Thursday, July 24, 2014

Steve Jobs never would have bought Beats. Here's why Tim Cook did it.

Apple CEO Tim Cook Justin Sullivan

Apple's $3 billion acquisition of Beats isn't just the Cupertino company's largest acquisition ever, it's the biggest deal by a huge margin. The previous record-holder was the $400 million purchase of NeXT computer in 1996. That deal didn't just bring Steve Jobs back to the company he founded, it also provided Apple with the technical foundations for both Mac OS X and iOS.

Apple was already a big company when Jobs took the reins in 1997, but he ran it as if it were a small, founder-owned startup. All significant decisions flowed through Jobs personally. The Beats acquisition is the latest sign that Tim Cook is backing away from that approach. Under Cook, Apple is becoming a normal company much less focused — and, therefore, much less dependent — on the decisions of any one man.

During the aughts, Apple functioned to a remarkable degree as an extension of Jobs himself. When Jobs returned to Apple, he was ruthless about canceling what he viewed as extraneous products. He pared the company's offerings down to a handful whose development he could oversee personally and took an intense interest in the products that survived his axe. Thanks to his perfectionism, the iMac, iPod, MacBook, iPhone, and iPad became some of the most beautiful and popular gadgets ever devised.

Jobs was equally ruthless behind the scenes. Any function that could distract from Apple's core mission of creating great consumer devices was shut down. Jobs shuttered Apple's corporate philanthropy programs in 1997, arguing that the struggling company needed to focus on returning to profitability. Apple became spectacularly profitable, but Jobs never re-started Apple's philanthropic arm.

Jobs took an unusually hands-on role in Apple's corporate acquisitions. Late in Jobs's tenure, Apple only had one executive whose sole function was mergers and acquisitions because (according to Fortune) "Steve Jobs basically ran M&A for Apple." The result: Apple did relatively few deals, and all of them were small deals by Silicon Valley standards. Jobs wasn't interested in acquiring profitable subsidiaries, he was only interested in buying companies that could help him improve Apple's core products.

Jobs also stubbornly refused to return Apple's growing cash horde to shareholders, wanting to keep all the cash for himself in case he should need it for future investments.

Tim Cook thinks different

When Steve Jobs died, his longtime deputy Tim Cook took over. And he has taken a very different approach.

One of Cook's first moves after taking the reins was to bring corporate philanthropy back to Apple with a matching gifts program. Cook expanded Apple's dealmaking department so that Apple can now "work on three deals simultaneously." Apple started paying dividends to shareholders.

And now, Tim Cook is doing something Steve Jobs never did: expanding Apple by acquiring a company that is already successful instead of trying to build all of its new products from scratch. Rather than folding Beats into Apple, it will operate as an independent Apple subsidiary.

Cook seems to have realized that Apple's highly centralized corporate structure only worked with a talent as extraordinary as Steve Jobs at its apex. And Cook evidently believes that he is not such a talent. So he's turning Apple into a normal company, the kind that depends on collaboration among groups of talented executives instead of trying to impose a single vision on the whole organization.

For example, a big motivation for the Beats deal seems to have been to recruit Beats co-founder and legendary music mogul Jimmy Iovine. Cook realizes that he won't be able to single-handedly produce all the smart ideas needed to keep Apple growing. So he wants executives like Iovine at his side to help.

This is probably what Jobs would have wanted. Jobs specifically told Cook that he shouldn't ask what would Jobs do in managing Apple after Jobs was gone. Jobs realized that his successor would need to find his own model for making Apple a success. And that's what Cook is trying to do.

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