Apple Finally Invades The Office

By Brian O'Reilly
Fortune

November 9, 1987

TO HEAR SOME people talk, you'd think Apple Computer was about to sweep across the desktops of American business, sacking the IBM empire the way the Ostrogoths humbled Rome. Excited customers everywhere tell of the lone Apple Macintosh that showed up at the office, dazzled onlookers, and within weeks prompted the entire floor to lose interest in IBM personal computers and clamor for Macs.

That phenomenon -- a result of what the folks at Apple call the Trojan horse strategy -- constitutes the ten-year-old company's best shot at breaching the office market, where volume is huge and margins are fat. Apple is a long way from threatening IBM (see chart). But customers' enthusiasm has fueled an already burning evangelical spirit at Apple headquarters in Cupertino, California. The passion is palpable as Apple executives, who had to abandon a failed assault on the offices of the FORTUNE 500 a few years ago, lean forward in their chairs, jab fingers, clench fists, and talk a mile a minute about their plans and their visions of personal computing.

Why the excitement? The rules of the corporate computer business have changed since that last attack. Apple has changed too, with a new chairman and new machines. It got lucky, practically stumbling over a huge market for its products -- desktop publishing -- that is carrying Apple's gospel and computers to new corners of the IBM-dominated world. At the moment Apple also has a chance to take advantage of rare confusion among IBM customers, who may be uncertain whether to buy the new Personal System 2 line of IBM personal computers, which isn't entirely compatible with older models, or switch to something different.

John Sculley, Apple's gaunt, intense chairman, thinks it adds up to opportunities that have not existed for a long time. ''We've got two and a half years to show we can fit in'' the corporate environment, he says. It won't be a cakewalk. Sculley may have only 18 months before the new IBMs attract enough software to persuade PC users to settle back with Big Blue. So he must push hard now to emphasize how Macintoshes are different, especially in graphics, communications, and ease of use (see box). Mainframe and minicomputer makers such as IBM and Digital Equipment will always set the ground rules for corporatewide computer systems, and the Mac could not thrive in the office if it could not connect with them. But if Sculley can keep beating IBM and the clones at making computers powerful yet friendly, his machines could become a popular favorite for cruising down IBM's and Digital's electronic highways.

Wall Street likes Apple's chances

The whole $23-billion personal computer industry is growing fast, and Apple stock is doing better than most. Its recent price of $53 a share is seven times higher than in mid-1985. Because Apple's proprietary designs thwart low-priced knockoffs, the company's profit margins exceed 50%, among the highest in the industry. Much of Apple's revenue comes from schools, where more teachers use Apple II's than any other personal computer. But education is a price-sensitive market that is growing slowly, about 5% a year, and IBM, which failed to win much of the classroom market with its unpopular PCjr a few years ago, reentered the field early this year with its Model 25. Apple has practically forsaken the home computer market, which is swamped with cheap imports. Yet sales of computers and peripheral products to businesses doubled in 1987 and now account for about 45% of revenues and over half of profits. When earnings surged in the latest quarter, the Mac was mainly responsible.

The last time Apple assaulted the office market, in 1984, the Macintosh looked like the perfect weapon. The Mac screen offered help from cartoons, pointing devices, and commands on pull-down screens, making it vastly easier to comprehend than the nearly blank screen IBM presented. But the Mac, unlike the IBM, could not be opened up to accept additional memory chips or such other peripherals as bigger screens. Software developers found writing for the Macintosh difficult, so it lacked programs like Lotus Development's popular 1-2-3 spreadsheet, which increased demand for the IBM.

Result: The Macintosh flopped in the office, helping to spark a coup d'etat. In May 1985, Chief Executive Sculley, recruited from PepsiCo two years earlier, persuaded Apple's board to end co- founder Steve Jobs's stewardship of the Macintosh operations. By the time Jobs quit that September, Sculley had slashed costs, closed plants, and laid off a fifth of Apple's 6,100 employees. From Paris he pulled in a thickly accented Frenchman, Jean-Louis Gassee, head of Apple's successful French operations, to head development of new products. He elevated Delbert Yocam, the bewhiskered general manager of the smooth-running Apple II division, to chief operating officer. The three began a program to beef up the Mac, increasing its memory, encouraging hundreds of outside software developers to write new programs, and designing an expansion port that allowed peripheral hardware to be plugged into the Mac to perform such specialized tasks as networking and data communications.

Preparing for a second invasion of the FORTUNE 500 might have taken years, but Apple got one of those lucky breaks that can change a company's history. A Seattle company called Aldus developed software that uses the Mac and a superb Apple laser printer to produce brochures, memos, newsletters, and diagrams as elaborate and slick as professionally printed ones. Apple recognized the innovation as its Trojan horse.

Top computer managers at most big corporations have spent years working with IBM; their reaction to Macs ranges from cool to frosty. So Apple and Aldus began touting desktop publishing not to them but to individual departments. Marketing managers found brochures that once took weeks to prepare could be done in days. An Arco executive says some thick reports for regulatory agencies that once cost $62,000 each to prepare dropped to $13,000. Richard Young, an analyst with Dataquest, a research firm, figures desktop publishing helped sell 60,000 extra Macs in 1986. By 1991, Young estimates, desktop publishing will boost Mac sales by 568,000.

Once in place, the Macs and their uses proliferate. ''We'll come back a few months after we've made a sale,'' says Paul Brainerd, president of Aldus, ''and we'll find five or six Macs hooked up to share the same printer.'' Users find they do more things with Macs than with comparable IBMs. Because Apple has insisted that the basic commands and symbols for every software program stay the same, mastering spreadsheets after you've learned word processing is far easier than on IBMs. The average Mac user learns six or seven software applications, says Doug Cayne, a vice president of Gartner Group, a computer industry research firm in Stamford, Connecticut, while few using IBM PCs master more than two.

WITH A FOOT in the corporate door, Apple is shoving increasingly powerful Macs and products through. In early 1986 the Mac Plus, with an increased memory, came on the market. At the same time, Microsoft Corp. rolled out a powerful spreadsheet program for the Mac Plus called Excel, which Doug Cayne calls ''the best spreadsheet package ever developed for any PC.'' Mac sales increased, this year nudging past those of the original Apple II line for the first time.

Apple introduced more important products early this year. The $3,500 Mac SE can be opened up to accommodate microprocessor boards made by outside vendors, and the $7,000 Mac II, practically a small scientific work station, can manipulate as many as eight million bits of data and accepts six boards at a time. Mac sales worldwide shot up from 430,000 machines valued at $945 million in 1986 to 575,000 units worth $1.3 billion this fiscal year, according to the Gartner Group. Apple says two-thirds of Mac sales were to businesses.

Now that Sculley has grabbed the attention of some department chiefs, he wants to win acceptance for Macs from top corporate computer managers. ''It's time to go in through the front door,'' he says. ''We have 7% or 8% corporate market share now. I'd be disappointed if we didn't get 15% to 20% by the end of the Eighties or early 1990.''

Apple's pitch should appeal to corporate computer buyers. The Mac's power and range of software compare favorably with IBM's, says Doug Cayne. The old bugaboo of IBM compatibility is scarcely an issue anymore. Under Steve Jobs, Apple had a ''we're-too-good-to-touch-IBMs'' attitude and made no effort to fit into an IBM environment. That increasingly impractical hauteur has changed dramatically. A simple Apple network lets Macs share files with IBM PCs and communicate with mainframes while retaining the characteristic Macintosh screen. The newest Macs can accept microprocessor boards and data diskette readers that even let them run software written for IBMs, though that means giving up the famous ease of use. The Mac II can use IBM and Apple software at the same time, transferring data between ''windows'' on the screen. One glitch: Software writers have been late on promises to develop products that let Mac users call data directly from mainframes and minicomputers while using programs such as spreadsheets on their microcomputers.

A MAJOR stumbling block for Apple is its inability to spread the good news. The company sells directly to only 75 major corporate accounts; it makes about 80% of its sales to businesses through retail chains and plans to rely on them in the future. Apple works closely with some giant dealers, notably Businessland, but most of those that serve the home and small-business markets lack the sophistication to do a good job for giant companies. ''There's a lot of hostility toward Apple dealers,'' says John C. McCarthy, research director of Forrester Research, which polled 30 big Apple corporate accounts. ''The customers complain dealers don't have the latest models and can' t offer enough technical support.''

Apple has begun teaming up its own salesmen with those from retail stores, and Sculley is hiring blue-suited sales managers from the likes of IBM, DEC, and Data General to make more productive calls on corporations. He says: ''In the last eight months I've changed the lineup of Apple's executive staff so it's biased toward people successful in minicomputers and selling to corporate customers.''

Sculley is not wasting time on corporations that IBM has locked up. ''Our strategy is to put the most emphasis on companies that have bought Digital Equipment machines,'' says Sculley, reasoning that computer managers there have shown a willingness to experiment with new vendors. The plan, already beginning to work, is to attach Macs to Digital's VAX minicomputers, which store data to be manipulated on the Mac. ''It's a brilliant strategy'' says Stewart Alsop, editor of PC Letter. ''If you can combine the ease of use of the Mac with the sophistication of the DEC, it would work out well for both companies.''

In the long run, the biggest demand for the Mac is likely to come from middle-level managers. ''The kinds of things middle managers do, Macs support better,'' says Janice Riblet, a computer systems auditor at Atlantic Richfield who is working on a study of how individuals use computers at Arco. ''They need word processing, graphics for presentations, and spreadsheets for budgets. For people who have to think and plan and communicate, there's nothing on the mainframe to help you, and the Mac is a lot easier than the IBM.'' As higher-level managers who resisted the IBM master the Mac, they often order their underlings to switch. ''Once they hit the vice president,'' says Paul Lucero, formerly a systems analyst in Hughes Aircraft's data processing department, ''they go everywhere.''

Being no dummies, the folks at IBM have noticed the Mac's success. The PS/2 line, the second generation of personal computers that IBM introduced early this year, is made up of fast, impressive machines that remedy serious limitations on the data-crunching ability of the earlier PCs. IBM and Microsoft Corp. are developing new basic operating system software, which helps run such programs as spreadsheets and word processing, for the PS/2. Microsoft Chairman William Gates, whose company writes a lot of Mac software, says he's not working to exclude Apple from the new IBM software environment. ''We love Apple,'' says Gates. ''We sell a lot of software for Apples. We're working hard to create an environment where the Mac work station fits in as well as IBM PCs.''

Clearly, Gates wants to keep all his customers happy, but that may be tough. The first versions of the IBM operating system will mimic much of the Mac's graphics, according to several analysts who have had a preview of them. Will that make the new IBMs indistinguishable from the Mac? Not for a while, at least. Software designed for the old IBMs has to be rewritten to take full advantage of the new ones' capabilities, and that will take time. Microsoft is expected to come out with a second version of the new operating system in 1989 to run IBM's top-of- the-line PCs, making software firms uncertain which version to labor for. The PS/2 will not have much stuff to run until 1989.

Sculley says don't look for Coke vs. Pepsi marketing wars even then. ''We're on a vastly different mission than IBM. IBM sells PCs in order to create demand for its mainframes, and it focuses on controlling the large institution,'' he says. Apple, by contrast, wants users to feel that they, not the corporation, are in control of their desktops. Chief Operating Officer Del Yocam talks of delivering Apples so ''the individual can access the power of the mainframe.''

FOR ALL ITS concern about corporate computer managers, Apple's focus will have to remain on the individual user. ''What Apple is selling is functionality and things that the end user appreciates,'' says Jeffrey Ehrlich, a manager on General Electric's corporate information technology staff. ''When they talk to information system managers, they are trying to sell to someone who isn't the end user. Apple is more effective when it goes through the so-called backdoor because the end users can see what it can do, and they want it.''

Some of Apple's biggest corporate successes are among aerospace companies -- Hughes Aircraft, McDonnell Douglas, Boeing -- where thousands of Macs have been installed. Last year Macs made up 23% of personal computer purchases at Hughes, says Hughes's Lucero; now they make up 31%. Engineers who once used elaborate work stations to design parts have found they can use Macs to make rough drawings and flow diagrams, then combine them with text in memos and reports. The Mac II is replacing some minicomputers to run simulations of new designs. Says Lucero: ''It has changed the way we do business.''

If Apple can get enough customers clamoring for its products, the Mac will fulfill the Trojan horse's role: forcing the guardians of the corporate computer system to surrender. It can be done. When enough Macs came into Boeing, says a former manager there, ''the corporate computer standard bowed to the will of the people.'' Fomenting internal rebellion isn't an easy way to sell a company a lot of computers -- but against the likes of IBM, it may be the only way.

If Edgar Capen's enthusiasm is catching, the Macintosh should make it big in offices. Though he would not call himself this, he is Arco's resident curly-haired creative genius, one of the guys top executives of the energy giant call to help them think through important ideas. ''I've got the world's most interesting job,'' he says. ''I'm paid just to think, to go anywhere and do anything to make the company run better.'' He couldn't do it nearly as well, he insists, without his Mac.

Though Capen, who has a bachelor's degree in physics from the University of Texas, found the IBM PC good at generating rows and columns of numbers, he did not consider that helpful for his mission. By contrast, he says, ''The Mac is pictorial. It's communicative. If you're a pictorial thinker, it lets you turn ideas into pictures.''

Capen realized geologists and geophysicists, who study maps of underground formations to decide where to drill, were uncomfortable when their bosses made them predict the odds that their hunches were correct. ''These specialists don't like numbers,'' says Capen. ''They're intuitive. Touchy- feely.'' Alas, Arco's nuts-and-bolts managers need numerical estimates to determine whether a well makes economic sense. So Capen tinkered with Excel, a spreadsheet program for the Mac, to make a bar chart appear on the computer screen. Now the geologists and geophysicists can adjust the sizes of bars until they match their gut feeling about a site's likelihood of coming up dry. As the bars change size, so do numbers elsewhere on the screen. It is an interesting switch. Instead of using data to create a chart, he does the opposite.

A group of managers charged with cutting costs at an Alaskan oil field came to Capen, who put them through his Rip van Winkle exercise. The managers were told to close their eyes, then wake up and imagine it was five years later. They found a dummy newspaper Capen had whipped up on his Macintosh telling them they had won the Nobel Prize because they had shown how to cut costs so greatly that they had opened the Arctic to worldwide development. They had to explain how that happened -- and in doing so came up with several new cost-cutting ideas.

Reviewing Arco's exploration strategy, Capen analyzed the conventional wisdom that the average size of newly discovered fields is shrinking. He collected reams of production information and used the Macintosh to analyze it. What he saw astonished him: On average, new fields hadn't shrunk in years. He says, ''There isn't an oilman in a thousand who realized that.''

Capen cautions that he does not want to sound like a walking advertisement and cannot speak for the rest of Arco. But he concludes that ''without the Mac these things don't happen.'' For example, the information on new finds had been around for ages. ''It doesn't mean someone couldn't have fought his way through it using an IBM,'' he says. ''It would just be a whole lot tougher.''

ILLUSTRATION: portrait - graph - photograph - table CAPTION: John Sculley. - Sales of personal computers to U.S. business users. - Investor's snapshot: Apple Computer. - Edgar Capen.