The Mistakes Apple Made with the Apple ///:
Detailed Here So You Don’t Have to Repeat Them
I was recruited by Apple to bring the first hard disk drive on a PC to market. Apple then asked me to be the Group Product Manager for the Apple /// – following Steve Jobs, Trip Hawkins (founder of Electronic Arts), and Taylor Puhlman/Rob Campbell (the inventors of FileMaker and PowerPoint).
The Apple III was introduced in 1980 and discontinued by myself less than 4 years later – the same year that the Macintosh was introduced by Steve Jobs.
This was after I, and many others, recommended to John Sculley (Apple’s president at that time) and the Executive Board, that for the Apple /// to thrive, it needed to be its own profit and loss center – for which I was asked to be its independent Business Unit Manager.
Here are the lessons I learned about why the Apple /// product didn’t last longer (some call it a failure but I disagree since it was the third best selling computer at that time – behind the Apple // and the IBM PC), while Macintosh survived and later thrived.
Sorry to burst the PR bubble, but at the time Steve Jobs was selfish, self-centered, and didn’t want any other product in the market at the time that might in any way, shape or form, interfere with his beloved Macintosh.
Not only did he want the /// out of the marketplace, but he also wanted to kill the Apple //, which was the company’s bread and butter. He didn’t understand at the time that the profits of the /// and the // were giving him the resources to develop, build, market, and sell the Macintosh. Profit and loss, at least at that time, was not a significant consideration of his.
Part of the problem, at that time, was an explicit company strategy to promote and position Apple in the marketplace as “two young Steves running around in Birkenstocks, with $100 bills falling out of their pockets.” This was the positioning statement Apple’s first investor, long-time Chairman of the Board, and former head of Intel Marketing wrote in his company marketing strategy memo (I know this because I got the memo and read it). He wanted contrast against big blue IBM, whose executives and sales force were mandatorily required to wear suits/ties and blue dress shirts.
It was a very good positioning on behalf of Mike Markkula’s part and contributed to Apple’s early success.
However, sometimes people that get promoted in the media and worshipped that much will often let a bit of the glory go to their head.
Don’t get me wrong, Steve had a clear vision as to what computing will look like six years in the future. He had greater difficulty in understanding the steps such a revolution will first need to take – such as keeping the cash cows around to finance the six years it will take to get to that future.
Mistake number one: People are not smarter than the collective market
Some people think they are smarter than the market, but I disagree. The market is always smarter than any one individual. Some call this the “Wisdom of the Crowds.”
At a Personal Computer Systems division-wide meeting, an engineer asked how Jobs and Sculley could position the Macintosh as a “business” computer since it did not have two floppy drives (not even an external one yet), so making a copy of a floppy would require inserting the source floppy, removing it and inserting the destination floppy dozens of times. The engineer proceeded to point out that the Macintosh did not have a letter quality printer, a hard drive, or spreadsheet and accounting software.
As a result, a “business user” could not print a letter quality document, store a bunch of files including their accounting data, manipulate their data in large spreadsheets, or even do small business accounting. Therefore, until those fundamental “business market” capabilities were available, the Macintosh would have difficulty in the market.
I remember vividly that Scully responded with, “we will market with mirrors.” I have always wondered if that was a “Pepsi thing,” since he was previously the President of Pepsi America, and credited for taking on Coke with the “Pepsi Challenge.”
Unfortunately, the mirrors didn’t reflect much. Jobs insisted that the Mac be priced low enough “for the masses,” and wanted to provide less than 128K memory – until someone pointed out it would take 64K to just paint the bitmapped screen. Even with 128K, the largest program that the Macintosh could run was 10K – not much for what was supposed to be a “business” computer and take on IBM head to head.
Jobs thought, at that time, he was smarter than the market. He wasn’t. About 100,000 Macs were purchased in the first year, mostly by developers and early adopters. The developers figured out they could not write robust software with only 10K available. Early adopters got frustrated because there was not much software for their $2,000 soon-to-be toy.
That was not very good for Apple (Mac sales dropped to just four units in January 1985), but it was good for me.
I was president of First Byte, the maker and distributor of one of Mac’s top one hundred software programs. It was a text-to-speech synthesis program, such that whatever one would type into the Mac, it would speak it. At the time there was so little one could do with the Mac, so 8,000 owners (almost 10% of the installed base at the time) dished out $150 so their Mac could be the hit of their cocktail parties. Guests competed against each other, trying out different words to hear what SmoothTalker had to say – much like we now have hilarious conversations with Siri.
Mistake Number Two: Get the market segmentation right
In early October of 1980, Apple came out with the Apple /// in order to correct the Apple //’s problems. One problem was that the Apple // keyboard did not have a shift key to type a capital letter, making word processing difficult. The disk operating system (replacing a cassette tape) couldn’t address a mass storage device of greater than 143 Kb (due to the fact that Steve Wozniak wrote it in three weeks so he could go to Comdex in Las Vegas, never having been there before). The Apple // had limited memory capacity, thus severely limiting it from doing things that businesses, governmental agencies, and organizations wanted to do.
Apple’s marketing department segmented the market into the home, education and enterprise markets, as shown on the left above.
Apple had no interest in the enterprise market – in part because Steve Jobs did not like selling to all three personas of the user, influencer and buyer. He thought that the enterprise market was a waste of Apple’s time, since the IT department preferred cheap PCs, and IT didn’t care about the user experience.
As Apple’s marketing people become more powerful than engineering (Everybody was always arguing whether or not Apple was an “engineering” driven or “marketing” driven company). Some in Apple marketing started thinking and making unilateral decisions that there was no market for the Apple /// thus putting a drag on efforts of those trying to market, sell and support the ///.
The market segments that we know of as of today – namely the SOHO (Small Office, Home Office), and SMB (Small and Medium Business), were not invented until years later. I didn’t start thinking about it until 1985 when I joined AC Nielsen’s DataQuest as its Associate Director of its Personal Computer Industry Service and started directing its primary market research efforts.
When I took over the Apple /// product line, the first thing I did was go talk to the product’s architect, Jef Raskin, (who, by the way, designed the Macintosh). He described the market he had in mind as what we call today SOHO and SMB. He also said in the five years or so when he was working on it, that I was the first person from marketing to come talk with him. So marketing didn’t understand the market Jef was designing for, and unfortunately, no one else talked to him about it.
To learn more about this story, check out: Get the Market Segmentation Right! https://spicecatalyst.com/get-market-segmentation-right-0/
Mistake Number Three: Get the Positioning Right
The early Apple /// marketing people tended to position the /// as the Apple //s big brother, even in spite of the core Apple /// Divisional marketing teams’ emphasis on what the Apple /// could do for customers.
I hired a Dallas advertising agency, The Richards Group, to help me position and advertise it as “Apple /// Means Business,” after which time sales took off. My copywriter (and later the author of Apple’s 1984 commercial) Steve Hayden agreed.
Apple couldn’t get the positioning right because they had not yet segmented the market correctly.
Mistake Number Four: Get the KPIs (Key Performance Indicators) right
Del Yocam, VP of Manufacturing and future Apple President, said my Apple ///s were messing up his manufacturing floor in Dallas. He had to make 40,000 Apple //’s per month, and the 3,000 Apple ///s I was forecasting to sell each month, was getting in the way.
Clearly his metric or key performance indicator (KPI) was “units sold.”
In early 2014 I was chatting with a fellow Apple alumni at a reunion and realized in hindsight that Del’s selection of “units” was the wrong KPI.
I ran the numbers, which is in my upcoming Wiley book entitled “Foundations of the Successful Management of Products,” and found that my Apple /// product line was contributing over $100M per year in gross profits. In contrast, the Apple // had an ASP of less than $2K, and had lower margins. The /// was six times as profitable as the //, meaning that the sale of one Apple /// was the equivalent of selling six Apple //s.
Apple Sales Meeting, October 1983 Honululu Hawaii
This is me at Apple’s annual sales meeting at the Hilton Hawaiian Village Hotel in Waikiki. I didn’t have Steve Job’s $1M to promote his Macintosh to the worldwide sales team at the October 1983 convention. So my marketing communications manager bought little Apple /// stickers and we stuck them on everyone’s shirts. The sales force loved it since everybody loved the Apple ///.
It just worked and let the entire company, distribution channel, and dealers get the sales job done.
I bought a Samurai jacket and sword (putting my $300 purchase up against Steve’s million dollars) and made the rounds of the last night’s dinner tables to remind each salesperson, personally, that he/she better get out and sell Apple ///s when they get home, or else! (They couldn’t sell the Mac yet, because the January 1984 announcement was still three months away). The sales guys said “do the spiff program again,” referring to when we offered the retail salesperson $100 cash if they sold an Apple ///. That spiff program nine months earlier ran for three months and caused Apple /// sales to triple since by that time the Apple /// had a working operating system, exceptionally good word processing, spreadsheets, databases, integrated office software, accounting packages, and communications software.
I put my Apple /// sticker on the tip of the sword, pulled it out of its sheath and pointed it at each salesperson. “This is the Apple /// spiff program”, I said, “now get out there and sell Apple ///s or I will spiff’ you!,” to the bemusement of Bill Campbell, Apple’s VP of Corporate Marketing at the time.
Steve Jobs, on the other hand, was saying publicly that the /// was losing money. How could that be?
My Apple /// kamikaze independent business unit had just 17 employees, and we drove about $250M in sales (ASP of about $8K each) in the last 11 months of the ///’s life. My total budget was just $4 Million for salaries, overhead, travel, and advertising. I didn’t spend all the advertising money I had because with the great job Gary Chestnutis was doing on PR (who I hired to replace Regis McKenna since he felt, like his friend Steve Jobs, that the /// was mucking up the marketplace for the yet-to-be-shipped Macintosh), I didn’t have to, and was able to return a few million dollars to the Apple treasury. I could be wrong, but I think I was getting somewhere between a 40-60% gross margin.
Hardly a failure – just a cash cow that Apple killed (in all fairness, I don’t think the concept of a cash cow from the Boston Consulting Group existed yet).
It meant that, after I shut the product line down because of the lack of company support stemming from the four mistakes described here, about 1,500 A+ Apple employees were going to have to find new things to do outside of Apple, starting in early 1985. Many went on to create and help many other companies become insanely successful, such as Sun Microsystems, Silicon Graphics, Adobe, Pagemaker, etc. That is what “A” players do – since Apple would only hire “A” players, and pay them 40% over the pay curves in Silicon Valley at the time.
So ask yourself: “what are the unintended consequences by thinking you are smarter than the market, failing to segment the market right, getting the positioning wrong, and picking the incorrect metrics?
You are correct: others (and perhaps even yourself) might have to find a new job.
To paraphrase Pogo, “we have met the failure, and the failure of the Apple /// was us!” Not the product, the market, manufacturing, operations, support, service, sales, or distribution – it was us.
If you would like to learn more about what to do and how to do it, based on my 47 years of making mistakes, see my online courses and in-person workshops (boot camps) covering the entire product management lifecycle. See www.spicecatalyst.com for more details.
And there is my book “Building Insanely Great Products: Some Products Fail, Many Succeed…This is their Story” available now on Amazon. It covers the Six Keys to product success and the last 32 pages is the history of the last year of the Apple ///s life and why I killed it.