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Home , Bud Tribble, NeXT, NeXTcube, NeXT Computer, Rich Page, Steve Jobs

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MAN IN accept what he is about to say. "I don't think I'd be FI NALL Y. THE MO ST ST UBBORN human if I didn't have regret," says Jobs, referring to the death of his beloved hardware line. "We've THE COMP UTER INDUSTRY HAS LISTENED. pulled the plug." For the last six years, Steven P. Jobs has been But has he pulled it soon enough? The high cost nagged and ridiculed by the industry he helped of manufacturing hardware caused Next to lose, by build. He's been called a one-hit wonder, a fluke, some estimates, $3 million a month for the past two and-perhaps most damaging to his rather large years. It was a company divided into two warring ego-a failure. But Jobs refused to listen. camps-hardware vs. . Jobs was openly par­ Once upon a time, Jobs rented out symphony tial to the hardware, to the point of being obsessed halls to show off his company's distinctive black with the notion of building a hardware company to boxes: the infamous Cube, and the Nextstation. The rival Apple Inc., say insiders. Now, the audiences-padded with Next Computer Inc. hemorrhaging of capital that resulted from Jobs' employees-would cheer Mr. Charisma's demon­ hardware obsession may hurt the company's strations. They would delight in his aw-shucks faux chances of building a future on its Nextstep object­ boyishness when he'd show off his machines and oriented, -based, . Nextstep say, "Now here's something that's really cool." At will be released this May in a version that will oper­ the end, Jobs would soak in the applause and bow ate on Intel 486 chip hardware. his head in appreciation. "Next's technology is really nice," says Dick Now he has bowed his head again, but for anoth­ Shaffer, president of research firm Technologic er reason. Steve's black boxes-summarily rejected Partners, "but the best technology doesn't always in the marketplace-are dead. And the famous Jobs­ win: the Mac interface is better than Windows. So designed hardware manufacturing plant in Fremont, what? can ship volume. Do people want Calif. (''We intend to build our hardware here," he to give up Windows applications for Nextstep? I once said. "Forever.") is for lease. Many of Next's don't think so." hardware engineers are looking for work. Shaffer says he's not optimistic about Next's Finally, Jobs has swallowed his pride and did what future, but adds that a move to emphasize software everyone has been telling him to do for so long: is an improved strategy. "It's extremely difficult to Make Next a software-only company. be a hardware company," he says, "but, in these ''We have the best software of this decade, but it times, it's very difficult to be a software company." has a ball and chain around it hardware," said Jobs There is a need, however, for Next's object­ in an interview a few weeks before he announced oriented software. Not the technology per se, but the new strategy to his employees. ''We have great the ability to write custom applications easily. software in a box, but nobody wants the box." Nextstep lets users build applications much faster than it would take to write thousands of lines of Changing Directions code. Next has about 200 shipping software appli­ We sit in a meeting room at Next's avant-garde­ cations from 130 independent software vendors inspired headquarters in Redwood City, Calif. There (ISVs), and DOS and Windows 3.1 applications was a time when Jobs, now 37, was considered per­ using Insignia Solutions Inc.'s SoftPC can run in an haps the most brilliant, precocious, and promising emulation window. But Nextstep isn't aimed at your young man in the computing world. Today he wears average five-and-dime store, it's being marketed to a severe black turtleneck, looks out the window, the Business Week 1000 users who have a five-year and speaks apprehensively, as if he doesn't want to backlog of custom applications to write. N extstep

BY GARY ANDREW POOLE AND FRANK HAYES

PHOTO GRAPH S BY FR AN KLI N AVERY

40 UNIXWORLD APRIL 1993 promises to let users streamline the software writ­ ing process to shorten the backlog. This means Next will need to capture market momentum (something that it's never been able to do), get agreements .with PC vendors (another thing it's failed at), and create a software organization by this summer (another difficult task) . If it can trans­ form itself into a full-fledged software company with good marketing, service, and support, analysts say it could succeed. Window of Opportunity Since founding Next in 1985, Jobs has tried des­ perately to repeat his Apple success. But the mar­ ket simply hasn't responded. Next collected only 1.5 percent of the $9 billion spent on in 1992, accorping to research firm Dataquest. So it has only been in Jobs' mind, which critics have referred to as the "," that hardware has been significant to the company's future. Within Next, he considered Nextstep-the company's greatest asset-a second-class priority. If it succeeds, a software focus at Next could pay some handsome financial dividends. As the company ships Nextstep on Intel this spring, it will make Next more available on mainstream equip­ ment. Before the software-only focus, users were forced to buy proprietary Next hardware, which would have required a high capital expense of about $7,000 for each machine. Starting May 25, customers will be able to buy Nextstep for $995 and put it on their Intel486 PCs (developers will have an Intel package too), without being tied to the Next platform. Although $995 seems like a steep price for PC operating-system software, it will undoubtedly be discounted for larger orders. But can Next become a software company for all people? Jobs says he wants to make his company the Novell Inc. of the , an organization whose object-oriented software will proliferate in much the same way that Novell's Netware PC local-area network (LAN) software has proliferated, estab­ lishing a market before Microsoft has a chance to introduce products. Next has a window of opportunity, according to analysts. Neither Microsoft's "Cairo" object­ oriented operating system, which is considered Next's biggest competitor, nor the product of the

UNIXWORLD APRIL 1993 41 IBM-Apple joint effort, but lacked basic user requirements. It's 256- The Money Pit , will be ready for optical disk made the machine slower two years. And Jobs has than most workstations and its screen was "My friends say that Next can't die with money to invest and a prod­ grayscale. The Nextcube was stylish, but that was my ago and Steve's ego in it. At least it uct for which there's virtual­ largely cosmetic, like the black, cubical magnesium will never fall for lack of money." That's what said In 1987, when he ly unanimous technical cases that raised the Nextcube's manufacturing Invested $20 million in Next. They were approval. But will Next take cost without improving its functionality. the last dollars he sunk into the company. advantage of its edge and The Nextcube was originally intended as a $3,000 become a success in the face for students, but its final $6,500 price of Microsoft's imminent tag put it out of their reach. Next's target was Jobs starts threat? Jobs looks particu­ business. In 1989 the company cut an exclusive dis­ Next with larly pensive when he tribution deal with then-top PC reqriler Businessland $?million. answers saying: "This Inc., whose chairman, David Norman, bragged he transition isn't going to would sell $100 million of Next machines in a sin­ The initial capital be a bowl of cherries." gle year. But neither Next nor Businessland could runs out, so Not that anything has been manage to create demand among business cus­ Perot, Impressed in the past eight years. None tomers, and Businessland sold fewer than 1,000 with Jobs' intentions to of the company's many incar­ . manufacture nations has made any money Next could not establish itself in other sales in the or garnered market share. niches either. Desktop-publishing Jon athan United States, Next's focus on software Seybold touted the Nextcube early on as the best kicks in means it will need to sign computer available for high-end desktop publish­ $20million. Once again pressed for cash, original equipment manu­ ing, but Next could never convince desktop­ Jobs puts in leader Quark Inc. to port its another $5 million Next convinces facturer (OEM) agreements publishing software IBM to pay a with PC vendors. This is not Xpress program to the Next. Quark cited lack of reported an easy task for the mer­ demand. $60million in curial Jobs, who's widely Eventually, Next gained visibility in a different exchange for an option to put regarded as an unreasonable niche-as a trading station at Wall Street financial Nextstep on IBM negotiator. Next must estab­ companies. But even there, Next computers are 's workstations. lish a larger direct sales force still clearly outnumbered by Inc. Canon Inc. to sell to the Business Week workstations. In all, Next has an installed base of invests $1 00 It now must be more successful million in 1000, which has mostly 50,000 machines. exchange for shunned the company's in establishing an installed base for its software by Next distribution offerings as being incompat­ convincing ISVs, PC vendors, and Business Week rights in the ible with existing hardware. 1000 companies that there's a need for Nextstep. Far East. The company also needs to attract more ISVs to write "H e wasin my face ... " applications for the operating As Next wandered aimlessly, its executives wan­ system. An abundance of dered too. Most press reports blame Jobs' tern- ' software will make Nextstep peramental style for the departures, IBM cancels its more attractive to users who but there was more to it. For three years, an inter­ licensing option. need underlying tools to nal battle divided the management team into two With Next short write specialized applications. areas: the software camp and the hardware camp. of cash once Both camps disagreed strongly with each other, again, Canon and And Next needs to capture Jobs each the attention of some large and realizing that Next was a rudderless ship, many reportedly kick distributors. · executives left. in another Not surprisingly, Jobs was in the hardware camp. $10 million. Style Over Substance "Steve wanted a complete systems company," says Next secures a With its lavishness, Next'<> one high-level executive who left the company. "He $55 million credit headquarters could be a always wanted to re-create Apple." line from Canon one meeting over the last three and another museum for the 1980s: the In more than $10 million credit bleached hardwood floors, years, Jobs berated people who believed Next line from Jobs. the I.M. Pei-designed stair­ should be a software-only company. "He was in my case, the Next logo (with a face screaming at me," recalls a former Next insid­ reported $100,000 price tag), er from the software camp. "He was telling me I the espresso bar, the sleek was an idiot." black furniture, and across In the last year, more than a half-dozen execu­ the Bay, the tives have departed. Guy "Bud" Tribble, the origi­ modern and very expensive manufacturing plant. nal architect of Nextstep, left for Sun, where he is Once, Next was the most celebrated start-up in working on "DOE," the company's object-oriented high-tech history. But the emphasis was on style, software. , who was vice president and not on how its product would sell in the market­ general manager of the hardware division, had the place. not-so enviable job of designing Next machines to Like Jobs' earlier design project, the Apple fit Jobs' "perfectionist" desires. Page resigned in , the original Nextcube was very stylish, January 1992 pleading burnout. There was a

42 UNIXWORLD APRIL 1993 Next's Software Strategy

tremendous amount of time spent trying to satisfy company, and may have doomed its hardware prod­ Jobs' hardware whims, says an insider. 'The hard­ uct line from the start. ware organization never delivered the goods," he But even with adequate capital, Next probably says. "Page was always bowing down to Jobs. This would have still acquired its reputation as "The all caused a crumbling of Next's esprit de corps. Hardware Gang That Couldn't Shoot Straighf' when The whole thing's a tragedy." it came to product design, pricing, marketing, and This lack of direction is part of what caused the distribution. Next's target market has changed company's slow sales. In early 1991 Next estimated repeatedly, not because the company spotted new it would hit $200 million in revenue; instead, rev­ opportunities, but because its expensively designed enues reached only $127.5 million. And although products forced prices out of the range of early tar­ sales rose 10 percent in 1992 to $140 million, out­ get customers such as college students. And Next side North America they plummeted from $55 mil­ has not been able to effectively reach the markets lion to $42 million, according to the company. In that can afford its products. A common response? Europe and the Far East-hot growth markets for 'That black machine is incredibly sexy," said a user most computer vendors-Next was dead in the water. at Boeing Computer Services, the kind of Business The meager sales mean Next has run at a per­ Week 1000 company Next had been trying to petual deficit. At the end of 1992, the company attract, "but it's a proprietary machine. We don't reported its first profitable quarter, with $45 million want a slow, proprietary machine." (Ibe user made in sales-but for the year, Next fell about $40 million these comments before the company announced below its break-even point. With Next's plant run­ its redirection.) ning at only 20 percent capacity, the company has run average deficits of about $3 million per month. What Next Needs to Do The cash-flow problems have been aggravated Jobs flutters his arms around-as he's apt to do when by Next's perennial under-capitalization. Hardware he's excited-because he's talking about announc-

manufacturing requires plenty of capital, but Next's ing Nextstep 486'at Nextworld Expo-"Nextstep: history is dotted with dates when the company ran The Alternative to the Microsoft Monopoly"-on out of money and had to find new investors. So far May 25. "We'll have our transition completed by Next has run through an estimated $250 million in the show," he says. "We will be a software compa­ capital and credit. Ifs not uncommon for small start­ ny, and we'll tell everyone about our plans." up companies to have an extremely low return on May 25 will be the reckoning day. When Next must sales, given ramp-up costs for initial research and have a software channel in place Gobs promises development, marketing, and the building of a sup­ deals with PC vendors like Computer Corp., port organization, says Catlin Wolfard, an analyst Computer Corp., and NEC Electronics with Black & Co., a securities firm. But Next has Inc.). Next may also need a retail channel, partly been around for eight years. for credibility. Microsoft's Windows and IBM's Next's habit of periodically running out of money OS/2 2.0 are highly visible because of the shrink­ has taken its toll on the company's operations. wrapped packages sitting on the display shelves of When money is tight, budgets have been cut in software retailers throughout the world. Nextstep areas such as sales and marketing-the areas most will require a beefed up sales force. Next current­ crucial to generating cash and reducing the need ly has only 100 direct sales people. The company's for new capital. This cycle has slowly strangled the recent parade of departing executives was accom-

U NIXWORLD APRIL 1993 43 Next's Software Strategy

panied by the gutting of its marketing and sales software infrastructure so quickly. force, but now Next needs them to sell its products Users want software, not hardware. Just ask directly to large . Yusef Javeri, vice president of administration for Next will also need to have its product finished, DKW Systems Corp., a systems integrator that not just shipping in a beta version. It took Next near­ bought 48 Next machines for the Alberta, Canada, ly a year following the roll-out of its first hardware motor vehicle department. ''The reason we went product to officially release Nextstep 1.0. That kind with Next was because of the announcement of of delay won't work for a dark-horse candidate in Nextstep on the 486," he said, a few weeks before the intensely competitive PC operating system mar­ Next's announcement that it was a software-only ket. And because of the wide range of adapters PC company. 'There was concern that once Nextstep users plug into their computers to support moni- · was available on the 486, the workstation side of tors, disk drives, and other peripherals, Nextstep the company would collapse, but tpe end feeling will need hundreds of compatible device drivers. was the operating system would survive." Otherwise, Nextstep won't be able to run because For the moment, at least, time seems to be on of the variety of different components on Intel Next's side. Microsoft and Taligent are still two machines. In the past, Next hasn't had enough pro­ years away from a real product. 'The [Nextstep] grammers experienced in writing drivers, which is technology is so good that the industry should rally a massive undertaking for a company of any size, around it," says , president of Oracle but that much more of a challenge for Next's small Corp., a $1.18 billion a year relational database ven­ staff. By comparison, when IBM introduced OS/2 dor, which is reportedly in negotiations to bundle 2.0, the company tested it with hundreds of PCs Nextstep into its own products. But Next must and still couldn't provide all the drivers customers reinvent itself once again if it wants to keep its wanted. slowly evaporating lead. Although Jobs will probably give a smashing per­ In its existence, Next has sold a total of 50,000 formance on May 25-he usually does-the product copies of Nextstep, says Jobs. It's not much of an installed base, so he predicts the com­ pany will ship 50,000 Nextstep packages in 1993. But Next needs to increase its volume three-fold in order to build enough momentum to forestall Microsoft and Taligent in the object­ oriented software business. For perspective, Microsoft ships 12 million copies of Windows a year, and IBM ships 3 million units of OS/2. But Nextstep is a more advanced operating system with more added value than Windows or OS/2. Moreover, Microsoft makes much of its money on the appli­ cations it writes for Windows, not the operating system itself. Because people write applications with Nextstep, it is essentially an operating system and a software development environment in one package. Next must build volume momentum around N extstep itself. To achieve this, Jobs needs to make introduction will only be the beginning. Next needs many alliances with software and hardware to learn an entirely new way of marketing its prod­ providers if he wants to ship Nextstep in high vol­ uct. Next has been marketing to a specific niche, umes. "Next has a head start," says T. Michael but now it needs to have broader appeal for the 25 Nevens, a principal at McKinsey & Co., a major million Intel 486s shipped every year. Will people business consulting firm, "but it's going to need to really want to give up Windows applications for run fast and build a market quickly." Nextstep? Sure, you can run Windows apps in Two years ago, Jobs might have had a much eas­ Nextstep with an emulation window, but users have ier time introducing a new PC operating system. never been excited about that prospect. Instead, he's wrestling with the most difficult chal­ Clearly, the new Next will not lose $36 million a lenge of his professional life. ''We're not carrying year on hardware. Without this drain, the compa­ forth the hardware dream," he says, "but if we're ny can spend money on building a bigger sales successful as a software company... if we give peo­ force, increasing its support staff, hiring program­ ple an alternative to Microsoft.. .it will have been a mers to write device drivers, and giving the com­ greater good." pany more financial stability. Is $36 million enough Jobs looks out the window. He looks tired. "Many to compete with Microsoft and Taligent? Yes, say people would like to see me fall on my face," he analysts. But they add that the company must be says, closing his eyes. His boyish charm, perhaps incredibly organized if it wants to build a workable temporarily, has faded. •

44 UNIXWORLD APRIL 1993