Apple's Worst Business Decisions: Another Perspective

Our own Tom Hormby posted an article on OSnews yesterday examining Apple's Worst Business Decisions. Hormby's histories are some of the most popular pieces we've ever published, but I'm here to question some of his analysis.

Before the Mac

Hormby lists Apple's first bad business decision as overpricing the original Macintosh. While that was a mistake, it wasn't Apple's first bad business decision. That honor goes to the entire Apple III project, which has been covered several times on Low End Mac: Apple III Chaos: What Happened When Apple Tried to Enter the Business Market, The Ill-fated Apple III, and Macintosh Prehistory: The Apple III and Lisa Era.

There are several ways in which the Apple III was a bad business decision. First and foremost, it was only partially compatible with the Apple II unless you used an emulator, which meant that there was very little software for the Apple III.

Worse yet, the Apple III hardware was troublesome. Because of Steve Jobs' insistence that the thing have no fan, it overheated, and heat expansion popped some chips from their sockets. Solution: Drop the Apple III a few inches onto a hard surface and hope the chips reseat themselves. Further, the internal time/date clock was unreliable.

The stench of the Apple III failure so permeated Apple headquarters that there was never a "Mac III".

A second poor business decision paved the way for Macintosh. Lisa was a brilliant concept - the first personal computer with a mouse and a graphical user interface. The problem wasn't the hardware or operating system, but the price tag. US$9,995 for a 2 MB computer with a 5 MB hard drive.

Overpricing the Original Macintosh

If Apple was able to keep Lisa from penetrating the market by pricing it at nearly $10,000, it was equally capable of minimizing the fledgling Mac's market by pricing it at US$2,495 instead of $1,495 (or even $1,995). Hormby's analysis is spot on when it comes to the impact of the price.

Where I question his analysis is his claim that "the price hike did little other than to temporarily inflate Apple's financials." If Apple could have retailed the Mac 128K at $1,495, I'd guess that it cost no more than $600 to manufacture it (figuring in both a profit when Apple sells to the dealer and when the dealer sells it to the end customer).

Let's say Apple sold 100,000 Macs (to pick a number) at $2,495. That would be a profit of just under $19 million dollars. And if Apple sold 100,000 Macs at $1,495, that profit would be slashed to $9 million.

The great unknown is how many additional Macs Apple would have sold at $1,495 - I'd conservatively guess Apple could have tripled (and probably quadrupled) sales, as there was a huge interest in the Macintosh. Selling 300,000 Macs at $1,495 would result in a $27 million profit.

These are arbitrary numbers, but they demonstrate how Apple could have made a lot more money by selling more Macs at a more popular price than by selling less at a higher markup.

Macintosh Office

Hormby paints Macintosh Office as essentially a failure, one made worse by the "Lemmings" ad that offended Apple's target market. The failures were that the BigMac project - a Unix-based Mac - and dedicated FileServer hardware never made it to market.

But there were three areas in which Macintosh Office was a huge success:

1. AppleTalk
2. The LaserWriter
3. AppleShare

To the best of my knowledge, AppleTalk was the first plug-and-play networking system built into a commercial computer. It was relatively fast in the pre-ethernet era, and LocalTalk ports (AppleTalk is the name of the signal protocol; LocalTalk is the name of the wiring system) were built into Macs.

Networking was the key element to the Macintosh Office, as without it there was no need for a file server and no way to share an expensive laser printer.

And that very much describes the original LaserWriter. The behemoth 300 dpi laser printer worked on a LocalTalk network and included Adobe Postscript. Everyone on the network could print to the LaserWriter, which helped justify the expensive printer. (Aldus PageMaker became the best reason to buy a LaserWriter.)

While FileServer never shipped, Apple did ship AppleShare, software that could turn a Macintosh into a dedicated file server. Later on, in the System 7 era, it became possible to run AppleShare as one task on a computer and personal file sharing came into its own, but in 1985 AppleShare 1.0 was quite innovative.

I look at the glass as half full - AppleTalk, LaserWriter, AppleShare - while Hormby sees it as half empty - no BigMac or FileServer. He dreams about what could have been; I see how Macintosh Office paved the way for Apple's future.

Not Firing/Demoting Jobs Sooner

Jobs fans are not going to like Hormby's claim here, but there is plenty of evidence that Jobs had become more of a liability than an asset at Apple. He was the one who said "no cooling fan" in the Apple III when that should have been an engineering decision.

He was also responsible for making the Mac what it was - it had originally been conceived as a 6809-based US$500 computer with 64 KB of RAM, but as the project became more ambitious, it moved to a 68000 CPU, 128 KB of RAM plus 64 KB of ROM, and aimed at a US$1,500 price point. All good decisions, but they slowed development.

Perhaps Jobs' best decision was including proportional fonts in the Mac OS, which paved the way for desktop publishing. He had some very good ideas.

But there were other issues - management style, personality, rivalries, corporate politics, and more. Jobs has grown since that era, but he hasn't left all of this behind.

The Performa Line

By 1992, Apple had become "brand happy". There were the Classics, the LCs, the Mac IIs, the Quadras, and the PowerBooks. Apple decided it wanted to target the home user and created yet another brand: Performa.

Instead of developing new computers for the market, Apple simply rebadged existing models, added a software bundle, and made them available through Sears and other big box retailers. The result was confusion, as sometimes the same exact computer might have 3, 4, or even 5 names (LC, Quadra, and up to three Performa ones).

Apple kept the Performa brand alive from late 1992 through mid 1997, and nobody was sad to see it go. (To make matters worse, for 9 months in 1993, Apple had yet another brand - Centris - sitting between the Mac II and Quadra lines.)

I'd have to call the Performa brand one of Apple's worst business decisions, but it wasn't mentioned at all in Hormby's article.

The Newton Fiasco

Here's another one I'd add to Hormby's list: the Newton fiasco. Newton was a wonderful project, but it was so far ahead of its time that it was rushed to market, where it's unpolished first revision handwriting recognition made it the butt of many jokes.

Newton was a wonderful product that pushed the hardware to its limit as much as the first Mac did. It had a nice large screen, which also meant a relatively large form factor. Newton's are much bigger than Palms and Pocket PCs - and that's as much a positive thing as a negative.

Apple's biggest mistake was killing off the entire Newton project just as the PDA market was taking off, and then sitting on the technology rather than selling it to ardent fans who wanted to keep it alive.

Licensing the Mac OS to Power Computing

Perhaps Apple's biggest failure in the cloning era was not licensing the Mac OS to Gateway, which asked Apple to cut license fees so it could produce less expensive clones to flood the market. That was, after all, Apple's hope for the clone program - that low-cost Mac OS computers would grow the user base.

Instead Apple licensed the Mac OS to companies with no experience designing and marketing computers: Radius, Power Computing, Motorola, and Umax. And each of these companies discovered what Apple already knew - profits were to be made selling high-end Macs, not low-end ones.

1995 was absolutely the wrong time to divide the Mac market among four or five brands (see Hormby's Good-bye Woz and Jobs: How the First Apple Era Ended in 1985 for a whole lot more on what went wrong that year).

Apple should have licensed the Mac OS five years earlier; 1995 was the wrong time. And just as the Apple III made Apple gun-shy about using "III" in a product name, the Mac OS licensing disaster is probably one memory that makes it less likely that Apple will ever license Mac OS X to another computer maker.

Not Buying or Licensing an Outside OS Sooner

I have to admit that I thought Apple made the wrong decision in choosing NeXT over Be. NeXT was more mature, rooted in Unix, and was a shipping commercial product with third-party software. BeOS was immature, state of the art, highly threaded, fantastic for video, and nowhere close to being a viable alternative to Windows - let alone the Mac OS.

Apple had to reach the point of desperation before it would consider giving up its own OS projects. With competition from Windows 95 and NT, the PowerBook 5300 disaster (see The PowerBook 5300 Turns 11: A Reminiscence, PowerBook 5300 Exposed, and Road Apples: PowerBook 5300), problems with its own "future OS" project, and clones cutting into the profitable end of Apple's Mac business, Apple was desperate.

Although it would have helped Apple to buy NeXT a year earlier, as Hormby states, I don't think Apple would have seriously considered this step while it was flying high. And Apple was flying high in 1995 - it would be 10 years before the company was once again as profitable.

I have to disagree with Hormby on this one. While it would have been beneficial to buy NeXT a year earlier, Apple had to hit rock bottom before it was ready to ditch its own operating system project and look elsewhere.

Other Failures

I have to agree with Hormby on frogdesign, the firm that created some of the most elegant Apple designs ever. It wasn't until Jonathan Ive designed the iMac that Apple computers began to look elegant again.

Hormby points to Apple contracting with Foxconn to build the iPod, either not knowing or not caring that Foxconn's Chinese workers put in 15 hour days at minimal wages. This came back to bite Apple when working conditions at Foxconn were uncovered. And enlightened company should know better. Let's hope Apple's response to the recent Greenpeace attacks is better.

Hormby's final point is that Steve Jobs has become indispensable, and that could put Apple in a world of hurt should something happen to him. Understanding how Jobs was once driven from Apple, I can understand why he wouldn't want to give anyone a clear shot at the CEO's seat, but if Apple and the Mac are to survive beyond Steve Jobs, he needs a contingency plan.

Conclusion

Every historian brings his own perspective to his studies, and I think Hormby does an excellent job pointing out some of Apple's worst business decisions. There are things on his list that would not have occurred to me, and things on my list the he didn't include. It's really a judgment call.

The important thing is to realize that Apple has made some very poor business decisions in the past and needs to learn from them to move forward successfully.