Apple‘s Struggle to Survive the IBM PC

in 1981 Apple computer was the leader in the growing billion dollar PC industry that year they had an install base of over 300 000 Apple ones good for 20 market share and sales were growing 50 to 100 a year but that same year saw the introduction of the IBM PC and with that Apple's fortunes rapidly began to decline Apple needed a follow-up to its first big hit making one turned out to be a seriously difficult Journey in this video we're going to talk about Apple's struggle to survive the IBM PC onslaught but first let me talk about the Asian Armory patreon Early Access members get to see new videos and selected references for those videos before the release of the public it helps support the videos and I appreciate every pledge and I recently added an annual subscription option too thanks and all of the show what was then called the microcomputer today your basic desktop PC begins with the integrated circuit more specifically the microprocessor a computer needs memory and logic chips in the 1970s advances in semiconductor manufacturing made these chips both widely available and quite affordable when you do that special things happen in 1974 Intel released the Intel 8080 capable of addressing 64 kilobytes of memory it became the standard for 8-bit devices it wasn't the only one on the market notable peers include xylog's z80 and Motorola 6800 but its wide availability helped make the microcomputer possible that same year out in New Mexico Electronics tinkerer Ed Roberts needed a new product for his calculator kit company the company named mits couldn't profitably produce calculators anymore thanks to the calculator Wars so Roberts puts together a cheap computer kit called the Altair 8800 negotiating a volume deal with Intel for the 8080 microprocessors to power it the little computer cost about 395 dollars in kit form or 621 assembled after the magazine popular Electronics featured it on its January 1975 cover the computer sold like gangbusters the Altair essentially founded the 5.5 million dollar microcomputer industry yet mates could not meet demand allowing other companies with more compelling products and business savvy to overtake it Apple was one of those companies in April 1977 at the first West Coast computer fair in San Francisco Apple introduced their apple II computer their first computer the Apple One kit computer was more like a circuit board for hobbyists but it sold enough about 200 units to prove the business model and warrant a more polished successor the Apple II was described at the time as an appliance computer a completed system that you can buy off the retail shelf take home and use the computer looked professional and aesthetically pleasing it came in a plastic case with a built-in keyboard a colored monitor made possible by a Nifty bit of engineering by co-founder Steve Wozniak and a version of basic stored on his chip very importantly it featured eight expansion slots for easy upgrades and add-ins from third-party companies called boards or cards you can enhance your Apple 2's display memory or sound capabilities Wozniak added the system after winning an argument with his colleague Steve Jobs one last thing the Apple II used Moss Technologies 6502 microprocessor based on a Motorola 6800 design rather than an Intel 8080. this happened at the time simply because of money when Wozniak was putting together the original Apple one he grabbed the 6502 rather than the 8080 because the former cost 25 and the latter 179. the decision turned out to be a fateful one it meant that Apple's operating systems and software would develop and grow separately from the Intel microprocessor ecosystem the Apple II sold very well right off the bat generating 750 000 in sales at the end of the 1977 fiscal year but it was not the only player in the growing microprocessor Market other notable microcomputers at the time included the Commodore pet also exhibited at the fair and the Tandy TRS-80 sold by the Radio Shack retail stores competition was fierce but in 1978 Apple released a technical update by Wozniak that leap brought the Apple II ahead of its competitors even today users are always wanting more memory Apple president Mike markula wanted to use a checkbook program but the computer's taped cassette memory took two minutes to load data from memory and another two minutes to write to it in 1977 computers were transitioning from tape cassette memory to floppy disk drives but making floppy drives reliable was immensely challenging previous micro computer companies like processor technology failed and subsequently folded in December 1977 markula held a meeting with some product goals floppy disk was number one back then Wozniak didn't know much about how drives worked other than once flipping through a manual about them but he decided to spend the holiday season producing a brand new disk drive controller responsible for controlling the flow of data in and out of the disk drive he tore through documentation from various vendors and crafted a design of his own this entirely new disk drive controller the integrated was machine used far fewer components and outperformed far more expensive systems it remains one of his crowning engineering achievements news leaked that Apple would introduce a disk drive at the 1978 Consumer Electronics Show in the first week of the year and everyone came to see it news about waze's disk drive achievement reached two programmers Dan bricklin and Bob Frankston they already liked the Apple II over the pet and the TRS-80 nicknamed the trash 80 for good reason because it was more open and good for games but the disk drive news really spurred them to move forward with developing their new visual spreadsheet concept visit calc for the Apple II first exclusive to the Apple II for the first year visit calc became one of the first examples of a killer app it sold 200 000 copies in two years businesses were willing to pay thousands to buy an Apple II just to use this spreadsheet software Apple could have owned the software themselves before its wide release in 1979 visit Cal co-author Daniel philstrow showed it to Apple and offered to sell it to them for one million dollars they turned it down nevertheless Apple II cells went exponential by 1980 Apple had sold over 100 000 of them generating 100 million dollars in revenue and giving them over 15 percent market share of the growing personal computer industry IBM noticed a potential negative impact that visit calc equipped Apple II would have on its sales a one hundred thousand dollar Revenue business can expense a five thousand dollar microcomputer over five years at about one percent of annual sales back then a large corporation IBM's bread and butter would spend about two percent of their revenues on data services so in theory IBM could possibly lose half their future sales to these microcomputers IBM CEO Frank Carey decided that IBM needed its own microcomputer produced outside of the company's traditional bureaucracy he pulled together a small team in Boca Raton that eventually produced the IBM PC the PC was a gorilla project put together with off-the-shelf components including a PC dos operating system from Microsoft an 8088 microprocessor from Intel very unusually for them the only parts that IBM sourced on its own were the keyboard and the basic input slash output system chip or bios the IBM team did not take out any significant patents or the like similar to the Apple II the PC had a modular expandable architecture with components assembled onto boards customers can upgrade their machines and specialist suppliers can enter the market with a component like a video card or a disk drive without having to build a whole machine Project Director Philip Donald Estridge owned an apple II and was impressed with expandability he insisted that the IBM PC have a modular bus system and not design any of their own add-ons this approach might have been revolutionary to IBM but not to the industry as a whole I mean Apple put together the Apple II the same way the PC also came with a library of third-party software this included visit calc itself which sold more copies on the IBM PC than on any other platform including the Apple II but then came the ultra popular spreadsheet app lotus123 and the word processing app wordstar two killer apps which established the IBM PC has a truly useful tool for the business world Apple had long known that the IBM PC was coming but their fears about the Juggernaut IBM entering the market were counterbalanced by skepticism that this dodgy company would ever be capable of anything particularly innovative some other people were optimistic that an IBM PC would validate the market and lend it credibility it might even create a rising tide lift all boats situation now it is here company employees sought to show a brave face president Mike marcula said we've been planning and waiting for IBM to get into the marketplace for four years we are the guys in the driver's seat we're the guys with one third of a million installed base we are the guys with a software Library we are the guys with distribution it's IBM who is reacting and responding to Apple Steve Jobs said it's curious to me that the largest computer company in the world couldn't even match the Apple II which was designed in a garage six years ago he also said we are going to out Market IBM we got our stuff together but he didn't say stuff such attitudes eventually led to Apple's Infamous full-page ad in the Wall Street Journal welcoming IBM into the PC market ballsy considering that IBM was many times larger than Apple commanding a Titanic marketing budget and a powerful direct sales force released in August 1981 the IBM PC was a near instant and unexpected success the company predicted that it would sell about 200 000 units in the first year and one million over three years they beat these forecasts by at least 500 percent they sold about 50 000 units by the end of the year IBM struggled to keep up with demand for their hit shipping just thirteen thousand five hundred and thirty three units from August to December 1981. there were massive backlogs but by the second year in 1984 Supply caught up and IBM was soon selling 200 000 units a month the IBM PC surged from nothing to seizing a third of the market Apple still sold a whole lot of computers and those sales would grow but their microcomputer market share would erode from 20 to 11 by 1984. good for second place to sell the PC IBM copied the microcomputer makers and brought the computer to retail outlets like Sears and computer lab turning away from its traditional sales force and they backed it with the full might of the IBM machine with its 400 000 employees 40 billion in revenue and 6 billion in profits such a company can easily fund a marketing campaign to annihilate any competitor now the first generation microcomputer makers have to compete with IBM sitting right on the shelves alongside them how can they survive Commodore Texas Instruments and other contemporary microcomputer makers stampeded to avoid the IBM giant by August 1982 Commodore and TI had cut prices of their computers to under 200 dollars that December Atari cut prices of their budget microcomputer the Atari 400 to under 200 the company could not handle the financial repercussions of doing so and collapsed losing 500 million dollars and laying off thousands in 1983. this left Commodore and TI as the remaining big players in the low end space in January 1983 Commodore cut the price of its top-end Commodore 64 microcomputer all the way down from 600 to 200 dollars TI could not handle the bleeding any longer they announced a 100 million dollar loss its president resigned and they exited the microcomputer business Apple needed to do something but what to do one of Apple's failures leading up to the IBM PC was his inability to expand its product line at the start the microcomputer space largely targeted hobbyists home users and education the apple one and two were built for those customers but the Apple II accidentally and unexpectedly found its stride with small business users most Apple customers of this type were small offices run by professionals doctors lawyers and Consultants most of them use their apple II for word processing accounting and data management services like a doctor would use a microcomputer to schedule and bill patients as well as keep their accounting records unfortunately this Market would also be the IBM PC sweet spot but Apple can build on its head start by hitting some other customer needs that had started to surface in the market the first one would be professionals and businesses looking for a more powerful computer but more intensive tasks like Graphics and Design the second would be the corporate Market these are high-end users who need to run sophisticated calculations for experiments or computer-aided design these are the users Sun Microsystems would eventually serve with their workstations the Apple II was a monster hit it was still a hit in 1982 a year after the IBM PC introduction and five years after its own when it sold six hundred thousand units the most in its history but Apple struggled to come up with the successor the Apple 3 actually announced the year before the IBM PC back in May 1980 perfectly Illustrated these struggles By 1979 management seen the Apple II as quite old and in need of replacement tried to offer the Apple 3 has a higher end successor specifically made for businesses with a faster microprocessor Apple II emulation and a full upper lowercase keyboard but unlike with the apple one and apple II the work of one man was a committee led by Steve Jobs designed and built the Apple III the result was a mutant compromise machine pushed out into the market in March 1981 way too early the computer also cost between four thousand three hundred forty dollars to seven thousand eight hundred dollars a high price to pay considering that a shipped without some of its advertised features and suffered a 20 failure rate due to an overly ambitious design most notably some of the chips in the computer fell out of their sockets management genuinely thought that the Apple II would vanish six months after the three came out so they canceled or limited features that could have improved the Apple too like a memory expansion and even stopped mentioning the computer in their marketing but despite several fixes the Apple 3 sold only a tenth of the volume of its predecessor so in 1981 Apple grudgingly went back to the 2 Series and created the lower cost Apple 2E marketed as an evolution released in January 1983 the 1 395 Apple 2E was a massive hit it was very profitable thanks to a custom integrated chip that Apple would eventually produce for less than one hundred dollars Apple sold the Apple 2E for nearly 11 years their longest lasting computer there is a generation of Apple Fans who grew up with this little computer it kept Apple afloat as IBM surged ahead into the market share lead with 26 percent of the market and a massive 750 000 unit base Apple eventually stopped offering the Apple 3 line after losing some 60 million dollars on the whole Venture the mistake was to try to create a brand new computer to directly compete with the two so naturally they tried to do the same thing again with the Lisa the Lisa began in 1978 as a set of specifications a two thousand dollar computer for business users that was far from how it ended up it was inspired by the Xerox Alto a beautiful computer used by the Xerox Park research lab the alto also inspired the sun 1 Workstation but Apple refused to Simply copy the alto they worked a long time 200 person years in development compared to the Apple II's two years producing a unique user interface with a menu bar pull down menus overlapping windows and scroll bars these were truly special but that meant that when the leesa finally hit the market in January 1983 it cost way too much about ten thousand to twelve thousand dollars or over twenty seven thousand dollars in 2021. if you squint hard at Apple's product development at the time you could have seen the Contours of a comprehensive lineup targeting the Market's emerging segments the Apple 3 for the professionals and small businesses and the Lisa for the corporate and government users both the Lisa and the sun won Sun's popular workstation use the same microprocessor a powerful Motorola 68000 so it might have been capable of the task but Sun 1 ran the popular Berkeley Unix operating system onboarded a library of technical software and thus became the workstation of choice for those engineers and Professionals in need of more compute power the Lisa never went beyond the seven applications with which they shipped developing those cost 20 million dollars nearly half of the Project's total budget and those applications taxed the processor so much to make the computer feel sluggish to use so the Lisa fell into an awkward space not powerful enough to be a workstation but too expensive for professionals who would rather buy an IBM PC for about two to five thousand dollars to do their spreadsheets and word processing sadly the Lisa never managed to gain the attention it deserved for its software and interface Innovations thanks to the Macintosh the story of the macintosh's creation is legendary and there are some great resources you can pick up to learn about it but the core story goes something like this original founder Jeff Raskin started the Macintosh project to produce an easy to use home computer that would cost about five hundred dollars so if the Apple 3 was for Pros in small business and at least it was for corporate High Computing then the Macintosh would be for the person on the street the people's computer for their home and maybe some gaming Steve Jobs still smartering from his removal from the Lisa project came onto the Macintosh entering into a hellbent competition against the Lisa team jobs produces a milestone computer with a groundbreaking graphical interface reviewers at the time acknowledged the computer to represent the direction that desktop computers should go truly easy to use and electronics Appliance and beautiful graphics after the prominent failures of the Apple 3 and the Lisa the company went all in on the Macintosh Steve Jobs a new Apple CEO John Scully were supremely confident in their product jobs predicted that Apple would sell 50 000 Max in the first 100 days after launch and then half a million by the end of 1984. Apple put everything it had into marketing the Macintosh most everyone knows the world famous 1984 ad but the company pulled out all the stops the Macintosh got more coverage than any other computer before and it was indeed a great product but the first Macintosh unfortunately lacked functional Basics like enough memory to run big programs and a disk drive to store data it was also expensive remember the original spec was to price the computer at five hundred dollars the final price was standard apple markups and the expensive marketing campaign was 2495 dollars and finally the Macintosh did not have IBM PC compatibility this meant losing access to a third-party library of 3 000 plus program titles and that increasingly was becoming the most important thing by day 101 Apple had sold over 70 000 macintoshes the numbers beat jobs as public claims allowing Apple to call the Macintosh a huge success but many of those sales were at discounted prices to universities worse yet sales tapered off to about 20 000 units a month after the advertising campaign ended internally the company was expecting to sell 60 to 85 000 units a month and unfortunately Apple invested a lot of money on building up the supply for all those sales this includes millions of dollars spent in 1983 on a highly automated plan in Fremont California the holiday season over Christmas 1984 was particularly bad though it didn't seem that way at first The company generated 700 million dollars in Revenue 100 growth and a company record but at a stock analyst meeting in early 1985 Apple broke out sales by product and just 200 million of that were macintoshes Apple's lauded computer of the future the Forgotten frequently disrespected Apple II produced 500 million dollars Wozniak had long been frustrated by the company's lack of respect for the Apple II Cash Cow which he created and ran so when he heard this news he became Furious and confronted John Scully about it unsuite by scully's attempts to calm him he left the company in April 1985 after a brief Handover period afterwards he told the press that Apple's Direction has been horrendously wrong for five years the Macintosh absorbed the Lisa division growing from 100 people to over a thousand by March 1985 jobs was in a terrible mood over the macintosh's lackluster sales saying why isn't it selling things just aren't going right and I can't figure out why in the quarter after the 700 million dollar Blockbuster holidays Apple reported 435 million dollars in sales and just 10 million dollars in net income income might have gone up but the company found itself Awash and unsold inventory Apple had to shut down four factories for a week the company's Financial issues were getting more serious a deteriorating macroeconomic situation in 1985 would trigger an eight percent decline in the microcomputer industry its first big downturn IBM PCS did better short up by their strength in the business Market Wall Street cut their Apple earnings estimates and the stock plunged the company was tearing itself apart at the exact wrong time the Macintosh people feuded and fought the Apple to people jobs was involving himself in messes around the company leaving Scully to go clean them up then in early April Scully found out that the Macintosh division had not yet finalized the second generation Mac eight months after its introduction and that the company was running out of parts for the old Lisa computer renamed to the Macintosh XL because jobs never believed in the Lisa's design the company wasn't pushing out any products and its fast-moving competitive field the Macintosh team exhausted from the initial development effort was struggling to move forward Scully finally decided that they could not survive with two power bases in April he went to the board and asked them to either remove Steve Jobs from an operational role or to accept scully's resignation the board backed Scully jobs tried to make nice for a few months but was finally formally stripped of his titles in May 1985 after a failed coup attempt while Scully would be abroad in China the side jobs finally resigned a few months later in September 1985. in an interview with the New York Times vice president and future board member Bill Campbell said we've been without Steve Jobs for the better part of four months since that time we've been doing just fine now with full control Scully and his CEO Del Yocum reorganized the company merging the different product divisions to make functional teams this eliminated the previous situation where the respective marketing teams in the Macintosh and Lisa divisions targeted the same customer many people had to LEAP 1 200 were laid off and the company turned its first quarterly loss in history thanks to the organization costs a great many of those who are not laid off went to Steve Jobs's new startup next apple was unhappy about that and threatened a lawsuit over it for a while before deciding the bad publicity wasn't worth it and what to do about the Macintosh in June 1985 Bill Gates and Microsoft suggested in a secret memo licensing out the operating system to computer makers like at T and Hewlett-Packard Apple ultimately turned this down after a fierce internal debate but it would have been interesting to see how a licensed Macintosh OS would have performed in the market coming a few months ahead of windows getting Macintosh sales back on track depended on the company finding a new killer app for it the Apple II benefited from the visit calc what would be the macintosh's vesic calc for that we need to wind the clock back a little bit for a long time Apple sold.matrix printers to accompany its Apple II line the image writer it could print about 120 characters per second at a resolution of about 70 to 140 dots per inch the Macintosh could use the image Rider too but the team felt that they needed to produce a new higher resolution printer to more take advantage of their computer's graphical powers so they partnered with Canon to produce the laser writer a laser printer capable of printing at 300 DPI this was the Threshold at which people cannot easily discern individual pixels same as for the retina screen to allow users to consistently save and edit Graphics files Steve Jobs reached out to a small startup called Adobe Adobe had a graphics programming language called PostScript that consistently described the appearance of a printed page regardless of the device Apple integrated the language into the Macintosh the laser Rider printer cost nearly seven thousand dollars so it was hard to imagine companies buying more than a few of them so Apple created a product called Macintosh office a file server and networking product that allowed several users to share a single laser writer printer Apple announced the Macintosh office product in January 1985 a year after the macintosh's introduction with a terrible commercial called lemmings the ad which Scully hated but add agency chat day loved aired at the Super Bowl it showed a bunch of suited businessmen walking towards a cliff and jumping over unlike the famous and iconic 1984 ad lemming struck the exactly wrong tone businesses hated the implication that there were like Lemmings which don't normally do this herding and cliff jumping Behavior anyway and as a result Apple would not do another Super Bowl ad for over a decade the laser Rider got caught up in this bad start as well as the macintosh's own declining sales numbers sales began in February 1985 with about 2 000 sold and then slowly declined to about 400 units per month sales were so low because there were not any applications capable of taking advantage of the macintosh's advanced Graphics or the laser writers high resolution printing though I do want to know that the original Macintosh with its 128k of memory was hardly capable of running such a thing anyway we needed to wait until later for a better product with more memory in the summer of 1985 with apple caught up in crisis a young product marketing manager named John skull not John Scully was given the task of saving the laser writer skull had little resources of his own and no one on his team except for a summer intern he started by going around talking to software developers Adobe and electronic publishing companies it was through these conversations that he started hearing about page layout the design work for producing materials for publishing things like newsletters and flyers back then doing this would have required scissors and glue and maybe even some photography now you can do it all in the computer skull got to experience it firsthand watching Apple's in-house design team produce marketing materials for the Macintosh office skull thought this had high potential after a few focus groups confirmed this use case he started a project to develop and Market it wanting to hit the Autumn selling season he wanted to get the whole thing done in a few months he found a small wysiwyg what you see is what you get page layout application called pagemaker made by the oldest Corporation he liked it and bundled it together with a few macintoshes and a laser rider for Apple's Distributors to sell skull didn't like the phase page layout and changed the name to desktop publishing at aldus founder Paul brainerd's suggestion Aldous Adobe and apple teamed up to train Apple's dealers and how to sell the use case and the bundle to their customers a distributor would hold seminars to teach customers how desktop publishing Works A salesperson would then follow up shortly thereafter to sell the bundle sales turned around almost immediately John Scully heard about the success and sought to orient the company towards his new unique use case the Macintosh was the only computer with this graphical interface and it soon captured 70 of the market new software applications joined The Fray all this pagemaker was the first but other notable programs include Cork Express Microsoft Word and of course PowerPoint by 1987 the industry had gone mainstream a year after that it became a billion dollar Global business Apple's market share stabilized at about eight percent its market share in the education field was over 50 percent by 1990 Apple sale surged A 5.6 billion dollars and the company enjoyed the highest margins in the industry Apple had seemingly survived the invasion of the IBM PC into its Market nine years prior cultivating a high-end Market based on its unique differentiation despite this there were people at the company convinced that Apple's High margins could not last Dan eiler's VP of strategy felt that the company was on a quote Glide path to history Scully soon came to agree he worried that Apple was increasingly viewed as the BMW of the computer industry he nervously looked at the rapidly improving capabilities of the IBM compatibles empowered by Microsoft's new operating system Windows so he decided that he needed to do whatever it took to bring Apple quote back on track end quote he anointed himself Chief technology officer and sought to produce a new game-changing product of his own unfortunately it would soon become a disaster all right everyone that's it for tonight thanks for watching subscribe to the Channel Sign up for the newsletter and I'll see you guys next time

Channel: Asianometry

Views: 72,959

Keywords: asianometry

Id: _GX7wQQmolM

Length: 31min 33sec (1893 seconds)

Published: Sun Jun 25 2023