Better be a pirate than join the Navy
Steve Jobs quickly left his mark on the Macintosh team. Part of his motivations were: 1. to have his own successful computer, unlike the Apple II which was Woz’s brainchild; 2. to take revenge on Apple’s management for forcing him out of the Lisa project. When he took over, the Mac team only consisted of a small number of engineers: Brian Howard, Burrell Smith and Bud Tribble, as well as a woman in marketing, Joanna Hoffman. He soon hired several other members that would later form the core of the team, such as Andy Hertzfeld, Chris Espinosa, George Crow, Steve Capps and Mike Boich. Other key players would follow later, like the brilliant software designer Bill Atkinson from the Lisa team, Mike Murray in marketing, or Susan Kare, who designed the icons and several fonts for the system. For the box design, he hired Harmut Esslinger’s frogdesign, who pioneered the so-called “Snow White” design language, that would dictate computer design for the next decade.
To Steve, the Macintosh project was going to save Apple from the bloated Lisa project and the bureaucracy of the company. He tried to insufflate the team with entrepreneurial values, calling them rebels and artists, while the other Apple employees were bozos. The team was even in a separate building on Bandley Drive, where Steve hung a pirate flag: “better be a pirate than join the Navy,” he said — meaning the Navy was the rest of Apple.
By early 1982, the Macintosh was beginning to be acknowledged as a significant project within Apple, instead of a quirky research effort, but it still remained somewhat controversial. Since the Mac was sort of like a Lisa that was priced like an Apple II, it was seen as potential competition from both groups. Also, our leader Steve Jobs had a habit of constantly boasting about the superiority of the Mac team, which tended to alienate everybody else.
Mac programmer Andy Hertzfeld in Folklore.org
The Updated Book of Jobs
It was during that pivotal year of 1982 that a crucial event happened that shaped Steve’s relationship with the media. In February, at age 27, he appeared on the cover of Time Magazine (Microsoft chairman Bill Gates was supposedly infuriated Steve got there first — he would only appear on Time’s cover two years later). He was depicted as a symbol of America’s young entrepreneurs.
Steve was pleased and agreed to give the Time reporter, Mike Moritz, carte blanche for writing a book about the history of Apple in general and Macintosh in particular.
By the end of the year, there were serious talks about naming Steve Jobs Man of the Year 1982. Mike Moritz, who had been appointed Time’s San Francisco Bureau Chief, started conducting lengthy interviews in anticipation of the story. But to everyone’s surprise, Time decided to go with “the personal computer as machine of the year 1982.” There was no Man of the Year! Instead, Moritz wrote a piece called “The Updated Book of Jobs,” (see the Articles section in Links) in which Jef Raskin said that Steve “would have made an excellent King of France.” Steve was furious. He called up Jef Raskin and Dan Kottke, his friend from Reed, who (anonymously) said to Moritz that “something is happening to Steve that’s sad and not pretty, something related to money and power and loneliness. He’s less sensitive to people’s feelings. He runs over them, snowballs them.” It is rumored Steve never talked to Dan again.
Steve would be a lot more suspicious of the media from then on. He would also be even more protective of his privacy — as the Time article brought up the situation with his illegitimate daughter Lisa.
In January 1983, Steve traveled to the East Coast for the launch of Lisa. It was sort of an awkward situation, given that the chairman’s heart clearly belonged to Macintosh. And he couldn’t prevent himself from saying so — he would always point out that a few months later, a better GUI computer was going to come out, with superior software yet at a fraction of Lisa’s price. Moreover, the Lisa software would not run on Macintosh. This attitude only worsened a critical response that was already negative, given the machine’s whopping $10,000 price tag.
While Steve was in New York City, he met with PepsiCo executive John Sculley. Remember Apple was still looking for a CEO, since the departure of Mike Scott. The board would not let 28-year-old Steve Jobs run the company as he was way too inexperienced. Steve seduced Sculley into moving to California to become Apple’s CEO and groom him into a full-blown manager. The words he used are now legend in corporate history:
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?
quoted in Triumph of the Nerds
In Sculley’s first months at Apple, his relationship with Steve Jobs seemed almost like a honeymoon. They would both go at lengths in the media about how they got along so well that they could finish each other’s sentences. Steve really thought of Sculley as a friend, taking him in his typical long walks on Stanford hills.
More importantly, Sculley agreed with Steve’s vision of making Macintosh the #1 priority at Apple. Throughout 1983, Lisa turned out to be a bomb in the marketplace, like Apple III before it. Apple was still relying only on its six-year-old Apple II computer — whose market share kept shrinking because of the IBM PC. Macintosh had to succeed, or else the company would be out of business very quickly.
Why 1984 won’t be like “1984”
After Lisa came out in January 1983, the whole Lisa group joined Steve and his team to get Macintosh ready for market. The team quickly grew into several dozens of people — the renegade days seemed long gone.
Everything didn’t go smoothly: all the teams were late, and the management eventually had to decide on a date for the introduction of the product. They picked Apple’s 1984 shareholders meeting, on January 24. There was also tremendous pressure to make software available to the new platform for the launch. Several software developers signed up, including market leader Lotus and Bill Gates’ Microsoft, whose main business at the time was the IBM PC’s operating system, DOS. But one of the hottest issues was Steve Jobs’ antagonizing attitude. He would keep on berating the other divisions: he famously called the Apple II engineers (who were the only ones bringing cash in) “the dull and boring product division.” After Lisa was launched, he also said in front of the whole development team, including people who were about to get fired: “I only see B and C players here. All the A players are with me on the Mac team.”
As far as marketing was concerned, Steve went to Chiat/Day with Mike Murray, and they worked together with Lee Clow on a breakthrough Macintosh commercial, 1984. They hired a young director, Ridley Scott, to shoot an ad that depicted Apple’s computer as a blond, athletic Californian girl throwing a hammer at IBM-Big Brother’s face on a huge screen. The ad concluded that 1984 wouldn’t be like George Orwell’s “1984.” The ad was so audacious it was almost canceled, but in the end the board went for it. It is now widely acknowledged as one of the best TV commercials ever created. It was aired during Super Bowl XVIII, on January 22 1984, and started an enormous media hype around Macintosh’s introduction two days later.
When the day finally came, Steve proved once again his talent as master showman. He introduced Macintosh as a revolution to a cheering crowd at Cupertino’s Flint Center auditorium. As he came off stage, he said:
It’s the proudest, happiest moment of my life
quoted in Triumph of the Nerds
After what Apple had been through for the past three years, every hope turned to Steve’s Macintosh to salvage the company. It was a perilous bet…
At first, the Mac did seem to be a huge hit. In the couple of months that followed its introduction, Steve Jobs and the development team posed for countless photos, gave more than two hundred interviews, and ended up on several magazine covers.
There was also a significant success on US campuses. Before the introduction, a team of Apple salespeople led by Dan’l Lewin had convinced twenty-four Ivy League institutions to sign up for the so-called Apple University Consortium program: they would become Apple dealers, buying Macintoshes wholesale and selling them at a discount retail price to students. Throughout 1984, Macintosh became the first cult machine of American college students.
But after this encouraging wave of early adopters, Mac sales started to plummet. There were several concerns about Apple’s computer: first, it was painfully slow, as its processing power had difficulty handling the complex Graphical User Interface. It was also a bit pricey, selling for $2,500, a thousand more than the IBM PC it was supposed to compete with. But the biggest drawback was software: Macintosh being a brand new platform, almost no program could run on it when it was launched, whereas a ton of applications were already available on the IBM PC platform. Everyone agreed that Macintosh was a lot friendlier and easier-to-use, that its technology was far superior to that of the IBM PC; but it was useless. Mike Murray’s marketing team was criticized for not advertising the machine appropriately: businesses felt it was a cute machine for yuppies and their kids, not a computer that would improve their productivity.
Steve leaves Apple
Steve could not deal with the market failure of his baby. He continued to behave as if he had saved Apple, treating non-Mac employees with deference in Cupertino. People felt he spoiled the Mac team, buying them a BMW motorcycle and a Bosendorfer grand piano with his personal money, while the company was still alive thanks only to Apple II sales (the truth was that Macintosh engineers were paid the same or even less than their counterparts).
There was increasing resentment building up against Steve Jobs at Apple. The honeymoon with CEO John Sculley was over: the two men increasingly criticized one another in their inner circles. Even Woz, who felt insulted by the treatment the Apple II team received, left the company in February 1985. He openly criticized the management in Cupertino: this was a PR disaster for the firm.
In April 1985, the board discussed re-organization plans for the company. Everyone agreed there should be a new manager for the Mac team, namely Apple France executive Jean-Louis Gassée. Jobs even accepted the idea for a while, thinking of running a new R&D department instead. But he was outraged when Gassée asked for a written guarantee of his promotion.
To him, it became a personal war with Sculley. While the CEO was away on a business trip, on May 23 1985, Steve gathered some of his top aides, telling them Sculley wanted him out of his own company. The next day, Sculley heard of the scheme and canceled his trip. He confronted Steve in front of the other Apple executives. After hours of intense discussions, they simply couldn’t find a solution to the conflict between the two men. Steve said he would take a vacation until they were done with the re-organization, and left. It was only a few days later, on May 28, that Sculley informed him that the board had decided on a new org chart, which did not include him at any managerial position. Steve’s conviction the board would support him had proved wrong: he had lost the final battle.
At 30 I was out. And very publicly out. What had been the focus of my entire adult life was gone, and it was devastating. I really didn’t know what to do for a few months. I felt that I had let the previous generation of entrepreneurs down — that I had dropped the baton as it was being passed to me. I met with David Packard and Bob Noyce and tried to apologize for screwing up so badly. I was a very public failure, and I even thought about running away from the Valley.
Stanford Commencement Address, 12 Jun 2005
During those four months, from May to September 1985, Steve was still chairman of the board — he was not fired from Apple, contrary to popular belief. But he had a lot of times on his hands, and tried hard to find what he was going to do next.
He traveled to Europe, advocating Macintosh to French universities, biking around Tuscany, and thinking of settling in the south of France. He went to the Soviet Union to preach the benefits of personal computing and asked NASA if he could ride the Space Shuttle. He even thought of running for the office of governor of California, seeking advice from his friend Jerry Brown. But none of these endeavors could really absorb his energy and his continuing passion for computing.
He also looked for places to invest in. One of his very good friends from Xerox PARC, computer pioneer Alan Kay, told him about an iconoclastic group of computer graphics developers north of the Bay Area, whose parent company, Lucasfilms’ Industrial Light & Magic, was trying to get rid of.
The genesis of Pixar
The founding fathers of Pixar were researchers Ed Catmull and Alvy Ray Smith, who, as early as the 1970s, shared a dream of making animated movies with computers. Yet they knew it would take at least a decade before their vision could materialize, given the necessary computing power to handle such complex operations. So they just got together and waited for the technology to evolve.
Catmull and Smith slowly put together a core team of computer graphic pioneers that also believed in computer-animated films. Among the first members were computer scientists Ralph Guggenheim and Bill Reeves. John Lasseter, a brilliant animator from Disney, joined them in 1984. The group moved from one benefactor to the next since its creation; in 1985, they belonged to George Lucas’ Industrial Light & Magic (ILM).
Yet the Star Wars filmmaker was trying to sell the division. He needed money after his divorce, and, more importantly, he did not share the team’s vision. He just wanted to use 3-D animation for special effects in movies.
In addition, at the time, Pixar was working on a graphical workstation, a very powerful computer dedicated only to processing visual data. They had also started developing their own 3-D computer language, RenderMan. The department was clearly evolving outside of Lucasfilm’s realm, and that’s why they were looking for a new patron.
Steve toured the ILM lab and was mightily impressed. He compared this experience with his revelation at Xerox PARC six years earlier, when he was first shown the graphical user interface. Yet the price tag was too high: $30 million. He turned Lucas down, but asked to be given a call if the offer got cheaper.
A new venture
As the story goes, Steve Jobs was still looking for new directions in life when he met with a friend of his, Nobel Prize Paul Berg, from Stanford University. Berg told him of his work on DNA, and asked him whether the molecules could be simulated on computers. The answer was no, not yet anyway… this gave Steve the idea of starting a new company. He would build a high-end computer aimed solely at the higher education and research markets. He asked around and found out the general consensus was a need for a so-called 3M machine — a computer that could hold one megabyte of memory, perform one million instructions per second, and display one million pixels on a screen.
Since he was still at Apple, he decided to inform the board of his decision. On September 13 1985, he described his plan. The board seemed enthusiastic at first, even willing to invest in the chairman’s new venture. But when Steve announced who would join him in his new company, called Next, they turned bitter: he would go away with Bud Tribble, the first Mac programmer; George Crow, a key Mac hardware engineer; Rich Page, who had supervised almost all of Lisa’s development; Dan’l Lewin, who had made the Apple University Consortium possible; and Susan Barnes, a Wharton alumnus with a MBA in finance. These were not “low-level” people, as Steve had presented them! Apple felt threatened, especially since they were themselves working on a 3M machine code-named “Big Mac”.
This was the coup de grâce for Steve. On September 17, he announced his resignation from Apple to an assembly of stunned journalists gathered at his mansion in Woodside.
Next did not start easily. The minute it was created, the six co-founders found themselves sued by their former employer, Apple. The fruit company was accusing them of stealing their technology.
As a result, for its first year or so of existence, the new company could not work on any product in particular, since there was a chance they would lose the trial and give all the technologies they had worked on back to Apple.
In the meantime, Steve Jobs set up to build the perfect company.
The perfect company
He started by doing one of the things he was best at doing: recruiting. He hired only extremely bright and competent people. At one point Next bragged that even their receptionist was a Ph.D.! There was incredible hype around Steve’s new venture. It seemed like the whole Valley wanted to work at Next — even though it was considered “a leap of faith” (since nobody knew what they would have to work on eventually). Among its first employees was Avie Tevanian, a software genius who was still a student at Carnegie Mellon University when Steve met him. He was working on a UNIX kernel called Mach; Steve told him that if he joined Next, his invention would run on millions of computers in a few years time.
You basically had to meet everyone in the entire company and they all had to give you the thumbs-up. It really felt like a fraternity. Everyone had to love you. So the feeling you got was that anyone who got through had to be ‘the best of the best’
an early NeXT employee quoted in Alan Deutschman’s The Second Coming of Steve Jobs
Next treated its employees in a pretty unique fashion in Silicon Valley. First, there were only two levels in salary for a long time: senior staff earned $75,000 a year, and the rest earned $50,000. It gave the place sort of a communal feel, a community of super-bright people, not a tech start-up driven by greed. Other perks included health club memberships, counseling services, emergency loans, and free fresh juice. Keep in mind the company still had no revenues to speak of during those early years — it was still operating with Steve’s pocket money.
Steve also went and looked for a logo and a corporate identity for his new venture. He found both after he asked who was the best logo designer on the planet, and was introduced to Yale art professor Paul Rand. Rand designed a logo for no less than $100,000, and came up with the name NeXT, with a conspicuous lowercase “e”, that was supposed to stand for: “education, excellence, expertise, exceptional, excitement, e=mc2…” (see this video about it).
Finally, Steve proved not too parsimonious either when it came to NeXT’s headquarters. One of the company’s first ten employees was actually Tom Carlisle, a full-time interior designer. They settled in one of the most expensive areas of the Valley, the Stanford Industrial Park, not far from Xerox PARC. Carlisle furnished the place with glass walls and beautiful Ansel Adams prints, and set up a common area with hardwood floors that included a kitchen with granite counter tops and a lounge with U-shape sofas that sat 12.
After his departure from Apple, Steve had sold almost all of his stock out of disgust. So by early 1986, he was sitting on more than $100 million, waiting for opportunities to invest. He got a call from Lucasfilm: they weren’t able to find any suitable buyer for the computer graphics team, so they dropped the price by two thirds. Steve agreed to pay the $10 million, and on January 30, Pixar was incorporated. It would turn out to be a money sink of his for years to come.
But Pixar didn’t matter much — it was Steve’s “hobby”, as his heart was at NeXT. He let Catmull and Smith run their small team north of the Bay Area, while he spent his days in Palo Alto. Apple had just dropped its lawsuit against the startup, so they could finally start working on their computer for higher education.
Interestingly enough, Steve’s habits as an investor were quite the opposite of his affections for his companies. While he did not care about Pixar nearly as much as he cared about NeXT, he opened the company a line of credit that he would pay with his own money for several years. Pixar was always begging for Steve’s money as they barely had any revenues. On the other hand, he refused to fund NeXT solely with his own money. He started to look for outside investors early on.
A critical change occurred when, in November 1986, CBS aired a documentary called The Entrepreneurs which featured Jobs during NeXT company retreats. A watcher was millionaire Ross Perot, who was still immensely rich from selling his company Electronic Data Systems to General Motors. He was seduced and phoned Steve: “if you ever need an investor, call me.”
It was good news as NeXT was burning money at an incredibly fast rate. So the deal was quickly signed: in February 1987, they announced Perot invested $20 million in exchange for 16% of NeXT, while Steve kept 63% for himself. The company had no product but a t-shirt back then, yet it was already valued over $125 million! This is how powerful Steve Jobs’ name was in the mid-1980s. Ross Perot joined the board of directors together with Carnegie Mellon administrator Pat Crecine, a good friend of Steve’s. Not a very balanced board of directors indeed…
There were crucial evolutions in Steve’s personal life as well. First, after years of research, he had finally found his biological family. His biological mother Joanne was still alive, and she had actually married his father a couple of years after Steve was born. They had given birth to a daughter, Steve’s biological sister, called Mona. Mona Simpson was a young yet accomplished writer who had just published a novel that earned her several literary prizes, Anywhere But Here. Steve was thrilled his sister was an artist: there was indeed art in his genes! He filled a bookshelf at NeXT with free copies of Mona’s book.
He also started to fully accept his 9-year-old daughter Lisa as family. She increasingly spent time at his home in Woodside, and he even took her to NeXT’s offices from time to time. He started to get deeply involved in her education.
Finally, he became more stable in his relationships and was thinking of marrying his girlfriend Tina Redse.
This whole period of Steve’s life is well documented in A Regular Guy, a novel by Mona Simpson which barely disguises Steve Jobs and Lisa as its main characters.
The NeXT Cube
No detail was too small
There is probably no product in Steve’s career that was hurt more by his perfectionism than the NeXT Cube. No detail seemed too trivial to be overlooked; everything NeXT did had to be perfect.
First with software. When Steve started asking around to know what was the state of the art in computer operating system, he was told the most stable, modern software was called UNIX. It was a very complex but very powerful OS used in universities and by large companies in their mainframes. The most advanced UNIX technology was being developed at Carnegie-Mellon, where Steve hired some of his best programmers, such as Avie Tevanian. He was also told about object-oriented programming, a breakthrough from Xerox PARC which made software development very fast and efficient. This was the easiest and most efficient way to build software, another breakthrough invented at Xerox PARC. So Steve knew his priorities for the NeXT operating system: it would be a UNIX object-oriented system — on top of which would be added a graphical user interface, to make it user-friendly. These were the very ambitious foundations of NeXTSTEP, so ambitious that it would take several years before they would give birth to a stable operating system
Second, of course, was hardware. Steve had been thrilled by the factory that was used to produce Macintosh — he wanted to do even better this time with NeXT. He set up to build the most advanced automated factory in the world, in Fremont, not too far from the Mac factory itself. The NeXT computers would be built untouched by human hands, using robots operated by other NeXT computers. The factory was designed to mass produce NeXT Cubes and bring the costs down with volume… a disastrous choice for the future.
And finally, the design of the machine, of course, had to be a stunner as well. Steve hired frogdesign again, the same firm that had designed Macintosh, and they came up with a perfect black cube built out of magnesium. Although the Cube clearly deserved its place at the SF MOMA, many of its features made it a pain to build: from the perfect right angles to its materials to its color, it was extremely complicated — and expensive — to put together. In addition, Steve had made a point on also designing a “beautiful” board for the Cube. All the electronic components, which are usually on several different pieces of plastic, were melded on a single square board that the chairman considered as beautiful as the case itself. However it was a strenuous problem for engineers to solve.
There was also the problem of the computer storage system: Steve hated floppy disks, so when he learned about a new technology developed by Canon called magneto-optical drives, he jumped on the occasion. This was a brand new way to store data, but it had not been brought to market yet and its price was still astronomical. Steve bet on it and made it standard on the NeXT computer.
Because of all its breakthroughs, in both hardware and software, the date of the NeXT computer’s introduction was constantly being put off. Originally, it was supposed to be out in spring 1987, since most universities shop for the next academic year during springtime. But the computer was nowhere near ready at that time! It was rescheduled for fall 1987, then spring 1988, and finally to fall 1988 — on October 12 to be precise.
I think I speak for everybody at NeXT, saying it’s great to be back. […] I think together we’re going to experience one of those times that occur once or twice in a decade of computing, a time when a new architecture is rolled out that is really going to change the future of computing. And we’ve worked on this for three years. It’s turned out in-cre-di-bly great…
quoted in Randal E. Stross’ Steve Jobs and the NeXT Big Thing
The hype was of tremendous proportions. Steve stayed on the stage of San Francisco’s Davies Symphony Hall for three hours, ending his presentation with a duet between a violinist and the NeXT Cube to demonstrate the computer’s breakthrough sound abilities.
The audience was so captivated that barely anyone realized that Steve had dropped two bombs in his speech. First, NeXTSTEP, the computer’s operating system, still wasn’t ready after more than two years of development. It was still in beta version and would not come out before another six months. Second, the Cube’s price was astonishingly high! It cost $6,500, more than twice the $3,000 universities had agreed to pay for a 3M machine. And that was without the $2,000 laser printer or the $3,000 for the hard disk that would prove necessary since the magneto-optical drive was so painfully slow… The Cube was certainly a bargain for everything it came with: the Canon drive alone cost $6,000 on the market, not to mention NeXT’s revolutionary software — but no one had the money to invest in such an advanced machine.
RenderMan & the Pixar Image Computer
In the meantime, Steve’s so-called “hobby”, Pixar, was also making progress. Remember it had been packaged by Lucas as a graphics computer maker. In 1986, shortly after being incorporated, the company had brought to market a graphics workstation: the Pixar Image Computer, or PIC. But even for the professional markets it was aiming at, its price tag of $125,000, the additional workstation it required to work, and its total lack of software made it a very exclusive solution. It essentially appealed to major universities and advanced labs in niche industries. Sales were so disappointing that two years later, in 1988, the company came up with a cheaper system, the PIC II, which sold for $29,500, while the price for PIC was lowered to $49,000.
They also released a breakthrough graphical computer language called RenderMan. The idea behind RenderMan was to do for 3D graphics what PostScript had done for fonts and 2D graphics in general: write a universal language that any machine could use to render 3D graphics (more on PostScript below). Yet the concept was too complicated and way ahead of its time. RenderMan was almost only used in Pixar’s own rendering software, PhotoRealistic RenderMan.
Hopes at NeXT
There were a couple of events that led NeXT executives to falsely believe that they were on the right track, instead of realizing they were heading to the wall.
First was a major deal with IBM that was signed in September 1988, just one month before the Cube’s introduction. As we explained before, NeXT’s operating system, NeXTSTEP, was a revolution in software. It was the first UNIX ever to sport a graphical user interface, making an arcane piece of software accessible to mere mortals. We also said that UNIX was used on several computer mainframes, the vast majority of which were still IBM-made. That’s why Big Blue showed a substantial interest in the NeXT operating system: its intention was to buy a right to license NeXTSTEP on its mainframe systems, in order to add GUIs to its UNIX computers. Moreover, IBM was trying to find a way out of its morass with software developer Microsoft.
The personal computer industry in 1988
When Steve Jobs launched the NeXT Computer in 1988, the industry landscape was radically different from its situation in 1985, the year he left Apple.
The success of Macintosh
First, Macintosh, the sales of which were disastrous in its first two years, was now thriving on the marketplace. It all came down to one word: PostScript.
PostScript was a computer language developed by two researchers from Xerox PARC (again), John Warnock and Charles Geschke. Before it came out, printing text from a computer was a painful thing to accomplish. There was no standard, so every program had to know about every printer, and vice versa. PostScript became the standard: every text editor started speaking PostScript, and every printer as well, so they all started to understand each other seamlessly.
Warnock and Geschke started Adobe Systems in 1982 to build high-end laser printers (another one of their inventions from PARC) that were supposed to be the only machines to use PostScript. It was Steve Jobs who convinced them to make it a standard computer language: he cut a deal with Adobe to use their software and had Apple purchase 20% of the new company.
His vision proved right: the year after he left, Macintosh sales skyrocketed thanks to the desktop publishing revolution. Desktop publishing is the technical word for being able to designing beautiful texts and illustrations on a computer and then print them exactly as they appear on the screen (with so-called WYSIWYG software for What You See Is What You Get). This technology only worked on Macs for years, making Apple richer than ever…
The birth of a titan
Yet the biggest change on the personal computing scene was not from Apple but from one of its early partners, Redmond-based Microsoft.
In 1981, Microsoft signed a deal with IBM to be the exclusive provider of the operating system that would run on their PC, a piece of software called DOS. The deal also included the right for Microsoft to sell the system to other computer manufacturers. IBM agreed, as at the time, the prevalent belief in the computer business was that no money could be made from software, only hardware.
Big mistake from Big Blue! Shortly after the IBM PC came out, the market was flooded with so-called PC clones: cheaper computers from other companies that would run IBM PC-compatible software. One of the most popular was Compaq, which started in 1982 with the first “portable” PC.
So throughout the 1980s, IBM saw its share of the PC market shrink drastically, while Microsoft was becoming a software behemoth, selling DOS to basically every computer user that was not using Apple products. The firm from Redmond was turning increasingly independent from IBM and impossible to deal with. The solution? Big Blue intended to launch a new standard for its future products, that would have nothing to do with Microsoft, thus putting them out of business.
NeXT had the opportunity to become the next Microsoft: if the deal with IBM succeeded, their breakthrough software would run on every IBM-compatible PC in the future.
In addition, in June 1989, NeXT signed a deal with Canon, the Japanese maker of the Cube’s magneto-optical drive. In exchange for the exclusive right to distribute NeXT computers in Asia, they agreed to invest $100 million for 15.67% of the company — valuing it at a whopping $600 million!
The NeXT Station
Despite those signs of optimism, the NeXT Cube was a blatant failure on the marketplace. It simply did not sell: universities and students found it way too expensive. Firstly, by 1988, it was common for students to have a Macintosh in their dorm rooms. The days when you had to go to the computer lab to use a workstation like the Cube were long gone. There was also the problem of donations — universities were used to be given, not sold, computers, in the hope that students would use the same computers in their future corporate careers. Finally, the Cube was not as modern as it would have been had it come out the year before: it was monochrome at a time where color started to appear, its magneto-optical drive was a pain to use, and above all, it had very limited software.
The NeXT factory, which had the ability to turn out 10,000 Cubes a month, manufactured an average of 400 a month in 1989! At such rates, the competitive advantage of having an automated factory was turning into a disadvantage — it was a lot more expensive to operate and, lacking the necessary volume, it did not drive the costs down at all.
Steve Jobs tried to adjust by substantially changing NeXT’s strategy:
Our smallest competitor is $1.75 billion these days. […] We have to get up to a certain level if we want to play in the sandbox.
The Entrepreneur of the Decade, Inc., April 1989
The company stopped selling exclusively to the education market, and tried to make its way into corporate America. NeXTSTEP’s object-oriented development environment was a key advantage in that market: it would allow for companies to write custom software in record time. In order to do so, in March 1989, NeXT partnered with Businessland, the nation’s largest computer retailer at the time, to distribute Cubes in all of its stores — with a $9,995 price tag. Of course this hardly worked.
In parallel, work started on a new, cheaper computer. The NeXT Station or “slab” (because of its pizza-box shape) was eventually introduced in September 1990, along with cheaper Cubes with color and breakthrough video capabilities. The cheapest Station sold for $5,000, still a high price but half of that of the Cube. On stage also came Lotus software, which announced that the revolutionary next release of their spreadsheet called Lotus Improv would run only on the NeXT platform, and would be bundled with every NeXT computer. The goal was to make it NeXT’s killer app (an app that alone justifies buying the machine).
Tough times for Pixar
As for Pixar, it was in a really painful situation by the early 1990s.
First of all, the computer animation department, headed by John Lasseter, had to fight regularly for its survival. Steve Jobs almost shut it down several times throughout 1987 and 1988, until the team had the idea of making animation for TV commercials. That way they could survive and keep all the talents they had spent years to gather, while making some money. For all that, work on “artistic” movies did not stop: the team’s Tin Toy got an Academy Award for Best Animated Short Film in 1988, and the following year, Lasseter earned critical acclaim for his short Luxo Jr. at the SIGGRAPH convention. Steve allowed for the animation department to continue such work because the prestige could be used for selling more PICs — although, ironically, Pixar only made one short movie on their computer in their entire history: Red’s Dream (in 1987).
However, sales of Pixar Image Computers were still extremely disappointing. On April 30 1990, Steve Jobs announced he was shutting down all of the company’s hardware operations, while the staff moved away from Lucasfilm’s premises to new offices in Point Richmond — not far from a Chevron oil refinery. From then on, they would have to focus only on their boss’s new vision: Steve thought that RenderMan was going to become the next PostScript, an open standard adopted by the masses to make 3D renderings at home, just like PostScript had made desktop publishing possible. He was denying the reality of how hard it was to master three-dimensional animation.
If costs were indeed cut a little by this move, it didn’t make Pixar more profitable. The startup was still relying on Steve Jobs’ line of credit, and in 1990 alone, its net operating loss was over $8 million.
In March 1991, Steve went further in his drastic moves to make Pixar survive. He declared he would continue to keep funding it only if he were given back all of the employees’ stock shares. The scheme involved shutting the company down on paper, and creating a “new Pixar” where he was the sole owner. He also fired almost half the staff, keeping only the software programmers as well as Lasseter’s animation department — which was, by then, the only part of the company to bring cash in, thanks to its works in TV advertisement.
Pixar failed nine times over by normal standards, but Steve didn’t want to fail so he kept writing the checks. He would have sold us to anybody in a moment, and he tried really hard, but he wanted to cover his loss of $50 million.
Pixar co-founder Alvy Ray Smith in The Second Coming of Steve Jobs
Many people at NeXT shared that same view…
The years of 1991 to 1994 were the worst in Steve’s career. Paradoxically, they were some of the happiest years in his private life. In 1990, at age 35, after his girlfriend Tina Redse had turned down his proposal, he started dating a young Stanford MBA student called Laurene Powell. Laurene was a leggy blonde in the mold of Steve’s taste in women, but she was also very smart and independent — in addition to being a militant vegan. According to Steve, it was love at first sight: he canceled a business meeting to have lunch with her, and the following year, on March 18 1991, they got married in Yosemite. Steve only brought along a couple of guests in the lodge’s chapel, and the no-frills ceremony was conducted by his long-time Zen guru Kobun Chino. A few months later, Laurene gave birth to Steve’s second child, a baby boy named Reed Paul, after Steve’s alma mater (Reed College) and his father (Paul Jobs).
Troubles at NeXT
Throughout 1990 and 1991, it became obvious to NeXT’s management that something was wrong with their computers. They believed it was a strategic error; that they should position themselves as makers of an emerging kind of computers, personal workstations, i.e. computers as powerful as workstations yet as easy to use as personal computers. Their competitors were not Apple or other PC brands anymore, but Sun, the dominant player in the workstation business.
The re-positioning came too late, and it did nothing to improve the disastrous state of the company’s financials. They were still spending money like crazy, as exemplified by their new offices facing a marina in Redwood City and its free-standing staircase designed by I.M. Pei’s architectural firm. But they were hardly selling: their revenues for 1990 were as low as $28 million (in comparison, Sun made $2.5 billion that same year). In addition, NeXT’s deal with IBM was canceled, as it proved difficult for two such radically different companies to cooperate. Steve was still suspicious of Big Blue:
I’m not stupid enough to give you everything I have, when you have 27,000 salespeople.
quoted in Randall E. Stross’ Steve Jobs and the NeXT Big Thing
He was reflecting a common feeling in the company that giving away NeXT’s software to IBM was like committing suicide, as it was the company’s most valuable asset. Moreover, IBM asked for Steve Jobs to give up hardware if he were to work with IBM, which was out of the question for him at that time. This decision led to the departure of Bud Tribble, the brilliant developer who was heading software and had co-founded NeXT with Steve in 1985. All the other co-founders but George Crow eventually left in those pivotal years of the early 1990s.
The company’s other main partnership, the distribution deal with Businessland, also collapsed as the chain went bankrupt in 1991. NeXT, which had just expanded to the European market, had to turn to independent dealers worldwide, an even costlier solution. Profitability seemed like an impossible goal, and investors started to get angry: Ross Perot left by the end of 1991, after sales for the third quarter had proven abysmal. The company now relied solely on Steve and Canon, who kept pouring money in so that they wouldn’t lose all of their initial $100 million investment (and lose face at the same time). As a counterpart, the Japanese demanded that Steve hire an outside executive to help him run the company. The choice fell upon an experienced manager, Peter Van Cuylenburg, who was named COO in early 1992
A computer-animated feature film
While Steve was fighting to make NeXT a viable business, a crucial event happened at his other company, “his hobby”, Pixar. Remember the animation department had been struggling for survival for years, making TV commercials to make a little money. But it was also awarded several prizes for its short movies, mostly at the renowned SIGGRAPH animation conventions, but also an Academy Award for Tin Toy in 1989. John Lasseter was increasingly recognized as one of the industry’s most talented animator.
Starting in 1989, Disney’s new management (CEO Michael Eisner, but mostly his top aide Jeffrey Katzenberg) tried to hire Lasseter back to the Magic Kingdom. Yet despite Pixar’s precarious situation, he continually declined the offer: he realized that in no other place on earth he would find so many talented people who shared his vision of the future of computer animation.
So Disney agreed to sign a contract with Pixar for a full feature film, made entirely with computers. This had been Pixar’s dream for years, back in the late 1970s with Ed Catmull and Alvy Ray Smith (who had since left the company because he could not stand working with Steve Jobs). The story line John Lasseter proposed was some sort of buddy movie involving toys. Jeffrey Katzenberg agreed and in May 1991, the contract was signed. Steve negotiated for Pixar to make three movies and keep 12.5% of the revenues from ticket sales. It was a very cheap price for a film, but Steve and the rest of Pixar didn’t know better: it was a huge amount of money for their struggling studio! Steve Jobs’ investment finally seemed it was going to pay off.
Everything seemed to collapse professionally for Steve in 1993, the year he turned 38.
It started with NeXT. In January 1992, he had already made the huge compromise of accepting to license the company’s advanced operating system, NeXTSTEP. It would no longer be restricted to NeXT’s black boxes, but would also run on Intel’s 486 IBM-compatible family of processors. To many experts he should have done this from the beginning, but to Steve, this was the first sign of his failure, as he always felt personally attached to hardware: he had always been a hardware freak, fanatical about his machines’ design, spending hours in NeXT’s factory watching robots put together his beautiful computers.
But it turned out even worse the following year. COO Van Cuylenburg, who was hired to please Canon, betrayed Steve, in a cruel reminiscence of what had happened at Apple some seven years earlier. He called up NeXT’s competitor Sun, and asked its CEO Scott McNealy to buy NeXT and install him as manager of the new entity. Fortunately, McNealy had some sense of honor and told Steve about the outrage. Van Cuylenburg left, but Steve was devastated, especially since all the company’s co-founders but George Crow had abandoned him.
A couple of months later, the coup de grâce came as NeXT had to face reality and give up its hardware operations altogether. The decision was taken on February 11, a tragic day when 300 of NeXT’s 530 employees lost their job. The automated factory was transferred to investor Canon, which sold all its furniture in a memorable auction in September of that year. The dream of a multi-billion-dollar business had given birth to a small software company, NeXT Software Inc., specialized in application development and server technology for the UNIX and Windows platforms.
As if destiny was working against him, Steve also had to face trouble with Pixar in that same awful year of 1993. While the work on the animated feature with Disney seemed to stall for a while, Disney’s Katzenberg abruptly put an end to it in November 1993. Together with the majority of Disney’s creative staff, he declared that the characters were unappealing jerks and the dialogues inappropriately cynical for a children’s movie (while he was the one who pushed for such characteristics early in development). Pixar was back to making TV commercials just so it could survive — but it was obvious it would disappear if the work did not start again.
Steve had reached the bottom of his career. To use his words, he was in “ankle deep shit.” He didn’t even go to work regularly anymore and spent most of his days at home, playing with his two-year-old son.
Saved by toys
Fortunately enough, “it’s over” didn’t have the same meaning in Hollywood as it did in Silicon Valley. John Lasseter and other Pixar employees worked very hard at the script, and in February 1994, they turned out a new, improved version that won Jeffrey Katzenberg’s approval: production could resume. Steve was not overwhelmed, as he kept trying to sell Pixar to outside investors until late fall 1994. At the time he came very close to selling the animation studios to… Apple’s arch-rival Microsoft.
But he progressively started to sense Pixar was going to be a lot more important to his career than he ever expected. According to many, the revelation came in January 1995, when he was invited to a Disney event in New York. In the middle of Central Park, the movie studio had set up a gigantic tent with a movie screen showing previews of the two upcoming Disney films, Pocahontas, to be released in the summer, and Toy Story, for Thanksgiving 1995.
That was the moment Steve realized the Disney deal would materialize into something much bigger than he had ever imagined, and that Pixar was the way out of his morass with NeXT.
Pixar’s Ralph Guggenheim quoted in Alan Deutschman’s The Second Coming of Steve Jobs
Steve started to get increasingly involved in Pixar’s affairs, stripping Ed Catmull of his title of President and naming himself President & CEO of the company in February 1995. He also hired an outside CFO, Lawrence Levy, to give Pixar a respectable image to Wall Street in anticipation of a possible IPO.
When Toy Story finally came out on November 22, it exceeded all the hopes that Pixar and Disney had put into it. It made $28 million in the Thanksgiving 3-day weekend alone, and eventually reached $160 million in US box-office receipts — a great number for a $27 million production.
But it wasn’t just about the movie.
When Steve started envisioning the possible success of Toy Story, he talked about taking Pixar public. Wall Street analysts and experts laughed at his face, since Pixar still hadn’t made a single profit during its nine-year existence. But, in August 1995, a small startup that had existed for only a year and was also unprofitable had made a huge hit by going public: it was Netscape, the software developer of the eponymous Web browser. Suddenly Steve’s idea was not that ridiculous anymore.
However, there was a legal concern because of profit-sharing agreements with some of the company’s most senior people: John Lasseter, Ed Catmull, and two other early employees, Ralph Guggenheim and Bill Reeves. Their contracts stipulated they were entitled to some of their movie’s revenues, a situation that was contradictory to being public. Steve Jobs arranged the deal by giving away large blocks of stock to the four of them, in addition to the newly-brought-in CFO Lawrence Levy. But he managed to keep 80% of the company for himself, translating into 30 million shares.
There were tensions in Point Richmond after this settlement was revealed. After the IPO, Steve Jobs would become fabulously rich, five senior people very rich, and the others would be left out. Many of them threatened to leave the company, shocked especially by Levy’s treatment, since he had just joined the staff and had made almost no contribution to Pixar…
Yet, on November 29, exactly one week after Toy Story had come out, Steve’s vision proved right. The IPO benefited tremendously from the movie’s media coverage, and on opening day, the stock’s price jumped from $22 to $49. It became the biggest IPO of the year, beating even Netscape’s numbers. Steve Jobs had made it: he was now a billionaire, worth almost $1.5 billion. It was ten times the money he had ever made at Apple in the early 1980s. He was finally vindicated, and enjoyed being back on magazine’s covers.
As for Pixar the company, it made $123 million in the IPO, going from $47 million in the red to $76 million in the black. Steve felt strong enough to go back to Disney and re-negotiate a deal that he considered a master-and-slave relationship.
Back to Burbank
This time, Steve decided, Pixar would not get ripped off by Disney. He came with very high demands for the new agreement: a 50/50 partnership, with split production costs and split revenues; total creative control for Pixar over its movies; and equal billing, i.e. the obligation for Disney to show Pixar’s logo on the screen and on any marketing artifacts as big or for the same amount of time as its own. That’s why you’re used to see Pixar’s Luxo Jr. animation at the beginning of every movie from the studio. Here again we can sense Steve’s flair for marketing: he had a vision for Pixar to become as powerful a brand in animation as Apple was in computing. He wanted it to become no less than the next Disney.
The amazing thing is that Jobs achieved to impose these new terms — and what’s more, to Michael Eisner, one of Hollywood’s toughest negotiators! Disney never treated its contractors the way it agreed to treat Pixar. All of Hollywood was stunned.
Steve had used a killer argument: he threatened to go to other movie distributors as soon as the three-picture deal would be over. Eisner understood Pixar was going to turn into a golden goose and was smart enough not to let it go.
To be continued..