Growing Up with Steve Jobs (In a Parallel Universe) (AAPL, INTC, MSFT, PEP)

Although the news of Apple (AAPL) founder and CEO Steve Jobs’ resignation has been in works for a long time, the announcement on Wednesday came sooner than those who have long admired his story and leadership had hoped. The Apple board named COO Tim Cook, who previously was responsible for all the company’s worldwide sales and operations, as the new CEO, while Jobs remain on the board of directors.

Next Inning Editor Paul McWilliams, a business and technology veteran whose model portfolio has outperformed the S&P 500 by a ratio of nearly eight to one since 2002, has been a long time admirer of Jobs, his management style, and the extraordinary vision that Jobs has used to transform the world of consumer electronics and make Apple one of the most highly valued public companies in the world.

While I’ve never met Steve Jobs, I feel like grew up with him in a parallel universe. I entered the tech industry the same year that Jobs and his original partners started Apple Computer in 1976, and bought my first Macintosh shortly after they were introduced in 1984. In the mid-1980s Jobs was known for being brash, hot-headed, demanding, and temperamental. Steve Jobs didn’t so much change over the years, he simply learned about leverage. He learned to leverage who he is, and he learned about how to build leverage into a business model. At the core of Jobs’ genius has been the fact he understands we don’t like reading instruction manuals. We want things simple, intuitive, useful, and dependable.

Prior to buying our first Mac, we were running our company on PCs based on Intel (INTC) 80286 processors that ran the Microsoft (MSFT) DOS (Disk Operating System). There was nothing at all intuitive about DOS, but it had a true relational database program (Data Flex) that we could adapt to the 286 to manage our business and compile the data necessary to make informed strategic decisions. However, there was no practical way to leverage DOS at the field level, which is where the Mac came into play.

No one outside my company, including my dad, thought I was making the right decision. However, everyone inside the company saw the value and knew there was a very clear line separating how we used the two platforms. We managed our business with the DOS-based relational database programs we developed, and leveraged the power of the Mac platform to help us develop new business. Over time, we developed the ability to exchange data between the two.

Jobs always understood the value of good marketing. It was 1983 when he managed to lure John Sculley away from PepsiCo (PEP) to become Apple’s CEO. It was reported the 28-year-old Jobs laid it out to Sculley very simply, “Do you want to sell sugar water for the rest of your life, or do you want to come with me and change the world.” The theory at the time was if you can differentiate a product in the cola game, you can certainly do the same in personal computing.

Early on the strategy worked, and I still remember the dramatic commercial for the Mac that ran during the 1984 Super Bowl. However, over the next year tensions grew and Jobs was eventually shown the exit at the company he had created. Apple most certainly went through its ups and downs during the decade that followed, but once Microsoft released Windows 95, the differentiation of having an intuitive graphical user interface (GUI) was shattered and when the lawsuit against Microsoft was lost, so was Apple. We’ll never know if Jobs could have done better through those trying years, and today it really doesn’t matter. What’s important is that Apple decided to bring Jobs back in 1996 through the acquisition of the company he had created during his 10-year-plus hiatus, NeXT.

After returning, Jobs killed a number of Apple programs, including Newton. I liked the Newton and found it to be very useful, but readily admitted Apple did a very poor job of building out an ecosystem, and begrudgingly admitted Jobs was right. The world simply wasn’t ready for a tablet computing device.

Jobs was also right to redraft the rules for Mac clones, which quickly killed that market and rebuilt the tightly closed Apple strategy. After rebuilding the perimeter and ridding the company of distractions, Apple took the NeXT operating system (NeXTSTEP) and used it as the basis for OS-X – Apple’s new foundation.

I remember vividly the flood of criticism the iPod received after it was introduced. Technical writers around the world termed it as a “hard disk drive with a go button.” I didn’t disagree with that statement, but added, “exactly, and that’s why it will be successful.”

My friend Russell Redenbaugh also recognized that, but took it a step further and stated that when combined with iTunes (its leverage point, and Apple’s first signal it was destined to become an “ecosystem” company), it was a release from “resentful bondage.” Prior to the iPod, consumers had only two choices: buy the whole CD, or become a criminal by downloading songs illegally from various “services” on the web. The iTunes option of buying songs for $0.99 didn’t end piracy, but history shows that consumers reacted very positively to Apple’s option that allowed them to buy only what they wanted.

Apple didn’t invent the mouse-driven GUI used since the introduction of the Mac in 1984, it didn’t invent the MP3 player, nor did it invent the ubiquitous pinch gesture native to all touch screen smartphones and tablets today. However, it did make all of these and many more technologies commercial successes.

One of my favorite Apple strategies was the way it rolled out the iPhone. All of the TV campaigns during the first months following its introduction focused on hardware. It was a new form-factor – the Hershey Bar as it was called – with a new, but intuitive touch screen interface. It was cool, simple, and compelling. However, it was also easily copied and Jobs knew that. He was ready for the clones, however, and this time would successfully leverage them to help build on the iPhone’s early success. As soon as the clones began to hit the market, the Apple ad campaign quickly switched from showing off the hardware to “we’ve got an app for that.”

One of the lessons Jobs learned while on the outside looking in was even though Apple continually introduced better PCs, it could never crack the Win-Tel (Windows – Intel) hold on the market. The reason for this was “apps” are sticky. One of Jobs early moves after returning to run Apple was to cut a deal with his old arch rival Microsoft to port its Office productivity software to the Apple platform. Jobs then moved the Mac away from the PowerPC processor to the Intel x86 architecture, and even designed the machines to run either the Apple OS-X, or Microsoft’s Vista or XP operating system. However, with the iPhone, Apple stepped out in front of the curve by inventing the app store.

Jobs built upon the success of the iPhone with the release of the iPad. Ironically, when it was introduced the early reports criticized it by terming the iPad as being simply a big iPhone. In response, I wrote again, “exactly, and that’s why it will be successful.” This one was simple to call: Apple had already “trained” about 45M people how to use an iPhone, and it only made sense it would leverage that by giving its customers the one thing they couldn’t get with the iPhone – a bigger screen.

Through most of these successes, Tim Cook was in the background. Only when Jobs needed to take some time off to fight his first bout against cancer was Cook brought to the foreground. We were understandably nervous then as we are again now. While no one can dispute Cook’s brilliance in building out Apple’s operational structure, the question remains can he, or for that matter can anyone else, duplicate Jobs’ brilliance in seeing what it takes to change the world? My hope and prayer is we won’t have to answer that question for a long time. As it stands today, Jobs will remain at Apple as its Chairman, and in that role be there to add his wisdom and vision. I like having Steve Jobs in the world. He has made it much more fun, if not simply a better place.

Bigger than the upside/downside equation Apple stockholders must contemplate is the risk we all face. That is the risk of not living our lives to the fullest – not testing our boundaries and ideas. One of the things I respect most about Jobs is the fact that he never let failure scare him. I’m sure he failed many more times than I know, but history shows us he always picked himself up, learned from his attempt, and used those lessons to do better the next time. To that end, Steve Jobs has given us much more than iPods, iPhones, and iPads, he has shown us through hard work, determination, and yes genius and some lucky breaks, that the American Dream is alive and well.

To read more about McWilliams’ analysis of Apple and its impact on consumer, electronics, and semiconductor markets, including a look at recent rumors of a cheaper iPhone designed for emerging markets, as well as additional thoughts about future macroeconmic trends and investing in tech sector companies, please come to www.nextinning.com for a free 21-day evaluation period with absolutely no obligation.

Tags: AAPL, INTC, MSFT, PEP