Apple: The wizard of awe

How Steve Jobs weaves his own version of reality, and why we keep buying into it.

It’s a mild January morning in San Francisco, and the circus has come to town. Outside the Yerba Buena Arts Center, a mob has gathered to witness the unveiling of Apple’s latest creation, a handheld computer that all the world will soon know as the iPad. Network TV crews have set up camp, their satellite dishes pointed skyward. A crush of reporters and bloggers jostle past burly security guards like kids pushing their way into a rock concert. Even after the doors close and Apple’s turtlenecked CEO, Steve Jobs, launches into what is arguably the most important presentation of his life, outside, the people keep coming.

Rafael Fischmann, a tech blogger from Brazil, travelled 18 hours just to be close to the event, “because something very big and revolutionary is coming.” Dr. Bernd Weidner, a Berlin physicist in town for a major photonics conference taking place across the street, is thrilled just to find himself in San Francisco “at this moment in history.” In fact, throughout the morning several groups of photonics experts, people who study the very building blocks of light, converge on the Apple event like moths to a torch. “This is going to be a game changer,” predicts Conor Evans, an instructor at Harvard University and an avid Apple fan.

Finally Raghavan Rajagopalan, a St. Louis — based medical researcher who’s been listening to others heap praise on Apple, cuts in. “I don’t get it,” he says simply. “There are thousands of products [at the photonics conference] to help cure cancer, amazing research into all kinds of things. But the whole world is over here watching Apple bring out some little device.”

Welcome to the $200-billion Steve Jobs magical mystery extravaganza. Jobs the Magnificent is the act everyone has come to see. It’s not always easy to articulate exactly how Jobs is able to wield such uncanny power over the consumer imagination, but the launch of the iPad provided some of the clearest examples of his unmatched, some might say mystical, powers.

Over the past decade, Jobs has steered Apple far beyond its roots as a niche player in the computer market, catering to a small but devoted cult of Mac heads, and into the heart of popular culture. The company accomplished this through brilliant design and engineering, as well as a willingness to ignore almost all of the rules that govern traditional consumer electronics companies like Sony and Microsoft. Apple doesn’t obsess about what consumers say they want. Like a company of clairvoyants, it knows what we want before we’ve even had a chance to realize it. And so Apple sells us impossibly slim music players, gleaming white desktops that don’t look much like computers at all, phones that behave like extensions of our minds, and software that brings it together as one great unifying experience.

But as much as all that, Apple’s success relies heavily on the unique presence of its chief conjurer, Jobs. Part of the fun of any magic show is letting yourself get swept up in the illusion of it all, and Jobs has managed to bring that sense of wonder to the world of business. When he is up on stage, revealing the latest gadget, he wields all the tools of a master showman: rhetorical flourishes, dramatic pauses, and knowing looks to the audience. Likewise, it shows up in the almost alchemic way Jobs takes existing technologies and transforms them from familiar, utilitarian gizmos into cultural icons and consumer gold. Millions of us have bought into the Apple mystique, and this year we’ll channel roughly US$50 billion into the company’s coffers.

But the iPad, a slim multimedia device about the size of a magazine and weighing just 1.5 pounds, is shaping up to be Jobs’s most daring trick yet. It’s Apple’s first new product since becoming an international juggernaut with a stock market capitalization of US$200 billion. The iPad is also the first super-gadget to be released in the aftermath of the global recession. To keep investors happy, nothing short of a mega-hit will do.

There are plenty who have rushed to say Jobs has failed to live up to his own hype this time. Early griping from bloggers and geeks has mostly focused on what the new tablet device doesn’t have. The iPad’s name, meanwhile, has become the butt of endless feminine-hygiene jokes online. For a moment, the term “iTampon” became the third-most talked-about topic on Twitter.

Nevertheless, most analysts are predicting Jobs has another winner on his hands. “It won’t happen overnight, but in time, we believe that what looks today like a big iPhone or an amputated netbook will be revealed as a revolutionary new media device,” Yair Reiner, an analyst at Oppenheimer & Co. wrote in a recent report. If Jobs can find the sweet spot between price and convenience for content on the iPad, as he’s done in the past, Apple may just give content providers of all sizes the power to begin charging for material that has become rapidly commoditized online – and earn billions more for Apple in the process.

Will it work? There are hundreds of reasons to doubt it, but all of that fails to grasp the true nature of Jobs’s allure and why we so willingly fall under his spell, time and again. When Apple is inventing, the traditional rules of business get bent in important ways. Ladies and gentlemen, get ready to open your wallets. The show is about to begin.

They call it the “reality distortion field,” an invisible force that surrounds Steve Jobs and compels you to believe what he’s saying. Sure, it’s far-fetched. But when longtime Apple enthusiasts talk about this force, they’re only half-kidding. And Jobs had it cranked to overdrive for the iPad launch.

Even before he stepped from behind the curtain, the buzz inside the Yerba Buena center was electric. For months, the media had been reporting that some sort of tablet device was coming. More than 25,000 online stories referenced such rumours in just three weeks leading up to the launch. As The Wall Street Journal noted, “The last time there was this much excitement about a tablet, it had some commandments written on it.”

Anticipation reached a fever pitch three days before the event, when word leaked that Jobs had told a friend, “This will be the most important thing I’ve ever done.” Coming from Jobs, that was saying something. Even before breathing life back into the music business, and re-imagining the smartphone, he redefined computers and laptops several times over. During his forced 15-year exile from Apple, he even revolutionized the movie industry by starting Pixar Studios, and creating 1995’s Toy Story, which broke all box-office records for an animated feature.

Could he really top all that now?

Apple steadfastly refused to confirm it was even working on a tablet. All that anyone seemed to have was speculation and questions. Would Apple challenge Amazon’s dominance in e-book sales? And how would Steve look in his first public appearance since his health scare last year, when he underwent a liver transplant?

For those hoping for a spectacle, Jobs didn’t disappoint. “In order to really create a new category of devices, those devices are going to have to be far better at doing some key tasks,” he said in his trademark slow, deliberate manner. “Better than the laptop, better than the smartphone. We think we’ve got something that is” – pause – “and we call it” – pause – “the iPad.” Cue adoring whoops and hollers. (As an added bonus, those in attendance agreed the Apple chief looked healthier than he has in ages.)

Over the next hour and a half, Jobs took his audience through a high-intensity tour of the iPad. It was more highly choreographed theatre than corporate event. When he wasn’t roaming the stage like a techno-televangelist, he sat in a comfy leather chair, playing on the device while a giant screen relayed to the crowd what he was doing. As Carmine Gallo, the author of a recent book called The Presentation Secrets of Steve Jobs, writes, “Jobs is a magnetic pitchman who sells his ideas with a flair that turns prospects into customers and customers into evangelists.”

It’s not just flair he brings to his performances. It’s pure zeal and unshakable confidence. In virtually every sentence of his iPad speech, Jobs seemed to inject at least one glowing adjective to describe the device and its functions. To hear Jobs tell it, the iPad is a “magical,” “wonderful,” “amazing,” “awesome,” “revolutionary,” “extraordinary,” “phenomenal,” “unbelievable,” “super,” “gorgeous,” “terrific,” “ambitious,” “incredible,” “magnificent,” “beautiful” and “unbeatable” device. Imagine Microsoft’s Steve Ballmer attempting such an over-the-top pitch for a new gadget. He’d be laughed off the stage. But this was Jobs. “When he’s up there, he’s not selling a product,” says Steve Chazin, a former marketing executive at Apple. “He’s selling membership in an exclusive brand. Sitting in that chair with his iPad on his lap, Steve Jobs was saying ‘Look at me. Do you see what you’re missing?’ That’s how he gets you to reach for your wallet despite your better instincts.”

It’s only been a couple weeks since Jobs’s presentation, but most people already have a pretty firm idea of what an iPad can do. This in itself is truly remarkable, and says a lot about the power of the Apple hype machine. After all, the device hasn’t even gone on sale, and only a few hundred people on the planet have ever even seen the prototype in person, let alone touched it.

But for those whom Jobs has yet to reach, the easiest way to think of the iPad is as a large iPod Touch. Like its iAncestors, the iPad has a multi-touch screen, connects to the Internet through Wi-Fi and, for extra money, can connect to 3G mobile networks. Apple has said it will launch three models starting in March, ranging in size from 16 gigabytes of memory up to 64 GB. Prices range from US$499 to US$699, plus $130 for the 3G option. (Apple has yet to reveal the price tag for the iPad in Canada, nor which wireless carriers it will team up with here and how much data plans will cost.)

Just like the iPod launch in 2001 and the iPhone in 2007, people are using the word “magical” to describe Apple’s new device. But the thing is, all magic is illusion, and so it is with all of Apple’s biggest hits. Other companies had already produced MP3 music players with the same capacity and sound quality by the time the iPod came along. Phone calls on the iPhone didn’t sound any better than those on other phones. (In fact, with AT&T, the exclusive carrier in the U.S., experiencing ongoing bandwidth problems and dropped calls, you could argue the quality was worse.) Sure, the iPod’s spin wheel was pure genius, and the iPhone’s interactive touch screen and the way it brought the Internet into the palm of your hand hit like bolts from the blue. But at their core, these devices are redesigns of existing technologies. Meanwhile, competitors like Samsung, Google and BlackBerry have since largely caught up to Apple in terms of functionality.

The real magic of Apple’s offerings has been the accompanying software and services the company offers. The iTunes online store makes it incredibly easy to purchase songs and load them onto the devices. Users have responded by buying well in excess of six billion songs, starting at 99cents a pop. By last quarter, Apple had sold roughly 250 million iPods around the world, giving it control of nearly 74% of the MP3 market. The company pulled off an encore performance with the App Store for the iPhone. In just 18 months, users have downloaded more than three billion apps – from simple programs that let you check on your flight status or tune a guitar, to more complex games and painting applications like Brushes, which has been used to create three New Yorker magazine covers. In both cases, it was the ease of access to music and apps that made the devices popular, not the other way around.

We’re seeing the very same scenario play out with the iPad. Tablets are nothing new. Companies have been trying for years to make them work. Some, like the Apple Newton and Casio Zoomer, failed outright, while prototypes from Compaq and Microsoft never came to market. In 2001, former Microsoft CEO Bill Gates predicted that within five years tablets would be the most popular form of PC sold in America. At the same time, Amazon, the online retailer, has already established a solid beachhead with its Kindle digital book reader. Yet the expectation once again is that Jobs will sprinkle his pixie dust on the sector and bring it new life.

Gene Munster, an analyst at Piper Jaffray, expects sales to start off slow, but he believes the iPad will gain traction as content providers climb on board. “It’s essentially an oversized iPod, but what it ultimately can do will depend on what these content people, the publishers, the newspapers, the gamers, can pump into the iTunes store,” he said in an interview. “The iPad is going to take a year or so to get traction because we need to get better content and allow people to see all the amazing things it can do.”

To that end, Apple has extended its online music and applications stores with a third arm, the iBook store. So, in addition to surfing the web, watching movies, checking e-mail, iPad users will be able to buy songs, download from some of the 140,000 apps already created for the iPhone, and purchase books. The company has signed up five major publishers, including Penguin and HarperCollins, to sell their titles through the new online shop. Meanwhile The New York Times has created an application to download and display the paper using the iPad’s larger screen. “We’re incredibly excited to pioneer the next version of digital journalism,” said Martin Nisenholtz, a senior executive at the Times after showing off the service.

The Street seems equally stoked by the iPad’s prospects, if initial sales forecasts for the device are any indication. Charlie Wolf, a senior analyst at Needham & Co., believes Apple will sell two million iPads in 2010 and another six million in 2011. (In their first years, the iPod sold just a few hundred thousand units, while the iPhone sold six million.) IDC analyst Richard Shim is even more bullish, predicting Apple will sell four to five million iPads in 2010 alone. “It’s an emerging category, this convergence of an e-book reader, a notebook, a web-surfing device and your iPod,” said Stephen Jue, an analyst with RCM Capital Management in an interview after the iPad launch event. (His firm is among the 50 largest holders of Apple shares.) “When you look at what people do in the living room, which is what the focus of the device is, it could clearly meet that use case from a home user perspective.”

Every magician must deal with his share of hecklers and spoilers. Steve Jobs is no exception, and the launch of the iPad was immediately (and predictably) followed by a backlash almost as frantic as the hype preceding it. Outside the Yerba Buena event, as news of the iPad filtered out, one onlooker shouted, “This thing is an iTurd.” One respected online tech site, the Silicon Alley Insider, declared the iPad a “yawn.” Some analysts shared the same view. “On balance, we view the iPad as a modest disappointment,” Sanford Bernstein analyst Toni Sacconaghi wrote in a note. Some have compared the device to Apple’s failed G4 Cube, a computer launched in 2000 to meet the middle ground between casual and professional users, but which ultimately failed to satisfy either group. It was a rare moment when the magician dropped his wand.

On the surface, there are definitely things not to like about the iPad. The prototype Jobs displayed doesn’t have a built-in camera. It doesn’t allow for multi-tasking, meaning two applications can’t be used at the same time. And the device won’t run Adobe Flash, software that powers a lot of animation and graphics on the Web.

But none of those features were left out because Apple’s engineers couldn’t make them work. Every decision of what to include and exclude is by choice, with Jobs the final arbiter. “Sometimes I think Apple purposefully does stuff at the start that looks really stupid, so they can fix it really quickly and say, ‘Aren’t we good?'” says Guy Kawasaki, a former executive with the company and now CEO of news aggregator Alltop. Chances are, Jobs will soon introduce new, more advanced models of the iPad with added features, and drive consumers wild with desire. “Apple truly believes that you are just temporarily holding its money and that it’s just a matter of time before you give it to them,” says Kawasaki. “It’s a belief that comes directly from Steve, and all the Steve-lets at Apple adopt it.”

It’s worth remembering that there’s also a long history of observers who have predicted Jobs’s imminent failure, only to have to eat their words later. When Apple began to roll out its antiseptic white retail stores across the U.S. in 2001, David Goldstein, a retail consultant, dismissed it as a doomed experiment. “I give [Apple] two years before they’re turning out the lights on a very painful and expensive mistake.” Last quarter, 50 million visitors walked through the doors of 250 Apple stores around the world and dropped US$2 billion while there, a 13% rise from the year before in the midst of a punishing recession. In 2001, an editor at tech news site Slashdot famously dismissed the iPod as “lame.” As recently as 2005, British entrepreneur and media personality Sir Alan Sugar boldly predicted that by the following Christmas, “the iPod will be dead, finished, gone, kaput.”

Those predictions are laughable now, but you can understand the skepticism: Jobs attempts things that conventional wisdom says are impossible. For example, everyone would agree that if something is available for free, you can’t get people to pay for it. Remember the old saying about selling ice to Eskimos? But Jobs doesn’t see that as much of a hurdle.

For all the blog posts, news stories and analyst reports that attempted to pick apart Jobs’s game plan for his new creation, perhaps the most astute analysis could be found, of all places, in the comic pages. Doonesbury had been following the Apple tablet launch, and on the day after the big unveiling, the strip’s rumpled journalist character, Roland Hedley, gave his take from outside the event. “If I read Jobs correctly, and I believe I do, Apple means to do nothing less than to reshape the world by charging us for things that used to be free! From music to news to books, Jobs seems to think if you get the delivery right and use lots of Helvetica, people will pay for content! HA!”

“What’s the crowd’s reaction, Roland?” the anchor asks.

“Puzzling. I can’t explain the rose petals.”

With that, Doonesbury creator Garry Trudeau managed to perfectly capture the incongruity of Apple’s popularity. Jobs conjures up technology and services that he sells to us, often at a hefty premium price, which, in turn, enable and encourage us to spend even more money. And we hail him for it.

Since the iPad’s debut, the device has already led to upheaval in the publishing industry. At the end of January, a battle broke out between book publisher MacMillan and Amazon over the pricing of e-books on the Kindle. Until now, Amazon has priced bestsellers at US$9.99, but Jobs plans to sell them for between US$12.99 and US$14.99. MacMillan officials demanded Amazon renegotiate its pricing strategy, and the online retailer responded by temporarily pulling all the publisher’s books from its website. The move has sparked outrage from fans of MacMillan’s authors, and served as a rallying cry for other publishers. For an industry facing serious threats from online theft, it was a rare chance to flex its muscles. And it owed it all to Jobs.

For all its drawbacks, iTunes imposed a profitable revenue model on a music industry that was rapidly being decimated by online theft. Will we see a repeat in the newspaper and magazine industry? Time Inc.’s Sports Illustrated is developing a digital version of its magazine specifically for tablet-style readers, complete with stories, videos and interactive features. Several Conde Nast publications, including GQ and Wired, have also said they’ll have apps ready for the iPad’s launch. What’s more, the new Apple device comes as publishers like The New York Times and News Corp. have vowed to charge for content. The iPad could be just the multimedia vehicle publishers have been waiting for since the dawn of the Internet.

Not everyone will suddenly start paying for content. But Jobs is betting there are enough people out there willing to dig into their pockets to turn the iPad into another winning product. “If you’ve bought a Ferrari, you don’t bitchabout the price of gas,” says Kawasaki. “If you buy an iPad, you’ve got your Ferrari, so you’re gonna show it off. How do you do that? By buying some gas, which is books and content from The New York Times and The Wall Street Journal. On the other hand, if you’re driving a clunker, well, you’ll try to steal all your content.”

The truth is, we probably won’t know for a couple of years whether Jobs will succeed in his next consumer revolution. As fast-moving as the Internet age is, shifting consumer habits will still take time, no matter how cool Jobs makes the iPad out to be. But given his past performances, there’s a very good chance Jobs will yet again redefine how we live our lives in the information era. “Steve Jobs is our generation’s Thomas Edison, in that he’s making our digital lives easier,” says Chazin. “If you ever were to write Steve’s epitaph, it would be that he made everything that used to be hard, really easy.” Or, like any great illusionist, maybe he merely makes it look easy.

With files from Jim Dalrymple,