Apple & the iPod - Changing the Odds by Investing to Win
complied by Rockin Babe
Growing business depends on new projects - creating new products, entering new markets, finding new customers, and acquiring new operations. Likewise, improving business depends on major new projects, such as upgrading IT system, simplifying manufacturing processes, and streamlining supply chain. At the moment of launching any project, there’s a problem that most of us don’t come to grips with: the inherent, all-too-human tendency to be over-optimistic about the odds of success.
Steve Jobs is technological visionary. But a visionary perspective, even supported by immense charm and salesmanship, isn’t enough for commercially successful innovation. You also need subtle system for translating visionary ideas into products people want, concrete applications they will buy and business designs they will support. It is Jobs’ unique ability to put all these elements together that has made him today’s most interesting high-tech project manager. It’s also made him, almost as an afterthought, the savior of the music industry, with the success of the iPod. And may yet make him the savior of the movie business with launch of Apple TV. Ironically, the creation of the iPod from a missing feature in Apple’s successful iMac computer- the lack of a CD burner. During 2000, Jobs had been so focused on the iMac’s new operating system that (as he has since admitted) he didn’t see, or didn’t stop long enough to concentrate on, the meaning of a digitally based trend that was exploding all around him, namely, the CD-ripping, file-downloading, and peer-to-peer-sharing transformation of the music business into a user-controlled, digitally based activity. It’s ironic given the fact that Jobs, like most plugged-in kids who came of age in the 60s and the 70s, was a pop music nut.
But by 2000 the pop music scene had drifted off Job’s radar. So much so that he didn’t think to include a CD burner when designing the iMac, an omission that looked worse and worse as the months went by and the digital music revolution gathered force. Eventually, something clicked. Jobs ordered the iMac hardware designers to incorporate CD burners as standard equipment in all future iMacs. But he also started asking an intriguing set of questions. Apple’s specialty had always been taking activities that other computers make possible making them dramatically easier, more intuitive, more creative, more fun. How could Apple do that with music? Most important, how could it be done in a way to create the big new business that Apple needed as a follow-up to the success of iMac? If this was to work, the product would have to be brilliant, embodying all of the stylistic flair and ease of use for which Jobs-inspired designs had long been noted. But the business design would be equally brilliant, finding ways to capture value that some of the biggest and smarted companies in the world had somehow overlooked. And it would all have to be done fast, since Jobs, creative as he is, knew that the high-tech world boasts many other creative thinkers whose footsteps he could hear close behind. (Jobs was competing in advance against the likes of Sony, Samsung and Panasonic.)
If Apple were to create a profitable system for making digital online music easy and fun, the first step would be to create jukebox software for storing, managing, sorting and editing music files. Apple’s programmers were more than up to the challenge. But Jobs was in a hurry. With every passing week, the odds of success were getting a little worse. Could he buy the expertise Apple needed rather than creating it from scratch? As it happened, he could. Jeff Robin, a recently departed employee of Apple, was working on a jukebox product named SoundJam. It wasn’t ready for market, but Robbin had left behind a good reputation at Apple. So Jobs bought Robbin’s company and asked him to transform SoundJam into a program with Apple-level stylishness and ease of use. Within four months, Robin had prototype of something the company decided to call iTunes. It was a building block. Jobs, trying to think two steps ahead, was already planning the other blocks he’d need to make his vision work.
Like every teenager of the 70’s, Steve Jobs remembered the Walkman. It had made high-quality audio stylish, comfortably portable, instantly rendering the old transistor radio obsolete and selling over 300 million units for Sony. Why not create a Walkman for the new century? A portable music player that could hold and transport all your digital music? And do it as only Apple could, with sophisticated style and ease of use.
The iPod effort began in April, 2001. Out of the starting gate, the odds for the iPod were no better than, say, 10%. Too low? If we travel back in time to 2001. Apple wasn’t really the right company; Sony was, or Panasonic, or Samsung. The cost of creating the device was going to be high. As for the network software to sell and manage the music (the iTunes project that had started this whole thing rolling), the music industry was developing competing alternatives including PressPlay and MusicNet. And the market for paid music downloads didn’t necessarily exist and might never exist; after all, the consumer had an alternative called Napster that offered a fairly attractive price- free.
The project had just one obvious thing going for it. Apple was cool company and iPod was potentially a very cool product. So Jobs set about changing the odds. The first step was setting an outrageous schedule, much as Toyota had done with the Prius. Normal, reasonable development time for this kind of consumer-electronic project might be a year and a half. Maybe a little more. Jobs decided that the project would have to be done in nine months. Why drive your people to extremes by setting a ridiculous deadline? There were two factors, one external and one internal.
The external factor: iPod was not exactly an obscure concept (everybody else remembered the Walkman and the Discman too.) You could probably name at least four great global companies, starting with Sony, that could make and market one. If just one of them showed up in the market ahead of you, they could spoil your party. If two or there of them showed up, there'd be no party. But the bigger reason for Job’s ultra-rapid scheduled was internal. One of the most precious commodities in the world is undivided attention. Set a reasonable 18-month timetable, and it’s hard to get people’s undivided attention. Set a nine-month timetable, and everybody get very focused.
It had worked at Toyota and now it worked at Apple. People talked to each other all the time. They tested different angles, different ideas. The rejects-pile grew larger. It was the same excess options strategy that Toyota had used: Overinvest in the right projects and let others die. As the rejects pile grows larger, so did the chances of finding the right solution, and the project chance of success increased. Undivided attention also got a partner, which is midnight oil. People who work at Apple cancel a lot of dinner reservations. Reluctantly, perhaps, but they do it. Winners attract energy. People vote with their attention and participation. So with the crazy schedule focusing everybody’s minds, iPod grew from a handful of people (Jobs and a couple of others) to a dozen, to a couple of dozen, to 50, which is a lot of people at a company the size of Apple. What followed was a pretty big conversation. Jobs doesn’t believe in serial development (Step A, handoff to Step B, handoff to Step C, etc.). Jobs prefers parallelism, or rather, synchrony. We have to talk to each other all the time, from hardware people to software people to design people to marketing people to manufacturing people.
Over in Nagoya, Toyota had done the same thing a few years earlier, when they created Obeya, the big room where all the players- engine people, transmission people, battery people, styling people, electronic people, etc.- could talk to each other, as well as their e-mail network to promote equal access to information. In Palo Alto, it looked a little different (“endless meetings everywhere”), but it worked in the same way: “playing together, every step of the way.” Now, playing together is not paradise. Independently thinking people have been known to disagree, often with intensity. There has to be a referee (Steve volunteered), a timekeeper (Steve as well), and a lead debater (Steve again). This psychic cost of running such a conversation far exceeds the dollars poured into the project. And it is far more powerful in raising the odds. In fact, the big dollars without the big psychic cost of the conversation will fail, guaranteed. But when you combine the financial investment with the emotional investment, you improve the odds of project success enormously.
Most project managers in the world do spend the dollars. But they don’t drive the conversation with the enemy, intensity, and intelligence of Steve Jobs. The high rate of project failure should be no surprise. Apple kept looking for ways to improve the odds. The team cast a wide net in searching for the right software and components, they refused to cut financial corners, they focused intensively on the user design, and they made deal with partners to secure a time advantage over potential rivals. Apple soon learned that Toshiba was working on a tiny, 1.8-inch disk drive that could hold thousands of songs. Exactly what the iPod needed, but it was so expensive that other companies had balked. Jobs said, “Go for it,” and Apple cut an exclusive deal for the drives. And added a couple of points to the still-daunting odds of success, maybe to 16%.
(Again, we can watch the scoreboard change as Apple makes its moves.)
Next, Apple discovered that a little company called PortalPlayer had created technology that could serve as the guts of the iPod. Apple licensed the technology, and shaved a couple more months off the schedule. 18%
Meanwhile, Apple’s engineers spent their time on the things they knew best- how to design an intuitive user interface and a beautiful package that would delight customers. Their motto: Think big, but simplify. Apple understood the technical challenges and the likely consumer demand well enough to know what the iPod needed to do and how to make it not just attractive but irresistible. Jeff Robin recalls: “I remember sitting with Steve and some other people night after night from nine until one, working out the user interface for the first iPod. It evolved by trial and error into something a little simpler every day. We knew we had reached the end when we looked at each other and said, Well, of course. Why would we not to do it ay other way?”
The sleek design and simple-to-use interface of iPod further increased the odds. 25%
The outpouring of favorable publicity that resulted when the iPod was launched in October, 2001 also helped. It provided unpaid advertising worth more than all the 30-second TV spots in the world. 30%
Even with software and hardware that worked and beautiful product design, iPod was still far from a guaranteed success. The market was still untested, the gadget was expensive, and rival companies squabbling with one another over control of their music libraries. There was still plenty of reason to believe that iPod could end up alongside the Apple Newton in the annals of project risk.
If the starting-gate odds in 2000 were 10%, how high were they at the end of 2001? For Steve Jobs ad his team, it was all just beginning. Let’s take a moment to reflect on the story of the iPod so far. What moves did Apple make to change the odds? Here are a few to consider:
- Work fast to pre-empt the competition.
- Capture your people's undivided attention.
- Have everybody talking to everybody.
- Buy or license technology rather than making it from scratch.
- Focus on the one thing you do best (interface design).
- Design and redesign until perfection feels inevitable.
- Make the first release so cool that the world has to notice.
How many of these types of moves can a company use in their new-product launch? To be continued in next issue.
Source: Mercer Management Consulting