Steve Jobs: Can He Do It Again

His New Computer Has Plenty of Exciting Features, but It's Pricey, and Competitors May Be Close behind by Next Year

By Katherine M. Hafner and Richard Brandt in Palo Alto
Business Week

October 24, 1988

Anyone who doubts the tenacity of Steven P. Jobs gets an earful from his head cheerleader and principal investor, billionaire H. Ross Perot. Perot tells of a San Francisco party last year where he ran into the King of Spain. When the King asked whom else he should meet there, Perot suggested Jobs. Soon, the King engaged the entrepreneur in what Perot recalls as an ''electric conversation,'' with Jobs gesturing madly in front of the transfixed monarch. Then the King took out his card, scribbled on the back, and handed it to Jobs. Perot hurried across the room. ''What happened?'' Replied a beaming Jobs: ''I sold him a computer.''

Steve Jobs is back. Three years ago, at age 30, he seemed to be washed up. One of America's most visible entrepreneurs, and one of the most egocentric, he had been stripped of authority at Apple Computer Inc., the company he co-founded, in a power play that left his erstwhile friend John Sculley in charge. Jobs was hurt, humiliated, and disillusioned.

'THE RIGHT IMAGE.' But he was also young, angry, and determined to start over -- and he had the means to do so. He had $90 million in Apple stock. He also had a proven, uncanny ability to mesmerize employees, to inspire and cajole them into achieving more than they thought they could. And he had a vision for a machine even glitzier and easier to use than his beloved Macintosh, his last project at Apple. ''Part of Steve wanted to prove to others and to himself that Apple wasn't just luck,'' says Andrea Cunningham, a former publicist for Jobs's new company, Next Inc. ''He wanted to prove that Sculley should never have let him go.'' As Jobs saw it, the Next computer, designed for universities, was to earn him the title he coveted most: No. 1 innovator in the most innovative of all U. S. industries.

On Oct. 12, some 18 months past the original target date, the moment arrived. The $6,500 machine that captivated King Juan Carlos was unveiled in San Francisco's Symphony Hall before 3,000 educators, software developers, reporters -- and Perot. ''We've built the best computer in the world,'' Jobs had said a few days earlier. ''Every computer will be different from now on.'' Gushes Perot: ''They spent an inordinate amount of time striving for perfection. He's done it again.''

Yes -- and no. Like the Macintosh in its time, the Next Computer System is crammed with innovations. It's faster than machines costing three times as much. With a crisp 17-inch, black-and-white screen, the machine can do extremely fine detail work, such as molecular modeling. It's also unusually versatile. A special chip lets it recreate sounds, even an entire orchestra, or handle voice mail, recorded messages that can be digitized and sent from computer to computer. ''If you think about the number of people who want to do that, the machine has enormous potential,'' says John E. Warnock, president of Adobe Systems Inc. in Mountain View, Calif., which supplies Next with key graphics software.

Beyond this, the computer introduces what analyst Michele S. Preston of Salomon Brothers Inc. calls a ''mind-boggling'' advance in data storage. In place of magnetic disk drives, it's the first PC to use higher-capacity erasable optical disk drives, cousins of CD music players. It's too soon to say whether optical disks will ever replace conventional floppies. But Next's feature ''kick-starts the rewritable optical disk drive business,'' says Edward S. Rothchild, chairman of Rothchild Consultants in San Francisco. Moreover, the machine's distinctive exterior, an anthracite-colored, 1-foot cube in place of the squat, rectangular boxes that house the guts of most PCs, makes it ''the kind of machine the CEO wants to have,'' says Ronald F. E. Weissman, who buys computers for the University of Maryland. ''It conveys the right image.''

The Next machine also has the potential to roil the personal computer software market. The computer's primary software, its operating system, is a variation of Unix, the operating system most popular with universities and now catching on with big corporations. International Business Machines Corp. already has paid at least $10 million to license Next's ''graphics interface,'' similar to the software that makes the Macintosh so easy to use, along with so-called software tools that make it easy to write applications programs to go with Unix. IBM will sell the interface and the software tools with its own version of Unix for its RT workstations and its PS/2 personal computers, which haven't met analysts' sales expectations. If the Unix-PS/2 combination takes off, that could make Unix a viable competitor on microcomputers to OS/2, the operating system that IBM currently uses from Microsoft Corp., the No. 1 producer of personal computer software.

And yet, the Next machine may be as far from a sure bet as anything Steve Jobs has ever produced. When he and Stephen Wozniak started Apple in 1976, the company took an early lead in a virgin personal computer market. For years afterward, its machines were by far the easiest for novices to use. This time the pack is close behind.

Next won't begin volume shipments of its machine until mid-1989. Even then, it won't have a color monitor, a requirement for many university and engineering applications. And many of its features are about to come to market. Maxtor Corp. and Sony Corp. already have announced erasable optical disk drives. Canon Inc., which makes the Next drive, has had the product ready since last January. Consultant Rothchild claims that Canon is ''frustrated as hell'' that the Next computer is so late, delaying the announcement of other Canon deals at Next's request.

NARROW OPTIONS. Meanwhile, Motorola Inc. says that several computer makers are planning to use its signal processing chip, which produces the Next machine's sound, in computers that could be out in 1989. Had Next's machine arrived a year ago, its technical advances would have stunned competitors. Now, ''there's less of a window,'' says George R. Bateman, who buys computers for the University of Chicago and is a member of Next's advisory board, a group of 24 unpaid experts who advised Jobs on the machine.

Beyond that, the higher-education market is tough to crack (Page 80). It's already dominated by competitors such as Apple, IBM, Sun Microsystems, and Digital Equipment, all of which offer deep discounts. And while the $6,500 price tag is impressive for what the machine can do, it's beyond the reach of most students. ''For students, resistance increases dramatically at $3,500,'' says Kenneth M. King, president of Educom, a Princeton (N. J.) university consortium.

STAR STATUS. That narrows Next's options. Carnegie-Mellon University in Pittsburgh has said it might install the machines in dorm rooms and raise dorm rates. Dan'l Lewin, Next's marketing vice-president, talks of capturing the faculty market. But that's 600,000 customers vs. tens of millions in corporations, a $2 billion market vs. the $15 billion that companies will spend on PCs in 1988, according to market researcher Dataquest Inc. Jobs's likely strategy is to win a base in the education market before branching out. He still insists universities are his focus. But he adds: ''If you make a great product for higher education, you've probably made an incredible product for the business market.''

Of course, Jobs has a powerful weapon with which to wage these uphill battles: his aura and the notice it attracts. Unsolicited, Perot bought 16% of Next for $20 million after seeing Jobs's infectious enthusiasm on a TV documentary about entrepreneurs. ''I'd be glad to dramatically increase it, too,'' Perot says.

Even the tiniest eccentricity adds to Jobs's allure. Unusual behavior, considered merely odd at other companies, became part of the Jobs legend at Next. There was his secrecy: When an outside programmer who labored best in the wee hours did some work at Next, Jobs hired a guard to watch him. And hubris: Jobs wouldn't tell prospective hires what they'd be doing. But if one balked, the chairman employed what one thrice-wooed programmer calls ''emotional fascism,'' berating the person for even hesitating to join up.

Such tales have made Jobs a perpetual media event. One reporter for a major business newspaper postponed his child's tonsillectomy until after the Next machine's introduction. As Lewin tells it, when he called The New York Times to buy an ad for Oct. 12, the salesman asked: ''Why bother?'' Observes William H. Gates III, chairman of Microsoft: ''Only Steve could get this kind of coverage for an educational black-and-white machine.''

From the Next offices near the Stanford University campus in Palo Alto, Calif., Jobs has capitalized on his star status to orchestrate a minor classic in media manipulation. He offered previews of his machine to a few publications, including BUSINESS WEEK. Only much later did he demand a written promise to keep the information confidential until Oct. 12 -- instead of a more customary verbal agreement. Jobs, who tends more to Italian suits than blue jeans these days, spoke at length about his creation, in witty and well-crafted discussions -- that seemed almost rehearsed. Next carefully parceled out interviews with its staff and suppliers, monitoring them with a censor's eye. That strategy worked, but at a price: Such maneuvering -- self-serving and relentless -- displayed the side of Steve Jobs that so hurt him at Apple.

The trait that most stands out is Jobs's need to control events. He'll bully suppliers, for instance. Next denies it, but insiders say Jobs even decreed that some designers of the Next computer, from Frogdesign in Campbell, Calif., shouldn't be invited to the Oct. 12 gala since they are now designing a machine for competitor Sun Microsystems Inc. Suppliers put up with such domineering tactics: Jobs doesn't need to remind them that if Next ever reaches its goal of $1 billion in sales, they could get a big chunk of business.

MORE TOLERANT. In the past, Jobs's idiosyncrasies have caused mostly internal damage. At Apple he was a messiah whose brilliance and idealistic goal of ''providing computer tools that qualitatively change the way we work and think'' drew other brilliant people to him. Yet his management style tended toward throwing tantrums and humiliating employees. And his habit of making decisions, then suddenly changing his mind, has been cited to explain, in part, the company's disarray by the time he left.

But at Next, Jobs is showing signs of having learned from his mistakes. By most accounts, he's more trusting of his 150 employees and more tolerant of opposing views. ''You can challenge him, but you have to be right,'' says Hartmut Esslinger, president of Frogdesign.

In a break from Apple, where Jobs was the self-appointed expert on customer needs, at Next he listens more. To see what the market wanted, Jobs and his team visited key universities in late 1985. From those travels, he assembled his advisory board, which is dominated by academics. Today, Jobs boasts that his company is better attuned than any other to the needs of educators. Some schools apparently agree. Carnegie-Mellon and Stanford have invested $660,000 each for 1% of the company. Jobs holds 63%. Initially, mindful of the higher profit margins on printers, Jobs wanted to sell the computer in a package with Next's high-resolution laser printer -- for an extra $2,000. But his advisory board, worried about the marketing problem this presented, prevailed on him to sell the two separately. The board also persuaded him to include not four but eight megabytes of internal memory with each computer. That added nearly $1,000 to the price of the machine. But the board argued that schools would pay for extra memory, which is needed to run extremely powerful programs.

'PRIMA DONNAS.' At Next, in fact, Jobs has been taking advice from the start. It was at a lunch with Stanford biochemist Paul Berg in 1985 that he got the impetus to leave Apple. Despondent over his chairman-without-portfolio status, Jobs had spent the summer casting about for something to do. Berg, a leader in recombinant DNA research, ignited Jobs's imagination with the idea of a low-cost computer that could simulate expensive lab experiments. In September, 1985, Jobs shocked Apple by leaving and taking along five of the Macintosh team's brightest talents, including Lewin, software whiz Bud Tribble, and hardware expert Rich Page.

Next was no bootstrap startup. Jobs funded it with $7 million of his own money and gave each of his fellow expatriates, who took pay cuts to follow him, 2% of Next's stock. One of the first 10 people the aesthetically minded Jobs hired was an interior designer for his new offices. European cars, cellular telephones, and a designer kitchen stocked with exotic juices all are part of the Next shtick. Unhappy with locally made pizza, Jobs even considered buying his own pizza oven. He also paid $100,000 to graphic artist Paul Rand, who created the IBM logo, to do Next's. Startups by definition are confident, but Next's best-and-brightest mentality exceeds the norm. Working at Next, says William Y. Arms, vice-president for academic services at Carnegie-Mellon and a Next enthusiast, ''would be like working at the Metropolitan Opera. They're all prima donnas.''

'YOU WIMP.' At the outset, Jobs decided that his machine would be a distinctive cube. In vain, he tried various designers. Finally he turned to Frogdesign's Esslinger, the West German designer of the Apple IIc who was still working for Apple when Jobs formed Next. Esslinger agreed to help on one condition: He wanted free rein. ''Sometimes you have to use a big stick with Steve,'' he says. On paper, the design, sketched in a weekend, struck Jobs as ''pretty radical.'' But Esslinger stood his ground, and Jobs warmed up to it.

Jobs turned to an early Apple consultant, mechanical engineer David M. Kelley, to implement Esslinger's design. At first, Kelley worried that Jobs's demands -- for instance, a tilt mechanism for the monitor -- would be too difficult to pull off. ''You want to be the voice of reason,'' says Kelley. ''But when I would say: 'Steve, that's going to be too expensive,' or, 'It can't be done,' his response was: 'You wimp.' He makes you feel like a small thinker.'' So Kelley and a team of six engineers worked around the clock to turn Esslinger's design into a mechanical reality.

Jobs's nagging perfectionism extended to every detail. He insisted on a finish inside the cube's magnesium shell -- even though it would never be seen. He disliked a tiny line left in the chassis by the molds for the cube, a flaw most computer makers deem unavoidable. Jobs flew to Chicago to persuade the die caster to retool. ''Not a lot of die casters expect a celebrity to fly in,'' says Kelley.

Software was also decided on early. After the Macintosh, which is easy to use but difficult to program, Jobs logically planned to make his machine both easy to use and to program. The idea was to sell it with advanced software tools, based on so-called object-oriented programming principles. Essentially software components, these tools simplify ''a lot of things,'' (page 78) says Edward J. Belove, vice-president for research and development at Lotus Development Corp. Jobs thinks that as a result, independent developers will quickly produce commercial software for the computer -- a must if it is to succeed. One that won't is Microsoft. ''It's just not a competitive machine,'' says Chairman Gates. Indeed, the Next computer can't run IBM or Apple software. Gates says that he would rather invest in products clearly destined for the corporate market. He'd also rather not help Next push IBM, which is Microsoft's best customer, toward Unix.

But a few early converts have already rewritten their software to run on the Next computer. Frame Technology Corp., in Mountain View, nearly has its page layout program ready for Next. A database program from Sybase Inc., of Berkeley, Calif., is included with the computer, as are a word processing program and a math program called Mathematica. Written by Stephen Wolfram, a 29-year-old math professor at the University of Illinois, Mathematica can calculate algebraic formulas such as calculus equations. Also ''bundled'' with the machine are Webster's Ninth New Collegiate Dictionary, the Oxford Dictionary of Quotations, and the Oxford Complete Works of Shakespeare, the latter two licensed from Oxford University Press.

In retrospect, late 1986 was the crucial time in Next's development. Nine months earlier, in December, 1985, it had held its first companywide retreat of the kind Jobs started at Apple. With characteristic bravado, Jobs had told his small, jeans-clad crew that a computer for higher education could not cost more than $3,000. He also said the machine should be introduced in the spring of 1987. ''I don't think we have a company if we don't meet this deadline,'' he added. ''That's my deepest belief.''

By Next's third retreat, in September, 1986, the timetable was gone, and some major decisions were yet to be made. They were made, in 2 1/2 days of debate at a resort in Sonoma, north of San Francisco. One was the choice of erasable optical disk drives, a largely unproven technology. Jobs had stumbled on the process while visiting Canon in mid-1986 to discuss the design of his printer. He sought a deal, certain that optical drives were the technology of the future. Without them, Next wouldn't be a pacesetter. The Next staffers voted to use Canon's drive -- without a contingency plan. ''We bet our company that we could pull this off,'' Jobs says. The disk drive's $50 removable cartridge can hold 256 megabytes of information, or about 290 copies of Moby Dick, on each side. That's up to 10 times more than most PC internal hard drives now hold.

Although Next designed many key elements of its machine, most are made by outside manufacturers. The exception is Next's main circuit board, which was considered too crucial to farm out. Jobs had decided to put all his electronics on one large, square board instead of the half-dozen that most personal computers use. The unique arrangement of chips on a single board made the machine faster -- and made manufacturing it easier.

On visits to Japan, Jobs had been enthralled by automated plants employing only a few workers, and he felt that the U. S. needed these to compete. So at Fremont, Calif., near the plant he built for the Macintosh in 1983, he set up one of the most automated computer factories in the world. In most computer plants, workers or machines slip wire leads through holes in a circuit board and solder them in place. Next uses surface-mount technology, essentially gluing the chips to a circuit board. And it has added a robotic vision system controlled by custom software. As a result, its circuit boards are assembled free of human hands. If the $2 million system works as well as Next expects, the company could reach extremely high production levels with very few workers. This would let it cut prices to be more competitive.

LONG WAIT. By the end of 1986, two problems still loomed. One, an impending shortage of funds, was solved quickly by Perot. His cash infusion let Jobs continue spending generously without tapping the venture capital market. Perot now sits on Next's three-member board, along with John P. Crecine, president of the Georgia Institute of Technology and a friend of Jobs.

The other problem was more serious. Jobs's circuit board depended for its speed on two large custom chips made for Next by Fujitsu Ltd. The chips were key in controlling such functions as the optical disk drive. For nearly a year, however, Next's hardware team had trouble perfecting them: Few PC makers have tried to cram so many electronic circuits on one chip. At one juncture last year, Perot staged a one-man pep rally for the engineers. ''I said: 'Look, you guys, I've been where you are a thousand times. There's no question you'll solve the problem. Just don't spend a minute doing anything else.' ''

Once the chip's design was ready, Fujitsu took longer than hoped to perfect its fabrication. Finally, in August, the chip performed flawlessly. Jobs polled his eight senior staff members on when their pieces of the computer would be finished, and the answer was October.

Now the hard work starts all over again. Jobs must persuade thousands of software developers to write programs to his specifications -- to make Next a third software standard for personal computers alongside Apple and IBM. The company's direct marketing plans are still sketchy. And its basic software package, based on the Mach operating system, a sophisticated version of Unix created at Carnegie-Mellon, won't be polished until mid-1989.

Indeed, nine months is a long wait for a product that already has lost some of its quick-start advantage. The graphics-interface deal with IBM dramatizes the tight spot Next is in. Just eight months before Jobs left, Apple commissioned a controversial TV commercial that likened IBM customers to lemmings filing off a cliff. Now, Jobs needs the No. 1 computer maker. ''The IBM deal legitimizes everything Next is doing,'' declares consultant Jonathan W. Seybold. It also may ensure that IBM will one day compete with Next.

'MERCURIAL.' The most intriguing question is how Jobs will fare this time as a chief executive. The party line at Next is that decisions are made by consensus. That's unlikely. A common joke at the company, says David C. Paulsen, a former Next engineer and one of a dozen or so employees who have left, was that ''everyone would put in their one vote. Then Steve would put in his 70 votes.''

And the tantrums? ''Every year he's mellowed and matured,'' says Susan Kelly Barnes, Next's chief financial officer. Jobs agrees: To demonstrate his computer's extensive built-in dictionary, he chooses the word mercurial, ''because everyone's always calling me mercurial.'' Jobs frowns as he reads the definition: ''Characterized by rapid and unpredictable changes in mood.'' He sits back. ''I don't really know that that's so. ''Yet, Paulsen recalls his decision to quit after 10 months of 90-hour weeks. ''Steve walked in one Friday afternoon and told us how unimpressed he was with what we were doing.'' Jobs doesn't think this sort of approach is too harsh. ''Part of my responsibility is to be a yardstick of quality. Some people aren't used to an environment where excellence is expected.''

Perhaps the only safe prediction is that Jobs won't be caught off guard a second time. He plans to keep control of Next. ''He doesn't ever want to be in a position where he can be removed again,'' says Heidi Roizen, a friend and president of software maker T/Maker Co. in Mountain View, Calif. ''He wants to be in a position to choose who's running the company. That doesn't mean he has to run it.'' But Jobs will no doubt stay in charge and add another chapter or two to his well-cultivated legend. Will Next finally be the proof that the entrepreneur can manage? He smiles a little smile: ''We'll see.''

Copyright 1988, by The McGraw-Hill Companies Inc. All rights reserved.