Steve Jobs Shakes up an Already Shell-Shocked Apple Computer
On September 17, Apple Computer made official what most everyone had taken for granted naming Steve Jobs as its interim chief executive. The move came after the latest Apple CEO ouster, when Gil Amelio stepped down in July. Many speculated that replacing Amelio would be tough. How many seasoned, senior executives would leave their corporate frying pans and step into this fire? By the time Amelio left, Apple was hemorrhaging money and losing middle and upper management. At the top, Jobs has replaced Amelio, who had replaced Michael Spindler, who had replaced John Sculley, who had, of course, fired Jobs. Moreover, each management shift at the top has reverberated downward to the point where you need a scorecard to track personnel changes. Now, some want Jobs to stay, others would like to see him go, and many are wondering whether any seasoned chief executive would ever want to head this troubled company, especially under the thumb of Jobs, who has his own very particular ideas of how to save the company he co-founded.
Jobs has certainly left his mark. There may be nobody in the computer industry, including Bill Gates, with Jobs' talent for getting attention or spellbinding an audience. Even the prospect of Jobs running the company that he co-founded seemed to have had the effect of raising Apple's stock pricefrom 12 3/
Indeed, Microsoft itself was one of Jobs' biggest surprises. The company invested $150 million in Apple and later made an appearance at Apple Expo 97 in Paristhe largest Apple event outside the U.
Ending the clone market
Easily, the most controversial move made by Jobs was in effect killing the Macintosh clone market initiated by Amelio. Even Steve Jobs himself has admitted that it was a mistake to view Apple primarily as a hardware company. The one advantage DOS and Windows users alike had going for them over their Apple counterparts was a huge choice in hardware, from IBM and Compaq, to countless clonemakers, all of whom took advantage of IBM's open hardware architecture and Microsoft's comparatively cheap system software. By contrast, if you wanted a Mac, Apple was the only place to buy it and you would pay a premium for the privilege.
Thus, Amelio's move to license Apple technology to third-party vendors, however late it came, created a Mac OS hardware market where none had existed. For customers, this was a much belated, but much welcomed development.
But by the time Macworld Expo opened in Boston last August, it was beginning to look as if Jobs would kill the clone market almost before it got off the ground. It was at this annual Mac fest, a not always happy gathering of the clan, that Apple Vice President of Marketing Guerrino DeLuca admitted that while Apple would honor existing contracts with cloners, it was also "seriously considering rebalancing the equation." By that, he presumably meant that new Apple system software might not be available to third parties. The following month, DeLuca left the company.
The problem clone makers presented to Apple was clear enough. In the especially valuable high end of the market, the clone makers had produced products that were faster and cheaper than those from the mother companythereby skimming off the most lucrative customers without necessarily expanding the Macintosh base. And expansion of that base is precisely why the clone market was created in the first place. Over the past few years, Apple's share of the desktop market has slipped dramatically and is now rated at below four percent. This number is so small, that were it not for Apple's soap opera-like saga, its fall from grace and colorful characters, the company would not be able to command even a small fraction of the attention it still does.
The rumors at the show seemed to poison the atmosphere, with the clone makers themselves threatening to interrupt Jobs' keynote speech. Joe Guglielmi, who heads the Motorola Computer Group, told the San Jose Mercury News: "I'd like to say I'm happy to be here, but I want to wait until after Steve's speech." He noted that Motorola, for one, had made a large and significant investment in the Mac platform, including advertising, and that the clones had served to "equal or better the performance" of Intel systems. Guglielmi once worked for IBM and knew first hand how difficult it is to lose market share to cloners. "It's painful for Apple, but Apple will be stronger and healthier because of it."
But by early September it was clear that Jobs would have his way and that Apple would bury the clone market. The clearest sign of this was the company's $100 million purchase of Power Computing Corp., the most successful Mac cloner to date. Power Computing was believed to have sold about 300,000 Mac clones out of 2.
The other tip-off that the cloning game was over was Apple's unwillingness to license system software for the CHRP (Common Hardware Reference Platform), the common hardware architecture co-developed with IBM and Motorola. CHRP represented a means by which clone makers could build machines from off-the-shelf parts, just as PC cloners do, rather than having to depend on Apple-designed components.
The news clearly alienated Apple's PowerPC partners. On September 8, Motorola and IBM announced they would seek new markets for the central processor used in Power Macs, thereby seeming to admit that the technology did not have much of a future as a computer CPU. The two companies said they were looking at the consumer electronics industry, including such devices as cellular telephones, as well as in the area of factory robotics. Hector Ruiz, president of Motorola's semiconductor products group, said that the company did not plan to compete directly with Intel's Merced, a high-end PC being co-developed by Intel and Hewlett-Packard. In other words, performance would not necessarily be the number one design goal in creating future generations of the chip.
Three days later, Motorola announced it would get out of the clone market. "It became clear to us from a philosophy point of view that [Apple] just did not want cloning in their future," Joe Guglielmi told The New York Times. "Without active support from your partner, it's very unlikely you'd have long-term success." Guglielmi said Motorola and Apple had reached agreement in June on a deal that would have given Apple two to 10 times the previous royalty, which was rumored to be $50 a machine, "what operating system on the planet gets that?" he said.
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Umax Computer Corp., another Mac clone maker owned by Umax Data Systems of Taiwan, announced it would license the System 8 operating systembut only for its current design. As for IBM, it is rumored to be getting out of the clone market entirely, although that has not been confirmed at this writing. The end of these relationships means that even fewer companies are building non-Windows machines. The readers of this magazine know better than most that you can run UNIX on an Intel platform. But the number of client-side manufacturers who actually ship products with non-Microsoft operating systems has been dwindling. For example, Silicon Graphicsa company whose earnings have been downsaid it would produce a series of workstations based on Intel CPUs and Windows NT. While the company said it would not abandon its UNIX machines, the move is certainly a major defection to the Microsoft camp. That leaves Apple and Sun as the two most visible non-Windows holdouts.
Mac loyalists contemplate defection
The changes at Apple, along with the company's flagging fortunes, have spurred many Apple loyalists to consider their options. "I love Macs, and have them since 1985," says Roger Karraker, a journalism instructor at Santa Rosa Junior College in Northern California. As faculty advisor for the college's weekly student newspaper, he once told the administration that he would gladly adhere to the school's PC-only policy if PCs could set type onscreenthis in an era when PageMaker only ran on the Mac. Even now, Karraker has hardly given up on the Macintosh: he was recently instrumental in upgrading Macs for his wife, daughter and a friend. But sharing space with an Apple Performa 6115 on Karraker's desk is a Pentium Pro 200. For his own personal use, he believes he may have bought his last Mac OS machine.
"I got the Pentium because I think that that's the future," Karraker says. "I decided I needed to know more platforms, that I needed to be literate in two environments. I put Windows NT on it, because I think that Windows 95 has the same limitations as the Mac OSit won't go anywhere long term."
Karraker says that the Mac's famous advantageits superior user interface and simple operationhas eroded over time. "The Mac used to be a whole lot simpler. but when you start adding things, you get into a Window-like situation. There's no question in my mind that the dominant operating system in five years is not going to be the Mac OS." Karraker predicts it will be some kind of UNIX variant, or NT, or perhaps even Rahapsodywhich Karraker, like others, believes will be ported to the Intel platform.
So far, the Pentium is the only Windows machine in the lab, but Karraker is unsure what his next lab purchase will be. "Best I can tell, the Mac is unsurpassed in graphics and video, at least out of the box. I would imagine that our graphic intensive stuff would continue to remain on the Mac platform, but that our lower end machines might become Windows boxes and we'd become a more mixed environment."
The reaction: from outrage to understanding
For Karraker and others, the ending of the clone market has only worsened the situation by eliminating choices. "The anti-clone moves further consign the Mac to several relatively small but still-important niches of users who don't mind paying a premium," wrote Dan Gillmor, the computing editor for the San Jose Mercury News. "Those niches include artists, designers, publishers and other so-called 'creative' fields: people who find the Mac's ease-of-use paramount; and the dwindling crowd that think of Mac as an object of worship or the last bastion against the Microsoft-Intel empire." Gillmor predicted that the Mac's higher price alone would move it out of the mainstream of American purchasing. "American consumers are famous for choosing 'good enough' when it's $200 cheaper."
An angry response came from Robert J. Moriarty, whose company makes Apple CPU upgrades. In an open letter to Apple's board of directors, he wrote that "Apple suffers from poor management, over-priced machines, and rotten service. When they stop whining and put their noses to the grindstone, they may have a chance of survival. But to fix a problem you must first admit you have a problem and this Apple will not do. Everything wrong is somebody else's fault." Moriarty's solution is to fire Jobs, re-establish agreements with the clone makers, and "get down on your hands and knees and pray for the forgiveness of both your suppliers and your customers."
Columnist and consultant Ric Fordwho operates the MacInTouch Websiteone of the best places on the Web for following Apple's fortuneswrote an open letter to Jobs complaining that "Your actions have been confusing and threatening, and, for whatever reason, you have not shared your plan for Apple's future." Ford speculated that Apple is merely using the Macintosh as a "cash cow" for other ventures, including Network Computers, and that it will develop Rhapsody primarily for the Intel platform.
Jobs' first e-mail response was a terse paragraph, accusing Ford of commingling truth, partial truth, and blatant falsehood. Later, Ford reported that a phone call with Jobs put the situation in a better light. Ford said that "Jobs' strategy for the next several years is completely centered on PowerPC and the Mac OS" and that Jobs revealed a confidential plan that Ford expects will "expand the Mac market substantially" in 1998. The two continue to disagree on the value of ending the clone market.
Steve Jobs' earliest response was an e-mail dated September 2nd that was purportedly sent by him to Apple employees, making the case for ending the clone market. Jobs maintained that the operating system license fee simply didn't pay for engineering and marketing expenses and that "in essence, Apple is giving away a several hundred dollar subsidiary with each license copy of the Mac OS." He said while Apple "was willing to expand licenses to include CHRP and portable machines, Apple and the clone makers could not come to an agreement on the price." In a keynote address delivered in October at the Seybold desktop publishing show in San Francisco, Jobs was considerably more blunt. "We went to the clonemakers and told them: 'If we go down the shitter, the whole [Macintosh] ecosystem goes down the shitter... We're not happy about how it came out, but our primary system is to make Mac ecosystem prosper and return the Mac to health. We did what we had to do."
Jobs also told attendees that Apple would put more emphasis on Mac OS. "The core of the company is the Mac OS. We are absolutely not doing a brain transfer from Mac OS to Rhapsody." Ironically, Jobs' model for introducing Rhapsody is NT, which has found success first as a server OS, and more recently on high-end clients. But this scenario seems extremely unlikely, given the long headstart of NT and UNIX.
Jobs also hinted at a new high-end machine "in the not-so-distant future which will blow away anything the clone vendors had or have, and which will blow away any performance of a Wintel box."
So what is one to make of all this? The one thing that seems clear is that the company that once commanded 50 percent of the desktop market is all but buried, and the chances of itor any other companystealing this market away from Microsoft and Intel over the next five years is extremely unlikely. The most likely scenario is that Apple will reinvent itselfa move that may or may not please Macintosh users, but may be the only viable option left if Apple is to remain a viable, autonomous company. And after all, the Macintosh itself represents the industry's own best, most audacious example of corporate reinvention.
In looking at the possibilities, Ric Ford's list seems like a good roadmap. Avi Tevanian, Apple's senior vice president of software engineering, told the Wall Street Journal that the company is indeed looking into NCs. And given the investment and stake Apple has in Rhapsody, it would seem likely that the company would at least consider porting it to Intel machines. Such a move would of course pit it directly against Microsoft, but at the same time, would certainly end the clone debate. The question is, given Windows' strong lead, how much better would Rhapsody have to be in order to take market share? The one thing for certain is that conventional wisdom will not restore Apple to its former glory. To Steve Jobs' credit, he seems to understand that business as usual is an almost certain route to Apple's being acquired, or worst, Apple going extinct. Apple's new ad campaign incorporates the slogan "think different." While that advice is aimed at the company's customers and prospects, it is perhaps the best advice for the company, itself.
The only way to save Apple is with a radical change of direction, but radical not in the sense of destroying relationships and alienating customers. For the past several years, Apple's boldest moves have been management and policy shake-upsand these have overshadowed, and sometimes quashed, its technology innovations. People buy products not because of personalitieseven compelling personalities like Jobsbut because the technology incorporates an acute insight into how people work, or perhaps even has the sweet smell of genius. At the end of the day, Apple will need considerable insight and a healthy dose of genius if it expects to see the 21st century as the influential, visible, shake-up-the-the-world company it once was.
Sidebar: An Early Mac User Moves to Wintel
Doug Elliott is just the sort of customer Apple should keep. The head of a small contracting and building business, Elliott got his first Mac in the mid-1980s as a certified developer. Until a few months ago, he never owned a PC. Now, he plans to buy nothing else.
- From your perspective, what's the problem with the Mac?
- Much of it is application related. Every time I turn around, a key productivity application that is mission critical for me isn't being supported on Mac. The last straw was when I spent several thousand dollars converting all my accounting to QuickBooks Pro [from Intuit Corp.], which included job costing. Then, for the first time in Intuit's history, Intuit didn't support the Mac in their upgrade. Intuit is an extraordinary company because it has never released a version of any of its software that didn't come out simultaneously on both platforms. When [Intuit chairman and co-founder] Scott Cook decided to abandon that platform, that was a real wake-up call for me. That happened again for a $3,000 accounting package I use. They rewrote it from the ground up again, only for Windows.
- But it must be tough to move from a platform you've used for so long. I was deeply committed to the Mac for years. I was on the bleeding edge, always buying the latest and greatest Mac when they made their huge profit from the early adapters. I was a key early adapter. I bought every new technology two days after it hit the streets. Even two or three years ago, I felt very smug that we had a much, much better operating system. When Windows came out it was kludgey and awkwardjust a beginning attempt to overlay DOS. Even with Windows 3.1, it was not even close to the Mac's elegance or functionality.
- How about Windows 95. Has it caught up?
- Yes, it's functionally equivalent, though it still lacks some elegance. The Mac OS is more mature and it has more fluidity and a looser architecture. Windows is more of a 'snap-to' kind of operating system. But the hardware is so much faster and so much more stable than all the Mac stuff I've used. I'm spending between $1,100 and $1,500 for machines that would cost easily $3,000 to $4,000 from Apple.
- Were you also interested in Mac clones?
- I got a good deal on a Power Computing machine that cost with me, with the monitor, $3,300. During the 30 day money back guarantee period, Apple spurned their relationship with Power (this was before they announced the buy out), but the writing was on the wall. So I shipped the PowerPC back because I figured I wouldn't have a company to support me. I was going to lease the machine for three years, and I figured at the end of one year I wouldn't have anybody to do tech support, then I'd be dead--orphaned, another victim, another road kill.
- That also really pissed me off because it meant that Jobs was back to his old tricks of gouging people with super high prices, super sexy stuff that wasn't really about making anybody money but Apple. Dammit, these machines are tools that I need to run my company and make money. And then there's the need to be compatible with other businesses. I'm starting to deal with increasingly larger companies and larger projects, and the whole business world looks at you sideways when you say you use Macs. So in the last year or so I've told people that I use both platformsfibbing about the PC.
- What are your plan for the future?
- I'm fed up with Apple and don't want to have any more to do with them. I'm going to sell all my hardware while I can still get some value. In my judgement, Windows runs fast, it's stable. The truth about the Wintel side that it is actually pretty darn nice to work with.