A Financial Crisis

In the Oscar-winning movie “Forest Gump,” the main character inadvertently makes a lot of money from Apple’s stock. That segment of the 1994 movie reflects how people viewed Apple in the early 1990s.

However, Apple was in fact struggling financially in those years. The not-so-big company had more than 1,000 projects going on at the same time, but few of them turned into real products. Apple was losing market share to Microsoft.

This was partially because Apple stayed away from the industry standards set by IBM and Microsoft. Starting in 1986, IBM and Microsoft made their specifications of personal computers industry standards, so their products were compatible with one another. This resulted in “horizontal integration,” where in microprocessors, motherboards, and software the standards led to higher volume and lower cost. As consumers welcomed the convenience of such compatibility plus lower prices, the IBM-Microsoft standards gradually became mainstream.

Sculley was aware of the trend and wanted Apple to take part in it. He suggested developing a Mac operating system on the PC platform. The board agreed. But the Macintosh Division vehemently opposed the idea. A software business would cannibalize their hardware sales. Also, as Apple engineers viewed their products as artworks, there was no way for them to share their unique creations with other companies for mass production. That just sounded like something beneath them.

Since Apple was unwilling to make Mac graphic user interface transplantable to PCs, Microsoft worked on creating the same technology and then produced a clone version of the Mac graphic operating system, Windows.

When Windows came out, Sculley accused Microsoft of copying Apple and asked Bill Gates for a serious talk.

“We didn’t copy Apple,” said Gates. “Both Apple and Microsoft learned the technology from Xerox PARC.”

“But Apple was authorized by Xerox PARC to use the technology. You didn’t get the authorization. We also have patents, ” Sculley said.

“If you are holding this against us,” Gates stopped defending Microsoft and started threatening Apple. “We’ll stop all the Mac-compatible software development, including Office.”

This was a real threat. Apple could not afford to lose Mac’s compatibility with MS Office.

“If you promise your next-generation software will be Mac compatible, we can give you a one-time authorization to use our patents,” Sculley conceded.

During the patent negotiations, Microsoft changed “one-time” to “current and future” about the authorization, and somehow Apple acquiesced. This was recorded in the documents signed by the two companies. Apple therefore lost 179 patents.

Later Apple sued Microsoft. But based on the signed documents, the judge only asked Microsoft to modify a few features (such as renaming the “trash can” as “recycle bin”). Apple was unable to gain anything back.

In short, Apple’s market share kept shrinking because it insisted on maintaining a high-end image and wouldn’t open any of its specifications. Sculley once tried to increase market share by lowering prices, and it did help the sales. But the company was not set up to sell volume products at lower prices. Margins shrank, and the company faced multiple quarterly losses.

In the end, Apple had to save costs through layoffs. After the first layoff I witnessed, some let-go employees came back marching in a group. But they were not protesting. Instead they were cheering for the company. They said, “Our blood is in six colors (like Apple’s then-six-colored logo)!”

Following the lay-offs, Apple reorganized several groups. One day, my boss Dave Nagel came to my office and said to me, “I have good news and bad news. Which one would you like to hear first?”

I was taken by surprise. But I soon calmed myself down and said, “I’ll hear the bad news first.”

Dave said, “Your Mac III team was eliminated.”

I was shocked and saddened.

“But the good news is,” Dave continued. “Speech recognition will be kept and moved to the ATG (Advanced Technology Group). You’ll be promoted as the manager of the speech recognition team in the ATG.”

“What?” I was astounded. “But I don’t have any management experience!”

“I believe you have potential in management because all your colleagues say they like working with you. And your new boss, Shane Robinson, is an outstanding leader. He’ll teach you what you don’t know.”

Dave was right. Shane did give me a lot of helpful guidance later. Today Shane’s leadership shines in his position as CTO of HP.

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【法奶日報www.lulijen.com 2013.6.5. 刊出，第9913號】

刊登日：2015/8/1

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