Steve Jobs’s office remains Steve Jobs’s office. After his death in 2011, Tim Cook, his friend and successor as Apple (AAPL) chief executive officer, decided to leave the sparsely decorated room on the fourth floor of 1 Infinite Loop untouched. It’s not a shrine or place of mourning, but just a space that Cook sensed no one could or should ever fill. “It felt right to leave it as it is,” he says. “That’s Steve’s office.”
Almost everything else on Apple’s campus in Cupertino, Calif., is different. The executive wing once radiated nervous energy, with handlers scurrying to anticipate the whims of Apple’s temperamental co-founder. Now there’s tranquility in the hallways, a reflection of the new boss’s calm Southern demeanor. Downstairs, the cafeterias are packed—the workforce has almost doubled. A mile away, behind a ring of fences, construction crews are building the massive foundation for the circular “spaceship” campus that will accommodate 12,000 workers when it’s completed in a few years.
Until Sept. 9, all the other changes at the world’s most valuable and scrutinized company were largely invisible to the public. Then Tim Cook took the stage at the Flint Center for the Performing Arts and laid out much of what Apple has been working on over the past three years. The immediate aftermath is that Apple is swamped by a record number of preorders for the new iPhone 6 and supersize 6 Plus. Bank of America (BAC), Capital One (COF), JPMorgan Chase (JPM), and Wells Fargo (WFC), among other banks, plus the major credit card companies and a number of nationwide retailers, have embraced the new mobile payment system, Apple Pay. Even the Apple Watch, the company’s first attempt at launching an entirely new product category in the Cook era, has garnered an encouraging early response, though it will face the only test that matters when it hits stores sometime in 2015.
Cook is eager to declare all this as a decisive victory. “Anybody coming out of there yesterday knows that innovation is alive and well in Cupertino,” he says, rocking back and forth in a conference-room chair next to his office, an Apple Watch on his wrist. “If there were any doubts, I think that they should be put to bed.”
Behind the product announcements is a different story. When Cook took over from Jobs three years ago, the chances he could continue Apple’s epic run appeared slim. The iPhone accounted for more than half of Apple’s revenue and the bulk of its gross profit. At the same time the rise of phones made by Samsung Electronics (005930:KS) and other companies that ran Google’s (GOOG) free Android operating system had left Apple with a shrinking stake of the smartphone market. A huge part of Apple’s business hinged on what seemed like a doomed strategy, evoking its defeat to Microsoft (MSFT) Windows in the PC battle of the 1980s and ’90s.
Cook’s professional background is in managing supply chains, not changing the character of sprawling, complicated, ego-filled organizations. Yet three years later, veteran Apple executives repeatedly and emphatically say they want the new boss to get credit for pulling off one of the more improbable high wire acts in business history. “I feel damn proud to be working as a part of Tim’s team,” says Eddy Cue, senior vice president for Internet software and services. “If he gets a little bit of recognition from the outside world, that is great. He deserves a lot more than he is going to get.”
Cook didn’t take control of Apple under anything like ideal circumstances. “Even though Tim accepted the responsibility of being CEO with all the enthusiasm you’d expect,” says Robert Iger, Walt Disney’s (DIS) CEO and a member of Apple’s board, “it was dampened by a very deep sense of mourning. It made the transition hard, not just for Tim but everybody initially. He had a lot to prove.”
The company Cook inherited was broken up into specialized groups devoted to hardware, software design, marketing, and finance, all working separately and sharing little information with each other; they didn’t need to because the overarching vision resided in Jobs’s head. After Jobs died, say several people who were there at the time, it wasn’t clear such a decentralized structure could survive without a powerful guiding voice at the top. For the first few months, no one had a clear mandate to make big decisions, and teams were tussling for turf.
The decisive moment for Cook came at the end of his first year as CEO when he fired Scott Forstall, one of Jobs’s most trusted lieutenants. Forstall had led software development for the iPad and iPhone; he was also divisive and responsible for the poorly received Apple Maps and Siri voice recognition service. There was an audible gasp in Apple’s offices when the dismissal was announced, say people who were there. Cook immediately convened meetings with senior managers to explain how the new structure was going to work. Jonathan Ive, Apple’s head of design, was given control over the look and feel of iOS while development of the mobile operating system was consolidated with Mac software under Craig Federighi, the senior vice president for software engineering.
“The things we should be doing at Apple are things that others can’t”
It was a plan designed to break down walls and extinguish infighting, executed with precision. Cook says he has “nothing bad to say” about Forstall and “has no regrets.”
A decade ago, when he first became a public figure, Cook, now 53, was often caricatured as Jobs’s logical, icy sidekick—the Spock to his Kirk. In person, Cook defies those expectations. He bounds toward Apple employees, posing for on-campus selfies and answering every question regardless of the holes it eats into his schedule. He can also be quite emotional about a range of subjects close to his heart, from Auburn University football to social justice. It’s easy to project this unfailing politeness onto Apple and deduce that the CEO’s demeanor has trickled down to the corporate ethos. But this gives Cook too little credit.
Photograph by Geordie Wood for Bloomberg Businessweek
Collaboration may be a virtue, but Cook insists it’s more of a strategic imperative. Aligning thousands of employees is crucial now that “the lines between hardware, software, and services are blurred or are disappearing,” he says. “The only way you can pull this off is when everyone is working together well. And not just working together well but almost blending together so that you can’t tell where people are working anymore, because they are so focused on a great experience that they are not taking functional views of things.”
The result is only now becoming apparent with services that work across different Apple devices. Embedded in the iPhone 6 and the new iOS 8 and Mac OS X Yosemite operating system is a feature called Continuity, which lets users start an e-mail or some other task on their Mac, pick it up on their iPhone, and then move it to their iPad or even the Apple Watch. “We would never have gotten there in the old model,” Cook says. These new products are reminders “of why we exist. The things we should be doing at Apple are things that others can’t.”
“I don’t consider the bloody ROI. If you want me to do things only for ROI reasons, you should get out of this stock”
With the Apple Pay service, users will be able to touch their finger to the Touch ID finger scanner on their iPhone, tap their handset against a credit card terminal, and make a payment without having to turn on their phone or open an app. It’s another illustration of Cook’s focus on products that combine hardware, software, and services—and it’s an important test for the company. Apple doesn’t have a stellar track record when it comes to making easy-to-use services. Products such as iCloud, iTunes, and Siri lack the intuitive polish of Apple’s devices, and customers aren’t likely to be as forgiving when the stakes are raised from organizing photos to ensuring the security of their financial transactions.
The new iPhones use a technology called near field communication that employs a short-range wireless signal to transmit data from the handset to a store’s payment terminal. Software keeps a person’s credit card information inside the phone and ensures it’s never shared directly with the merchant. Led by Jennifer Bailey, a vice president who had overseen Apple’s online store, the company started pitching this system early last year to banks, credit card companies, and retailers as more secure, more intuitive, and, unlike previous mobile payment systems, more likely to actually be used by tens of millions of iPhone owners. As a result, Apple signed up the largest banks, credit card companies, and national chains such as McDonald’s (MCD) and Walgreen (WAG). “They set out to do something from Day One with substantial scale,” says James Anderson, MasterCard’s (MA) senior vice president for mobile and emerging payments. “They had a vision for how it was going to work and a vision for how simple it had to be.”
Cook’s culture hasn’t suited everybody. To one former senior designer, accustomed to spitballing sessions with Jobs to go over details as minute as the look of screen icons, the company no longer has the same allure. He says he left because Apple grew too large and that products once created in small groups are now done in sprawling teams. Others chafe at Cook’s insistence on financial discipline; in meetings once devoted to the hallowed act of reviewing products, he asks managers pointed questions about spending and hiring projections, says a person involved. Staff from finance and operations now sit alongside engineers and designers in product road map sessions with key component partners.
Cook also continues to micromanage areas at Apple where he has the most expertise. He still holds Friday afternoon meetings with senior managers in charge of the company’s vast supply chain, much to the chagrin of some who’d hoped his attendance, and mercilessly detailed questions, would fall off after he became CEO.
“Excuse my September allergies,” says Jony Ive, rubbing his nose as he settles into a black leather seat in Apple’s executive offices. Ive has become a design legend over the past 15 years, having overseen the look and feel of the original iPod (2001), iPhone (2007), and iPad (2010). His very name—three syllables, no unnecessary letters—fits his minimalist aesthetic. He has the delicate voice and precise diction you’d expect, but he’s thickly built, and in suede chukka boots, loose-fitting blue-and-white-striped painter’s pants, and blue T-shirt with glasses hanging from his neck, the world’s most famous designer could easily be mistaken for the guy who fixes your sink.
“One of our competitors is on their fourth or fifth [watch], but nobody is wearing them”
With an Apple Watch wrapped around his hand brass-knuckle style, Ive reveals that the project was conceived in his lab three years ago, shortly after Jobs’s death and before “wearables” became a buzzword in Silicon Valley. “It’s probably one of the most difficult projects I have ever worked on,” he says. There are numerous reasons for this—the complexity of the engineering, the need for new physical interactions between the watch and the human body—but the one most pertinent to Ive is that the Apple Watch is the first Apple product that looks more like the past than the future. The company invited a series of watch historians to Cupertino to speak, including French author Dominique Fléchon, an expert in antique timepieces. Fléchon says only that the “discussion included the philosophy of instruments for measuring time” and notes that the Apple Watch may not be as timeless as some classic Swiss watches: “The evolution of the technologies will render very quickly the Apple Watch obsolete,” he says.
Ive, 47, immersed himself in horological history. Clocks first popped up on top of towers in the center of towns and over time were gradually miniaturized, appearing on belt buckles, as neck pendants, and inside trouser pockets. They eventually migrated to the wrist, first as a way for ship captains to tell time while keeping their hands firmly locked on the wheel. “What was interesting is that it took centuries to find the wrist and then it didn’t go anywhere else,” Ive says. “I would argue the wrist is the right place for the technology.”
Ive’s team first tried using the same pinch-to-zoom touchscreen they’d invented for the iPhone, but the screen was too small and their fingers obscured the display. A year into the project, the group started toying with what became the Apple Watch’s defining physical feature: “the digital crown,” a variation on the knob that’s used to wind and set the time on a traditional wristwatch. By pressing or rotating the crown, Apple Watch users can return to the home screen, zoom in or out, and scroll through apps.
Watches are as much about fashion as functionality. Ive and his colleagues indulged their obsession for detail and designed three collections of devices made of different materials and seven watchbands with their own features and flourishes. Ive handles each of the watches with the proud familiarity of a father, demonstrating, for example, how links can be plucked off a stainless steel band by pressing two buttons, no specialized jeweler’s tool required. In another bit of engineering cleverness, the watch’s packaging doubles as a charging stand; wearers nestle the watch against an inductive magnet inside the watch box to recharge it. (How often they’ll have to recharge remains unknown. Apple hasn’t yet announced specs on the watches’ battery life.)
For every $100, Apple takes nearly $38
By last summer, with Apple’s stock down by as much as 40 percent from a record high because of concerns about the lack of new products, Cook was ready to accelerate the project. (The stock, now at around $100, has recovered all that ground and then some.) Apple insiders say that while an executive named Dan Riccio, who leads hardware engineering, would have been the obvious choice to take over the Watch program, Cook assigned it to Jeff Williams, 51, senior vice president for operations. Williams is Cook’s go-to guy—he vets possible acquisitions, coordinates with Foxconn Technology (2354:TT) and other manufacturers, and oversees the logistics needed to get millions of devices from Asian factories to stores around the world. He’s an uncanny Cook clone: tall, soft-spoken, and an avid fitness buff with an inexhaustible memory for operational details. Both men have MBAs from Duke University and spent early parts of their careers at IBM (IBM). In the new Apple, he’s Tim Cook’s Tim Cook.
Williams took over a team that had little in common with the small groups that created the Macintosh and iPhone, which considered themselves renegades operating in secrecy from other colleagues. The watch team included hundreds of engineers, designers, and marketing people and was the kind of cross-company interdisciplinary team now common under Cook. Apple, which has more than 1,000 chip designers, built the new S1 processor that powers the watch. Metallurgists responsible for the casing for Macs and iPhones devised a stronger gold alloy for the premium model of the watch, and Apple’s algorithm scientists studied how to improve the accuracy of the watch’s heart rate sensor.
Williams is unapologetic about the Apple Watch missing the 2014 holiday season. “We want to make the best product in the world,” he says. “One of our competitors is on their fourth or fifth attempt, but nobody is wearing them.” Cook also preaches patience. “We could have done the watch much earlier, honestly, but not at the fit and finish and quality and integration of these products,” he says. “And so we are willing to wait.”
Critics of Apple—they do exist—say the watch’s user interface is confusing and that it’s not entirely clear whether there’s a “killer app” or what, if anything, the watch does better than a smartphone. Prices start at $349, which is more than most users will pay for an iPhone 6 with a two-year contract.
Photograph by Geordie Wood for Bloomberg BusinessweekCook says he wishes he could make the device more affordable, particularly since the company boasts of its potential to help customers manage their health and wellness (“that’s the humanitarian coming out”), but he won’t compromise Apple’s large profit margins to make it happen. (Cook theorizes that employers eager to see their workers become healthier may subsidize the device.) Then there are fashion considerations. “Some men will find it to be a little too feminine and some women will find it too bulky and possibly too masculine,” says Gadi Amit, president of the San Francisco firm NewDealDesign.
Cook sees the watch as a way for customers to manage their fitness and improve their daily lives and as an ever-present remote control for their televisions, home appliances, and online relationships. “I think it’s the beginning of a very long run,” he says.
At Apple’s March shareholder meeting, a representative from the conservative National Center for Public Policy Research questioned Cook on Apple’s commitment to making its factories carbon neutral and removing harmful chemicals from its products. What was the return on investment? Cook showed an uncharacteristic flash of real anger. “I don’t consider the bloody ROI,” he said. “If you want me to do things only for ROI reasons, you should get out of this stock.” The crowd erupted into raucous applause.