How Apple plans to stop IBM from taking an even bigger bite

Cover Story

Business Week

October 3, 1983

Of the 150 or so companies being squeezed by the great success of International Business Machines Corp.'s Personal Computer, none has as much to lose as Apple Computer Inc. The Cupertino (Calif.) company pioneered the personal computer business in 1977 when it began shipping the ubiquitous Apple II. Since then, the company has grown at a rate of more than 70% annually. But while its sales for the year ending Sept. 30 are expected to hit a healthy $1 billion, Apple is being unseated from the No. 1 spot in the industry by IBM.

As a consequence, President John Sculley, after only five months on the job, is making a major shift in Apple's strategy. The aim is to ensure that the company can regain its momentum and compete effectively with IBM's PC. "To be successful, we have got to bring out not just one but a whole series of products aimed at IBM," says Sculley, who resigned as head of Pepsi-Cola Co. to join Apple. He is overhauling the computer maker's management, shifting its sales focus, and better coordinating product development.

A lack of focus

While Apple has continued to rack up record sales and earnings, its callow management has had real trouble coming up with a cohesive product and marketing strategy. The three different Apple models cannot share software, and Apple has been at odds with dealers because of its direct-sales efforts and unpredictable pricing. A lack of focus became more obvious in January when Apple introduced Lisa, an easy-to-use desktop computer. Although Lisa's technology dazzled the industry, there was little software available, and its $10,000 price was too high. As a result, sales were slow. "I didn't sell as many Lisas as I expected to," says Anthony P. Morris, president of Morris Decision Systems Inc., a New York dealer.

Sculley has started making major strategic changes in the way Apple markets Lisa. To begin with, he is aiming it directly at IBM's PC by cutting the price by 18%, to $8,190. Bowing to pressure from retailers for more room to make profits, Apple will offer Lisa without software for $6,995. Another major shift in emphasis is in the channels of distribution. Apple was originally bent on copying IBM by selling the machine to large corporations through its own sales force, but Sculley now says that "our primary commitment in selling Lisa will be to dealers. It has been difficult and unrealistic for Apple to sell to corporate America like IBM does," he explains.

Although Apple is concentrating for now on selling Lisas to small businesses through retailers, the company acknowledges that for long-term success it must sell the machine to large companies. And to make the computer attractive to large companies, Apple plans in the next year to add software that will enable Lisa to swap information with IBM mainframes, as well as to make it compatible with the IBM PC.

"We discovered that it is not enough for Lisa to be an elegant product," Sculley says. "Large customers want communications and compatibility."

A new maturity

Apple is expected to make its next move by January: a facelift for its largest revenue-spinner, the Apple IIe. The enhancement will give the IIe some of Lisa's easy-to-use features, such as the "mouse" pointing device (used instead of a computer keyboard to give the computer commands) and the ability to display more than one task at a time in separate "windows" on the display screen. "We feel a lot of loyalty to the [Apple II] customers who made us successful," says Sculley. "In transferring ease-of-use features to our lower-cost products, we are protecting their investment." E. David Crockett, president of Dataquest Inc., sees less altruistic motives: "It's smart, because people are putting features like the mouse on the IBM PC."

The complex technical problems involved in endowing the Apple IIe with some of Lisa's attributes were solved by Stephen G. Wozniak, the Apple cofounder who rejoined the company this summer. Wozniak is now directing development of future generations of the Apple II family, while Chairman Steven P. Jobs, the other co-founder, continues to supervise the development of Macintosh -- a smaller version of Lisa that is expected to sell for $2,500 when it is introduced in January.

To help Apple retain its entrepreneurial flavor, Sculley is trying to break it into smaller product groups. He has also reassigned almost all the product division heads and is insisting that top management be "closer to the action" in product development in order "to bring discipline to the process of [setting] product strategy."

Apple will need this discipline in its product strategy to make its product line more coherent. It now appears that the enhanced Apple IIe will resemble the more expensive Macintosh, which in turn resembles the more expensive Lisa. And the Macintosh and Lisa reportedly will use different software. Apple counters that the sophistication and operating speeds of the different models will distinguish them.

So far, it appears, Sculley is putting Apple on the right track. Dealers have already noticed more maturity, pragmatism, and humility among Apple managers once noted for their arrogance. Based on what he has seen, retailer Rick Inatome, president of Inacomp Computer Centers Inc. in Troy, Mich., says, "We have renewed confidence in Apple."

GRAPHIC: Picture, APPLE'S SCULLEY, WITH A "MOUSE," SHOWS DEALERS NEW EASY-TO-USE SOFTWARE, SUAU/PICTURE GROUP