Iger went about it in an unusual way. When he first talked to Jobs, he admitted the revelation that had occurred to him in Hong Kong and how it convinced him that Disney badly needed Pixar. “That’s why I just loved Bob Iger,” recalled Jobs. “He just blurted it out. Now that’s the dumbest thing you can do as you enter a negotiation, at least according to the traditional rule book. He just put his cards out on the table and said, ‘We’re screwed.’ I immediately liked the guy, because that’s how I worked too. Let’s just immediately put all the cards on the table and see where they fall.” (In fact that was not usually Jobs’s mode of operation. He often began negotiations by proclaiming that the other company’s products or services sucked.)
Jobs and Iger took a lot of walks—around the Apple campus, in Palo Alto, at the Allen and Co. retreat in Sun Valley. At first they came up with a plan for a new distribution deal: Pixar would get back all the rights to the movies and characters it had already produced in return for Disney’s getting an equity stake in Pixar, and it would pay Disney a simple fee to distribute its future movies. But Iger worried that such a deal would simply set Pixar up as a competitor to Disney, which would be bad even if Disney had an equity stake in it. So he began to hint that maybe they should actually do something bigger. “I want you to know that I am really thinking out of the box on this,” he said. Jobs seemed to encourage the advances. “It wasn’t too long before it was clear to both of us that this discussion might lead to an acquisition discussion,” Jobs recalled.
But first Jobs needed the blessing of John Lasseter and Ed Catmull, so he asked them to come over to his house. He got right to the point. “We need to get to know Bob Iger,” he told them. “We may want to throw in with him and to help him remake Disney. He’s a great guy.” They were skeptical at first. “He could tell we were pretty shocked,” Lasseter recalled.
“If you guys don’t want to do it, that’s fine, but I want you to get to know Iger before you decide,” Jobs continued. “I was feeling the same as you, but I’ve really grown to like the guy.” He explained how easy it had been to make the deal to put ABC shows on the iPod, and added, “It’s night and day different from Eisner’s Disney. He’s straightforward, and there’s no drama with him.” Lasseter remembers that he and Catmull just sat there with their mouths slightly open.
Iger went to work. He flew from Los Angeles to Lasseter’s house for dinner, and stayed up well past midnight talking. He also took Catmull out to dinner, and then he visited Pixar Studios, alone, with no entourage and without Jobs. “I went out and met all the directors one on one, and they each pitched me their movie,” he said. Lasseter was proud of how much his team impressed Iger, which of course made him warm up to Iger. “I never had more pride in Pixar than that day,” he said. “All the teams and pitches were amazing, and Bob was blown away.”
Indeed after seeing what was coming up over the next few years—Cars, Ratatouille, WALL-E—Iger told his chief financial officer at Disney, “Oh my God, they’ve got great stuff. We’ve got to get this deal done. It’s the future of the company.” He admitted that he had no faith in the movies that Disney animation had in the works.
The deal they proposed was that Disney would purchase Pixar for $7.4 billion in stock. Jobs would thus become Disney’s largest shareholder, with approximately 7% of the company’s stock compared to 1.7% owned by Eisner and 1% by Roy Disney. Disney Animation would be put under Pixar, with Lasseter and Catmull running the combined unit. Pixar would retain its independent identity, its studio and headquarters would remain in Emeryville, and it would even keep its own email addresses.
Iger asked Jobs to bring Lasseter and Catmull to a secret meeting of the Disney board in Century City, Los Angeles, on a Sunday morning. The goal was to make them feel comfortable with what would be a radical and expensive deal. As they prepared to take the elevator from the parking garage, Lasseter said to Jobs, “If I start getting too excited or go on too long, just touch my leg.” Jobs ended up having to do it once, but otherwise Lasseter made the perfect sales pitch. “I talked about how we make films, what our philosophies are, the honesty we have with each other, and how we nurture the creative talent,” he recalled. The board asked a lot of questions, and Jobs let Lasseter answer most. But Jobs did talk about how exciting it was to connect art with technology. “That’s what our culture is all about, just like at Apple,” he said.
Before the Disney board got a chance to approve the merger, however, Michael Eisner arose from the departed to try to derail it. He called Iger and said it was far too expensive. “You can fix animation yourself,” Eisner told him. “How?” asked Iger. “I know you can,” said Eisner. Iger got a bit annoyed. “Michael, how come you say I can fix it, when you couldn’t fix it yourself?” he asked.
Eisner said he wanted to come to a board meeting, even though he was no longer a member or an officer, and speak against the acquisition. Iger resisted, but Eisner called Warren Buffett, a big shareholder, and George Mitchell, who was the lead director. The former senator convinced Iger to let Eisner have his say. “I told the board that they didn’t need to buy Pixar because they already owned 85% of the movies Pixar had already made,” Eisner recounted. He was referring to the fact that for the movies already made, Disney was getting that percentage of the gross, plus it had the rights to make all the sequels and exploit the characters. “I made a presentation that said, here’s the 15% of Pixar that Disney does not already own. So that’s what you’re getting. The rest is a bet on future Pixar films.” Eisner admitted that Pixar had been enjoying a good run, but he said it could not continue. “I showed the history of producers and directors who had X number of hits in a row and then failed. It happened to Spielberg, Walt Disney, all of them.” To make the deal worth it, he calculated, each new Pixar movie would have to gross $1.3 billion. “It drove Steve crazy that I knew that,” Eisner later said.
After he left the room, Iger refuted his argument point by point. “Let me tell you what was wrong with that presentation,” he began. When the board had finished hearing them both, it approved the deal Iger proposed.
Iger flew up to Emeryville to meet Jobs and jointly announce the deal to the Pixar workers. But before they did, Jobs sat down alone with Lasseter and Catmull. “If either of you have doubts,” he said, “I will just tell them no thanks and blow off this deal.” He wasn’t totally sincere. It would have been almost impossible to do so at that point. But it was a welcome gesture. “I’m good,” said Lasseter. “Let’s do it.” Catmull agreed. They all hugged, and Jobs wept.
Everyone then gathered in the atrium. “Disney is buying Pixar,” Jobs announced. There were a few tears, but as he explained the deal, the staffers began to realize that in some ways it was a reverse acquisition. Catmull would be the head of Disney animation, Lasseter its chief creative officer. By the end they were cheering. Iger had been standing on the side, and Jobs invited him to center stage. As he talked about the special culture of Pixar and how badly Disney needed to nurture it and learn from it, the crowd broke into applause.
“My goal has always been not only to make great products, but to build great companies,” Jobs later said. “Walt Disney did that. And the way we did the merger, we kept Pixar as a great company and helped Disney remain one as well.”
CHAPTER THIRTY-FOUR
TWENTY-FIRST-CENTURY MACS
Setting Apple Apart
With the iBook, 1999
Clams, Ice Cubes, and Sunflowers
Ever since the introduction of the iMac in 1998, Jobs and Jony Ive had made beguiling design a signature of Apple’s computers. There was a consumer laptop that looked like a tangerine clam, and a professional desktop computer that suggested a Zen ice cube. Like bell-bottoms that turn up in the back of a closet, some of these models looked better at the time than they do in retrospect, and they show a love of design that was, on occasion, a bit too exuberant. But they set Apple apart and provided the publicity bursts it needed to survive in a Windows world.
The Power Mac G4 Cube, released in 2000, was so alluring that one ended up on display in New York’s Museum of Modern Art. An eight-inch perfect cube the size of a Kleenex box, it was the pure expression of Jobs’s aesthetic. The sophistication came from minimalism. No buttons marred the surface. There was no CD tray, just a subtle slot. And as with the original Macintosh, there was no fan. Pure Zen. “When you see something that’s so thoughtful on the outside you say, ‘Oh, wow, it must be really thoughtful on the inside,’” he told Newsweek. “We make progress by eliminating things, by removing the superfluous.”
The G4 Cube was almost ostentatious in its lack of ostentation, and it was powerful. But it was not a success. It had been designed as a high-end desktop, but Jobs wanted to turn it, as he did almost every product, into something that could be mass-marketed to consumers. The Cube ended up not serving either market well. Workaday professionals weren’t seeking a jewel-like sculpture for their desks, and mass-market consumers were not eager to spend twice what they’d pay for a plain vanilla desktop. Jobs predicted that Apple would sell 200,000 Cubes per quarter. In its first quarter it sold half that. The next quarter it sold fewer than thirty thousand units. Jobs later admitted that he had overdesigned and overpriced the Cube, just as he had the NeXT computer. But gradually he was learning his lesson. In building devices like the iPod, he would control costs and make the trade-offs necessary to get them launched on time and on budget.
Partly because of the poor sales of the Cube, Apple produced disappointing revenue numbers in September 2000. That was just when the tech bubble was deflating and Apple’s education market was declining. The company’s stock price, which had been above $60, fell 50% in one day, and by early December it was below $15.
None of this deterred Jobs from continuing to push for distinctive, even distracting, new design. When flat-screen displays became commercially viable, he decided it was time to replace the iMac, the translucent consumer desktop computer that looked as if it were from a Jetsons cartoon. Ive came up with a model that was somewhat conventional, with the guts of the computer attached to the back of the flat screen. Jobs didn’t like it. As he often did, both at Pixar and at Apple, he slammed on the brakes to rethink things. There was something about the design that lacked purity, he felt. “Why have this flat display if you’re going to glom all this stuff on its back?” he asked Ive. “We should let each element be true to itself.”
Jobs went home early that day to mull over the problem, then called Ive to come by. They wandered into the garden, which Jobs’s wife had planted with a profusion of sunflowers. “Every year I do something wild with the garden, and that time it involved masses of sunflowers, with a sunflower house for the kids,” she recalled. “Jony and Steve were riffing on their design problem, then Jony asked, ‘What if the screen was separated from the base like a sunflower?’ He got excited and started sketching.” Ive liked his designs to suggest a narrative, and he realized that a sunflower shape would convey that the flat screen was so fluid and responsive that it could reach for the sun.
In Ive’s new design, the Mac’s screen was attached to a movable chrome neck, so that it looked not only like a sunflower but also like a cheeky Luxo lamp. Indeed it evoked the playful personality of Luxo Jr. in the first short film that John Lasseter had made at Pixar. Apple took out many patents for the design, most crediting Ive, but on one of them, for “a computer system having a movable assembly attached to a flat panel display,” Jobs listed himself as the primary inventor.
In hindsight, some of Apple’s Macintosh designs may seem a bit too cute. But other computer makers were at the other extreme. It was an industry that you’d expect to be innovative, but instead it was dominated by cheaply designed generic boxes. After a few ill-conceived stabs at painting on blue colors and trying new shapes, companies such as Dell, Compaq, and HP commoditized computers by outsourcing manufacturing and competing on price. With its spunky designs and its pathbreaking applications like iTunes and iMovie, Apple was about the only place innovating.
Intel Inside
Apple’s innovations were more than skin-deep. Since 1994 it had been using a microprocessor, called the PowerPC, that was made by a partnership of IBM and Motorola. For a few years it was faster than Intel’s chips, an advantage that Apple touted in humorous commercials. By the time of Jobs’s return, however, Motorola had fallen behind in producing new versions of the chip. This provoked a fight between Jobs and Motorola’s CEO Chris Galvin. When Jobs decided to stop licensing the Macintosh operating system to clone makers, right after his return to Apple in 1997, he suggested to Galvin that he might consider making an exception for Motorola’s clone, the StarMax Mac, but only if Motorola sped up development of new PowerPC chips for laptops. The call got heated. Jobs offered his opinion that Motorola chips sucked. Galvin, who also had a temper, pushed back. Jobs hung up on him. The Motorola StarMax was canceled, and Jobs secretly began planning to move Apple off the Motorola-IBM PowerPC chip and to adopt, instead, Intel’s. This would not be a simple task. It was akin to writing a new operating system.
Jobs did not cede any real power to his board, but he did use its meetings to kick around ideas and think through strategies in confidence, while he stood at a whiteboard and led freewheeling discussions. For eighteen months the directors discussed whether to move to an Intel architecture. “We debated it, we asked a lot of questions, and finally we all decided it needed to be done,” board member Art Levinson recalled.
Paul Otellini, who was then president and later became CEO of Intel, began huddling with Jobs. They had gotten to know each other when Jobs was struggling to keep NeXT alive and, as Otellini later put it, “his arrogance had been temporarily tempered.” Otellini has a calm and wry take on people, and he was amused rather than put off when he discovered, upon dealing with Jobs at Apple in the early 2000s, “that his juices were going again, and he wasn’t nearly as humble anymore.” Intel had deals with other computer makers, and Jobs wanted a better price than they had. “We had to find creative ways to bridge the numbers,” said Otellini. Most of the negotiating was done, as Jobs preferred, on long walks, sometimes on the trails up to the radio telescope known as the Dish above the Stanford campus. Jobs would start the walk by telling a story and explaining how he saw the history of computers evolving. By the end he would be haggling over price.
“Intel had a reputation for being a tough partner, coming out of the days when it was run by Andy Grove and Craig Barrett,” Otellini said. “I wanted to show that Intel was a company you could work with.” So a crack team from Intel worked with Apple, and they were able to beat the conversion deadline by six months. Jobs invited Otellini to Apple’s Top 100 management retreat, where he donned one of the famous Intel lab coats that looked like a bunny suit and gave Jobs a big hug. At the public announcement in 2005, the usually reserved Otellini repeated the act. “Apple and Intel, together at last,” flashed on the big screen.
Bill Gates was amazed. Designing crazy-colored cases did not impress him, but a secret program to switch the CPU in a computer, completed seamlessly and on time, was a feat he truly admired. “If you’d said, ‘Okay, we’re going to change our microprocessor chip, and we’re not going to lose a beat,’ that sounds impossible,” he told me years later, when I asked him about Jobs’s accomplishments. “They basically did that.”
Options
Among Jobs’s quirks was his attitude toward money. When he returned to Apple in 1997, he portrayed himself as a person working for $1 a year, doing it for the benefit of the company rather than himself. Nevertheless he embraced the idea of option megagrants—granting huge bundles of options to buy Apple stock at a preset price—that were not subject to the usual good compensation practices of board committee reviews and performance criteria.
When he dropped the “interim” in his title and officially became CEO, he was offered (in addition to the airplane) a megagrant by Ed Woolard and the board at the beginning of 2000; defying the image he cultivated o
f not being interested in money, he had stunned Woolard by asking for even more options than the board had proposed. But soon after he got them, it turned out that it was for naught. Apple stock cratered in September 2000—due to disappointing sales of the Cube plus the bursting of the Internet bubble—which made the options worthless.
Making matters worse was a June 2001 cover story in Fortune about overcompensated CEOs, “The Great CEO Pay Heist.” A mug of Jobs, smiling smugly, filled the cover. Even though his options were underwater at the time, the technical method of valuing them when granted (known as a Black-Scholes valuation) set their worth at $872 million. Fortune proclaimed it “by far” the largest compensation package ever granted a CEO. It was the worst of all worlds: Jobs had almost no money that he could put in his pocket for his four years of hard and successful turnaround work at Apple, yet he had become the poster child of greedy CEOs, making him look hypocritical and undermining his self-image. He wrote a scathing letter to the editor, declaring that his options actually “are worth zero” and offering to sell them to Fortune for half of the supposed $872 million the magazine had reported.
In the meantime Jobs wanted the board to give him another big grant of options, since his old ones seemed worthless. He insisted, both to the board and probably to himself, that it was more about getting proper recognition than getting rich. “It wasn’t so much about the money,” he later said in a deposition in an SEC lawsuit over the options. “Everybody likes to be recognized by his peers. . . . I felt that the board wasn’t really doing the same with me.” He felt that the board should have come to him offering a new grant, without his having to suggest it. “I thought I was doing a pretty good job. It would have made me feel better at the time.”
Steve Jobs Page 51
