The Rise and Fall of Apple Computer - Part 1
Rolling Stone 731 - April 4, 1996

The annual Macworld Expo is more than a computer convention. For 11 years it has functioned as a revivalist meeting for Apple Computer's true believers. Beginning Jan. 9, 1996, some 80,000 developers, industry executives and alpha geeks gathered at the Moscone Center, in downtown San Francisco, to once again celebrate the glory of Apple, to sing the praises of the Macintosh, and to breathe hellfire and damnation on the evil spirit from the rainy north, Bill Gates. 

Things got off to a bad start this year, however. On the second day of the convention, Apple announced it was taking a $68 million quarterly loss. The news spread through the convention center like kudzu in the garden of Eden. Silicon Valley was in the middle of the biggest gold rush since the early '80s - and Apple was taking a loss? The report lent credence to increasing speculation that the company was in serious trouble. For the past few months, Apple had been going through what amounted to a public nervous breakdown. Several highly regarded top executives departed, and there were rumors of a takeover by Sun Microsystems and that more than 1,000 employees would be laid off. And on top of it all, Michael Spindler, the charmless CEO of Apple, had declined to make his customary address at Mac World. To many Apple watchers, long accustomed to reading the secretive company's tea leaves, it was a sure sign that heaven was falling. 

By the following afternoon, when Frank Casanova, the director of Apple's Exploratory Products Lab, arrived at the entrance of the convention center, the media were in full deathwatch mode. In Silicon Valley, Apple is a tabloid darling, the only company that regularly commands the lead story on the evening news. Reporters pushed microphones into faces as people entered the building. "Are you worried about losing your job?" "Do you think this will be the last Mac World?" "Is Apple going down the tubes?" For Casanova, one of the brightest stars in the Apple cosmos, widely recognized for his shoulder-length black hair, technical savvy and podium wit, the scene was heart wrenching. He knew Apple had been through near-death experiences before. But this time it felt different. 

For the next couple of hours, he cruised the carnival-like convention floor past rows of flickering monitors and a game company's two-story beach-house-on-stilts exhibit, past software vendors touting new products to create instant Web pages and voice-activated programs to help handicapped children join the digital age. Dozens of people came up to Casanova - Apple employees, software developers, fans. "Is Apple OK?" they wanted to know. "It's hurting, but it will be OK," Casanova replied, though he knew it was too easy an answer. The depth of their emotion startled him. People approached him in confusion, in disappointment, in tears. 

In the following days, as the news settled in, so did despair. Clearly the notion that Apple might fall - or be swallowed up by another corporate entity - struck a chord, and some of the believers turned angry. "You guys have fucked up a good thing!" a drunken conventioneer shouted at Casanova one night. "Those assholes! How could you let this happen?" This time he had no easy answer.

You feel it as soon as you step through the doors of R&D 1, the main building on Apple's research and development campus, in Cupertino, Calif. R&D I is one of six buildings on the campus, loosely arranged in a circle called, appropriately enough, Infinite Loop. In a valley where structures are traditionally low and flat, the glass atrium that marks the entrance to R&D 1 vaults several stories into the air. Stepping though the glass doors is like entering a Gothic cathedral: One gets the sense of a tremendous volume of crystalline light skillfully designed to both exalt and humble. There is a kind of hush in the building. Your eye is forced upward, not to a stained-glass window but to a giant rainbow-colored Apple logo. Below, employees come and go, often bending down in front of an electronic sensor that reads their employee badges and unlocks the door. The act gives the impression of genuflecting worshipers.

Inside Infinite Loop, the sense of isolation increases. Many offices have balconies that overlook a grassy interior courtyard. The distant peaks of the coastal mountains are visible, and traffic on Highway 280 whooshes pleasantly in the distance. The weather is always sunny. Nearby is Apple's famous employee cafeteria, Caffe Macs, with reproductions of fifth-century Italian frescoes on the walls and better Italian food than most Silicon Valley restaurants. The overwhelming feeling is of contentment and peace, a perfect world endosed and removed from the grittiness of everyday life.

And maybe that's what makes Apple's fall from grace so hard to bear. Apple never pretended to be just another Silicon Valley start-up. It had long sold itself as the great hope of the counterculture, living proof that good could triumph over evil, light over darkness, intelligence over authority. It was a company that seemed to have everything going for it: the smartest people, the best technology, the highest hopes, the truest believers. It had a prophet, Steve Jobs, and a wizard, Steve Wozniak. According to the script, Apple was supposed to rise up out of the orchards of Silicon Valley and vanquish its foes. A lot of this was hype, a clever marketing strategy. But people believed it. And for a while it looked like Apple might indeed triumph. 

The story of Apple's decline is a morality tale for the Information Age. It is not, as one might expect, a story about how quickly the technology moves, or about how unforgiving and brutal business has become in Silicon Valley. In fact, Apple had many, many chances to save itself. But it didn't. It was the company of the future that failed to see what was right in front of its nose. And while Apple will no doubt reinvent itself in the years to come, the central idea that animated the company for so long - that Apple is a revolutionary force, that it could change the world - is dead.

This is a story about ambition and luck and how an industry came of age, but it is also about greed and failed leadership. It is about how Apple could have had it all and blew it.

Much of the potency of the Apple story, and perhaps what led to some of the arrogance in the later years, was the innocence of its founding. Apple was born in a valley of orchards, the product of two wide-eyed kids who in a garage created a machine that would not just make them millionaires many times over but would also have a profound effect on the way people live and work. And as time has passed, the significance of their creation has grown, not faded. We now know that the computer is not just a productivity tool but is also a window into the electronic universe, a portal to cyberspace. Wozniak and Jobs are the technoculture's Adam and Eve. What happened in that garage is as symbolic to a 22-year-old Webhead today as the Immaculate Conception was to a 14th-century Roman Catholic priest.

The myth, of course, differs from reality 

"We didn't build the computer in a garage," says Wozniak, known as Woz, now 45, taking a bite out of a Big Mac during lunch one day in his office. "I built most of it in my apartment and in my office at Hewlett-Packard, where I was working at the time. We just used the garage to assemble the parts toward the end. I don't know where the whole garage thing came from. Maybe it's because Bill Hewlett and David Packard built their machine in a garage, everyone assumed we built ours there, too. But really, very little work was done there."

Woz doesn't perfume history. His manner says, "Hey, I'm just a regular guy who got lucky." And that's how he lives. He works in a quiet corner of the valley, down the street from an abandoned orchard. Across the hall is an office for Dianetics and another for the Church of Scientology, an organization inspired by L. Ron Hubbard's quasi-spiritual ramblings (lights in Woz's office occasionally black out, he says, when Dianetics staffers fire up their office hot tub). For the past few years, he's been teaching kids how to use computers and the Internet. Three or four days a week a dozen or so children from the local schools trek in to his office for lessons from Woz, who provides them all with new PowerBooks and America Online accounts, which he pays for out of his pocket. He's on his third marriage now, responsible for six kids (three of his own, three from his wife's previous marriage). He drives a Mercedes convertible with personalized plates - woz - and owns two white bichon frises, a frisky breed of dog that looks like a poodle ("I call them my bitchin' dogs," Woz says). But at heart he's still a hacker: He still eats junk food, he still plays an hour or so of Defender, his favorite video game, every night at home.

Woz sees no particular miracle in the creation of the first Apple. "Everything in my life was leading me up to that machine," he says now. "It was just a natural progression."

It wasn't just Woz; in the early 1970s, the whole valley was inching toward the computer revolution. As it happened, I grew up in a suburban tract house in Sunnyvale, only a few blocks from Woz's family. The valley was a quiet, lonely place, with none of the energy it has today. A large animal-feed company with two tall silos stood on the spot where Apple's corporate headquarters are now located. Apricot and cherry orchards still thrived. Woz's father - like many others - was an electrical engineer at Lockheed, which built missiles and spy satellites. Others worked at Fairchild Semiconductor or Raytheon, building some of the first microprocessors. It was a gizmo culture, full of engineers who toiled for national defense during the day and by night puttered around in their garages, playing with oscilloscopes and ohmmeters.

Woz was more precocious than most. In the fifth grade he built his own ham radio. At 13 he won a blue ribbon at the Bay Area Science Fair for building a 10-bit parallel digital computer. In family pictures you see the evolution of a geek, a boy who was born to tinker. He was oblivious to any wider social implications of what he was doing and had no clue that these little devices he was wiring together might make him millions. That changed, however, when he was introduced to a tall, stringy kid named Steve Jobs.

The two met through a friend in 1971. They were an odd match: Jobs was five years younger, thin, intense, cosmic minded, with a slow, bouncy walk that suggested a profound cockiness; Woz was clunky, an engineer, inarticulate, a sweet soul beyond cynicism. Jobs grew up in an older part of the valley than Woz did, on a quiet street in Los Altos. Jobs' home was humble: a low, flat ranch house with thin walls and hollow doors. He had been adopted as a baby (it wasn't until he was in his 30s that he met his birth mother and discovered that he had a sister, the writer Mona Simpson). His adoptive mother was a payroll clerk at Varian Associates, one of the first high-tech companies in the valley; his adoptive father worked as a machinist at Spectra Physics, a company that built laser scanners for reading bar codes in supermarkets. In later years, after Jobs became the outspoken prophet of high tech, psychoanalyzing his family background would become a Silicon Valley parlor game. Jobs rarely spoke about it himself, but some wondered if his ultimate goal in life wasn't to change the world, as he often claimed, but to make his birth parents regret that they had given him up.

To be sure, Jobs had a spiritual restlessness that was completely lacking in Woz. In the early '70s, while Woz was toiling in the calculator division at Hewlett-Packard, Jobs enrolled at Reed College, dropped out, studied Zen Buddhism and threw the I Ching. He went to the Oregon Feeling Center for primal scream therapy, meditated in a womblike sensory-deprivation tank. Traveling around India, he had a typically Jobsian encounter at a religious festival in the Himalayas. "There was a baba, a holy man, who was the holy man of this particular festival with his large group of followers," Jobs later recalled in a magazine interview. "I could smell good food. I hadn't been fortunate enough to smell good food for a long time, so I wandered up to pay my respects and eat some lunch.

"For some reason, this baba, upon seeing me sitting there eating, immediately walked over to me and sat down and burst out laughing. He didn't speak much English, and I spoke a little Hindi, but he tried to carry on a conversation, and he was just rolling on the ground with laughter. Then he grabbed my arm and took me up this mountain trail. It was a little funny, because here were hundreds of Indians who had traveled for thousands of miles to hang out with this guy for 10 seconds, and I stumble in for something to eat, and he's dragging me up this mountain path.

"We get to the top of this mountain half an hour later, and there's this little well and pond, and he dunks my head in the water and pulls out a razor from his pocket and starts to shave my head. I'm completely stunned. I'm 19 years old, in a foreign country, up in the Himalayas, and here is this bizarre Indian baba who has just dragged me away from the rest of the crowd, shaving my head atop this mountain peak. I'm still not sure why he did it."

Although he never said it explicitly, Jobs seems to attach some mystical significance to this story, as if the baba had anointed him as a fellow spiritual leader. And perhaps the man had. 

By 1975, Jobs accompanied Woz to meetings of the Homebrew Computer Club, which met at Stanford's Linear Accelerator Center, in the hills above Palo Alto, Calif. Homebrew was a mix of engineers and aging Berkeley radicals who were fascinated by an ugly little device called the Altair 8800 computer, which had recently been featured in Popular Electronics for $395. Of course, you had to assemble it yourself, and it had no keyboard or monitor. And it wasn't exactly clear what you would actually do with it - beyond simple addition. But that wasn't really the point. The point was, it was yours.

It's hard to grasp what a revolutionary idea the personal computer was in 1975. In those days, computers were big, menacing beasts that lived in air-conditioned rooms at universities and in government buildings. They had connotations of evil. They were symbols of authoritarianism. The notion that you could build your own was mind-boggling. Especially for someone like Woz. He wanted an Altair so badly he could taste it.

Except he was broke. He couldn't even afford the $179 it cost to buy the Intel processor that did most of the work. At the time, Jobs was working nights at Atari (remember Pong?), and Woz would frequently come by and visit and play video games. "Atari put out a game called Gran Trak, the first driving game with a steering wheel to drive it," Jobs has said. "Woz was a Gran Trak addict. He would put great quantities of quarters into these games to play them, so I would just let him in at night and let him onto the production floor, and he would play Gran Track all night long."

"When I came up against a stumbling block on a project, I would get Woz to take a break from his road rally for 10 minutes and come and help me. He puttered around on some things, too. And at one point he designed a computer terminal with video on it. At a later date he ended up buying a microprocessor and hooked it up to the terminal and made what was to become the Apple I. Woz and I laid out the circuit board ourselves. That was basically it."

Not all the Homebrewers were as impressed by Woz's engineering feat as Jobs, who demonstrated his talent for seeing gold in dross and immediately insisted that he and Woz go into business together. To raise money to get started, Jobs sold his VW van and Woz sold his calculator, for a net total of $1,350. Jobs even had a name for the new company, inspired by his recent stay at a farm in Oregon: Apple Computer Company.

To anyone who was used to working on IBM mainframes, Woz's little computer was a joke. It had no screen or keyboard. It had only 4,000 bytes of internal memory - the equivalent of four typewritten pages. What was it good for? When Woz offered his new computer to Hewlett-Packard before Apple was formed, they told him it wasn't a salable product.

Jobs, however, had other ideas. While Woz worked on a new version of his computer, which would eventually be called the Apple II, and which would come with a keyboard of its own and display color on a TV screen, Jobs contacted Regis McKenna, a Palo Alto marketing consultant. One afternoon he and Woz stopped by McKenna's office. "Jobs had this Ho Chi Minh beard, cutoffs and Birkenstocks," McKenna recalls. "Woz was carrying some article he had written that described the computer he was building in very technical terms. I tried to read it but gave up. I told him that if he wanted to communicate with the public, he had to put this into English. Woz said, 'I don't want anybody touching my stuff!' So I threw them both out of my office."

But Jobs wouldn't let go. He kept calling and calling McKenna's office - finally, McKenna sent a few potential investors over to the garage to look at the computer Woz was building. Most were unimpressed. But then Mike Markkula, a veteran of Fairchild Semiconductor and an inveterate tinkerer, stopped by and fell in love. Three months later, in exchange for $91,000 of his own money and his guarantee on a $250,000 line of credit at Bank of America, Woz and Jobs gave him a one-third interest and incorporated their company. Markkula brought in another colleague from Fairchild, a blunt, chubby man named Mike Scott, to help keep these two wild kids in line. The Apple II made its debut in 1977 at the West Coast Computer Faire, a San Francisco gathering of geeks and hobbyists and garage tinkerers loosely modeled on the Renaissance Faires that were popular in the Bay Area. With the exception of the computer's switching power supply, the Apple II was, literally, a creation of Woz's mind and hands. It was housed in a cozy plastic casing (most computers in those days were in kits or in clunky steel boxes), it could output colorful graphics, and most important of all, it came with a useful version of BASIC built into it - a computer language written in part by a Harvard dropout named Bill Gates, who had just started a small company called Microsoft.

But the key lesson in the success of the Apple II wasn't in the design of the machine, elegant as it was. On its own, it was just a box. It was software that made the Apple II a hit. A Harvard Business School student and a pal from MIT created a program called VisiCalc, which was a simple spreadsheet that allowed the Apple II to be used for business calculations. Within two years, VisiCalc sold 200,000 copies, by far the best-selling computer application of the time, and sales of the Apple II zoomed off the charts.

Apple went public on Dec. 12, 1980. Investors went bananas. Jobs, the biggest shareholder, was suddenly worth $165 million. He was 25 years old. Woz, at 30, was worth $88 million. In just less than the five years since its founding, Apple had grown to more than 1,000 employees. Overnight, beat-up Chevys in the parking lot were replaced by Porsches. Woz and Jobs became instant icons, as famous as rock stars, fresh-faced symbols of American ingenuity and derring-do.

It didn't last long. By 1981, the bubble had burst at Apple - as it would by the mid-'80s throughout Silicon Valley. The initial rush to build personal computers had produced dozens of start-ups, each with a good idea, each hoping to cash in on this boom. Most of the names, from Eagle Computer to Grid Systems, have vanished into the fern bogs of the Information Age, done in by the difficult transition from good idea to stable business. Apple was no exception. In early 1981, 40 employees were laid off, and the stock price tumbled. Woz was seriously injured when his plane crashed on takeoff from a small airport in the Santa Cruz Mountains, in California; after recovering, he took a leave of absence from Apple and returned only briefly. And to top it all off, there was the recent introduction of the Apple III, a clunky, overpriced successor to the Apple II that - partly because of initial manufacturing problems and partly because of its poor design - was DOA.

Apple was starting to look like just another one-hit wonder headed for oblivion. Then, Jobs had a vision.

When jobs arrived at Xerox's Palo Alto Research Center, the corporation futuristic lab that was just a few miles from the building where the Homebrew Computer Club used to meet, he wasn't expecting divine revelation. He just wanted to poke around. It was a gray December day in 1979, and Jobs, dressed in jeans and looking mildly unkempt as usual, arrived with several engineering pals from Apple, including Bill Atkinson, who would go on to become one of the star programmers of the Macintosh. In the lab, Jobs was stopped in his tracks by a graphical user interface on the Xerox Alto, a high-end computer that had been developed there; basically the interface was a crude version of the icons and folders that would later be used on the Mac. It seems simple now, but at the time it was revolutionary. And to Jobs, obvious. "You could argue about the number of years it would take, you could argue about who the winners and losers in terms of companies in the industry might be," Jobs told me 15 years later for a ROLLING STONE Interview, "but I don't think rational people could argue that every computer wouldn't work this way someday."

Computer-industry pundits are still arguing about whether Jobs stole the ideas he saw at Xerox or was just "inspired" by them. The truth is, none of this technology was new - nor was it a secret. Xerox used much of it in its own computers but just didn't market them well (starting in 1979, Xerox Altos had been sent to some universities; they had many easy to use features that would later be popularized in the Macintosh). And the computer mouse, which everyone today associates with the Macintosh, had in fact been invented in the l960s by Doug Engelbart, a well-known researcher at Stanford Research Institute, a computer-industry think tank.

The immediate beneficiary of Jobs' visit to Xerox was not the Macintosh, however, but a computer called Lisa. It was supposed to be the next big project, the great leap in computers. Apple had gone on a hiring binge and swooped up many of the best engineers in the valley - including several who worked at Xerox. The Lisa was to be a first-class project, engineered by some of the best minds money could buy. Except one: Steve Jobs.

By that time, it was clear that Jobs was not exactly a born manager. He was too hot-tempered and impolitic, too quick to shoot off his mouth. Although Jobs was a co-founder of the company, he owned only 11 percent of its stock; as long as Scott and Markkula were around, he had little actual authority. The Lisa was supposed to be a professional operation, proof that Apple could make it in the big leagues - nobody wanted Jobs mucking around with it. "It hurt a lot," Jobs recalled. "There's no getting around it."

But one of the advantages of Apple's freewheeling climate was that offbeat ideas could ripen in dark corners. One such idea was a little thing called Macintosh. It was originally the brainchild of Jef Raskin, who had conceived the project even before Jobs' visit to Xerox (in fact, Raskin was part of the Apple team that had accompanied Jobs on his visit). Raskin, who was more than 10 years older than Jobs, had been Apple's 31st employee, a colorful computer scientist and sometimes brilliant musician. Raskin had long dreamed of a small, friendly, inexpensive computer, a sort of information appliance. He hired a friend, Guy "Bud" Tribble, a young neurophysiology student turned software designer; Joanna Hoffman, who had recently left the Oriental-studies program at the University of Chicago and who was brought on to do market research; and Burrell Smith, a gifted young hardware engineer.

The Macintosh was still in a primitive state - there were only about five people working on it in an isolated office - when Jobs got wind of it. To him it was a return to the garage: a small, swift guerrilla operation uncluttered by managers and marketers. Jobs and Raskin battled about the direction the Mac should take - Raskin was opposed to a mouse and a graphical user interface, and didn't want to include any pre-written applications like a word processor or a spreadsheet, and he favored a squat design. After a fierce internal battle, Raskin was pushed out, and Jobs took over. Jobs' power increased a few months later when Markkula forced Mike Scott out of the company. Scott, a tough, dogmatic man who never quite found his niche at Apple, left in a fit of pique, firing off a bitter public letter, saying that Apple had degenerated into "yes men" whose "cover your ass" attitudes were exceeded only by their "foolhardy plans." With Scott out, Markkula became president, and Jobs took over Markkula's old job as chairman of the board.

Jobs didn't have much time to prove himself. In August 1981, IBM introduced its first PC. Big Blue had arrived.


Looking back on it nearly 15 years later, it's easy to paint this as a moment of high romance and adventure in Silicon Valley. At the time, it was less obvious. In 1981, just as the Macintosh was taking flight, I worked at Apple for a short time. It did not thrill me. Of course, I was a lowly 21-year-old in the gloomy Apple III Systems Software group. I never bumped into Woz or Jobs. But I did get to know a lot of panicked and overworked engineers who lived in their fabric-walled cubicles in the Apple building on Bandley Drive. I attended Friday beer bashes, played pingpong and shot hoops in the parking lot. But I still had the naive idea that a computer was nothing more than a fancy typewriter. So I quit and moved to Lake Tahoe to deal blackjack.

Steve Capps was smarter. He is a burly software programmer from upstate New York who came to embody much of the spirit of the Mac team - the wildness, the irreverence, the occasional flashes of brilliance. He dropped out of college several times, rode a motorcycle around New York state, built a log cabin with his own hands - "I was a wanna-be hippie," Capps says now - before he finally ended up working as a programmer at Xerox. In 1981, at the urging of a couple of friends, Capps moved to Apple, where he worked on printer software for the Lisa. Word eventually got around that Capps was writing some hot code, so one day toward the end of 1982, as Capps was chugging along in his usual shorts and Vans slip-ons, Steve Jobs intercepted him and announced, "We're gonna nab you for the Mac." After a brief tug of war, Capps was installed on the Macintosh software team. There were about 40 people working on the project then. It would later grow to more than a hundred.

But the core team was really only a small group. It included at various times Burrell Smith; Joanna Hoffman; Bill Atkinson; Bud Tribble; a young, intense, moon-faced hacker named Andy Hertzfeld; Susan Kare, a graphic designer who created the icons and graphics; Randy Wigginton, who worked on software applications; and Bruce Horn, who did crucial coding on the finder. They were mostly middle-class eccentrics in their mid- to late 20s, born a few years too late for Vietnam or the civil-rights movement but still brimming with outlaw spirit. They were suspicious of authority and anything that reeked of privilege. Few of them were married or had kids or cared about money - according to Hertzfeld, Burrell Smith, the hardware genius whose work was crucial to the Mac's success was paid less than $20,000 a year until Hertzfeld intervened and demanded that his salary be boosted. There was no promise of stock options (although when the Mac finally shipped, most of the team was given a bonus of about a half-year's salary). Many of them were grateful just to be working at a place where nobody cared if they rolled in at 11 a.m. and worked until 2 a.m., and where the office refrigerator was always stocked with free fruit juice.

They were a smart bunch. But the valley was full of smart people. The truth is, they were also lucky. A lot of other forces lined up to make the Mac possible: A new Motorola microprocessor, the 68000, which had just been released, was dramatically cheaper and more powerful than anything else on the market; also, much of the Mac software was inspired by - or directly copied from - work already done on the Lisa, which was turning out to be too slow, too expensive and too far behind schedule.

The Mac team's dictum was simple: build the coolest machine they could imagine. There was no marketing research, no corporate compromises, no pandering to practicality. "We weren't building a yuppie machine," Hertzfeld recalls, sitting cross-legged in his chair. He is 42 now and has gone on to start another company, General Magic, but he remains as impish and uncompromising as ever. "We were building a machine to make us happy," he says. Although Woz wasn't involved in the design of the Macintosh, the machine was very much an extension of his character. "I worshiped the Apple II," says Hertzfeld. "My goal was to instill the spirit of Woz's machine into the Mac. That edginess, that playfulness, that sense of fun for fun's sake."

Every day there was a new crisis. The disk drive didn't work. The finder software was fucked up. The menu bars didn't look right. Months passed. Deadlines came and went. Massive amounts of sugar and caffeine were ingested. Jobs nursed and coddled and horsewhipped the team's members, pushing them to think of themselves as artists (Jobs insisted that all the key engineers and designers sign the inside of the original Mac case). He also defended them from the bean counters. "The most important thing Steve did," says Hertzfeld gratefully, "was erect a giant shit-deflecting umbrella that protected the project from the evil suits across the street."

As much as they respected Jobs, they also loved to hate him. Smith, who had a gift for caricature, called him "the Devil." "You'd work on something all night, he'd look at it in the morning and say, 'That sucks,'" Capps recalls. "He'd want you to defend it. And if you could, then you were doing your job, and Steve respected you. If not, he'd blow you out of the water." Stories of Jobs' ability to humiliate people are legendary. "Steve simultaneously has the best and worst qualities of a human being," says Hertzfeld, who recently had a fall-ing-out in his long friendship with Jobs. "They're both in him, simultaneously, living side by side with each other." To Hoffman, this was all part of what makes Jobs such a fascinating character: "He has the personality of a creative genius. You can't expect constancy out of someone like that."

To relieve stress, Capps played basketball. Others snarfed pineapple pizza, tossed Nerf balls. Nobody drank (hackers seem to have an anti-alcohol gene), but when things got tense, somebody would spark the occasional joint. Jobs brought in a $25,000 Bosen-dorfer piano and a BMW motorcycle for design inspiration; worried that his team needed creative stimulation, he authorized $1,000 a month to be spent on toys - so somebody went out and bought a killer stereo. During late-night kamikaze programming marathons, they'd crank up the Pretenders or the Violent Femmes loud enough to rattle the windows.

Jobs, ever eager to do anything to make the Lisa team look like slugs, encouraged his staffs unorthodox ways. "It's better to be a pirate than to join the Navy" was displayed on an easel during one off-site meeting. Capps took that as inspiration and immediately went out and bought some black nylon, which he cut up and sewed into a flag. Susan Kare painted a skull and crossbones on it, with a rainbow-colored Apple logo for the patch. "Then we climbed up onto the roof of the building one night at about 2," Capps recalls. "We were trying to figure out a place to fly it. We tried hanging it over the front of the building like a bunting, but that didn't work. I noticed a scaffolding that some workers had left behind, so I grabbed a piece of that and fashioned it into a flagpole. Some security guard wandered by and shined a flashlight in our eyes and asked us what the hell we were doing, but as soon as I told him who I was, he left us alone. I guess he was used to our craziness. You couldn't see the flag very well at night, but the next morning when we came to work, there it was, flapping in the breeze on a sunny California morning. It was beautiful."

In retrospect, one might argue that Apple's decline began after lunch one day at the Carlyle Hotel, in New York. After meeting there, Jobs and John Sculley, the polished but uncharismatic president of Pepsi-Cola, walked over to Central Park. It was a spring afternoon, leaves budding in little fists of green on the maple and sycamore trees overhead. Jobs was a celebrity by now, recognized even on the streets of New York. But as usual he was oblivious. His attention was focused completely on Sculley, whom he was trying to recruit to Apple as the president and CEO. For weeks now, Jobs had been giving Sculley the pitch: how Apple was a new kind of company, how the computers they were building were going to change the world.

"How are you feeling about things?" Jobs asked.

"I'm really excited about what you guys are doing," Sculley said. "I think you're changing the world."

"Well, I really think you're the guy," Jobs replied. "I want you to come and work with me. I can learn so much from you.

Jobs may have been blowing smoke, but he wasn't lying. It was becoming clearer and clearer that Apple needed to shrug off its legacy as a garage start-up and become an adult. If the company didn't acquire some critical mass, it had no hope of competing against monsters like IBM. Unlike Microsoft, where Bill Gates evolved steadily from nerd to CEO, Apple had no steady hand with the maturity and the technical experience to guide it through this tricky period. To his credit, Jobs had wised up enough to know Apple needed someone who could smooth the road into corporate America, someone Wall Street could trust. Someone like John Sculley.

At first glance, Sculley and Jobs were a strange pair. Sculley was from a noble line of East Coast WASPs. He grew up rich and pampered. He had always thought of himself as something of an artist, however - he'd studied architecture in graduate school and, later, during a sabbatical from Apple, enrolled in the University of Southern California Film School. His ascent of the corporate ladder was no doubt aided by his connection - he was once married to the stepdaughter of Pepsi's chairman, Donald Kendall. Still, Sculley was widely regarded for his marketing smarts and often took credit for resurrecting the Pepsi Generation ad campaign in 1970, which had been abandoned five years earlier. It was exactly the kind of smart, hip campaign that Jobs imagined using to sell the Macintosh. Sculley knew very little about computers, but he prided himself on his listening ability (his business card at Apple later read: CHIEF LISTENER). Besides, Jobs figured he'd take care of the engineering side of Apple. What he really wanted was a teacher, a guide.

That afternoon, Sculley and Jobs wandered into the Metropolitan Museum of Art, pausing to explore Periclean sculpture of the fifth century B.C. "As we left the museum," Sculley later reflected, "I gained a sense that I could be a teacher to a brilliant student. I saw in him a mirror image of my younger self. I, too, was impatient, stubborn, arrogant, impetuous." Later that day they ended up in a penthouse suite that Jobs was thinking of buying at the tony San Remo apartment building. They stood out on the balcony, where they could see the gray urban panorama stretching across the Hudson River to New Jersey, down to the Statue of Liberty and up to the George Washington Bridge.

After a few minutes of idle chat, Sculley finally let it be known that he didn't think he could come to Apple.

Jobs paused for a moment, then said, with classic Jobsian instinct for the jugular: "Do you want to spend the rest of your life selling sugared water, or do you want a chance to change the world?"

The line echoed in Sculley's head for a long time. Finally it got the best of him. In April of 1983 he became Apple's new president and CEO. With a base salary of $1 million a year plus a $1 million signing bonus and millions more in stock options, he became one of the highest-paid executives in Silicon Valley.

As the introduction of the Mac approached, Jobs went into hyperdrive. His most critical task was to line up support with outside software developers. Unlike the Lisa, which came with all of its own software applications, Jobs believed -correctly, as it turned out - that Apple should encourage outsiders to develop applications like spreadsheets and word processors for the Mac. No one was more crucial to this effort than Bill Gates Circa 1983, Microsoft was a much smaller company than Apple. But the balance of power was beginning to shift. For the Mac to succeed, it was crucial that Microsoft have software ready to go when the computer shipped.

Early on, Jobs worried that Gates was playing a two-sided game with him. Yes, Microsoft would develop applications, but at the same time, Jobs feared that Gates was using what he learned about the Macintosh to write competing software for the IBM PC. Thus, Microsoft would have the best of both worlds - it could make money on the Macintosh applications while at the same time write software for a PC that would undercut the Macintosh's advantage. Which was in fact exactly what Microsoft did.

This put Jobs in a delicate position. He couldn't afford to alienate Microsoft by cutting off access to the Mac, but it would have been foolish not to take precautions. So in January 1982, Jobs drafted an agreement stating that Microsoft could not 'undertake in any way to sell, lease, license, publish or otherwise distribute ... any financial modeling, business graphics or data base program which utilizes a mouse or tracking ball for any computer not manufactured by Apple.' The intent was to give the Mac a head start. But the exclusivity clause, which expired 12 months after the initial shipment of the Mac, or Jan. 1, 1983, whichever came first, covered only applications. It said nothing about operating systems.

Six months later, many Apple engineers sensed that Microsoft was working on its first version of the Windows operating system for the IBM PC. Jobs, who at the time still had the upper hand in the relationship, would often summon Gates to Cupertino and berate him for stealing ideas from the Macintosh. Hertzfeld recalls one particularly tense meeting. 'Gates, you know, was just a skinny little geek like the rest of us, but he could really hold his own with Steve,' Hertzfeld says. 'He took a seat right across the table from Steve, and when Steve accused him of stealing software from the Mac, Gates shot back at him, 'No, Steve, I think it's more like we both have this rich neighbor named Xerox, and you broke in to steal the TV set, and you found out I'd been there first, and you said, 'Hey, that's no fair! I wanted to steal the TV set!'"

It wasn't just Gates and Jobs - everyone in the computer industry knew that graphical user interfaces were the thing of the future. The question was, Who would set the standard? In a blatant attempt to steal some of the Mac's thunder, Microsoft announced the first version of Windows at a splashy event at New York's Plaza Hotel on Nov.10, 1983. In classic Microsoft fashion, however, the product didn't ship until two years later. And even then it was a lame, inelegant system - nothing like the Mac.

In Silicon Valley, Jan. 22, 1984, is like the day JFK was shot or Neil Armstrong walked on the moon. Even today, more than 12 years later, many high-tech execs and PC users have a precise recollection of where they were when Apple stunned the world by airing its famous 60-second "1984" commercial, directed by Ridley Scott, during the third quarter of the Super Bowl.

It was an astonishing moment, as much for the ad's bold claims as for its powerful visuals. The commercial used the iconography of totalitarianism - a crowd of drones entranced by a Mao-like leader and set free by a sledgehammer-wielding woman in a Macintosh tank top - to cast Apple as the liberator of the human race, as the best hope against intellectual tyranny. It was as if some arrogant ghost had risen from the streets of Berkeley and tossed a Molotov cocktail into the soul of the Reagan revolution.

Looking back, Apple's cojones were stunning. The original Mac was a tremendous achievement. It was small, attractive, human, elegant and easy to use.

And with its windows, icons and desktop interface, it provided a metaphor for the newly expanding digital world. "Long after its departure, Macintosh will be remembered as the product that brought just plain people, uninterested in the particulars of technology, into the trenches of the Information Age," Steven Levy wrote in Insanely Great: The Life and Times of Macintosh, the Computer That Changed Everything.

But as a product, it was seriously flawed. It cost $2,495 (a far cry from the $1,000 price the more democratic-minded engineers like Hertzfeld had been shooting for), and it came equipped with only 128K of memory - hardly enough to open a file without having to swap disks. There was no hard drive, and no easy way of attaching one. Also, at the time the Mac was shipped, only three pieces of software would run on it: a spreadsheet; MacPaint, a drawing program; and MacWrite, a word processor that could only handle 10 pages of text. There was no networking capability, no color monitor - nor any possibility of adding one.

Nevertheless, the Mac looked good out of the gate. Apple sold about 70,000 units in the first three months, well above the public forecast. Jobs and the team traveled around the country pitching the Mac as the computer for the rest of us -"a bicycle for the mind" was one of Jobs' favorite phrases (revised, according to Hoffman, from the in-house version, which was "a vibrator for the mind"). Jobs astutely marketed the Mac's software engineers like rock stars - Andy Hertzfeld and Bill Atkinson become familiar names in the nerd world. In an effort to establish the Mac's hipness credentials, Jobs gave away computers to Yoko Ono, Mick Jagger and Kurt Vonnegut. Apple also brilliantly exploited the education market through a program called the Apple University Consortium, which sold Macs in bulk to schools at a deep discount.

But it soon became clear that the notion of the Mac as an information appliance, something as common to every household as a toaster, was about 15 years ahead of its time. If the Mac was going to succeed, Jobs and Sculley were going to have to sell it to corporate America. For Apple, it was a marketing challenge of cosmic proportions.

The problem, of course, was that the Mac had been designed and built by a bunch of eccentric hackers whose idea of a corporate retreat was two weeks alone in a geodesic dome in New Mexico. It's not surprising that the machine they designed had almost none of the features that corporate America wanted - no networking, pitifully little memory, no good productivity software. It was too touchy feely. It had that silly Mac smile that greeted you when you turned it on. To most purchasing agents it was a just cute toy. As one reviewer put it, the Mac was "the world's most expensive Etch a Sketch."

By late summer, nine months after the introduction of the Macintosh, sales started to drop precipitously.

To make matters worse, it was clear that Apple needed to introduce a new Mac that would address some of the shortcomings of the original, but the Mac team was burned out and in disarray. "The good part of working with Steve was that he inspired us to do our best," Capps says now, sitting in his adobe house on a hilltop above Silicon Valley. "The bad part was, it was really destructive. You can inspire people to exceed, but you have to be prepared to offer psychological support." Hertzfeld quit, partly in disgust at the high price Apple had put on the Mac. Hoffman and Capps soon followed. Burrell Smith plunged into something called TurboMac, but then got in over his head and wasted months on a design that went nowhere. Others seemed - momentarily, at least - to unravel. Capps recalls that not long after the Mac was finished, Bill Atkinson invited him out into the parking lot to gaze at the stars: "Bill pointed up to the sky and said, 'Steve, we're going to be invaded by beings from outer space pretty soon. We have to start building a data base now so that when we meet these aliens, we'll be able to explain everything to them. We have to be ready.' "Capps laughs about it now but adds that Atkinson "was not joking."

It went from bad to worse. Mac sales plummeted. Christmas of '84 was a disaster. Computers backed up in warehouses, leaving Apple with a huge backlog of inventory. And during the 1985 Super Bowl, Apple tried to repeat the success of the "1984" commercial. This year, however, the ad was a humorless vision of blindfolded business people marching lemminglike off a cliff - supposedly the drones following IBM. But many saw it as a perfect metaphor for what was going on within Apple itself

With the falling consumer demand, Apple had no choice but to push harder into the business market. After brilliantly casting itself as the rebel outsider, it now declared a public detente with IBM - a deeply humiliating reversal. At the annual stockholders meeting in January of 1985, Jobs announced the so-called Macintosh Office, a suite of new products, including a laser printer that was supposed to make the Mac more business friendly. But the key piece of technology, a file server that would allow Macs to be networked with IBM mainframes, wouldn't be ready for another two years.

Not surprisingly, the romance between Jobs and Sculley soured. To Sculley, Jobs was dangerously out of line. He was going in a million directions at once - no discipline, no organization, no manners. He had built a machine with no marketing strategy, no clear target user. "Build it, and they will come" seemed to be the motto. Well, it wasn't working. And now, Jobs balked whenever anyone suggested that maybe the Mac wasn't perfect. Sculley had given up a lot to come to Apple, which everyone knew was the coolest company in the world. Now he was starting to see his life flash before his eyes. This was not a man who was used to failure - or chaos. He'd go jogging at 4:30 a.m. in the hills above Palo Alto, then he would schedule a half-dozen early morning meetings. He had all the discipline in the world. But Apple wasn't like Pepsi. No one cared about discipline in Cupertino. Apple was rock & roll.

To Jobs, Sculley was turning out to be the emperor with no clothes. Jobs couldn't help but feel that he had been sucked into his own reality-distortion field. He thought Sculley had had the courage and vision to help Apple grow up, to be decisive, to help chart a course for the future. But Sculley had been around for about two years now, and what had he done? It was becoming clearer and clearer that he didn't understand the computer business. During one software demo, colleagues had noticed Sculley's hand was trembling when he touched a mouse. Trembling! Another time, Sculley had the temerity to compare selling the Mac to selling potato chips. Sculley was Old World all the way. Sometimes it seemed like he worried more about smudging his reputation than leading Apple. Jobs had no patience for this. If it were up to guys like Sculley, there wouldn't even be a Macintosh.

To Jobs, the problem was not the design of the machine. It was in the way it was being sold. Jobs had been talking with Fred Smith, the legendary founder of Federal Express, who, unlike Jobs, managed to keep control of his company and watch it grow into a multibillion dollar business. Smith had convinced Jobs that the best way to sell the Mac was to do it direct - cut out the middleman, sell straight to the consumer via Federal Express. It was a strategy that in the years to come would be exploited by companies like Dell Computer to great effect. Jobs thought it was brilliant - just pull the Fed Ex planes right up to the back door of the factory. There would be no problem with hidden inventory, lousy salesmen, clogged distribution channels. It would solve everything.

Sculley wasn't convinced. He thought the company needed a complete reorganization. Until now, Apple had essentially been divided into teams - the Apple II team, the Mac team, the Lisa team. To Sculley, this was inefficient and unharmonious. He wanted to set up the company in a more traditional way - one marketing department, one research and development department, one sales force. Jobs, of course, thought it was a lousy idea. It would dilute the sense of pride that had made the Mac team great, that sense of everyone pulling together to make one insanely great project. It would turn Apple into the thing Jobs feared most: an IBM clone.

While Jobs and Sculley battled, the free fall continued. In June, Apple's stock hit an all-time low of $14.75. Many people within the company began questioning the fundamental premise of Apple's business plan. It didn't take a Ph.D. to see that building hardware would soon become a commodity game. And the real genius of the Mac, after all, was the software. Why not license it to others for a hefty fee? It was a difficult concept - Apple's riches had come from building boxes. But what was it that Apple was really selling? Capps recalls a brainstorming session with Hertzfeld and Jobs - they were batting around ideas about what they could do to save the Mac. Capps said, out of nowhere, "You know, the truth is, we're really a software company thinly disguised as a hardware company." Jobs and Hertzfeld agreed, then the conversation moved on.

In the years to come, the debate about whether Apple was a hardware company, or a software company, or both, would consume Apple executives. And their failure to resolve the question clearly and swiftly would ultimately contribute to the company's downfall.

But at the moment, Jobs had other things on his mind. By May of 1985, he and Sculley became locked in a Machiavellian struggle for control of the company. And Mike Murray, then a 29-year-old marketing whiz who had joined the Mac team three years earlier, was right in the middle of it. "Apple had divided itself up into two camps - the Jobs camp and the Sculley camp," Murray recalls from his office at Microsoft, where he works today. "I thought Steve was brilliant, the heart and soul of the company, but I eventually found it too difficult to work for him. So I went to work for Sculley but didn't find that to be much more tolerable." As Murray vacillated, Sculley and Jobs competed for his loyalty. To Murray, it sometimes felt like he was living in two parallel worlds. One day he walked from a meeting where Jobs and his loyalists were plotting a companywide reorganization that sidelined Sculley to another meeting where Sculley and his pals were plotting to sideline Jobs.

And it got worse. "At one point, Steve and John and I scheduled a meeting at Steve's house on a Saturday," Murray recalls. "Steve lived in this big old crumbling mansion in Woodside. It was almost empty of furniture - just a bed, a TV, a table and a few chairs. John and I showed up, then the three of us took a walk outside together and started tossing around strategies about how to save Apple. At one point, John went into the house to go to the bathroom. And as soon as he left, Steve turned to me and tried to convince me that we had to figure out a way to get rid of John. It was just depressing. For the first time in my life, I was introduced to politics, to corporate infighting and manipulation." A note of sadness is still traceable in Murray's voice. "I thought we were supposed to be changing the world, and here this great philosophical idea was getting trashed because of greed and egos."

Something had to give. In May of 1985, Jobs decided to make an all-or-nothing play for control of the company. He had enticed Sculley to schedule a trip to China and, while Sculley was away, planned to stage a boardroom coup. But Jobs had vastly overestimated his standing among the members of Apple's executive staff - many of whom were exhausted by his constant yo-yo-ing - while at the same time underestimated Sculley's skills as a corporate warrior. If there was one thing Sculley was adept at, it was boardroom politics. At the last minute, Sculley was tipped off to Jobs' plot and, on May 23, decided to cancel his trip to China. He decided to confront Jobs in a dramatic showdown.

During the executive staff meeting at 9 the next morning in De Anza 3, a low glassy building just a few hundred yards from where the Mac team's pirate flag had flown two years earlier, Sculley and Jobs sat on opposite ends of a long table, eyeing each other like gunfighters. The contrast was startling: In his hand-tailored Wilkes Bashford suit, Jobs looked every inch the golden boy, the cocky young visionary who had invented the future. Sculley, on the other hand, seemed pale and worn out. But he had a kind of gravitas about him, a worried father in a room full of teenagers.

Sculley spoke first. He was so shaken he began to stutter - a nervous tic he'd had as a child that he thought he'd outgrown years ago. "He said, 'I've heard Steve has been going around my back trying to kick me out of the company,'" one executive recalls. "Steve took up the challenge and said, 'That's right. I think you should leave.' "After a brief and emotional exchange in which Jobs listed his reasons why Sculley was an incompetent leader and had to go, the matter was put to the executive staff for a vote.

One by one, they went clockwise around the room - and with apologies, they sided with Sculley. Then came Regis McKenna, who happened to be sitting in on the meeting as an unofficial staff member that morning. McKenna was the man who had helped Jobs get his start nearly a decade before when he was just a kid with a cool gadget and a Ho Chi Minh beard. Now, McKenna had to agree with the others: He was grateful for all that Jobs had done for the company, and McKenna hoped Jobs would stick around in some honorary position, but he had to get out of day-to-day operations. It was time to give Sculley a shot at running Apple on his own.

Silence filled the room. All eyes turned to Jobs. "Well, I guess I know where things stand," he said quietly, his voice trembling with emotion. Then he bolted from the room, shunned by the company he had given birth to nine years earlier.

In the next few months, Apple laid off a fifth of its work force, some 1,200 employees. The company posted its first quarterly loss. For the second time in five years, the company was knocking at death's door. No one could have guessed that Apple's glory days were just around the corner.




The Rise and Fall of Apple Computer - Part 2
Rolling Stone 732 - April 18, 1996

Steve Jobs spends his days in his office at NeXT Software Inc., on the edge of the San Francisco Bay in Redwood City, Calif. Jobs, 41 years old now, a father of three, has lost none of his youthful energy and little of his arrogance. It is almost 20 years to the day since he and his friend Steve Wozniak started Apple Computer, and more than 10 years since Jobs left in a bitter dispute over the direction of the company. Jobs is riding high once again; he has taken his new company, NeXT, from the brink of bankruptcy and made it one of the most talked-about software producers in Silicon Valley. His investment in Pixar Animation Studios, the company that breathed life into last fall's hit movie Toy Story, has paid off magnificently. When the market closed after the ini-tial public offering of Pixar stock, Jobs' stake in the company was worth more than $1 billion. 

It is the fate of his beloved Apple, however, that haunts him. From his office, where he glimpses sailboats and sea gulls playing on the bay, he has also closely watched the layoffs, the blunders, the falling stock prices, the shortsighted leadership that has brought his old company to its knees. "Apple didn't fail,"Jobs says. "The trouble with Apple is it succeeded beyond its wildest dreams. We succeeded so well, we got everyone else to dream the same dream. The rest of the world became just like it. The trouble is," Jobs adds sadly, "the dream didn't evolve. Apple stopped creating." 

It also stopped making money. In the second week of January 1996, Apple announced a $68 million loss for the final quarter of 1995. That was followed by the announcement of a layoff of 1,300 employees and the departure of Michael Spindler, Apple's embattled president and CEO. The company's powerful PR machine counter-attacked with full-page ads in the New York Times and the Wall Street Journal, reminding the world that 56 million people are still using Mac-intoshes, that the Mac is still the No.1 computer on college campuses, that it is the authoring tool of more than 40 percent of all Internet sites and the standard-setter in desktop publishing. The false bravado fooled no one. In early March 1996, Apple's stock price traded at a low of $25, about half of what it had been less than a year earlier; also in March, angry shareholders filed a class action suit against the company, charging that the annual $10 million-plus compensation for Gil Amelio, Apple's new CEO, was "wildly excessive." At the same time, Compaq Computer Corp. announced a price cut on its machines, pressuring Apple to do the same when it could least afford it. Apple's restructuring costs for the second quarter of its 1995-96 fiscal year will exceed $125 million. "The worst is yet to come," says a recently de-parted top Apple executive. In a voice laced with out-rage, he predicts that in the coming months Apple's stock price will drop below $20 a share and layoffs will hit another 3,000 people. "It's going to be bloody," he says. It's a goddamned tragedy."

Mike Murray still remembers the moment he saw the panic. He was sitting in a conference room along with 40 or 50 col-leagues in Apple's corporate headquarters, in Cupertino, Calif. wondering if his career was about to end. It was May of 1985. Sales of the Macintosh had stalled, the company's revenue was plunging, and there was talk of layoffs. For the past six months or so, Jobs had been locked in a battle for control of Apple with John Sculley, the self-effacing but steely former presi-dent of Pepsi-Cola who came to Cupertino to lend stability to this brash enterprise. Jobs may have been Apple's technological visionary, but he was a child at boardroom politics. During an executive staff meeting earlier in the day, Jobs took a gamble on an all-or-noth-ing power play to take back control of Apple. He lost. The news flashed across Apple's campus: Jobs was out, Sculley was in charge.

Murray figured he could live with that. He owed a lot to Jobs, but he had tangled with him enough to know that the visionary was a flawed leader. "I was committed to the idea of Apple, not to any one person, Murray says now. He had come to Apple in 1982 as a 26-year-old Stanford University MBA who didn't want to grow up to be just another suit. It was Murray as much as anyone who devised the initial market-ing strategies for the Mac, en-gineered its smashing success on university campuses and worked on the mind-blowing "1984" commercial that ran during that year's Super Bowl.

Now, Murray waited to hear from Apple's new leader that despite all the recent turmoil, Apple would live on. When Sculley walked into the conference room, however, he looked exhausted. What struck Murray then, and what he remembers so clearly 10 years later, is not what Sculley said but the way his hand searched for a resting place on a pillar in the front of the room. After a few minutes, Murray noticed, Sculley began leaning against the pillar. As Sculley monotoned his message of reassurance and continuity, Murray became less interested in what Sculley was saying than in how he was saying it. And as Sculley continued to talk, he slid deeper and deeper behind the pillar, until he almost vanished.

And that's when Murray says it hit him. "I realized that John Sculley was about to take over Apple," Murray says, "and he was scared to death."

Scully had good reason to be frightened. During the summer of 1985, Apple was in trouble almost as deep as it is in today. Sculley's battle with Jobs had knocked the wind out of the company. Macs were stacked like cordwood in ware-houses. The Lisa, an overpriced big sister of the Mac, had been canned. In June, Apple announced it would lay off some 1,200 employees of its nearly 5,700-person work force. Three factories were shut down. The great Silicon Valley success story seemed to be on the verge of collapse.

For Sculley, these were dizzying times. His parting from Jobs, with whom he'd once felt a deep intellectual kinship, had been emotionally wrenching. Now, Sculley found himself solely responsible for leading Apple into the next decade. And unlike Jobs, who was a rebel at heart, the former Pepsi presi-dent felt little in common with the eccentrics who roamed the hallways at Apple. How does one lead people like these? How does one gain their respect? During particularly stressful moments, he would sometimes wander alone through the sculpture garden at Stanford University and question why he had left his comfortable life at Pepsi. "I stared up at Rodin's magnificent Gates of Hell and felt the agony yet beauty of this medieval epic drama," Sculley later reflected with characteristic melodrama. "The bronze relief was almost sensuous, yet it captured the human tragedy of despair. It echoed the painful, almost trag-ic elements of life at Apple."

Many of the true believers at Apple smelled a rat. They snickered at the oscilloscope and chip programmer that Sculley displayed on the cre-denza in his office. They noticed the way he would drop references to the cathode-ray tube he had designed when he was 14 years old. "He was a total poseur," says Andy Hertzfeld, one of the star Mac programmers who left shortly before Sculley took over. Hertzfeld and the others giggled at newcomers like Mike Lorelli, a young marketing executive from Playtex who became known at Apple as "the bra-and-tampon guy." To hard-core Apple loyalists it was like they were trapped in a cheesy B movie called The Invasion of the Marketing Pods.

On July 10, 1985, Murray wrote a private memo to Sculley and Bill Campbell, who was Apple's head of sales and marketing at the time. "I have grave concerns regarding Apple's chances for long-term survival in our industry as a leader," Murray wrote in clunky but sincere prose. "It is my observation that certain industry dynamics already in place will continue to impair our ability to achieve our goals if we remain on our present course . . . but there is still room for a few extremely bold moves, which if executed correctly by Apple in the next six months can assure our rendezvous with destiny." He suggested that Apple needed to introduce a "100 percent IBM-compatible Apple product line into the market within the next six to 12 months." The company also needed to license the Mac software to outside vendors as quickly as possible: "Continued parochial vision will kill us; we are the only ones to lose."

Before offering his resignation, Murray summed up Apple's predicament as well as anyone: "Our vision is in fine shape. That's the good news. Nobody knows what it is. That's the bad news."

During this crisis, Scully fell back on what he knew best. One of his first moves was begin a bold campaign for what he called the New Apple. Like Coca-Cola Classic, this cam-paign was about new packaging, not new products. Sculley toured Wall Street, reassuring investors and analysts that Apple now had a strong, mature leader who was going to whip the company into shape. He promptly fired Apple's longtime advertising firm, Chiat/Day, which had produced the groundbreaking "1984" commercial, and hired BBDO, a tamer and more respectable firm that, not coincidentally, had handled the Pepsi account during his reign.

To fill the role of techno visionary vacated by Jobs, Sculley anointed a flamboyant Frenchman, Jean-Louis Gassee, as the head of product development in 1985. Gas-see, a marketing whiz who had successfully run Apple operations in France, was a cafe revolutionary, a morph of Robespierre and Alvin Toffler in black leather and pressed Levi's. His Eurotrash attire was forgiven by most of the usually cynical engineers at Apple, however, be-cause Gassee was a hard-core hardware guy - the more powerful the machine, the better. "Pure sex," he called it. "It's like a rendezvous in the back seat of an automo-bile with a beautiful girl. One's experience with the per-sonal computer should be better than the greatest orgasm you could have."

The new team's first dilemma - and, as it would turn out, Apple's most vexing dilemma - was what to do about Microsoft's chairman and CEO, Bill Gates. On June 25, 1985, at the height of the crisis at Apple, Gates sent a note to Sculley and Gassse that contained a startling proposition: Apple should consider licensing its operating system software to outsiders. Gates offered a list of companies, from AT&T to Xerox to Hewlett-Packard, that he would help to convince that Apple tech-nology was the way to go. A month later, on July 29, he sent a second letter, naming three companies that would likely be receptive - perhaps with a little prodding from Microsoft - to Apple's technology.

"We all knew these memos were more than just friend-ly advice," says a former Apple executive. The more machines that ran Mac software, the more Microsoft ap-plications Gates could sell. And there were other rea-sons to be wary. If Apple licensed its software - what Gassee called the company's crown jewels - then what was to prevent others from making better, cheaper ver-sions of it? Microsoft had already done that with IBM's PC-DOS. And now, IBM was in danger of losing its hold on the market.

In addition, Sculley and other Apple executives were already unhappy with Windows 1.0, Microsoft's new operating system with a graphi-cal user interface. Even at a glance, Windows had a striking number of similarities with the Mac; a command bar at the top of the screen, pull-down menus, a Mac-like calculator, control panel and icons. Windows 10 was lame in many ways - the windows didn't overlap, the graphics were crude. But there was little doubt that Bill Gates was intent on building a wanna-be Mac for the vast PC market.

Or at least that's what Ap-ple's lawyers believed. They told Gates to change Windows 10 or they were going to sue.

"Gates hit the roof," says a lawyer who was involved in the case. Microsoft's chairman im-mediately phoned Sculley and demanded that he call off the lawyers or Microsoft would stop developing software for the Macintosh. The two set up a meeting at the Apple campus the following week.

For Sculley, this showdown with Gates was portentous. Even back in 1985, it was becom-mg clear that computers were essentially expensive boxes that delivered the software inside. The software is the soul of a computer; it gives the machine its look and feel. At Ap-ple, it was an article of faith that cool hardware and cool software were inseparable. They are designed together, so they work better together - it's one reason Apples have always been so easy to use. Profit is another motive: Why sell an operating system software for $100 like Gates did when you could wrap it in hardware and sell it for $2,000?

Microsoft's business model was a direct challenge to this idea. Gates didn't give a shit about hardware. He plucked out the gem inside - the software. It could be expensive to develop, but it was infinitely renewable. And if it was a hit, it could be extremely profitable.

If Sculley gave in to Gates' threat, Apple would jeop-ardize any claim to intellectual property rights (which was still a new idea in those days) to the Mac interface. On the other hand, if Sculley called Gates' bluff, that could strike a blow to the already tottering sales of the Mac. To succeed, the Mac needed software more than any-thing else, and Microsoft was a key supplier. If Gates stopped developing applications, or even delayed them for a few months, it could fatally damage Apple's only hope for the future. But would Gates really give up the lucrative market for Mac software to make a point?

When Gates arrived on the Apple campus, "he was prepared to go after Sculley head-on," says one attendee of the meeting. But the encounter was surprisingly un-dramatic. Apple laid out a lavish spread of sushi (which appalled the tightwad Gates). "What I'm really asking for, Bill, is a good relationship," Gates recalled Sculley telling him. Remarkably, the only significant concession Sculley sought in exchange for dropping the lawsuit was a promise that Gates would delay shipping a Windows version of Excel, a business spreadsheet for the PC. Scul-ley believed the delay would give the Mac a better chance to get established in the business market. In exchange, Apple would agree to allow Microsoft to use Mac technology in Windows (in later years, there would be much debate over whether that meant just Windows 10 or all subse-quent versions of Windows). On Nov. 22, Gates and Sculley signed a three-page agreement granting Microsoft a "nonexclusive, worldwide, royalty-free, perpetual, non-transferable license to use these derivative works in pre-sent and future software programs, and to license them to and through third parties for use in their software programs.

Apple got duped. In exchange for a brief delay in the release of a software program, it had effec-tively handed Microsoft the right to copy what would turn out to be Apple's most valuable possession - the look and feel of Mac software.

"We didn't realize we'd signed an agreement that would jeopar-dize our rights in the future," says Sculley, who is now the head of Live Picture, a small multi-media company based in Soquel, Calif "Our lawyers weren't good enough. We never had any in-tention of giving Microsoft the rights on anything more than version 10." That may indeed be true. But good intentions didn't prevent Apple's biggest blunder.

As befits a company born in a garage, the plot for Apple's re-emergence was hatched not on John Sculley's private jet but in a beat-up old Saab driven by a then 36-year-old former newspaper editor named Paul Brainerd. Brainerd, who lived in Seattle, had in 1984 been the victim of corporate downsizing at Atex, a maker of expensive computers and terminals used in the publication of many newspapers and magazines. For Brainerd it was a chance to strike out on his own. He was beginning to believe that with the right software, a desktop PC could do a job comparable to an Atex for a fraction of the price.

So in early 1984, Brainerd put his life savings on the line and started a company called Aldus, named after Aldus Manutius, a 15th-century Italian printer who is credited with producing the first inexpensive and easy-to-read books. "Initially I thought we would just create software that would help newspapers create ads more efficiently," Brainerd says. In order to drum up business for their new venture, Brainerd and three engineering pals jumped into the Saab and took a road trip down Interstate Highway 5 from Seattle to Oregon, stop-ping at the offices of every podunk newspaper along the way and chatting up the publishers.

"At one point we pulled over on the freeway and called an Apple office in Beaverton, Ore.," Brainerd re-calls. "It was just a spur-of-the-moment thing. We wanted to stop by and have a look at the Mac, which I had only seen at a computer show. So we went over there and met with one of the representatives. We told him about our idea of creating software for newspapers to write ads, and he listened respectfully. Then we left." Six weeks later the representative showed up on the doorstep of the studio apartment in Seattle that Brainerd was using for an office. He was carrying a Mac-intosh. "He said, 'Here, I liked what you guys had to say,' " Brainerd says. " 'Take this Mac, play with it for a few weeks, see what you think.'"

This representative, whose name Brainerd has for-gotten, changed the newpaperman's life and very well may have saved Apple. "As soon as I started messing around with the Mac, I realized that I wasn't interested in just creating newspaper ads," Brainerd says now. "I had discovered a whole new world - desktop publishing." In the coming months, Brainerd contacted Apple and learned about its LaserWriter, which was still in de-velopment at the time but used a sophisticated page-de-scription language called PostScript to transform printers from high-speed typewriters into powerful graphic-design tools. A little more than a year later, in July of 1985, Aldus shipped its first product, PageMaker, which allowed a user to mix pictures with text, change the sizes and styles of the fonts, add borders, columns, headlines - anything you wanted. It turned the Mac into a desk-top printing press.

The Mac's killer app had arrived. PageMaker did for Apple what the spreadsheet had done for IBM clones. "People looked at the Mac and said, 'Aha! - now I see why I should buy one,' "says Bruce Blumberg, who was the product manager of the LaserWriter.

In 1987, Apple introduced the Macintosh II. It re-versed Steve Jobs' notion of the Mac as an appliance and returned to the philosophy of the Apple II, which had expansion slots to allow users to add memory, video cards and other accessories. But in order to fatten up the bottom line, Apple charged the highest price it could get away with. A basic Mac II went for $3,898; the high-end version, with 1MB of RAM and a 40MB hard drive, cost $5,498. So much for the idea of a computer "for the rest of us," as Jobs had sometimes put it.

At about the same time, Sculley published his auto-biography, Odyssey (written with John A. Byrne). In florid, confessional prose, it told the tale of Sculley's journey from his privileged upbringing on Man-hattan's Upper East Side to his rise at Pepsi to the tri-umphant turnaround at Apple. "I had been on something of a marathon journey for 20 years, working at high speeds to sharpen my physical and mental conditioning," reads one memorable sentence. "I was, in one sense, a finely honed weapon." In addition to Homeric tales of corporate warfare, the book also spends several pages describing a futuristic device called the Knowl-edge Navigator, a notebook-size combination of a high-definition television, a wireless communicator and an artificially intelligent mind reader. The Knowl-edge Navigator was much ridiculed, but in retrospect it's a surprisingly coherent rough draft of what's going on today on the Web. At the time, however, its main purpose was to bolster Sculley's credentials as a tech-no visionary.

And to some extent, it worked. Sculley may have simply strapped himself into the rocket ship that Jobs had built, but his timing couldn't have been better. Apple was a Wall Street darling again. By early 1987, it was shipping 50,000 Macs a month. The stock price zoomed to $50 a share and higher; gross profit margins topped 50 percent. By the spring of 1987, the company's market value had risen to $5.5 billion, up from less than $900 million in June of 1985.

And the perks! Apple employees still rhapsodize about the exquisite salmon served at a subsidized price in the employee cafeteria, the coupons that were dis-tributed for free Japanese-style neck massages in your office, the half-dozen brands of bottled water and nat-ural fruit juices in every office refrigerator, the thou-sands of T-shirts that were printed up to celebrate every occasion (at Apple, T-shirts have long functioned as a sort of mood ring for the company's spirits). And then, of course, there were the parties: the beer bashes in various buildings every Friday; the companywide Christmas party in a glitzy hotel ballroom where Ella Fitzgerald sang and there was fine wine and good food for thousands; another Christmas party, at the Rosicrucian Egyptian Museum, in San Jose, where revelers inhaled oysters and sushi among the 2,600-year-old mummies; the chartered sailboats on the San Francisco Bay; the off-site retreats at the beach.

It was glorious. Indeed, feelings ran so high that even the people who had once questioned Apple's abil-ity to survive in a world dominated by Microsoft and Intel were having second thoughts. "In 1988 and 1989, it looked like Windows was a flop, and we were sitting pretty with our 50 and 60 percent profit margins," recalls Chuck Berger, who was an Apple executive for six years. "We thought maybe we would be OK."

Apple's party days turned out to be short-lived. In 1990, the hangover began. The company had virtually ignored the low end of its market for the past five years, and now PC clones were replicating like the Ebola virus. Profit mar-gins were still up around 50 percent, but it was clear that the way things were going, that wouldn't last. The only groundbreakmg technology to arrive was the Macin-tosh Portable, an unwieldy, overdesigned machine that was an immediate flop.

Then in late May, with much pomp and fanfare, Microsoft rolled out Windows 3.0. Like most Mic-rosoft products, it had plenty of problems, but it was another giant step closer to the look and feel of the Macintosh. It didn't take a genius to see that Apple was going to be run out of business by Microsoft in a few years. The question was, What was Apple going to do about it?

Of course, this was not a new dilemma. Mike Mur-ray had brought it up in his memo to Sculley and Campbell in July 1985. It had apparently made an impact, because a few months later, Sculley had asked an independent-minded young Stanford MBA named Dan Eilers, who was then the director of strategic investment at Apple, to make a pitch to the executive staff about software licensing. Eilers had laid out a vision for Apple for the next decade that turns out to be more or less exactly what has happened: Over time, Eilers argued, others would copy the Mac's user inter-face, and Apple's advantage would erode; eventually, Intel and Microsoft would unite against Apple, and Apple would be left as a single company competing against an entire industry for market share. As Apple's market share dropped, software developers would abandon it, which would in turn give buyers less and less reason to buy a Mac. Eilers argued that Apple should seize the moment now and develop an aggres-sive plan to license their software now, while Apple still had significant advantages over the competition and while it still had the chance to become the industry standard. In effect, Eilers was arguing that Microsoft had a better business model than Apple, and Apple should imitate it.

"Jean-Louis Gassee was livid," recalls one staffer who attended the presen-tation. "He started jump-ing up and down and ac-cusing Eilers of being a kid who didn't know what he was saying. He said that if Apple tried to license the software, the engineers who took great pride in Apple's proprietary software would leave the company in droves."

Sculley didn't argue with Gassee. "It was just a lack of courage," says one executive. Yes, there were tech-nical hurdles, but those could have been solved. "It was a tough decision, and nobody wanted to take the hit." In 1986, Apple had explored a hardware-and-software-licensing arrangement with Apollo Computer, a maker of high-end workstations (it has since been swallowed up by Hewlett-Packard), but the deal was ultimately derailed by indecision.

In 1988, Apple sued Microsoft and Hewlett-Packard, accusing them of copyright infringement on the Mac software. Apple's lawyers argued that the software-licensing agreement Apple had signed in 1985, which granted Microsoft the right to copy many of the Mac's most sig-nificant features, applied only to Windows 1.0. No way, Microsoft's attorneys replied. Apple put squads of lawyers on the case, spent millions of dollars on it and pissed off Gates royally. On top of everything else, the lawsuit - which Apple eventually lost - was bad PR. It went against the ethic of the computer industry, which had been founded on innovation and openness. It also looked more than a little hypocritical since the Mac itself had been "influenced" by Steve Jobs' famous visit to Xerox in 1979.

Now, in August of 1990, a group of worried Apple executives gathered to ponder the company's future. They met for two days in the boardroom on the fourth floor of De Anza 7, a boxy, glass-faced building named after Juan Bautista de Anza, a Spanish explorer who camped in the area in 1776. Sitting in red leather high-back chairs around a long hardwood table, staring up at a dizzying swirl of charts and graphs, the executives talked about a variety of issues, all of them related to one thing: the slow, inexorable march of their nemesis from the cold Northwest, Bill Gates.

It was the same old problem. But there was a new face on Apple's executive staff now. Mike Markkula, a member of Apple's board, had shaken up the ranks by orchestrating the arrival of Michael Spindler as the chief operating officer. Spindler, a prolific talker but unin-spiring leader, had risen through the company in Apple's European division. Sculley was not thrilled by Spindler's arrival m Cupertino. Neither was Gassee, who had con-sidered himself the heir apparent and was pushed out after a noisy showdown with Sculley. With Gassee gone, Sculley decided to fill the void by appointing himself chief technical officer. Engineers all over the val-ley rolled their eyes - the soda-pop guy thinks he's a hacker! "I never pretended to have any competence in technology," Sculley explains. "I just wanted to have more control over the product line."

Well, something had to be done. During the fat, happy '80s, instead of filling the world with low-cost Macs and increasing its market share, Apple had kept prices high, concen-trating on expensive machines that would fatten the bottom line. (In 1988, a Macintosh SE with 2MB RAM and a 40MB hard drive retailed for $5,069.) As a result, Apple's market share never rose much above 10 percent. More and more developers were deciding that it wasn't worth it to write software for a relatively small market. And as VisiCalc had shown with the Apple II, and PageMaker with the Mac, it was software that drove computer sales. If Apple couldn't get the margins up, the Mac was in danger of becoming the Betamax of the computer business.

"Apple became a company battling an industry," says Paul Saffo, a director at the Institute for the Future, in Menlo Park, Calif. In order to compete with the proliferation of PC clones, Apple was forced to cut prices, which meant lower gross profit margins, which meant less and less money to spend on research and development, which meant it was harder and harder for the company to maintain its technological edge. It was a death spiral that was very difficult to pull out of.

Once again, Dan Eilers, who was now Apple's vice president of strategy and corporate development, took charge of presenting solutions to Apple's top execu-tives. His staff had spent months studying plans to in-crease market share and had come up with a variety of options, induding creating a second brand of computers targeted at the low-end market. But the soundest proposal was in effect to clone Microsoft. Various members of one of Eilers' teams (he was not involved in the presentation itself) made the case that Apple should spin off a small company, code-named Macrosoft, whose express purpose would be to port the Mac operating system to the Intel processor as quickly as possible. Apple could get it to market in less than a year, Eilers' team believed. In three years, the group believed, it was high-ly probable that the Mac operating system would con-trol 30 percent of the market.

This time it was Spindler who balked. "It's too late to license," he pronounced with utter authority. "It doesn't matter anymore. The opportunity is past."

It was not too late. Sculley knew that as well as any-one. In private conversations he had often spoken of the need for Apple to take dramatic action to increase its market share. But during the meeting, he did not push for decisive action.

"Of course the software should have been licensed," Sculley says now, sounding angry at what he calls "the historical revisionism" that is going on. "It's easy to see it now, but at the time no one was clever enough to see a way to do it without destroying the bottom line of the company - something that the board would have never stood for."

For Apple, this was the beginning of the end.

Lightning rarely strikes twice in Silicon Valley. The confluence of forces that results in a product like the Mac are too fragile and myste-rious to hold up under deliberate calculation. But that doesn't stop entrepreneurs from trying to clone their early successes - in part because they are gamblers at heart, and in part because there's a constant need to prove that it was brains and instinct, not luck, that won the day. It happened to the prophet himself, Steve Jobs. Immediately after leaving Apple in September of'85, he started NeXT Computer Inc., which was supposed to be, as the name oh-so-subtly suggested, the Next Big Thing. It wasn't. The computer he built was full of insanely great technology, but it was too expensive, too elegant, too impractical. By the early '90s, NeXT was in disarray. So, Jobs dumped the fancy hardware and, hav-ing soaked up the great lesson of the '80s, turned NeXT into a software company. Now it's doing fine.

Steve Capps also felt the urge to repeat the Macin-tosh magic. Capps was the cowboy coder who had raised the pirate flag over the Mac building in 1983 and embodied the Mac team's rock & roll spirit. But Capps was disenchanted with Apple's new regime. "I had no idea what I was going to do after the Mac," Capps says now. "I just needed to recover."

In 1988, Steve Sakoman, a talented Apple hardware engineer who had worked on the Mac II, approached Capps about a device he had been dreaming about called Newton. It was to be a small, lightweight computer and communicator that worked like a magic slate to organize ideas and information. Capps was suspicious - "I didn't want to build a yuppie toy." But he was eventually persuaded. The two of them assembled a small team of smart young engineers and hid themselves away in an old chip company's building - the Newton equivalent of the Mac bunker. Larry Tesler, a former Xerox researcher who had helped design the user interface on the Lisa, also got involved. There were many battles about the size and scope of the Newton, and even-tually Sakoman and Tesler left the project.

Sculley soon took a personal interest in the Newton. Unlike Gates, who pursued his goal of dominating the desktop with a machinelike steadiness, Sculley had the vision virus. He wanted a big hit, something that would set the world on fire. The Newton echoed Sculley's dreams about the Knowledge Navigator. And if it was a hit, it would get Apple out of this losing battle with Gates and leapfrog the company into a whole new genera-tion of products.

Sculley had reason to trust his instincts this time. In late 1991, Apple had introduced the first generation of PowerBooks, which were an immediate hit. And right-ly so. They were sleek, beautifully designed machines, full of innovative features like the thumb-operated trackball which, as usual, other companies copied and is now standard equipment on most laptops. Equally impressive was the marketing of the PowerBooks, par-ticularly the What's on Your PowerBook? ads that came later, which featured ordinary users as well as pop icons. For Sculley, who ran Apple like a Hollywood studio and was dependent on what he calls "a hit product strategy," it was a triumph.

Sculley's backing was a mixed blessing for the New-ton team. Although he now says he spent "less than 2 percent of my time thinking about the Newton," he made sure the project had support within the company. He also burdened it - perhaps inadvertently - with unreasonably high expectations. At a press conference m 1992, he expounded on the confluence of the computer and communications industries, and how it would be a $3 trillion business by the beginning of the 21st century. His remarks were misinterpreted - many reporters took him to be saying that the Newton was going to be a part of a $3 trillion business. They wondered what kind of a pipe Sculley had been smoking. As Sculley now points out, the Internet is exactly the kind of union he was talking about.

But while Sculley was offering visions of the future, the Newton team was running into serious problems in the here and now - particularly with the handwriting recog-nition, which turned out to be more complex than any-one had anticipated. They were able to jury-rig a Newton to work at a demonstration in May 1992, but the machine was still far from ready. Deadline pressure increased to the point that by the end of '92, some members of the Newton team were working 18-hour days.

No one worked harder than Ko Isono. He was a quiet 27-year-old who who was born and raised in Japan and who never seemed totally at ease in America. But his gifts as a programmer were un-questionable. "We were having trouble with the screen, how to determine if you pressured it with your hand or with the pen," Capps recalls. "Ko came up with a solution, a particular algorithm that was eventually patented [in his name]." But Isono had other problems. At one point he disappeared to Japan; when he returned he told everyone that he was married. He brought his new wife back to California, but according to friends, Isono's parents felt that this was not an hon-orable thing to do. Isono, who was working 14-hour days on the Newton, became increasingly stressed. One afternoon he came into Capps' office and, with tears in his eyes, told him, "This isn't working." Capps told Isono to take as much time off as he needed.

Several days later, on Dec. 12, 1992, Isono shut himself in his bedroom, took out a pistol and shot himself in the chest.

Sono's suicide cast a pall over the Newton team, and the Newton MessagePad didn't ship until August of '93, months behind schedule and loaded with bugs. Handwriting recognition sucked. Doonesbury skewered the problem in a series of cartoons (Mike, scratching on his Newton-like device: "I am writing a test sentence." Translation: "Siam fighting atomic sentry.") Not surprisingly, the Newton was a bomb.

For Sculley, the Newton debacle was a symbol of larger problems. Many believed he had lost faith in the Mac years ago, perhaps because he saw it as the legacy of his spurned soul mate, Steve Jobs. Sculley had been growing more and more distant from the company, leaving the day-to-day operations to Spindler. Sculley spent a lot of time with the Clinton campaign in '92, and after the Democrats won the White House, there was talk that the Apple CEO might be appointed as deputy commerce secretary. "I was in several meetings with him when he would say, 'Excuse me, the White House is on the phone,' and disappear from the room for a half hour or so," recalls Russ Irwin, who at the time was Apple's director of corporate development. Around the Apple campus, Sculley became known as Chief Political Officer.

In June of 1993, just four months after he appeared at Hillary Clinton's side during President Bill Clinton's first State of the Union address, the board at Apple had had enough. Sculley was relieved of his duties as CEO. He re-mained as chairman for several months, then cut his ties with the company for good in October. His severance package, including salary, bonuses and stock op-tions, was about $5.5 million.

For Apple, it was an expensive divorce. Despite all of Sculley's marketing smarts, despite the fact that he had presided over Apple while the company's annual revenues topped $8 billion, despite some great new technology like the PowerBook, and despite the fact that he was to most people a very decent human being, Sculley left Apple poorly posi-tioned for the future. With the en-couragement of the company's notori-ously clueless board of directors, Sculley ran Apple during the 1980s like President Ronald Reagan had run the country - with short-term profit triumphing over long-term strategy. There had been end-less meetings about licensing, cloning and dwindling market share, but nothing had been done. Meanwhile, Bill Gates' juggernaut rolled on. In 1993, just after Sculley was replaced as CEO, Apple an-nounced it was laying off 2,500 employ-ees and would take a third-quarter loss of $188 million; at the same time, Microsoft had its best quarter ever, with more than $1 billion in sales.

In 1993, with Sculley gone, Apple needed to go back to its roots and find someone who could inspire the true be-lievers, someone who could revive the sense of mission that had once made working at Apple such a powerful experience. What Apple got, however, was Michael Spindler, a k a the Diesel.

The nickname suited him. Spindler was not a creative guy; he was a chug-ger. He prided himself on the horse-power in his brain, on his ability to plow through complex problems. He didn't mingle with the masses on the R&D campus. His office was a fortress - you couldn't get near the place. And, per-haps, understandably so. As many ob-servers both inside and outside Apple had long predicted, the hardware business was now a commodity game, which meant falling prices. No one suffered more than Apple - gross profit margins in its 1993-94 fiscal year were 25 percent, down from 53 percent five years earlier. Like Sculley, Spindler talked a lot about licensing software, but he couldn't pull the trigger. Starting in 1994 he did strike agreements with a few companies, in-cluding Power Computing, to make low-end Mac clones, but it was too little, too late to make much difference in Apple's market share, which was still only 10 percent.

Spindler's two and a half year reign as CEO was marked by two developments. One was the transition to the PowerPC chip, which Apple had developed in a partnership with IBM and Motorola. It was an important move in that it kept the Mac's speed and power equal to - or in some cases, ahead of - the latest chips from Intel. But it was not a solution to Apple's market-share problems.

The other development was the com-plete breakdown of even the most basic business operations. Apple executives constantly misforecast the market for its computers, which resulted in inventory backlogs and shortages. When Apple's new 500 series PowerBook came out in the spring of '94, the company wasn't close to being able to fulfill demand (I know because I tried to buy one. The wait was four months). There were constant problems with delays from parts suppliers, and the distribution channels needed to be streamlined.

But according to one former board member, Spindler was never recruited to be a dynamic leader. "He was put in place with the clear intent of selling the company," the former board member says. "He was just supposed to keep things steady." When he wasn't hobnobbing at the White House, Sculley had spent most of his time in 1992 and 1993 trying to get Apple married off. By early 1994, Apple was actively pursuing a partnership with IBM. It was clear to astute observers that the bottom had fallen out of Apple's mar-ket, that its current business plan was flawed and that the only way it could survive was if radical changes were made - or if it was bought out. In September of 1994, Markkula, Spindler and Joseph Graziano, Apple's chief financial officer, met with IBM chief Louis Gerstner and his team in a hotel room at Chicago's O'Hare Inter-national Airport. Gerstner offered $40 a share for Apple - a deal that in retrospect looks sweet indeed. Spindler and Mark-kula balked; several months later, IBM purchased Lotus Development Corp., the maker of Notes, for $3.5 billion.

Meanwhile, things at Apple began to unravel faster. Again at Christmas, Apple could not fill demand for its machines. In the summer of 1995 a new generation of PowerBooks shipped. In a few portables the batteries caught fire, and the glitch became national news. It was unfair, but it wasn't surprising. Everything else at Apple was turning to ashes - why shouldn't batteries?

By midsummer, Apple's board of directors was getting grumpy. Unlike other large companies, which usually realize it is in their best interest to bring in board members who will ask tough questions, Apple's board has always been stocked with technical know-nothings. They are mostly investors, not operations people. Many are susceptible to charisma and are unduly loyal to man-agement. There had been a number of changes in the board, including the arrival of Gil Amelio, the well-regarded CEO of National Semiconductor, in November of 1994. But Amelio proved to be just as hands-off as the rest of them. And the chairman, Mike Markkula, who had given Jobs and Steve Wozniak mon-ey to help get Apple off the ground in 1976, is a kind man, a patient man, a dedicated man, but he is also a very rich man. He did not have the time or inclination to get his hands dirty in day-to-day operations, nor did he have his finger on the pulse of Silicon Valley.

As troubles mounted, board meetings grew increasingly tense. In June of 1995, Apple's unfulfilled back order reached a mind-boggling $1 billion. Windows 95, Microsoft's final nail in the Mac's coffin, was poised for release, while Apple's new operating system, code-named Copland, was months behind schedule. Software developers were jumping ship. IBM clones like Compaq were cutting prices, forcing Apple to consider doing the same and further eroding the company's profits. At one meeting during the summer, Spindler had taken to bashing Intel, claiming that it was ruining the PC business. Instead of just selling microprocessors, Intel was pushing more and more for computer manufacturers to buy the chip and the motherboard from it. In effect, this boosted Intel sales and made PC makers nothing more than suppliers of boxes. To Spindler, who insiders say was prone to worrying more about global injustices than problems right in front of his nose, this was cause for much hand-wringing. "They are driving all the creativity out of the business!" Spindler steamed, getting worked up in one of his fits. "They're wrecking the industry!"

At that point the straight-talking Graziano had had enough. He'd heard this rant about Intel from Spindler too many times. Apple was facing a mountain of its own problems, and here was Spindler worrying about goddamned Intel! "Hey, Intel's not doing anything illegal," Graziano snapped. "Customers don't give a shit about this. We have enough of our own problems."

Spindler, however, didn't want to talk about Apple; he wanted to talk about Intel.

Two Apple executives who were pre-sent say that another board member, B. Jurgen Hintz, a private investor, final-ly put an end to it. "You talk about what's going on at Intel as if it were the original sin!" Hintz exploded in a rare display of corporate emotion. "This is the way busi-ness works in America. We've got our own problems here, Michael! What are we going to do about them?"

Spindler, stunned, had nothing to say. 

And things just got worse. The glitzy $200 million Hollywood-style rollout of Microsoft's Windows 95 was a crushing blow. It had taken Microsoft 10 years -10 years! - but it had finally copied the Mac's operating system. Now, to most computer users, there was no longer any meaningful distinction between a Mac and a PC. Apple ran ads in the New York Times and the Wall Street Journal touting the superiority of the Mac. And it was true, the Mac was still simpler, more elegant, easier to use and more reliable than anything Microsoft had produced (or probably ever will). But that's an aficio-nado's view. To Johnny Shopper stroll-ing through CompUSA, the distinction is meaningless. The 10-year war was over. Gates had finished them off.

Apple's board seemed paralyzed. Clearly some action needed to be taken. Should they dump Spindler? Graziano was for it; Markkula against. Should they again try to marry off the company? Talks with Sun Microsystems were already under way. But a merger was going to take time. There was even talk of bringing Steve Jobs back to the company. Jobs was interested - how could he not be? It would be like going home to reclaim his long-lost child. Markkula apparently spiked the idea. He had still not forgiven Jobs for his treachery against Sculley 10 years earlier.

Meanwhile, in Apple's executive of-fices, tension rose. Graziano, who knew the depths of the problems at the com-pany better than anyone, left in Oc-tober. The next day, Spindler tried to put a happy face on everything. He told the New York Times, "Give us one strong quarter, and all this will go away." By the beginning of November, Dan Eilers, who had been put in charge of develop-ing yet another plan to reshape the com-pany's focus, also announced that he would leave Apple. Christmas '95 was another major disappointment. Apple's sales force misjudged the market and pushed low-price Performas instead of top-of-the-line PowerMacs. "Our ware-houses were clogged with Yugos when everyone wanted to buy Mercedes," says Satjiv Chahil, Apple's plain-speaking senior vice president in charge of corpo-rate marketing. It would have been al-most comical if it wasn't so sad.

On Jan. 23, 1996, Apple held its annual shareholders' meeting in Town Hall, a posh auditorium on the Apple campus. Partway through, Orin McCluskey, a New York investment manager who was seated in the fifth row, lost his cool. He stood up and demanded to be recognized: "Point of order!"

Michael Spindler, who was marooned out on the stage of the theater and was well aware that some 20,000 eyeballs were watching him on closed-circuit televisions all around the world, tried his best to ignore him.

"Point of order!" McCluskey stood up and waved his hand. "Mr. Secretary, I take exception!"

McCluskey was finally permitted to speak. "I have not heard any self-criticisms," McCluskey said, his voice boom-ing through the auditorium. "You have mismanaged assets... . You have brought a great company to its knees. . . . Mr. Spindler, it is time to go."

Spindler's face tightened. It was going to be a long, long afternoon.

And indeed it was. Frank Casanova, Apple's witty corporate jester, had been called on to provide a lively demonstra-non of Internet technology. He showed off PageMill, a software application for creating home pages on the Web, and Apple's QuickDraw 3D, which allows users to design 3-D objects. To cut the tension, Casanova created a map of the world in the shape of a dinosaur and then said in an obvious reference to Microsoft, "I wonder where Seattle is?" and lifted the beast's tail

It was the only laugh of the day.

Spindler stood at the podium in a dark suit and in sober, measured tones tried to reassure the roiling crowd that the com-pany was not broken, that his leadership could be trusted, that Apple was going through a hard time and it was important that they all pull together. At one point he flashed a slide on the screen behind him, naming what he called the company's three major assets: technology, loyal cus-tomers and a significant brand name.

In a large meeting room called the Garage on the Apple campus just a short distance from Spindler's performance, Jordan Mattson, a 32-year-old Apple employee, watched all this on a closed-circuit tele-vision, horrified. There were maybe 200 employees at the Garage, along with a number of reporters. Mattson had been listening to Spindler with a mix of hope and despair, but when he heard the CEO of Apple run down that list of the compa-ny's assets, he could hardly believe his ears.

That was it? Technology, customers and a brand name'? Wasn't he missing something?

When it was time for the question-and-answer session to begin, Mattson walked over to Town Hall. A tall, athletic-looking man in jeans, a polo shirt and Doc Mar-tens, he waited in line at one of the micro-phones that were set up in the aisles. When it was his turn, he stepped forward to the mike.

"Mr. Spindler," he said, "I was looking at the list of Apple's most valuable assets you put on the screen; you men-tion technology, customers and the brand name, but employees are not there. Does the executive management team and the board consider the employees an asset of Apple Computer?" 

Employees all over the campus let out a cheer. Yeah, Jordan Mattson had struck a blow, however minor, for all the frustration that Apple employees had been feeling over the past several months, and for all the anger they felt at their stagnant salaries and withheld stock options, all the departmental reorganizations they had put up with, all the corporate indecisiveness, all the patronizing memos from human resources. They loved the company deeply, and they would jump into a burning building to rescue it, but they wanted Michael Spindler to show them some respect.

Spindler stumbled for an answer. It was a mistake, he said. He meant to include Apple employees under "technology".

This was Spindler's last public appearance as Apple's leader. Less than two weeks later, Apple announced that he'd been replaced by 52-year-old Gil Amelio, the CEO of National Semiconductor, the fourth largest manufacturer of computer chips.

For Apple, Amelio's arrival put an end to a hellish period. During those two weeks, new rumors flew daily: Apple had made a deal with Sun Microsystems. Then with Oracle. Then Motorola. On Jan. 24, the Wall Street Journal reported that the Sun buyout was more or less a done deal But nothing happened. Apple's stock price yo-yoed. Employees woke up every morning and bought the San Jose Mercury News - or logged on to the Mer-cury's special "An Eye on Apple" Web page - to see if they still had jobs.

Sun had long maintained a close relationship with Apple, and during early '95, when it was clear that the Internet boom was for real, Sun executives began to look at Apple with a hungry eye. "But the deeper we got into Apple's books, the more wary we became of the deal," says one Sun executive who worked on it. Scott McNealy, the chair-man and CEO of Sun, is not a sentimental guy - he wanted a bargain. And apparently Markkula, who had the final say in any deal, was not going to give away Apple at a fire-sale price. Instead, he tossed the company's reins to his friend Amelio.

Apple's coming-out party for Amelio was, in contrast to the shareholders' meeting, a festive affair. On Feb. 16, Apple's latest savior stood at a podium that had been set up in Caffe Macs, facing 50 or so invited members of the media. He pro-jected a no--bullshit demeanor, an unflap-pable calm. Indeed, with his jowly cheeks, bulky frame and wide print tie, he looked more like the successful boss of a Mid-western tire company than the new leader of Apple Computer.

"We have ourselves in a little trouble now, Amelio flatly acknowledged. "The troubles are fixable. I've been down this road before." The problems, he said, might involve a little "housecleaning," but he hoped to avoid massive layoffs. He talked about how much he loved Apple computers - he claimed to own five of them, going all the way back to the Apple II. "My mission," he said at one point, "is to make complex technology simple, accessible, delightful."

Unlike Apple's previous bosses, Amel-io has solid scientific credentials - 16 patents, a Ph.D. in physics from the Georgia Institute of Technology. As the head of National Semiconductor, he presided over a turnaround in the company's fortunes. How much of that Amelio should be credited with is open to debate. "The truth is, he was lucky enough to arrive during an upswing in the chip business," says one industry CEO.

Culturally, though, Amelio doesn't have much in common with most Apple employees. He is a card-carrying member of the Silicon Valley good ol' boys network, a gang of aging millionaires that got its start in the early '60s and continues to dominate the valley's boardrooms and executive suites. There are other disso-nant notes: Apple has always been proud of its progressive politics and was one of the first corporations in the country to offer insurance benefits to same-sex partners. Amelio is an Old World Republican who has hosted fund-raisers for a range of conservative candidates, from Bob Dole to Newt Gingrich. Then there's Amelio's book Profit From Experience: The National Semiconductor Story of Transformation Management, co-written with William Simon. It reads like a text for a junior-college course in corporate management theory and is full of arcane charts and graphs, and Hallmark-card-like drivel (aspiring managers, Amelio suggests, should "know how to deal with ambiguity" and "pursue lifelong learning").

Most unseemly of all, however, is that Amelio arrived open-mouthed at the trough. If he had dropped in Lee Iacocca-style and offered to work for $1 a year plus stock options, the Apple faithful might have followed him to the ends of the earth. Instead, Amelio made sure that no matter what happens, he gets his share. According to BusinessWeek, the board agreed to pay Amelio a combination of salaries and perks that could bring him $10 million a year. Plus a $10 million payout if Apple is purchased during the next year. This is not exactly a deal that endears him to an Apple employee who makes $50,000 a year and is trying to raise a family in Silicon Valley, where starter homes begin at $250,000. Many looked on with disgust when, just a few weeks after Amelio's appointment was an-nounced, while he was rumored to be focusing on a strategy for Apple's comeback, he found the time to shop for a $5 million-plus estate at Lake Tahoe.

The day before Amelio's ascension, I sat in the sunny glass atrium of R&D 1 with Steve Capps. As usual, he was wearing shorts and black-and-white checkered Vans and carrying a new, improved Newton. Except for a short break Capps has been at Apple for 15 years - first on the Mac team and then as the leader of the Newtonites. He represents Apple at its best: the iconoclastic spirit; the willingness to work incredible stretches on projects he loves; the spooky, instinctive intelligence; the disdain for ostentatious wealth (Capps drives an old red Honda CRX with a license plate that reads NOOTOON).

Capps is not sanguine about Apple's place in history. "The history books all say that Henry Ford invented the automobile," Capps says. "It's not true, of course - he just figured out how to build them more quickly and efficiently than others. But no one remembers that now. It's the same thing with computers. Fifty years from now, history books are going to say Bill Gates built the computer. Apple will be forgotten."

Apple achieved great things. Almost single-handedly, the company pulled computers out of air-conditioned re-search labs and government offices and delivered them into the hands of ordi-nary people. And for many of us, Apple computers have been the bridge into the electronic world. Virtually every word I have ever written in my professional life - including this article - has been typed on a Mac; I have countless friends who started new lives as graphic artists or de-signers or musicians or novelists simply because they touched a Macintosh. Indeed, this magazine is produced almost entirely on Macs, from editing to layout to photo manipulation. "Our musicians love their Macs so much, they almost think of them as another brand of guitar," says Howie Klein, the president of Reprise Records, the label of Mac devotees Chris Isaak and the band Filter.

Not surprisingly, Apple's current crisis has galvanized the company's true believers. Suddenly every Mac user has become an evangelist spreading the word about the wonders of Apple. A group of employees, understandably tired of getting hammered by the media, has set up a good-news Web site at http://always.apple.com. "I just bought five new Apples," John Sculley says confidently. Even Bill Gates has been speaking kindly about his old enemy lately, if for no other reason than a healthy Apple gives him something to point to when the Justice Department accuses him of running a monopoly.

"If the company is going to get out of this mess, it's through innovation," says Steve Jobs. "Not through cost cutting, not through PC clones. When Apple started, it was about building great products. It needs to go back to that. I still think there's hope - with the right leadership."

The essential evolutionary fact, however, is Apple fought the war of the desktop - and it lost. The battle has since moved on to a new medium: the Net. It is a giant change, culturally as well as technologically. The Net is like a vortex in the valley, sucking up lives, dreams and venture capital. Virtually every person under the age of 30 I talkedto at Apple was considering leaving for a start-up. The valley is a boomtown again, stoked to a fever pitch by overnight success stories like Netscape Communications, a company that now has the kind of luminous glow that once surrounded Apple. "Apple should have been right in the middle of all this," says Sculley. "It had the tools, the know-how, the right sensibility." Microsoft also failed to anticipate the profound implications of the Internet but in the past year has moved quickly to recover. Apple is still adrift.

There is no happy ending here. Apple rose out of the valley on the skinny shoulders of two kids, a wizard named Woz and a visionary named Jobs. It was a company that symbolized the emergence of a new culture, one whose roots stretch back to the streets of Berkeley and the Haight, that believed in tech-nology as a force for democracy - that business was about more than making a buck. That dream is over, and its demise marks the end of an era in Silicon Valley. Apple's future now rests in the hands of a greedy middle-aged executive whose book includes a section about "Creating Your Own Vision Statement." It was in-evitable, perhaps, but it is also cause for mourning. No one feels it more deeply than Jobs, who has spent more than a few moments staring out the window of his office in Redwood City and wondering if the old cliche that you can never go home again is really true.