Ninety Days From Bankruptcy: The Year Apple Almost Died

Steve Jobs had been a co-founder of Apple Computer in 1976. He was 21 years old. By 1985, after the company went public and had become one of the largest tech firms in the United States, the board fired him. The reason given at the time was that he was hard to work with — perfectionist, abrasive, unwilling to follow management direction from CEO John Sculley, the former Pepsi executive Jobs had personally recruited two years earlier with the now-famous question 'Do you want to sell sugared water for the rest of your life, or do you want to come with me and change the world?'

The story most people tell is that Jobs was kicked out and then walked back in a triumphant decade later. The reality is uglier and more interesting. After being pushed out, Jobs founded a new company called NeXT, which built high-end workstations that almost nobody bought. He spent more than $250 million of his own money trying to make NeXT work. By the early 1990s NeXT had pivoted away from hardware and was selling only software. He had also bought a small computer-graphics division spun out of Lucasfilm for $5 million in 1986 and renamed it Pixar. For the first nine years he owned Pixar, it lost money every year.

Meanwhile Apple, the company he had built, was disintegrating. The Macintosh — which had been revolutionary in 1984 — had been licensed to clone makers. The product lines had multiplied to the point where the company was selling 17 different desktop computers nobody could distinguish. Microsoft Windows 95 had finished the job of taking the GUI mainstream and rendering Apple's main differentiator irrelevant. By 1996 the company had cycled through three CEOs in seven years and was losing market share at every product category. Jobs, watching from across the bay in Emeryville, told his Pixar colleagues he thought Apple was 'in a death spiral.' He was not wrong.

By the end of 1996, Apple needed a modern operating system urgently. The Macintosh System 7 was a decade old. An internal project called Copland, started in 1994 and intended to be its successor, had collapsed under its own weight. The company looked for an OS to license. Two candidates emerged: BeOS, the lightweight new operating system from former Apple executive Jean-Louis Gassée, and NeXTSTEP, the workstation operating system Jobs's company had spent a decade building.

Gassée had a cleaner technology and asked for $200 million. Jobs asked for $400 million plus stock and a board seat. CEO Gil Amelio, a former National Semiconductor executive who had been at Apple barely a year, chose NeXT. The official reason was technical superiority. The real reason was that buying NeXT meant getting Steve Jobs back as a part-time advisor.

The deal closed in February 1997 for $429 million. Jobs returned to Apple's Cupertino campus on a part-time basis, ostensibly to advise on the OS transition. Within four months he was running the company. The mechanism was simple: Apple kept losing money. The board kept losing patience with Amelio. By June 1997, Jobs was telling people privately that Amelio's strategy was incoherent. By July, the board agreed.

On July 9, 1997, the board fired Gil Amelio. They announced that Steve Jobs would take over on an interim basis only — i-CEO, he joked. He would not officially be named permanent CEO for another two and a half years.

Within weeks of taking over, Jobs did the math. Apple had a few hundred million dollars in the bank. It was burning cash at a rate that would empty the account inside 90 days. The company needed two things urgently: a cash infusion and a guarantee that Microsoft Office, by far the most-used software on Apple computers, would continue to support the Mac.

Jobs called Bill Gates personally. The two had known each other since they were both in their twenties. The relationship was fraught — they had spent a decade trading public insults, and Apple had a long-running lawsuit against Microsoft over the Windows graphical user interface. Jobs proposed a settlement: Apple would drop the lawsuit, Microsoft would invest in Apple, and Microsoft would guarantee continued Mac support for Office.

Gates agreed. The deal was $150 million in non-voting Apple stock that Microsoft committed to hold for at least three years, plus a five-year commitment to keep developing Office for Mac. In return Apple agreed to make Internet Explorer the default Mac browser. The press release went out on August 6, 1997.

Jobs announced the deal on stage at Macworld Expo Boston that morning. Six thousand Apple loyalists packed the Castle in Boston Common. When Jobs explained the deal and a video feed of Bill Gates appeared above the stage, the audience booed loudly. They booed even louder when Jobs said the words 'Microsoft' and 'partnership' in the same sentence. Jobs let it go for a moment, then leaned into the microphone.

'We have to let go of this notion that for Apple to win, Microsoft has to lose. We have to embrace a notion that for Apple to win, Apple has to do a really good job.' The room got quieter. The Mac was saved. The 90-day clock stopped.

Saving the cash position bought time. It did not fix the underlying problem. Apple was still selling 17 different desktops, multiple laptop lines, printers, scanners, and the Newton handheld. Each line had a small, loyal following. Together they were losing money. Jobs's first product strategy meeting after the Microsoft deal was a whiteboard exercise. He drew a 2x2 grid: rows labeled 'consumer' and 'pro,' columns labeled 'desktop' and 'portable.' He told the team Apple was going to make exactly four products — one in each square — and he was going to kill everything else.

The Newton handheld was killed. The clone-licensing program — under which other manufacturers had been allowed to make Macs — was unwound by buying out the contracts. The printer business was sold. The QuickTake digital camera line was discontinued. About 70% of the product line was eliminated within a year. Engineering teams that had been working on those products were told their next job was the iMac, the consumer desktop that would launch in May 1998.

The iMac, when it shipped, was the all-in-one Bondi-blue computer with the curved translucent shell. It was designed by a 31-year-old Briton named Jonathan Ive who had been at Apple since 1992 and who almost quit before Jobs's return. It cost $1,299. It was the first Mac in years that was not aggressively ugly. In its first five months on the market it sold 800,000 units. It was, in absolute terms, the most successful new computer Apple had ever launched.

More importantly, it gave the company a single coherent design language. Every product Apple shipped from that point forward — the iBook in 1999, the PowerMac G4 in 1999, the Cinema Display in 2000, eventually the iPod in 2001 — looked like it came from the same company that made the iMac. Apple had been a confused product portfolio for fifteen years. By 1999 it was the design-conscious technology brand.

Apple's recovery from 1997 to 2001 was a textbook turnaround. What happened next was not. The iPod was announced on October 23, 2001 at a small press event on the Apple campus. The press release described it as 'a breakthrough digital music player.' The reaction was muted. Slashdot's top comment that day was a one-line reply that read 'No wireless. Less space than a Nomad. Lame.' Sony, Microsoft, and Creative Labs all had digital music players. Apple was not viewed as a serious player in the consumer electronics business.

The iPod sold 380,000 units in its first six quarters. Then iTunes Music Store launched in April 2003 and the curve bent. Within four years Apple was selling more music than anyone in the United States. The iPod's halo effect drew a generation of Windows users into the Apple ecosystem for the first time. By 2006 the music business was bigger than the computer business at Apple, which had spent the previous twenty years selling almost exclusively to graphic designers and educators.

The iPhone, launched in January 2007 and shipped that June, was a different kind of bet. It cost $500. It used a touchscreen most people had never seen before. It was widely predicted to fail. Steve Ballmer, then CEO of Microsoft, said in a 2007 interview, 'There's no chance that the iPhone is going to get any significant market share. No chance.' He was reading a smart phone analyst report on a Windows Mobile phone at the time.

Fifteen years later, Apple had sold more than 2 billion iPhones. The iPhone alone, broken out as a separate company, would have been a top-five business in the world by revenue. Tim Cook, who succeeded Jobs in 2011 after Jobs was diagnosed with pancreatic cancer, ran the supply chain that scaled from selling 6 million iPhones in 2007 to selling 230 million in 2024. He took Apple from a market value of around $350 billion to over $3 trillion. The 90-days-to-bankruptcy moment in 1997 became the rounding error of the largest stock-market story of the 21st century.

There are two stories told about Apple's revival. The boring one is that Steve Jobs was a genius, that vision and taste rescued the company, that the rest of the world should aspire to find their version of Steve. The interesting one is the version with no Steve worship in it.

Apple in 1996 was a company that had built an enormous installed base of customers who deeply preferred its products to the alternative. That fact had nothing to do with Jobs personally — it was the work of thousands of engineers, designers, and marketers across two decades. What was missing was a CEO willing to make hard cuts. Three previous Apple CEOs — John Sculley, Michael Spindler, and Gil Amelio — had each been unwilling to do what Jobs did in his first six months: kill 70% of the product line, settle the Microsoft lawsuit, and tell the loyal Macintosh community to stop fighting yesterday's war.

The Microsoft deal is the moment that gets remembered as humiliating. Loyalists booed. Press accounts called it surrender. In retrospect it was a clean trade: Apple gave up the bitter pleasure of fighting Microsoft in court, and in exchange got the cash, the software guarantee, and the freedom to focus on its own products. Apple won the next twenty years not because it beat Microsoft. Apple won because it stopped letting the Microsoft fight be the thing that defined Apple's strategy.

The Apple turnaround is held up as a story about a unique founder. It is more accurately a story about what happens when a board, three CEOs late, finally lets someone make the cuts that should have been made years earlier.