In reply to mactheknife........
mactheknife:
I didn't vilify Sculley for ousting Jobs back in '85. (That would be another post -- don't get me started.) I vilified him for RUINING the Mac.
If a new product with a flashy introduction doesn't succeed right out of the gate, it is tagged as a loser and finds it almost impossible to recover. (Witness the Cube; it never recovered after it was tagged as a loser. Even after improvements and price adjustments. No buyer wanted to be associated with it, a la Edsel.)
The 1984 Mac sold like gangbusters in the first months it was out. That's because it was snapped up by early adopters and computer enthusiasts who would pay almost anything.
Then there was no follow-through. The product sputtered after the early adopter phase ran its course.
Average computer users -- not diehard Apple fans -- weren't biting.
The reasons they didn't bite were that the Mac was 1.) pricey and 2.) a totally new, unproven platform with almost no software and third party support.
Early adopters don't care about such things (as much).
When you launch a new unproven platform with almost no software you have no business asking for a premium price.
You're lucky anyone buys it at all, and you HAVE to attract buyers with price, because you can't attract them with available software and support -- it isn't there.
When the platform takes off, you can command higher prices, but not before.
"Protecting profit margin" is a luxury you can ill-afford on a new, untested, unproven, unsupported technology. Widespread adoption and acceptance of the platform should be your first priority and fattening profit margins should come later.
Charging $1999 for the 1984 Mac and issuing some public debt to fund its manufacture and promotion was EXACTLY WHAT APPLE NEEDED TO DO.
You say, "As any corporate finance textbook will tell you. this is a big no-no."
That's why entrepreneurs with little business schooling succeed and academicians write textbooks from the comfort of their tenured professorships.
Sculley was not an entrepreneur, he was a bureaucrat. Jobs was an entrepreneur and a brave risk-taker.
Issuing public debt to fund the 1984 Mac's launch and production and charging $1999 was a risk -- A BIG RISK. No doubt.
But the risk all hinged on whether the Mac was a good product worthy of success and I contend it was.
Five hundred bucks is a lot of money (especially in 1984). I submit it would have made the difference and the Mac would have taken the personal computer market by Tsunami. (It didn't.)
You'd be amazed at how close a relationship exists between price and demand. A small difference can translate to huge sales. Sometimes as little as $25 can be the deal breaker. I submit that $500 was a HUGE deal breaker.
The Mac faltered at its intro and never really recovered. It had to claw its way back and has been clawing its way ever since -- even today.
Yes it HAD to latch on to the Desktop Publishing niche, because it had no choice. It needed a niche because it couldn't succeed as a general purpose personal computer.
(The hideous, unfriendly, green text screen IBM PC and clones succeeded because of a large scale price war combined with WIDESPREAD ADOPTION. In the face of this, Apple was seeking 50% and higher profit margins. Thank Sculley and Gessee for this -- Gassee has since stated that this was a big mistake.)
(Gasee also said in his book The Third Apple, "It is difficult to revive a product that has had a poor start.")
Lastly, you suggest we read Owen Linzmayer for perspective.
Good idea. I invite you to read his comparison of John Sculley to Neville Chamberlain -- the great Hitler appeaser.
The reason why Apple's lawsuits against Microsoft for ripping off the Mac failed to succeed wasn't because the judge(s) failed to see where Microsoft ripped off the Mac, it was because Sculley signed an agreement with Bill Gates giving Microsoft a "non-exclusive, worldwide, royalty-free, perpetual, nontransferable license to use these derivative works in present and future software programs, and to license them to and through third parties for use in their software programs."
The judge(s) found most of Apple's claims against Microsoft covered by this agreement.
Thanks, John.
