Steve Jobs glanced at the sheet of paper with Apple's future on it and promptly flicked it away onto the table. Then he uttered one of his trademark criticisms to Eddy Cue, the manager who had handed it to him.
"This sucks," Jobs said.
The visionary founder had recently made his triumphant return to Apple, more than 11 years after he was fired from the company he started in his parents' garage. During his first months back in 1997, he singled out a few employees to help him spearhead new initiatives to turn the company around. Cue was one of these. He had been working as a customer service manager when Jobs returned and put him in charge of building up Apple's presence in a nascent but growing space: ecommerce.
In their first meeting on the subject, Cue sat down next to Jobs and showed him the paper with a mockup for the online store that would let Apple sell built-to-order products directly to customers. Jobs panned Cue's initial proposal, but he was committed to making the online store one of his first big projects in order to grow the business and, perhaps partly, to get revenge on Michael Dell.
The year Jobs returned to Apple, Dell's founder was asked what he would do to fix Apple and responded by saying, "I'd shut it down and give the money back to the shareholders." The answer predictably angered Jobs not just because it insulted his company, but also because Dell had found recent success with an online store that was actually built by NeXT, the business Jobs started after Apple and which Apple acquired to bring Jobs back on board.
For four months, a team of Apple and former NeXT employees worked around the clock to build a better online store, one that Jobs believed would leap past Dell's. On Nov.10, 1997, Jobs walked on stage for an Apple keynote wearing a button-down shirt and vest, and unveiled the Apple online store for the first time.
"In 1996, Dell pioneered the online store and Dell's online store has become, up till now, the standard of ecommerce sites," Jobs said in his presentation. "We're basically setting a new standard for online ecommerce with this store."
He then threw in a direct jab at Michael Dell: "I guess what we want to tell you, Michael, is that with our new products and our new store and our new build-to-order manufacturing, we're coming after you, buddy."
Nearly a decade later, Cue gave an impromptu speech to a group of Apple online store employees. He talked about the store's early days and revealed the story of that initial meeting when Jobs said Cue's mockup sucked.
One Apple employee present for Cue's speech took it to be an indication of just how far the online store had come since then. Another employee had a less flattering interpretation of his words.
"His point was that at that time [in 1997], e-commerce via the web was like the internal combustion engine today. It's just not sexy," recalls Joe Moreno, a former Apple engineer who heard Cue speak. "It's there. We depend on it. But there are bigger and better things."
By the time Cue addressed the group in 2006, Apple had moved on to some of those bigger and better things. The company had shifted from online retail to offline retail and had opened more than 100 stores worldwide. It was also secretly developing the iPhone, which would later lead to the creation of the App Store. Cue, meanwhile, had moved on to oversee the iTunes Store, which launched in 2003 and gave consumers a new way to purchase entertainment content directly from Apple.
The online store, once a focus for Apple, had increasingly been overshadowed inside the company by the brick-and-mortar operation.
"The retail stores were definitely the poster child. The online store was just there to support sales or people who didn't want to go to the store,""The retail stores were definitely the poster child. The online store was just there to support sales or people who didn't want to go to the store," says Ken Chang, an interaction designer who worked at Apple from 2004-2011. "Although if you had looked at the numbers, you'd be surprised how much money goes through the online store as opposed to retail."
As consumers became increasingly comfortable shopping online and Apple introduced more successful products, traffic and sales on the online store surged. Apple generated $16 million in revenue from its online store in the second quarter of 1998, shortly after it launched. By 2006, it was generating millions in revenue a day from the online store. In fact, the online store team used to compete against the offline store team to see which drove more sales, according to several former employees we spoke with. The two were often neck and neck for years.
The problem — and the reason some of those present for Cue's speech were hired in the months prior — was that the online store's age was starting to show.
"There were so many architectural issues with the online store. It was built at a time when no one anticipated online commerce being as big as it would be," says Joe Nuxoll, who joined Apple in late 2005 as a user interface engineering manager for the online store. "When Apple announced a new product, the store would just get crushed."
The online store team was understaffed, the backend needed to be transitioned away from a legacy infrastructure and the design of the store and indeed all of Apple.com had only changed incrementally from the early 2000s. "It even looked archaic by 2005 standards," Nuxoll says of the online store. "It looked so bad compared to other websites at the time."
The order came down from on high at Apple at some point in 2004 to re-invest in the online store. As Nuxoll puts it, "The 'Eye of Sauron,' aka Steve, turned his eye on it and flooded a bunch of money on it."
Apple began staffing up the team with employees from established ecommerce and Internet companies. It hired David Koski from Amazon, Tony Kinnis from Walmart.com and Bob Baxley from Yahoo, just to name a few. The online store's growing engineering and business teams operated out of their own dedicated building on Apple's Cupertino campus.
The team reported to Jennifer Bailey, Apple's VP in charge of worldwide online stores, who joined the company in 2003. Bailey is among the highest-ranking women at Apple, but some insiders who worked with her questioned why she was left out of the company's senior management team while the person in charge of offline retail, Ron Johnson, was included in it. Some viewed it as an indication that the online store was second tier, despite having comparable sales.
"The revamp then was to make us look relevant, not like Craigslist or Berkshire Hathaway," Moreno says. "Those websites look like they are 1995 and they can afford to."
Apple continued to iterate on the online store after this, but Apple's attention to innovating the service once again began to wane. The online store's engineering team was eventually moved under Apple's internal IT department, effectively demoting them to being a tech support team.
"That whole engineering organization basically dissolved,""That whole engineering organization basically dissolved,"Nuxoll says. "There's still people there, but the bulk of the actual work was being done offshore from that point on and being run by IT. All the budgets shrunk down to maintain this online ecommerce site. They scaled it all back."
Some members of the team eventually left the company, others transitioned into roles working on projects for iAds and iTunes. A handful, including Chang, joined forces with a couple employees from the offline retail store to sketch out a project with the potential to evolve the Apple retail experience: an Apple Store app.
The idea for the app came around the time Apple launched the App Store in 2008, but Chang's team didn't begin working on it in earnest until around 2009. Even then, it took nearly two years before it was finished and released in the U.S.
"The biggest problem we had was what would make an online store app unique. We spent a lot of time trying to figure that out. We can't just regurgitate the online store in app form," Chang says. Each week, the team met with Bailey and brainstormed ways to expand the app's functionality: browsing products, tracking the user's current location, letting users pay in the store.
"We even talked about doing Near Field Communication, where the store would know where you were within the store so we could give you information about the products you were looking at," he adds. "We kind of thought it was a pipe dream at that point."
Chang came to view the app as another store completely; other employees who worked on it saw its potential to serve as a hybrid.
"The number one thing I wanted to avoid was forcing people to distinguish between the retail and online stores,""The number one thing I wanted to avoid was forcing people to distinguish between the retail and online stores,"says Mike Lee, a former Apple engineer who worked on the app. "I hate it when a store and website don't work together."
The app received positive reviews when it came out, but in the grand scheme of things, it represented just one stitch attempting to hold the online and offline stores together.
The future of Apple's retail efforts now rests in the hands of Angela Ahrendts, the former CEO of Burberry and someone who has worked in the retail industry for 30 years.
Much of the coverage about her hiring focused on what she could do to improve Apple's brick-and-mortar retail operation, especially considering the mixed results of her immediate predecessor, John Browett, who left the job in less than a year following reports that he pushed for cost-cutting changes that hurt the morale of Apple Store employees.
Yet, Ahrendts is tasked with overseeing both the offline and online stores, marking the first time Apple has put someone in charge of both operations. (Bailey, the executive who was in charge of the online store for years, has reportedly moved into a new role helping Apple transition into mobile payments). This move, perhaps more than any other, may finally help bridge the gap between the two stores and ensure the online store isn't just an afterthought — or at least that's the hope.
Apple declined to comment on this story.
"Talking to everybody that still works there, they're all super excited that she's coming on board,""Talking to everybody that still works there, they're all super excited that she's coming on board," Chang says. "Nobody liked John Browett. It just felt like he was tearing the retail store apart. From what I hear, he had no interest in the online store. He pretty much kept everything separate."
Chang and others we spoke with hope to see more collaboration between the online and offline retail teams under her leadership, as well as better integration between the two stores in terms of the aesthetic and functionality. Perhaps Apple might even choose to do away with the separate webpages for the online store (store.apple.com) and the retail store (apple.com/retail) and merge them into one intuitive overall experience where users can customize products, arrange in-store pickups, set up Genius appointments and more.
"That was one of the holes in the past: they had siloed businesses," says Tim Bajarin, a longtime Apple analyst with Creative Strategies. "I think what will happen is you end up with a look and feel between the two stores that is more harmonious. Right now they compliment each other, but they really serve two different purposes."
Ahrendts, who officially started working at Apple at the beginning of this month, has remained fairly quiet about what she plans in her new role, but during her time at Burberry she was a staunch supporter of unifying the online and offline experiences.
"As we say internally, this is our million square foot store," Ahrendts said of Burberry's website on a call with investors in 2011. "These landing pages connect not only customers, but stores, divisions, associates, enabling them to see, hear and feel the brand, assuring global alignment; the one pure brand expression across all mediums."