Welcome to another boring topic. As the title of one of his multiple biographies
says, Steve Jobs truly was an icon. He cofounded Apple computer in 1977, revolutionized
the personal computer industry with the first Macintosh in 1984, triumphantly led Apple
into the new millennium with dashing and stylish products like the iMac in 1998 and the iBook
in 1999. As the new millennium dawned Jobs upended
the music industry with the release of the iPod and iTunes in 2001 and then went after
the phone industry with the iPhone in 2007, whose success allowed him to essentially create
the tablet industry with the iPad in 2010. Until his untimely passing in 2011, Jobs seemed
unstoppable and everything he touched, barring one or two things like the G4 Cube, seemed
to be exactly what consumers didn’t even know they wanted. But in between introducing the Macintosh in
1984, and introducing the iMac in 1998, Jobs went through a period of enormous personal
struggle, starting with being essentially fired from Apple computer and ending up founding
a computer company called NeXT that was on the edge of complete bankruptcy when it was
purchased by the flailing Apple Computer in 1997. This is the story of that enormous business
failure, the failure that changed Steve Jobs from a brash youngster into a more mature
and rounded businessman, who understood far more about the balance between form and function
and the need to produce things that people had clear reasons to buy. It is somewhat of a puzzle to me that the
writer of the best all around biography on Steve Jobs, Walter Issacson, spends little
time on Jobs’ time at NeXT in his otherwise excellent biography. To understand how Jobs was able to become
the practical visionary who took Apple from the brink of failure to enormous success,
it is critical to understand just what he experienced at NeXT. NeXT, which was eventually renamed NeXT Computer,
before finishing its life as NeXT Software, came into existence on June 20th, 1985 and
limped along until its dissolution on February 7th, 1997. Rarely profitable and selling just a fraction
of the computers that were originally envisioned, NeXT nevertheless attracted a small but intensely
loyal group of users. But it was never enough for it to fully get
off the ground. A 1993 article by the San Jose Mercury News
states that “Despite years of full-tilt trying, Steve Jobs’ Next Computer Inc. sold
about 50,000 machines -- or what Apple Computer Inc. ships in just six days[a].” this in
a period when Apple itself was in danger of foundering. Another point of comparison would be the fact
that Apple sold its one millionth Macintosh in 1987, barely three years after its introduction
whereas NeXT had sold a mere one twentieth of that number four years after its introduction. But regardless of their modest sales, NeXT’s
systems had an enormously disproportionate impact. NeXT computers powered Tom Berners-Lee’s
development of the original web browser and web server, while pioneering gaming company
ID Software created Wolfenstein, Doom and Quake using NeXT computers as development
systems. The company also received enormously favorable
publicity for much of its life as Jobs, ever the master showman, displayed his talent for
generating great reviews and publicity to full effect. IBM even spent 50 million dollars in October
of 1988 to buy a license to use the NeXTStep operating system as the operating system for
some of its PCs, potentially replacing DOS, although it never actually used it. As a side note, for all of NeXTSTEP OS’s
unfinished state in 1988, it was probably considerably better than IBM’s own OS/2
operating system, which had been updated with a marginal graphical user interface that same
month. Moving on. One of the indirect ways that NeXT left a
mark was in Wolfenstein 3D. If you are playing the original 1992 version,
in Episode 2 Floor 8 of Operation: Eisenfaust, there is a maze called the Aardwolf maze. Solving the maze brings you to a sign that
says “Call Apogee Say Aardwolf”. The idea was that solving the maze would be
extremely difficult, and the first person to solve it could call Apogee, say what the
sign said, and win a copy of every Apogee game for the rest of his life. This contest was quickly dropped due to the
realization that new, easily available software tools would let people just disassemble the
game files and find the graphic without ever solving the maze. But why was “Aardwolf” chosen as the word? The Wolfenstein 3D wiki says that it was “presumably
chosen for obscurity: an aardwolf is a small African mammal[b].” In actuality, according to Game Engine Black
Book: Wolfenstein 3D, the aardwolf was ID’s mascot and John Carmack, one of the cofounders
of ID Software and the programmer who built the Wolfenstein engine, is quoted as saying
that “aardwolf” was chosen because “it was the first image file in the NeXT dictionary
on all of our NeXTStations[c].” NeXT’s approach to software development
and the user interface was so far ahead of its time that the best comparison would have
to be the equally revolutionary Amiga line of computers. In an interesting contrast, while the Amiga
line of computers had poor marketing and great specifications with strong practical uses,
NeXT machines consistently had phenomenal marketing and great specifications paired
with crippling drawbacks. One wonders what could have happened if Steve
Jobs had been in charge of the Amiga team. In the end NeXT failed as a business, its
computers were only bought in small quantities and its giant automated factory, capable of
making thousands of machines a month, frequently was manufacturing fewer than 100. Although its status as a revolutionary system
with a strong cool factor was undisputed, few people bought the computers or used the
software. So what happened? Why can’t we go down to Best Buy and pick
up a brand new NeXT laptop or desktop, take it home and hop online or play the latest
games? Well, the answer is that you actually sort
of can as the NeXTStep operating system is still somewhat with us today, it just goes
by the name Mac OS X. In the late 1990s it eventually became the
basis for a complete ground up redo of the Macintosh operating system that became known
as OSX and even today, OSX applications like TextEdit, Mail, and Chess are all direct descendants
of NeXT applications. But the path that led to this outcome is pretty
wild, so let’s go back to the high point of Steve Jobs 1980s career, the launch of
the Macintosh and take a look at how we got from there to here. In January of 1984, Steve Jobs had led the
Macintosh team to an initially successful launch. The problem was that the Macintosh in its
original incarnation was a very limited computer, with a miniscule amount of memory, a high
price tag, and almost no applications. Even basic word processing was challenging
on its tiny 128k of RAM (even less once the RAM needed for the operating system was subtracted)
which only allowed for a handful of pages of writing before the computer ran out of
memory. Regarding its chances in the lucrative business
market, as Robert Cringely puts it in Accidental Empires, “Not even the enthusiasm of Steve
Jobs could make the world see a 128k Mac with a floppy disk drive, two applications, and
a dot matrix printer as a viable business computer system[d].” After an initial burst to early adopters,
sales fell to a crawl, coming in well below Jobs’ predictions. Far from gaining a massive new source of revenue,
Apple was still mostly relying on the aging Apple II, initially released in 1977, for
the bulk of its revenue. The Apple II’s direct successor, the Apple
III, had failed in the market in 1980 and the drain of talent and burnout that the Macintosh
project and its unsuccessful older sister the Lisa had caused had left the company with
no clear successor to its rapidly aging Apple II. By spring of 1985, Steve Jobs was no longer
viewed as Apple’s Wonder Boy and with sales continuing to lag, the Apple board of directors,
led by the man Jobs’ had hand picked from Pepsi, John Sculley, were at odds with Steve. In late spring of 1985, he lost a power struggle
and was stripped of all operational responsibilities and demoted to the essentially figurehead
position of chairman. Shortly thereafter, Jobs resigned from Apple,
saying in a letter “The company’s recent reorganization left me with no work to do
and no access even to regular management reports. I am but thirty and want still to contribute
and achieve” and left Apple, selling all but a single one of his shares of Apple stock
at 18 dollars a share and banking 100 million dollars. He then used seven million dollars of that
money to found NeXT. He also used five million of those dollars
to buy a tiny company called Pixar from George Lucas, but that's a story for another time. Taking with him some key members of the Macintosh
team, he announced that he was founding a new computer company, NeXT. This was to be no ordinary company, as Jobs
was determined to make NeXT the third standard in computing, joining the IBM PC and Apple. He had very personal reasons for founding
NeXT as well. One of NeXT’s publicists, Andrea Cunningham
wrote, “Part of Steve wanted to prove to others and to himself that Apple wasn’t
just luck[e].” Jobs felt betrayed by what had happened at
Apple and his removal from the levers of power and was determined to ensure that NeXT was
run exactly as he felt it should be, with him in complete control and answerable to
nobody. His attitude can perhaps best be exemplified
by an interview he gave Business Week in October of 1985 where he was quoted as saying, “I’m
not going to make the same mistakes twice[f].” NeXT was to be Jobs personal company, with
his hand controlling and guiding every decision, from the design of the computers and operating
system, to the design and flow of the assembly line that would build the computers. Because Jobs had no intention of starting
his new company inside a garage like Apple had been, NeXT was initially started out of
his mansion, before moving to expensive office space in Palo Alto. Jobs’ initial vision for the machine came
from a specification floating around the academic community for a machine called a “3M”
computer, or a machine with a megapixel display, a megabyte of memory, and capable of performing
a million instructions per second. These theoretical machines would occupy a
place somewhere between the refrigerator sized minicomputers that were very prevalent in
higher education laboratories, and the relatively low end PCs that were sprouting up everywhere
else. But designing a computer based on a theoretical
set of specifications is one thing, making it attractive in price enough to be purchased
upon release is an entirely different thing. Additionally, the mythical 3M machine was
not necessarily the type of machine that would find wide usage outside of a few specialized
ones, as many students and teachers were already using contemporary PCs and Macintoshes that
were attractively priced for a student’s budget, a sweet spot that had been determined
to be somewhere around a thousand dollars. Job’s originally stated goal of a final
price of 3000 dollars was pushing things quite a bit as it was, if he couldn’t keep it
somewhere around that price for at least a base configuration, NeXT was going to be in
a very difficult spot. In spite of the enormous pressure to produce
a computer and operating system that could be sold at a reasonable price, you would never
know it from how NeXT was run. Unlike a typical startup, Jobs acted as if
NeXT was already a well established and financially successful company, spending lavishly on amenities
and perks. He even hired legendary designer Paul Rand,
the creator of the IBM, UPS, and ABC logos to do NeXT’s own logo. Rand accepted on three conditions: he would
only turn in one design, he would do no revisions, and he would be paid 100,000 dollars up front. These conditions were cheerfully accepted
by Jobs, and he was so happy with the sleek logo that Rand turned in that he actually
hugged the designer. Rand also created a pamphlet on what the logo
meant and why he had designed it in the way he had. According to Rand, the lowercase “e” could
mean “education, excellence, expertise, exceptional, excitement, e= mc2.” Jobs was also determined to make NeXT the
kind of mecca that would attract the best and brightest, the top talent who would be
eager to work for a company that valued them and gave perks that were lavish even by Silicon
Valley standards of the time. Some of the benefits are enumerated in Randall
Stross’s interesting book called Steve Jobs and the NeXT Big Thing. He writes, “NeXT employees were...provided
health club memberships, counseling services, emergency personal loans up to $5,000...housing
assistance in the form of a low-interest loan, up to fifty percent of the employee’s annual
salary[g].” Initially, all employee compensation was very
open and flat. NeXT started out with only two salary tiers,
senior staff made 75,000 a year and every other employee made 50,000 a year. This quickly went away however, in favor of
a far more typical, and wider, distribution of salaries and stock options. However, all salary and stock grants information
remained publically available to any NeXT employee who wished to publically look at
it in the human resources office. But to get these perks required passing a
brutally difficult interview process, similar to the one the Xerox PARC and Jobs’ Apple
team prior had been famous for. Candidates were peppered with unpredictable
questions across multiple interviews, culminating with a final interview with Jobs that could
break a candidate who had thus far come through the gauntlet without issue. In Jobs’ eyes, only the best people would
be able to pass this rigorous screening process. As the team came together, Jobs was also working
on putting together the type of organization that could handle the massive goals and growth
that he anticipated coming to NeXT in the future. As Stross puts it, “Nothing less than a
billion-dollar company would suffice. Jobs...did not pause for intermediate goals;
he immediately set about building an organization suitable for the billion-dollar company[h].” So with a new trendy logo, lavish facilities,
a highly motivated and well paid team, and having survived a lawsuit filed by Apple against
NeXT Steve Jobs was ready to start fulfilling his ambitious goals for his new company. And what were these ambitions? It took a couple years before NeXT finally
articulated a mission statement, but this was merely putting onto paper the philosophy
and goals that Jobs had been pursuing since the start. In a four points of trendy lowercase lettering,
NeXT declared that its mission was: * to build computers that change the world
and that our friends can afford to buy * to build a great company, so exciting and
fulfilling that we can’t wait to come to work in the morning
* to treat our customers so well that they will love our products and our company
* to lead the industry with vision and innovation[i] Work finally began in 1985, similar to the
way the Macintosh had been designed, NeXT was going to produce both the hardware and
the operating system for its computers. The first NeXT computer would simply be called
the NeXT Computer, and it would run NeXT’s custom operating system, NeXTSTEP OS. In the words of former NeXT executive George
Cummings, Steve Jobs wanted to build a system that through hardware and software delivered
“...total interconnectivity via networking, with the power and performance to drive it
all. Provide a new multi-tasking operating system,
but make it user-friendly enough so that everyone could use it effectively. Make the user interface world-class, with
details never before provided - even if that meant grey-scale only to start. Provide a multi-media email system bundled
along with the first digital library. Why not introduce a radical storage medium
that extended the user’s reach from 1.44 MB on a single floppy to 256 MB on one device? Add a special purpose computer chip to process
sound and music, as well as another special chip to support advanced mathematical routines. Provide a system that could easily solve problems
the user didn’t even know they had[j]!” All of this would be achieved using the peak
of 1980s technology, delivering an experience that would firmly cement NeXT as the first
and greatest entry into what Jobs called the fourth wave of computing. Very much a bold and ambitious vision, but
one that Jobs was confident was achievable. The problem was that Jobs’ drive for a perfect
realization of his vision resulted in endless delays. NeXT’s first computer, the retroactively
named NeXT Cube, finally hit the market in 1989, four years after the company’s formation
and two years after Job’s original planned release date of summer of 1987. There was some precedent for a delay this
long from Jobs’ own recent past as the Macintosh had also taken longer to develop than Jobs
originally expected, losing him a 5000 dollar bet he had made with the head of the rival
Apple Lisa project, John Couch. As Apple Confidential 2.0 puts it, “Like
the Macintosh before it, the NeXT Computer took longer than expected to develop, was
more expensive than originally hoped for, used a nonstandard disk drive, and did not
have a color display[k].” And in spite of formally being released in
1989, NeXT only moved about a thousand systems in total that year, almost entirely to academia. An interesting exercise in Jobs’ refusal
to accept any compromises to his vision, the NeXT Cube was a slick looking one foot by
one foot magnesium cube, packed full of interesting technology that made for excellent press notes
and a nice lengthy feature list. Unfortunately it came with a price tag to
match. At launch, the NeXT Cube was built around
a 25 megahertz Motorola 68030 processor, a 68882 math coprocessor, also made by Motorola. It could be configured with 8 to 64 megabytes
of RAM and could be outfitted with a 40, 330, or 660 megabyte hard drive. It even had a powerful Motorola 56001 DSP
chip for music and sound processing, something no other personal computer had at the time. Instead of a floppy drive, it had magneto-optical
removable disks made by Canon, each of which held a whopping 256 megabytes of data, extremely
large when compared with the ubiquitous floppy disks that only held 1.44 megabytes. Each disk would be priced at 50 dollars, actually
well below Canon’s cost. Due to the relative expense of hard drives,
the 50 dollar price point of the cartridges meant that for many, they would be used in
place of an actual hard drive. It also had a one megapixel grayscale 17”
monitor with a resolution of 1120 by 832 pixels. But there were enormous drawbacks to some
of the decisions that had been made by Jobs in his quest to design the perfect computer,
five years ahead of anybody else. First of all, only limited quantities of computers
were available in 1989, and they were targeted solely at universities. Due to Jobs decision to focus solely on academia,
NeXT had no retail presence at all. Secondly, the starting price for a base configuration
had more than doubled Jobs’ original goal of 3000 dollars, coming in at a whopping 6500
dollars. And that amount could easily go up quite a
bit if you wanted more RAM or a bigger hard drive. This was far more than what the average college
student was willing to pay for a machine with almost no software and a black and white display,
no matter how powerful the machine was and how crisp the display. Thirdly, these machines were only running
beta versions of NeXTSTEP OS as the final version of the operating system still had
yet to be completed, making it an even harder sell. End users typically do not react well to a
computer with almost no software, that is twice as expensive as other offerings, and
that comes with a buggy, incomplete operating system. After limping through 1989 and into 1990,
NeXT finally started pushing their systems into retail distribution, the fruit of a 1989
deal struck with a former Compaq reseller, Businessland. Businessland seemed an excellent choice as
a retail partner, having recently passed the billion dollar sales mark in 1988. They were certainly large enough to market
NeXT systems to a far wider audience than the limited range of academia that had previously
been NeXT’s focus for all of 1989. Businessland’s CEO, David Norman, was so
taken in by the picture that Jobs painted of the vast amount of NeXT computers that
would fly off Businessland’s shelves to eager customers that at the March 1989 press
conference where the partnership was announced, he stated “NeXT revenues will be as much
over the next twelve months as Compaq was over the last twelve months[l]”, which would
equate to over 150 million dollars of NeXT systems. 1990 also marked the release of the second
generation of NeXT computers. First was a revised NeXT first generation
system, now officially called the NeXTCube, and a new system called the NeXTSTATION which
replaced the cube form factor of the original computer with more of a pizza box look and
had a 25 mhz Motorola 68040 processor. Hard drive options ranged from 105 megabytes
all the way up to 4 gigabytes. Additionally, the magneto-optical drive had
finally been replaced by a 2.88 mb floppy drive, double the size of normal floppy drives
of the day. The new operating system, NeXTSTEP, was designed
“to make life as easy for software developers as the Macintosh had for computer users[m].” Unfortunately it was way behind schedule with
its first full release not occurring until September 18th, 1989. And even that release was still full of bugs,
as recently as April of 1989 one of the few outside programmers working on developing
applications for the nascent OS had stated “today, it crashes once every thirty minutes;
two weeks ago, it crashed every thirty seconds; that’s a logarithmic pace of improvement[n]”,
which is putting a brave face on a very real problem. If software developers cannot develop applications
on final software, then their releases will tend to be buggy themselves. Without programs, computers are nothing more
than paperweights and doorstops, and NeXT was about to run headfirst into this problem
in a big way as they started attempting to move systems through Businessland. The main problem NeXT quickly ran into was
the typical chicken-and-egg problem that new computer systems face, the need to get a large
enough installed base of users so that software developers would be interested in writing
programs for their system, which would in turn spur the purchase of more NeXT systems. And the biggest detriment to that happening
was the incredibly high price of a NeXT system, which actually started at multiple times what
the Macintosh had cost upon release. In the words of one author: “NeXSTEP ran
on the NeXT computer, Steve Job’s incredibly cool black-cube desktop PC that cost 10,000.00
per unit. At that price, no one actually intended to
buy a NeXT box, but everyone hoped someone would buy one for them so they could put it
on their desk and look as cool as Steve Jobs[o].” It also didn’t help that Microsoft would
have no part of developing software for NeXT, with Bill Gates being quoted in Infoworld
in 1988 as saying “Develop for it? I’ll piss on it.” and somewhat more professionally
stating in 1989 that Microsoft was “in the business of writing for machines that sell
in the millions, so this is not for us[p].” To be successful, NeXT needed to find some
sort of niche where its unique abilities could be used to differentiate itself. The Macintosh had found a strong market in
the desktop publishing arena with Quark and Illustrator, the Amiga was quickly making
a name for itself in low cost video and graphics production with the Video Toaster and Deluxe
Paint, even the Atari ST had found a profitable niche with music production, and Windows 3.1
was taking the PC market by storm by being an affordable way of getting a graphical user
interface that worked well enough to get people away from the DOS prompt. Where could NeXT find a niche? The black and white screen paired with the
high price tag meant that graphics, gaming, video production, and desktop publishing were
pretty much out given the more affordable existing alternatives. Trying to find an answer to that question
would occupy NeXT for the remainder of its existence. Challenges were present from the start as
in spite of everything that Steve Jobs and his talented team could do, the challenges
faced in not only designing hardware to meet Jobs’ ambitious goals for the hardware and
software, but also meeting his other requirements such as arranging the NeXT factory to produce
computers in the most aesthetically pleasing fashion stretched development out enormously. NeXT not only took a total of three years
to bring to market its first generation computer but also went a whopping seven years without
turning a profit. NeXT was unfocused and frequently contradictory
as a company, as Jobs first took it one way, then another. In light of this, it comes as no surprise
that according to NeXT veteran executive George Cummings, “Until July 1991, although we
did have budgets and standard business management metrics, NeXT didn’t even have a real operating
plan[q].” An operating plan is critical to aligning
a company and giving it direction. The definition that Cummings provides in his
excellent book on NeXT cannot be improved on, “An operating plan is the business bible
that insures all parts of the company are pointed to achieving a goal or series of objectives[r].” Lacking an operating plan all but guaranteed
that NeXT would lack focus. NeXT continued pushing its hardware and software
as the 90s progressed, the new hardware systems introduced in 1990 were upgraded in 1992 to
what were called “Turbo” variants, with a processor increased to a 33 megahertz 68040
and possible RAM expansions up to 128 megabytes, which was an enormous amount of RAM in the
early 1990s. NeXT’s engineers’ use of the 68040 in
the Turbo variants also came a year before Apple was able to incorporate these new fast
chips into competing systems. With prices also being dropped, the price
to power ratio of NeXT systems was looking better than ever. By 1992 NeXTStep OS was finally a fully functioning
and stable operating system that fulfilled all of the promises Jobs had made about it. Its object oriented nature made it easy to
develop software for, it boasted rock solid Unix stability while still being incredibly
easy to use and it still boasted features well in excess of either the Macintosh or
Windows operating systems. NeXT themselves made full use of their system’s
advanced features, with the entire company having its own internal network in place by
1991, with all NeXT systems linked together no matter where they were in the world. Any file on any NeXT computer, unless it was
protected for security reasons, could be accessed from any other computer anywhere in the world. This was heady stuff in the pre-World Wide
Web days. George Cummings states that most internal
emails no longer even needed to have attachments as all that was needed was to send a link
with the email that pointed to whichever computer the file was located on[s]. However NeXT had still been unable to find
a niche where its unique features fit well. The closest thing it had was the fact that
software development was so easy on it thanks to its advanced operating system and object
oriented design, some game companies used it for game development, such as ID as was
previously mentioned. But that was a very small market as most companies
saw no need to spend extra money for expensive NeXT systems when existing Windows and DOS
systems were so much cheaper and were the target platform for almost all computer games
anyhow. But by 1993, Jobs finally had to face up to
the facts. In spite of the excellent software and high
performance hardware, NeXT was losing money hand over fist, and was not sustainable in
its current form. With the hardware business such an expensive
albatross around NeXT’s neck and endless quarters with no profit, the company was sinking
fast. Investors such as Ross Perot had already bailed
out and remaining major investor Canon, who had purchased a 16.67 percent share of NeXT
in 1989 for a whopping 100 million dollars, was refusing to throw more good money after
bad. But Jobs wasn't willing to throw in the towel
just yet, and in 1993 he made drastic changes to NeXT’s business model, in a final attempt
to find a path to profit and a stable business. We will take a look at the outcome of these
changes, as well as what eventually happened with NeXT and Apple in the second part of
this series. Thanks for watching! If you enjoyed this video please hit the like
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