that Apple managed to launch an iMac with a burner, which was not particularly fast at the time. It wasn’t until January 2002 that Apple launched the new iMac G4, nicknamed the Lamp, which, in addition to an LCD screen, a new processor, and other improvements, was also equipped with a combination CD and DVD-ROM burner for the first time. Until then, users had to purchase burners from other companies, which they generally did not want to do.

Apple will have a hard time making up for two years of lost ground in the world of digital music, and critics point out that this is virtually impossible.

In January 2001, Steve Jobs, in an interview with investors, does not entertain any doubts when explaining the company’s boom during what is usually the strongest period for everyone, namely the pre-Christmas market.

“Last quarter, we took our own medicine and pulled all inventory from distribution for five and a half weeks. This year, we’re starting with a bang. In January, we’ll be shipping our new PowerBook G4, followed by the new PowerMac G4 with a 733 MHz processor in February and the new Mac OS X operating system in March.”

In fact, Jobs has already admitted within the company that this was his miscalculation. The computers are not selling well because the company is unable to supply them with CD burners and also because of the “megahertz gap” that is opening up between PowerPC and Intel Pentium processors. Apple is simply unable to offer computers clocked at the same frequency as those supplied by Intel, and although Jobs tries to promote the idea that PowerPC processors are much more powerful at the same clock speed, this is something that is difficult to explain to users. At that time, Intel was supplying Pentium 4 processors clocked at over 1.4 GHz, while Apple was just getting ready to sell computers with PowerPC G4 processors clocked at barely half that frequency. The change could not be made overnight; it had to be done gradually. At this time, the company is beginning to prepare for the transition to Intel processors. The new Mac OS X operating system, introduced in January 2000, is also being compiled and tested on Intel processors as standard, although not yet publicly, but it will take another five years before Apple officially announces its transition plans. But what will the company do during those five years?

At that time, Jobs was revisiting his older idea of a digital hub, the thesis that the computer would be the center of the digital home, connecting all devices and performing functions that they could not perform. The computer was supposed to take away from them, lightening their workload where it made sense. At that time, for example, camcorders came with built-in software that allowed simple tricks, scenes, and transitions to be created directly in the camera. However, the results were mostly disappointing, the software was difficult to use, and the camera’s miniature display did not allow for easy control, let alone precise image adjustment. The iMac was supposed to take over all of this, and the devices themselves could then be simple, designed only for what they needed to be used for in the field. In 1998, Jobs was seriously considering whether Apple should make a digital camera or camcorder. One that would be easy to use and for which the iMac would serve as a digital hub.

The context of this story

It's time for music, it's time for revolution

Table of contents