Apple’s Worst Business Decisions

Over its thirty year history, Apple has survived and even thrived despite boneheaded business decisions. From pricing the Macintosh out of most consumers’ reach to creating some really ugly computers, Apple has made a lot of bad decisions.

Overpricing the Original Macintosh

John Sculley had demonstrated an affinity for public relations while he was at Pepsi. He took the ‘Pepsi Challenge’ campaign national, and championed the ‘Pepsi Generation’ campaign that still defines Pepsi’s brand today. Unfortunately, he had a lot to learn about computers. His two major contributions to the Macintosh project during the first two years of his tenure as Apple CEO were to covertly fund the Macworld magazine and to inflate the price from $1,495 to $2,495. Macworld went on to become a respected publication, but the price hike did little other than to temporarily inflate Apple’s financials.

Steve Jobs had tripled the price of the Macintosh in the years following his takeover from Jef Raskin. Sculley’s price hike merely made the Macintosh less palatable to consumers. Jobs had forecasted that he would be able to sell 2 million by the end of 1985, but only 250,000 Macintoshes were sold. Sculley later defended the price hikes because of the incredibly expensive advertising campaigns for the Macintosh, but the damage had already been done.

Macintosh Office

1984 and the advertising inserts in Newsweek and TIME were clearly targeted to consumers and small businesses. If Apple wanted to challenge the IBM hegemony (which it felt it needed to in order to survive), it would have to establish the Macintosh as a universal standard, in enterprise and the home alike. The Macintosh Office was Apple’s failed attempt to make the Macintosh a serious contender in enterprise.

The Macintosh Office centered around two products that never materialized the FileServer and BigMac. FileServer was to be the original network appliance. It would be the size of the external hard drives Apple was already selling to business users, and would plug directly into a LocalTalk or PhoneNet network.

The BigMac was much more ambitious. It was to be the replacement for the original Macintosh and the hacked Macintosh XL. The hardware was comparable to the wave of ‘3M’ (named for their megaflop processors, megapixel displays and megabytes of memory) workstations that IBM, Sun and Apollo all had in the pipeline. The software was a radical departure. It would port the Macintosh user interface to UNIX. Apple had gotten as far as ponying up the hundreds of thousands of dollars required for a UNIX license, but development bogged down. When Jobs left the Macintosh/Lisa division in the summer of 1985, his replacement, Jean-Louis Gassee cancelled the project.

FileServer was equally doomed. Supposedly, the hardware was largely completed, but the software development got bogged down. The FileServer was slated for release in late 1985, but never made it to the market. In 1989, AppleShare Server was released, but it required a dedicated Macintosh to run.

The most notable failure in the Macintosh Office was its inaugural ad. Apple and Chiat/Day scored a hit with 1984, and Sculley and Jobs reasoned that 1985 should be no different. Another expensive spot, titled Lemmings, was produced for the 1985 SuperBowl. The ad depicted a line of blindfolded men and women walking off a cliff. The last man in the line stops and takes off his blindfold just before he falls into the precipice. The ad stunned the audience in Stanford Stadium, but not for a good reason. The ad just didn’t make sense. Were businesspeople that used PC’s or Apple II’s suicidal Lemmings’

The Macintosh Office could very well have won Apple a stronghold in the enterprise and small business market, but it only served to alienate it. The LaserWriter was the only successful product to be released under the brand, and it was largely developed by Canon and Adobe. Worse than the vaporware FileServer and BigMac, Lemmings actually offended many of the people who Apple hoped to sell Macintoshes to.

Not Firing/Demoting Jobs Sooner

Steve Jobs was a visionary at Apple, and was able to motivate people to work feverishly towards a single goal. That said, he was a bad manager. The Macintosh/Lisa division had been working at a breakneck pace for over two years, and had a lot to show for it. The Lisa, though a bad seller, was the original graphical workstation. It was used in some applications for years after it had been rendered obsolete by other Apple products. The Macintosh was a phenomenal success in its debut year, but the Macintosh/Lisa division failed to capitalize on that success. BigMac was making little progress despite a big budget and the rest of the Macintosh Office were nonstarters as well.

Jobs management style worked with the small Macintosh team before 1984. He convinced his engineers that they were working towards a revolution in the computer industry. They put in 80 hours a week and were incredibly devoted. That kind of energy would not last long. After the Macintosh launched, many of the senior developers took extended vacations, and many of them never returned. That meant that brand new engineers had to work on important projects like the BigMac and FileServer, and unsurprisingly, they made little progress.

The fact that Jobs was actually leading the Macintosh/Lisa division was startling. For years, Jobs had taunted the Lisa developers and tried to divert its resources from to the Macintosh. Sculley was eager to make his mark on Apple, and one of his first acts as CEO was to combine the Macintosh and Lisa divisions.

On the day the teams merged, he told the assembled engineers that the Lisa team ‘really fucked up’, alienating almost half of the engineers he would have to manage. Unsurprisingly, the Lisa flagged. After the Lisa 2 was released in 1984 with the Macintosh, the Lisa had only one revision, the Macintosh XL, which was actually a Lisa running a Macintosh emulator.

Jobs tried to press his new staff into developing great software, fast, but he failed. The projects were either too advanced or the engineers were too fresh. The end result was that Apple had no major product in 1985, and profits tumbled. Eventually, Jobs was ousted from the Macintosh/Lisa division, and would resign from Apple on Friday, September 13, 1985, but it was too late to rescue any of the failed projects.

Licensing the Mac OS to Power Computing

Apple’s goal in licensing the Mac OS to outside developers was to flood the market with low cost Macs that were more powerful and less expensive than PC’s. Apple would profit from the increased Mac OS sales, the Mac OS ecosystem would benefit from greater developer interest and the cloners would make a bit of profit to boot. That’s not what happened, though.

CEO Michael Spindler started talks with several PC companies, the most prominent of which was Gateway 2000. Inexplicably, Spindler cancelled discussions after Gateway 2000 demanded that Apple cut its licensing fee. As a result, one of the biggest consumer PC companies in the world would never sell Macs.

Spindler had to settle for smaller companies, like Radius, Motorola and Power Computing. None of the companies had any experience selling PC’s. Worse, they lacked the sales teams that would be able to get them into big businesses, where a low cost Macintosh would be particularly attractive. Radius did not even have the facilities to build computers, it subcontracted to IBM, which produced Radius-branded clones.

Power Computing initially released low end Mac clones like Apple expected, but like Apple, Power Computing’s founder, Steve Kahng, discovered that there weren’t profits in the low end. Power Computing started selling souped up clones that competed directly with Apple, and came out ahead. Its machines were cheaper and faster. Power Computing’s sales grew from $21.5 million in the first quarter of 1996 to $98.5 million in the fourth quarter.

Many of Apple’s most demanding customers jumped ship to Power Computing, depriving the company of much needed revenues during a desperate period in Apple history (the company would have to write of $1 billion in unsold computers that year). Eventually, Steve Jobs bought Power Computing’s license and effectively killed the company.

Firing John Sculley

Measured by marketshare, Apple was the largest PC company in the world in 1992. Though it would quickly lose that title to Compaq, the growth in sales should have been excellent news for John Sculley and Apple, but it wasn’t.

The first five years of Sculley’s tenure at Apple were dominated by his cadre of executives, first by Steve Jobs, later by Jean-Louis Gass’e and Alan Loren and finally by Michael Spindler. He had not been well served by any of them. Jobs demoralized the Macintosh/Lisa division, Jean-Louis Gass’e presided over grotesque profit margins at the expense of growth during a critical period of growth in the PC industry and Michael Spindler couldn’t handle the stress of managing Apple’s international operations.

But after he started running Apple himself, he enjoyed a great deal of success. Successful products like the Macintosh LC, Macintosh Classic and the PowerBooks buoyed Apple’s reputation and padded financial results. In fact, the PowerBook would remain the most powerful notebook in the world from the year it was released to 1995 and the 5300 debacle.

Despite the great successes, Sculley’s reputation was sullied in the eyes of the board by the tainted Newton and failed negotiations with IBM and AT&T. Unlike many at Apple, Sculley believed that Apple did not have the resources to compete with Microsoft, Intel and the clone manufacturers on its own. It needed the money and brand of a company that corporate America could trust. Sculley had nearly convinced AT&T to buy Apple in its entirety, but AT&T dropped out at the behest of its existing PC division, NCR.

Two years later, in 1992, Sculley was contacted by a headhunter looking for a successor to IBM’s CEO, Jack Keuler. Unbeknownst to Sculley, he was actually very low on the list of candidates, but the contact piqued his interest. Sculley started talks with Jack Keuler about IBM buying Apple. Keuler wanted to build a relationship with Apple first, and then consider buying Apple. The relationship turned into the AIM alliance and the PowerPC, but that was still years away.

The board wanted results now, not in a few years. Their impatience and the machinations of Michael Spindler ultimately cost Sculley his job. The man who had led Apple for almost a decade was out of his job, despite the fact that Apple was enjoying record sales. Apple quickly spiraled into a dark period, and would never see its marketshare recover.

Hiring Michael Spindler

Michael Spindler was a good marketer. He had gotten his start at DEC’s European division in Paris, where he helped the company develop a presence almost totally controlled by IBM. In 1980, Spindler was handpicked to run Apple’s marketing department in the nascent Apple Europe division, based in tiny offices in Brussels. From there, Spindler pioneered a strategy of releasing specialized products in every region while still taking advantage of the Apple brand. He made sure that there were products available in every language Apple Europe sold to, unique amongst the other PC manufacturers. As a result of his ‘multi-localism’ strategy, Apple was able to compete with cheaper local products like the Acorn BBC Micro.

Spindler did an excellent job in marketing, but he was not a good manager. He didn’t take dissent well, staffers were terrified of even asking questions during his meetings. Worse than his inability to handle dissent was his problems with managing stress. Several times during his career at Apple, staffers found him huddled up under his desk or passed out on his couch apparently from a panic attack.

Sculley was impressed with Apple Europe’s performance, and promoted Spindler to head of all the international divisions. Luckily for Spindler, there were always able staffers who could translate his impassioned speeches on ‘multi-localism’ and other strategies into concrete steps for his managers to follow. They did such a good job, that Sculley promoted him again, to replace the universally popular Del Yocam as COO. Around the same time, Gass’e left with a few Newton staffers to found Be Inc., so Spindler’s main competition in the corporate hierarchy was gone.

Spindler was dishonest with Sculley. He would spread rumors and bash Sculley’s management style, and lie to Sculley’s face about it. Spindler was determined to become CEO, and he did.

On June 17, 1993, Apple’s board met to discuss Apple’s declining stock price. Weeks before the meeting, Spindler personally met with most of the board members to gather votes for a coup d”tat against Sculley, and succeeded. The board broke the news to a distraught Sculley. Spindler attempted to cheer up his old boss by telling him that he had only heard of the decisions fifteen minutes before the board broke the news to Sculley. He lied.

Spindler’s career at Apple was to be characterized by staggering losses and missteps that cost the company the gains it had made in the early nineties. By 1996, Apple had to write off a billion dollars in unsold inventory because of channel stuffing. That year, the company would lose hundreds of millions of dollars. Eventually, Spindler was ousted for his mismanagement, but not before he nearly killed Apple.

Not Buying or Licensing an Outside OS Sooner

In the mid-nineties, Apple was in trouble. Microsoft had released Windows NT in 1993, and it had taken the business world by storm. Finally, there was an inexpensive workstation-class operating system for relatively inexpensive PC’s. Apple had already ceded the business market to Microsoft, so NT posed little threat to the Macintosh.

Windows 95 was a direct attack on the Macintosh. It was easy to use, relatively stable and had the full resources of Microsoft and every clone manufacturer in the world behind it. The Macintosh did not stand a chance. Worse still, Microsoft claimed that its next consumer version of Windows would be a modified version of NT, known as Cairo. Cairo never developed, but the announcement scared a lot of users into jumping ship. AT&T, major universities and even Motorola were cancelling orders for new Macs.

Apple could have addressed all of these problems, and even gotten some new customers, if it had recognized that it would be unable to develop an operating system to rival Windows NT on its own. If it had licensed Solaris, AIX or bought NeXT a year earlier, it would have been able to negate Microsoft’s PR boost and get new customers. Unfortunately, Copland, the project to ‘extend’ the Mac OS, was doomed and it would take a new CEO, Gil Amelio, to recognize that.

Firing frogdesign

Style and aesthetics are personal opinions, but Apple hurt itself when it stopped using frogdesign’s Snow White language. Before 1994, Apple had distinctive, even cool looking products, like the Apple IIc and the Macintosh. As part of the cost-cutting measures introduced by Spindler, Apple spent less on cases, and it showed. Suddenly, the Macintosh was no more attractive than any other PC in the world. Notable products include the Power Macintosh 4400 and the PowerBook 520. The 4400 is almost indistinguishable from a PC, and the 520 looked dated, with its space age curves, even before it was released. It’s hard to place a value on good aesthetics, but Apple’s products lost one of their most distinguishing features when it dropped frog, looks.

Contracting iPod Manufacturing to Chinese Firms

The Apple mythos is incredible. When people think about Apple’s early history, they think of Steve Jobs walking around Silicon Valley barefoot extolling the virtues of the Apple I. They think of Wozniak and Jobs assembling the computers in the Jobs’ garage. They don’t think of Chinese workers doing 15 hour days and being paid less than minimum wage to produce cheap iPods. Apple really ought to bite the bullet and fire Foxconn, the owner of the offending facilities, or even move manufacturing state side. Bad PR is hard to fight off.

Making Jobs Indispensable

Steve Jobs is widely credited with Apple’s turnaround in recent years. He personally took control of Apple’s product line and created the famous ‘matrix’ of Macs. He personally oversaw development of the iMac, iMovie, iTunes, iPod, Mac OS X (he picked the Aqua color scheme) and just about every other successful (and not so successful) Apple product released in the past decade. Unlike every other Apple CEO since the days of Mike Scott, Jobs has no clear successor. Avie Tevanian and Jon Rubinstein were once the most famous former NeXT executives to follow Jobs to Apple, but both left this year. The lack of a successor might make for less infighting, but could cause problems should something happen to him.

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