The NeXT Objective

Next is selling yet another new story, but will anyone buy it?

By Luc Hatlestad
Red Herring

December 1996

At The Red Herring we prefer not to dwell on personalities. This story wasn't supposed to be about Steve Jobs; it was supposed to be about Next, the company that's reinvented itself more times than Richard Nixon (and whose fortunes we have followed through the years, most recently in an interview last January, "What's Next?").

But Steve Jobs is Next, so much so that most of the people interviewed for this article referred not to the company but to the man himself. "Steve has sound technology, but his prices are too high," "Jobs needs to stabilize his sales force," and so on.

For Next's latest incarnation, Jobs is banking on the Internet. He has decided that Web development tools constitute the most promising market within Next's reach, and by the end of 1997, the company will have subtly but surely shifted its weight behind its WebObjects software. In the meantime, depending on whom you ask, Next is either feverishly readying itself for an initial public offering or is up for sale.

As anyone who follows the industry knows, Jobs's career has been one long roller-coaster ride of triumphs and pitfalls, of lofty achievements and humiliating disappointments. Next is inextricably attached to the myth of Jobs; overall that association has benefited Next. Rare is the company--a decade old and with less than $100 million in annual sales--that can gather so much attention and inspire such speculation and enmity. But whether this is testimony to Jobs's charisma and vision or an indictment of his famously autocratic management style is matter for debate in boardrooms and bars throughout the Valley.

Perhaps it's the sheer force of Jobs's character, and its duality, that has left most industry observers squarely on either side of Next. On one flank is a group that thinks Next has refocused itself with a technology mature and sound enough to dominate a potentially lucrative market for years to come. On the other side are those who think Next is--well, doomed.

First, the good news
By all accounts, the market for Web development tools--the software that's used to build Web sites--will grow exponentially over the next few years. A report released earlier this year by Forrester Research predicts that worldwide tools revenue will increase from $15 million in 1995 to more than $1.2 billion in 1999. "Web development tools empower customers and reduce manpower needs for companies," says Josh Bernoff, a senior analyst at Forrester Research. "The tools will become central to what the Internet is used for in the next five years."

The primary tools consumers are companies that want to create dynamic Web sites. Perhaps it's the technology's infancy, but nearly everyone's favorite example of this is Federal Express, which has a site that allows customers to dial in and track packages across delivery routes. "The real payoff for tools will be in order processing, inventory tracking, and transaction processing--in creating Web sites that can do what-ifs," says Mike Kennedy, vice president at the Meta Group.

The key to this market is that it ignores home consumers and focuses on companies that are likely to invest in the Internet. "It's tough to show profits in consumer-focused markets," says Ted Julian, Internet research manager at International Data Corporation (IDC). "The business market for tools isn't five years out; it's here and now, and there's definitely enough demand to turn a profit. The Internet has given Next a second wind."

One of Jobs's consistent strengths is that he's always been involved with technologically superior products, and WebObjects continues this record. Unlike so many other technologies springing up around the Internet these days, WebObjects' base technology is thoroughly established. "Object technology is mature, and WebObjects is one of the first products of its kind," says Evan Quinn, an IDC analyst. "Next has about a six-month window to put the hammer down on some technical issues, and if they can do that, it could become a $50 million to $100 million product."

Since its release last spring, WebObjects has earned about $15 million for Next, about one-third of its total revenues in 1996, and the company has signed up about 200 WebObjects partners, according to Next officials. Next currently has more than 40 percent of its development staff working solely on WebObjects. As it increases its focus on the Internet market, Next will enhance WebObjects with features and functions from its OpenStep and Enterprise Objects Framework product families. Development on the latter two won't cease, but its pace will slow. "Next doesn't want to scare off its existing customers, but many of the features being put into WebObjects will be useful to them," says the Meta Group's Kennedy.

An early key to the success of WebObjects will be its ability to maintain a design lead over competitors such as Forte, NetDynamics, Net Systems, and Prolifix. And of course, there are always the big boys to contend with. "There's a lot of competition from smaller companies, and the Oracles and Sybases have pretty deep pockets," says IDC's Julian.

For the most part, Next's technology gives WebObjects a solid base to work with. But in a scenario that's ominously reminiscent of the situation at Apple during and since Jobs's tenure, Next has a record of sales, distribution, and support that's checkered at best. As with everything else at Next, the reasons for this start at the top.

Dr. Jekyll and Mr. Jobs

Three things about visionaries: they're highly charismatic, they need to be in control, and they hate details. Although the v -word is used with reckless generosity these days, Jobs is inarguably one of the few who's earned the moniker. It's a designation he lives and breathes. In interviews he constantly speaks in superlatives, talking about how various technologies--his--are "the best in the world" and promising global change at almost every turn. When he talks about the industry, his focus often is not on 1997 or 1998, but ten years down the road.

To some extent Jobs has delivered on his grand promises and predictions. At Apple, he cofounded a company that, for all its woes, still has a fiercely loyal constituency. At Pixar, he broke ground on a new era of digital filmmaking. And even though many things about Next are questioned, the technology, as noted, is respected.

But Jobs is the pendulum on which the fortunes of his companies ride, and pendulums rarely come to rest. Those who have watched and worked with him over the years have witnessed both extremes of the swing, from exciting new ideas and revolutionary technology on one side to rancorous partnerships and internal chaos on the other.

For all the accolades Jobs and Next have received for their technology, those who have partnered and lost with Next are downright virulent in their disdain for the company and for the man. "Steve has one goal: he wants to be a billionaire, and he's pissed that people like Gates are already there," says Ted Shelton, former president of the now-defunct Information Technology Solutions (ITS).

ITS was a third-party software developer and systems integrator for Next from 1990 until early this year. As a witness to many of Next's recent partnerships, Shelton watched company after company get done in by what he says was Jobs's arrogant, take-it-or-leave-it style of management and sales. Jobs even managed to alienate Ross Perot, a man who knows a thing or two about ego-driven, paranoid business management. Perot invested tens of millions of dollars in Next in the late 1980s, but he soon resigned from the company's board. "He just got fed up with Steve," Shelton says. "Steve's attitude was, 'We have the best technology, so come and beg for it,' and anyone on the inside who questioned that was fired. And if there's a chance for someone else to make money, he'd rather nobody get it than have to share it."

So reviled is Jobs's arrogance that others in the industry bristle at even being compared to his company. We committed this faux pas during our dinner with BeBox inventor Jean-Louis Gassée (see "A Soiree with Gassée,"), who responded, "For God's sake, don't compare us to Next. We want to be a better tool for developers. . . . We do not defecate on developers."

Among those who have questioned Jobs's approach, naturally, are salespeople. Next is notorious for its sales staff's high turnover rate. "Next is miserable about creating a product that's deployable instead of a product that's technically great," says David Pollak, chief technology officer at CMP's NetGuide Live and previously the CEO of Athena Design, a NextStep independent software vendor. "They have had many vice presidents of marketing or sales who have lasted six months or a year, and if you can't keep sales focused, you can't make any money."

In his company's defense, Next product manager John Landwehr says that keeping people on board is not a problem that's unique to Next. "Every high-tech company has problems with high turnover," he says. "Sales reps are motivated by money, and there's often a better offer elsewhere."

Loose Canon

Perhaps the most notable of Next's failed partnerships was with Canon. The company invested several hundred million dollars in Next, which used some of its technology to help Canon build its Object Station platform. Suggestive of how the relationship deteriorated is the difficulty reporters encounter in getting information about Object Station. Canon officials shut down Object Station development in 1995, and they no longer publicly acknowledge that the partnership happened. Repeated attempts to reach Canon for a comment on this story went unanswered.

But the book isn't closed on the Canon-Next relationship, because Canon will likely have something quite influential to say about any attempt by Next to sell or file for an IPO. "Next has already burned through about $500 million in funding, and Canon has a note on them for about $400 million of it," says NetGuide's Pollak. "They might sell to someone that would allow Steve and Canon to save face." ITS's Shelton agrees that the intricate union of Japanese culture and business would require Canon officials to suffer the sort of embarrassment the Japanese have historically been loath to subject themselves to. "If they forgave the note, people inside Canon would have to take a big political hit for the write-down," he says.

How does this bode for a Next IPO? "Canon is very averse to Next's going public because it would put a real market number on the note," Shelton says. "The IPO would need about a $1 billion valuation to be viable." Next officials reject this outright. "That's completely wrong," says Next chief financial officer Dominique Trempont. "We have a deal with Canon to convert the small remaining debt into equity on the day we go public."

Either way, skepticism of an IPO is high. "Next does not have a chance in hell of succeeding either in an IPO or as a private company," says Pollak. "The fact that they're an established company counts against them, because they had the cash, they had the maturity, and they still blew it. They've been ready to do an IPO 'next quarter' for the past two years, but they don't have anything that legitimizes them as a public company." Pollack and others say that the company has shopped itself to International Business Machines and Lotus, but any potential deal is now dead. "After IBM acquired Lotus, Jim Manzi suggested that they take Next," says a Lotus source who asked not to be named. "The idea was given more air time because it came from Manzi, but it was a case of 'been there, done that,' so it was rejected."

Others point out that now isn't the right time for even a highly anticipated company to file. "People view the market much more critically now than they did earlier this year, and for the kind of market Next is in, the Jobs name doesn't go very far," IDC's Julian says. "Ultimately the tools have to stand on their own merits." Shelton simply wonders, with Next riding the coattails of a visionary, how viable is it? "They've had many senior management changes, the current management isn't plugged in to the new market, the new market has many challenges and competitors, and their technology is tied into bad choices of the past."

Now, the bad news

Another word about Next's technology. While it's true that many applaud the maturity and sophistication of WebObjects, Jobs has once again devised a product from a base technology--in this case the Objective C programming language--that the market all but abandoned long ago. In an era when the primary focus is on simplification, Objective C is much more complicated than other languages. "Anyone could see as far back as 1992 that Objective C wouldn't make it," Shelton says, "and now there's no product implementation of it other than for NextStep customers."

WebObjects can handle the more mainstream programming languages, and Next will offer full Java support next year, but the Objective C base will remain. "Web-Objects is still very proprietary," says the Meta Group's Kennedy. "Next has to shed a lot of its legacy technology and open itself up to Java and others." Thus, Next is left with the choice of frittering away its dwindling design lead or sticking with a comparatively arcane programming language. "In this industry, Visual Basic and Java programmers are everywhere, but almost no one knows Objective C," says Pollak. "Why decide to go with a programming language that would cost three or four times more than Java or VB to sustain and support?"

Some people never learn. By now it should be clear that technology is merely one key to success in this industry. The technology graveyard is littered with companies whose founders had brilliant ideas but no clue how to deliver them. What the Intels and Microsofts have in common is not only solid technology but also superior sales, distribution, and support mechanisms for delivering the products. Visionary or not, there comes a time when prophets should step aside and let the detail people do their work.

As Jobs prepares to embark on his latest safari, he's characteristically relying on his instincts and singular vision. Whether he marches his charges to the promised land or into a pool of quicksand remains to be seen. But if the past is any indicator, those around him had better brace themselves for whatever is next.

Next Software At a Glance

Location: Redwood City, California

Phone: 415/366-0900

Web: http://www.next.com/

Year established: 1985

Ownership structure: Private

Funding: Private: Steve Jobs, Ross Perot, Canon

Customers: Dell, Disney, DreamWorks, Gandalf, MCI, Merrill Lynch, Mitsubishi, Motorola, NASA, Raychem, Sharper Image, US Postal Service, Visa, Warner Bros.