Question for Apple: To Be or not to Be?

Apple turns a profit--but that may be bad news

By Randall E. Stross
U.S. News & World Report

October 28, 1996

Surprise, surprise. Apple Computer announced earnings of $25 million for its final quarter, its first profits in almost a year. That's too bad. The actual number of computers it sold was down 26 percent compared with the previous year, but by returning to profitability the company may be tempted to try to muddle through as its corporate customers continue to peel off guiltily and remaining die-hard fans wring their hands.

Gil Amelio, the 52-year-old physicist whom Apple recruited from National Semiconductor in February as Dr. Turnaround, and Ellen Hancock, his handpicked chief of R&D who spent nearly three decades at IBM, lead a team that has proved adept at reducing head count, outsourcing manufacturing and cutting costs. But at least so far, the Amelio regime seems as averse to making fundamental strategic changes as its Apple-born-and-bred predecessors. Apple no longer occupies the patch of ground that once permitted it to thrive even with a relatively small market share: the "making the coolest box for developing the coolest software" space.

Software developers hungry for top performance have many demands that ask far more of MacOS, the Macintosh's creaky operating system software, than it can deliver. The MacOS is presently System 7.5.5, the appropriately inelegant name for an inelegant tangle of code under the hood. Software developers are asking for, in geekspeak, a pre-emptive multitasking, multithreaded system (so it does not slow to a crawl when doing several things at once) with protected memory (to eliminate crashes), with an object-oriented application architecture (to ease reuse of chunks of software code), optimized for multiple processors (so a single PC has the power of many machines) and able to accommodate multiple streams of audio and video without delay (a true multimedia machine). The current Mac software, even if ingeniously extended to version 7.5.1000, cannot be so retrofitted without breaking.

The good news for Apple is that a new high-performance operating system is near completion for Macintosh hardware. The bad news is, it is not to be found under Apple's roof. It belongs to Be, a tiny company in Menlo Park, Calif., founded by Jean-Louis Gassée, an Apple alumnus who once directed Apple's R&D. Be has not only developed superfast multitasking software, it has also designed accompanying multiprocessor hardware, the BeBox, packed with every imaginable form of input and output jacks, including one of its own invention that it lovingly calls the GeekPort.

Being there

When the machine debuted at a recent industry show and ran five separate videos on the screen simultaneously, the crowd gave it a standing ovation. The dual-processor BeBox behaved like a Silicon Graphics workstation but is currently priced at only $3,000. Very cool. But don't look for the BeBox at your neighborhood CompUSA. It and the not-yet-complete Be operating system are presently available only to software developers, who Gassée is betting will come up with the as-yet-unknown killer application, like Lotus 1-2-3 at the beginning of the IBM PC's earliest era or desktop publishing at the Mac's, that will make Be's new software system a must-have item. French born, flamboyant and articulate, Gassée proclaims that breakthrough software will come "if you align yourself with the high-testosterone crowd."

Luckily for Apple, the BeBox is based on PowerPC chips, the same silicon guts that Apple codeveloped with IBM and Motorola and that are found in all Macintoshes today. The shared lineage has facilitated the rewriting of Be's software for a non-BeBox; in August, Be showed off a working demonstration of its software on a Mac clone made by Power Computing.

While little Be was toiling in secrecy, Apple was laboring, too, on a new version of its system software, code-named "Copland." Despite the expenditure of what observers guess at hundreds of millions of dollars, Copland is very late--and may not see the light of day until 1998. If it ever makes it out the door, Copland is likely to arrive far too late to matter. Apple needs its equivalent right now if it is to have a chance of having hot software and, hence, customers tomorrow. A possible solution: Cast humility aside, send the Copland developers home and beg Gassée for a Be license, for whatever price. It is strange but true that Apple (13,400 employees) may need Be (46 employees) more than vice versa.

No flashlight

But such dramatic action is unlikely so long as Apple thinks its own "premium product/premium price" formula works well. This could be called the Mag-Lite strategy, after the expensive flashlight that Amelio waved admiringly at a meeting with Apple employees in March. It does not require a Ph.D., however, to see that customers' willingness to pay a $3 premium for a slightly better flashlight might not translate into a willingness to pay a $1,000 premium for a slightly better computer--especially now, when Apple's claim to a uniquely "premium product" is shaky.

The introduction of Windows 95 last year endowed the counterparts of el-cheapo flashlights--that is, Windows-Intel personal computers--with ease of use that dangerously approaches that long enjoyed by the Macintosh franchise. And the reputation that Apple once enjoyed for consistently high quality has been badly tarnished: In May, the recall and repair of defective PowerBook and Performa models ran to $60 million.

The Mag-Lite analogy may not help Apple for one simple reason: Flashlights are complete packages, preloaded with an on/off switch that is the only "software application" needed. Computer makers and operating system publishers (Apple plays both roles) must also bring into their camp and keep happy an army of independent software publishers. When the independents decamp, the game is over: Mag-Lite computers, no matter how well made, can't attract customers on their own.

It is hard to distill what Apple's independent software partners are thinking. But nothing since Amelio's investiture suggests a reversal in a Windows-first-Mac-later pattern of software releases. And now, we increasingly see the Windows version first, and the Mac?--"when we get to it." Amelio makes noises that he recognizes the urgency of getting independents back on board. But his actions speak loudest, and the $20 million kitty that he has promised them is paltry.

For lessons on how to do more than just talk the talk of bold leadership, again consider little Be. The company pulled off its remarkable feat of software creation by deliberately beginning with a clean slate, refusing to compromise performance in order to accommodate existing Macintosh software. Will customers be as willing as developers to walk away from their software investments and start afresh with the BeBox? Actually, the either/or question can be avoided by offering multiple operating systems on a single personal computer or by building into the Be operating system a simulated Macintosh--the term is "virtual machine"--within which older Macintosh software could still run.

This is not the first time that an Apple alum has offered a clean-slate successor to the Macintosh. Steve Jobs's NeXT Cube, introduced in 1989, also was a hardware/software combination that was conceptually advanced. But it was overpriced and underpowered and came with an overwhelming serving of hubris, resulting in botched recruitment of software developers. Unlike Jobs, Gassée has not set about reinventing every component; the BeBox uses industry-standard components borrowed from what Gassée likes to call the "PC clone organ bank" in order to keep the price as low as possible. For the same reason, manufacturing has been outsourced.

There's another reason an Apple-Be marriage makes sense. To the extent home-brewed Copland fulfills the definition of what an operating system should deliver, it will render unusable large portions of existing Macintosh software anyway. So Apple is going to have to take the big leap, whether it goes with Be or waits (and waits) for Copland to emerge. Why shouldn't it screw up the courage and do it now? Apple could take heart from the history of the Macintosh itself. Apple II fans at first dismissed the Mac as a machine with no future, lacking as it did the thousands of programs that ran only on the Apple II. If Apple had listened to its mainstream customers and bet its future on the continuing appeal of its existing, technically aging product line, its corporate death would have arrived long before. If the company were to now dip into its treasury and make the leap again--and with $1.7 billion in cash and short-term notes, it could afford to make the investment--Apple would have an irresistible proposition for leading-edge software developers. That's when the celebration of Apple's return from a near-death experience should commence.