This is from Wired magazine issue 5.11 November 1997. I've just excerpted a small piece that includes Gate's famous memo to Apple, in which he recommends that Apple license its software to other computer companies.
... From a 1990s hindsight, the merits of licensing a technology are obvious. Instead of funding all research and development itself, Apple could have reaped the benefits of having dozens, even hundreds of imitators all adding their own unique value to the Mac. Legions of suppliers would have sprung up all around the world to furnish the manufacturers with components such as disk drives and memory. And since the software was light-years ahead of everybody else's, Macs, not Windows, might have come to dominate the personal computer market. That dominant market position would have forced software developers to devote the bulk of their resources to Apple and its compatibles, ensuring a plethora of programs that would meet almost any user's needs.
It would all have become one big corporate ecosystem centered around the Mac. Put another way, Apple would have created an industry standard, a playing field that it controlled and everyone else would have had to buy into. This standard was envisioned by Bill Gates and outlined in one of the most important documents in Silicon Valley history, a highly confidential three-page memorandum from Gates to Sculley and Gassee dated June 25, 1985. Entitled "Apple Licensing of Mac Technology"' the document read:
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Apple's stated position in personal computers is innovative technology leader. This position implies that Apple must create a standard on new, advanced technology. They must establish a "revolutionary" architecture, which necessarily implies new development incompatible with existing architectures.
Apple must make Macintosh a standard. But no personal computer company, not even IBM, can create a standard without independent support. Even though Apple realized this, they have not been able to gain the independent support required to be perceived as a standard.
The significant investment (especially independent support) in a "standard personal computer" results in an incredible momentum for its architecture. Specifically, the IBM PC architecture continues to receive huge investment and gains additional momentum The investment in the IBM architecture includes development of differentiated compatibles, software and peripherals; user and sales channel education; and most importantly, attitudes and perceptions that are not easily changed.
Any deficiencies in the IBM architecture are quickly eliminated by independent support ... The closed architecture prevents similar independent investment in the Macintosh. The IBM architecture, when compared to the Macintosh, probably has more than 100 times the engineering resources applied to it when investment of compatible manufacturers is included. The ratio becomes even greater when the manufacturers of expansion cards are included.
As the independent investment in a "standard" architecture grows, so does the momentum for that architecture. The industry has reached the point where it is now impossible for Apple to create a standard out of their innovative technology without support from, and the resulting credibility of, other personal computer manufacturers. Thus, Apple must open the Macintosh architecture to have the independent support required to gain momentum and establish a standard.
The Macintosh has failed to attain the critical mass necessary for the technology to be considered a long term contender:
a.Since there is no "competition" to Apple from Mac-compatibl e manufacturers, corporations consider it risky to be locked into the Mac, for reasons of price AND choice.
b.Apple has reinforced the risky perception of the machine by being slow to come out with hardware and software improvements (e.g. hard disk, file server, bigger screen, better keyboard, larger memory ...)
c.Recent negative publicity about Apple hinders the credibility of the Macintosh as a long-term contender in the personal computer market.
d. Independent software and hardware manu facturers reinforced the risky perception of the machine by being slow to come out with key software and peripheral products.
e.Apple's small corporate account sales force has prevented it from having the presence, training, support, etc. that large companies would recognize and require
f.Nationalistic pressures in European countries often force foreign consumer to choose local manufacturers. Europeans have local suppliers of the IBM architecture, but not Apple. Apple will lose ground in Europe as was recently exhibited in France.
Apple should license Macintosh technolog to 3-5 significant manufacturers for the development of "Mac Compatibles:"
United States manufacturers and contacts: ideal companies - in addition to credibility, they have large account sales forces that can establish the Mac architecture in larger companies:
other companies (but perhaps more realistic candidates):
European manufacturers:
Apple should license the Macintosh technology to US and European companies in a way that allows them to go to other companies for manufacturing. Sony, Kyocera ... are good candidates for OEM manufacturing of Mac compatibles.
Microsoft is very willing to help Apple implement this strategy. We are familiar with the key manufacturers, their strategies and strengths. We also have a great deal of experience in OEMing system software.
1.The companies that license Mac technology would add credibility to the Macintosh architecture.
2.These companies would broaden the available product offerings through their "Mac-compatible" product lines:
they would each innovate and add features to the basic system: various memory configurations, video display, and keyboard alternatives, etc.
Apple would lever the key partners' abilities to produce a wide variety of peripherals, much faster than Apple could develop the peripherals themselves.
customers would see competition and would have real price/performance choices.
3.Apple will benefit from the distribution channels of these companies.
4.The perception of a significantly increased potential installed base, will bring the independent hardware, software, and marketing support that the Macintosh needs.
5.Apple will gain significant, additional marketing support. Every time a Mac compatible manufacturer advertises, it is an advertisement for the Apple architecture.
6.Licensing Mac compatibles will enhance Apple's image as a technological innovator. Ironically, IBM is viewed as being a technological innovator. This is because compatible manufacturers are afraid to innovate too much and stray from the standard.
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This heretofore unpublished document essentially provided a blueprint for how Apple could save itself from longterm debilitation - a course that, had it been taken, would have put Apple into the driver's seat into the 1990s and possibly beyond.
[skip some pages]
Sculley had a gleam in his eye, especially, for Silicon Graphics and Sun Microsystems, small but thriving makers of big computer workstations, as well as Novell, a small company that was then pioneering a new form of software to link networks of computers together. Sculley saw great strategic opportunities in each of these companies, since all were focused on the big corporate market he wanted to crack. "But the engineers felt Apple didn't need anyone else," Sculley says. "Just because you had the title of anything did not mean they would do what you asked."
This attitude, which had originated in the Steve Jobs days, came to be known in Silicon Valley circles as NIH, or "not invented here:' If it wasn't invented at Apple, the smartest place in the universe, Apple's engineers wanted no part of it.
Unbeknown to many people in the company at the time, Sculley had also set up a strategic sales group to study, among other things, the possibility of putting the Mac's look and feel - the top layer of the software, which the user sees - on top of other computers, just as Digital Research had done. This was a less radical step than Eilers's plan to license the Mac technology with all its bells and whistles to clone manufacturers.
Allowing others to use just the "look and feel" was more like an outpatient alternative to open-heart surgery on the Mac. It would not be necessary to ditch Motorola altogether. Using the Trojan horse approach, the Mac interface could be sneaked into corporations on another company's computer. Once the workers saw for themselves how great it was, they would refuse to use anything else. Named to head that venture was Chuck Berger, an outdoorsman who loved to water-ski on northern California lakes. He and Eilers were kindred spirits and would become equally despised at Apple.
Berger, vice president of Apple's new strategic sales group, had been given the green light by Sculley to talk to as many manufacturers as he could about this particular scheme. Over a 12-month period beginning in 1985, Berger and Sculley's former technical aide, Mike Homer, who was named to assist Berger, crisscrossed the United States, drumming up outside interest in the plan. There was more than enough to keep them hopping. Dr. An Wang, the founder of Wang Laboratories outside Boston, wanted to put the Mac software on top of his company's wordprocessing machines. Digital Equipment, Wang's neighbor down the Massachusetts Turnpike in Maynard, planned to incorporate the Mac's look into a line of new desktop computers. AT&T was so interested in putting the Mac onto the company's Unix workstations that approvals had been made all the way up to Bob Allen, then AT&T's CEO. Silicon Graphics, which would go on to fame as creator of the digital special effects in 1990s movie blockbusters such as Jurassic Park, was also profoundly interested.
"All of these had either a handshake agreement or letters of intent," says an industry executive intimately familiar with the discussions. "John and Chuck flew to AT&T twice and had them in the bag."
Sculley, however, would go on to reject all deals on the table. Gassee was yelling and screaming again, and Sculley just could not bear to hear it. Like Eilers, Berger was left to fall on his own sword. As of late 1985, Sculley was on track with a plan that would inflate Apple's profit margins above 50 percent on forthcoming sales of the souped-up Mac Plus. In a series of executive staff meetings at which Berger present his case for licensing, Gassee railed at going through with anything that would rob those profits.
"He made a strong stand that it was stupid to give up 55 percent margins for what would be, at best, 45 percent margins," says an executive close to all the discussions. "Jean-Louis said there woul not be enough money left to fund the insanely great' technology and that the engineers would probably leave:' Berger argued that it was clear that closed, or "proprietary," standards did not work. The best example of that, he said, was Sony's failure in the early '80s to set a standard in the videocassette recording industry with its Betamax machine. While Betamax was widely regarded as technically superior to the rival VHS machines, VHS was an open standard that other manufacturers could copy. Since Betamax was not, VHS went on to take over the VCR market.
Berger, in one of the meetings, also said, "Eventually someone will catch up with the [Mac's] GUI." Rolling his eyes in disgust, Gassee snapped back, "No one will ever catch up to the GUI." Gassee could not have been more blind if he had had a blindfold on.
Gassee may have been the most outspoken person at Apple against licensing, but he was certainly not alone. Indeed, when looking back on it all, Sculley says he is not so sure the board itself would have backed any kind of licensing scheme, even if he had pursued it full tilt. "Remember, at the time the board was interested in one thing: gross margin," he said to me in our first of several discussions for this book, sipping from a cup of black coffee as he mused on the situation a decade later in his lawyer's office in Palo Alto, California. By gross margin, Sculley was referring to the gross profit margin, measured as a percentage ol sales, which serves as a key barometer of a manufacturer's profitability. "The engineers wanted innovation. You had to fuel the innovation and manage the profits. So you had to stay within this envelope:'