Steve Jobs Gets The Keys To The Office PC Market

Information Processing

He has a new link with Businessland--but daunting rivals

Richard Brandt in Palo Alto, Calif.
With Maria Shao in San Francisco
Business Week

April 10, 1989

When Steven P. Jobs introduced his new personal computer and his new company, Next Inc., last October, no one really believed that Next would be content as a small competitor in the $1.5 billion-a-year U. S. campus PC market. Skeptics thought that the co-founder of Apple Computer Inc. really had his sights on the $15 billion office PC market. They were right. Now, Jobs has reached a deal with the Businessland Inc. chain of computer stores, which will buy at least $100 million worth of his computers in the next 12 months to sell to companies.

That will give Next one of the fastest starts in computer history--and possibly a lead in a new phase of personal computing. In the 1990s, industry experts expect businesses to replace conventional PCs with faster desktop computers. Such machines will have the sophisticated graphics and networking capabilities of technical workstations, the powerful microcomputers that Sun Microsystems, Apollo, Hewlett-Packard, and Digital Equipment now sell to engineers. These companies--and perhaps a well-heeled Next--could thus become significant rivals to IBM, Apple, and Compaq. ''It's a new industry out there,'' says Sanford C. Bernstein & Co. analyst Mark D. Stahlman. ''Next could become a world-class shipper in the early 1990s.''

To do that, Next needs Businessland. Development snags delayed Next's rollout by 18 months. And thus far its salespeople have sold only 1,000 machines to software writers and universities. So now it needs to move fast. ''We wanted one great partnership,'' says Jobs. ''We're putting all our effort into this one.'' Businessland Chairman David A. Norman says he'll take delivery of the full order, even if the machines don't sell.

EXCLUSIVE DEAL

It's a good gamble. The $1.2 billion chain, a major supplier to large companies, has at least a one-year exclusive deal. Even if the $10,000 Next machine isn't a best-seller, Businessland will learn a lot about workstations. The chain is widely expected to carry IBM workstations, too. ''We need to get in on the ground floor,'' says Norman. Compaq Computer Corp. recently pulled its machines out of his stores. And Sun Microsystems Inc. has spurned him, saying its customers would rather buy direct.

Norman's strategy is to make Businessland an even bigger installer of networks, probably the most lucrative future market for desktop computers. Workstation makers say their machines are best for that because their basic software is the Unix operating system, which lends itself to networking. Norman agrees: He's betting that by 1992, Unix workstations will account for 30% of office PC sales vs. an estimated 3% now. Businessland has doubled its ranks of technical specialists to 800 in the past three years. Now, Next is training 130 of those in the intricacies of its machines.

OVERKILL?

Norman may be too optimistic. Nobody has proven yet that offices need workstations. ''I wouldn't bet the ranch on it,'' says Edward R. Anderson, chief operating officer of ComputerLand Corp., a Businessland competitor. Adds Lynn Johnson, manager of workstation computing at Boeing Computer Services: ''Office workers don't need all that power.'' Market researchers at International Data Corp. say all that is changing. They're raising their original 1987 projections for sales of workstations in offices (chart). Nevertheless, the researchers project much slower growth than Norman does.

Even if he's right, Next faces daunting competition. Sun, HP, IBM, and DEC are aiming their workstations at the office market. In April, Sun plans to launch an under-$10,000 model. What could make such machines a hit is workstation software that's superior to that for PCs. At this point, however, Microsoft Corp.'s OS/2 operating system for IBM PS/2s is the one most software developers are writing programs for.

SOFTWARE DEARTH

For Jobs, this may seem like deja vu. When his team at Apple introduced the Macintosh in 1984, it had little software. As a result, many businesses refused to buy it. For nearly two years, college students and computer hobbyists kept the Mac going until enough machines were sold to arouse the interest of major business-software writers.

Knowing this, Next's engineers designed their machine to work with an advanced ''object-oriented'' computer language that simplifies programming. Aldus Corp., whose PageMaker publishing software helped make the Mac a hit, is writing for Next. ''Our engineers were able to do more in a shorter time with the Next machine than with any other,'' says Aldus President PaulBrainerd.

Next also has commitments for software from Lotus, Novell, and Frame Technology, another supplier of desktop publishing software. These packages, combined with Businessland's marketing push and the half-dozen programs that come with Next machines, should create enough momentum to attract other software developers, says Jonathan W. Seybold, publisher of Seybold Reports.

Next also will get a boost from a licensing agreement Jobs worked out last year with IBM Chairman John F. Akers. IBM has rights to use NextStep, the startup's graphics software and programming system. Akers says that NextStep will appear on IBM's Unix machines this summer. When that happens, software developers will be able to write programs for Next that can be easily adapted for IBM--and vice versa.

Certainly, Next still has a lot to do. The operating system for its machine won't be completed until the end of June--after it starts shipping to Businessland. And the company hasn't proven that its automated factory will be able to crank out computers quickly enough. Moreover, the optical disks that Next computers use instead of floppies are still an oddity that may slow customer acceptance. Yet if Jobs can deliver all the things he says he will, Next could well become a strong influence on computing in the 1990s. For now, at least, he's has made all the right moves.

Photograph: NORMAN AND JOBS: A $100 MILLION DEAL PHOTOGRAPH BY ROBERT HOLMGREN Graph: UNIX WORKSTATIONS USED IN OFFICES Data: International Data Corp.