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Analysis: Steve Jobs' Success Arose From Prior Failures

By Declan McCullagh, CNET chief political correspondent

CUPERTINO (CNET) -- It's difficult to overstate how dramatically Steve Jobs reshaped how we interact with computers. The irascible, brilliant impresario led a transition from minicomputers and IBM PCs squashed into beige metal boxes to the Macintosh, the iPhone, and the concept that technology should be fun to use.

Thanks to more than a dozen books about the Apple co-founder, and movies like Pirates of Silicon Valley, much of Jobs' life has become well-known. He started Apple with legendary engineer Steve Wozniak, at a time when the personal computer industry barely existed, after dropping out of Reed College.

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Jobs returned to Apple in 1996 and then went on to reshape the music industry and the mobile phone business. With the iPad, Apple validated, or perhaps even created, the tablet business. With Apple Inc., Jobs led the world's most valuable company measured by market capitalization.

But what's not as well-known is how Jobs' later successes arose from his previous failures.

In 1985, as the personal computer industry experienced a period of falling sales and complaints about Jobs' mercurial behavior were rising, the Apple board effectively fired Jobs. He would remain as chairman, but he was relieved of any operational duties as head of the Macintosh division.

"I had never been to Steve's house in Woodside before," wrote Andy Hertzfeld, a member of the Macintosh development team, describing a visit to Jobs' house two days after the board's decision. "It was a 14-bedroom, 17,250 square foot Spanish colonial style mansion built in 1926 that Steve had purchased around a year ago, in 1984...I tried to convince him that the change wasn't necessarily so bad, and that I would be excited about returning to Apple to work with him on a small team again. But Steve was inconsolable, and more depressed than I had ever seen him before."

At the age of 30, Jobs had already left an indelible mark on the personal computer industry. He had also accumulated a net worth of $100 million in Apple stock and had been featured on the cover of Time magazine. If not already a national icon, he was close to becoming one.

But, as Alan Deutschman recounts in his 2000 book "The Second Coming of Steve Jobs," Jobs was far from content. He talked with friends about focusing on cultivating his garden. He considered moving to the Soviet Union to promote computer usage. He toyed with the idea of running for the U.S. Senate. He talked with architect I.M. Pei about demolishing that aging Woodside mansion and building the perfect Silicon Valley home (in 2009, he finally secured permission from the town to do just that). He bicycled through Tuscany.

Most of all, it seemed, Jobs wanted to prove that his earlier successes--the Apple II, II+, IIe, IIc, soon the IIgs, and the Macintosh--were not accidents. He hoped to demonstrate that he could do it again.

That meant forming a new company, which Jobs named NeXT Computer. Instead of Apple's humble beginnings in a Silicon Valley garage, NeXT was flush with cash, and Jobs paid a prestigious designer $100,000 to create a logo. Jobs sold $70 million of his Apple stock to fund the venture, which was originally intended to make computers designed specifically for colleges and universities. (Disclaimer: I worked for NeXT in its headquarters, and on the east coast, as a consultant and contractor from 1990 to 1991.)

Just as Jobs intended the Macintosh as a counterpoint to graceless, boxy PC clones, he wanted NeXT to represent a more advanced, more aesthetic, approach to computing. He took the early NeXT team to Pittsburgh to visit Carnegie Mellon University, which would later invest in the company, and organized a side trip to Frank Lloyd Wright's iconic Fallingwater house in the Pennsylvania countryside. Jobs obsessed about, and patented, details including a tilting monitor stand, a rarity at the time. He obsessed over what shade of black the case should be painted. The motherboard, too, had to be visually appealing.

Even the NeXT factory in Fremont, across the San Francisco bay from Woodside and Cupertino, was intended to be a model of elegance and efficiency. Jobs regaled visitors with descriptions of how it employed then-novel just in time manufacturing techniques. It was designed to be near-fully automated, with NeXT machines being made by even larger machines.

The result, a one foot by one foot by one foot die-cast magnesium cube, was stunning. The NeXT cube was unlike any other computer to date: it was sleek and black, with a gorgeous user interface a decade ahead of its time. Instead of a thicket of cables, the cube relied on a single cord that connected the monitor with the CPU and carried connections for power, video, audio, microphone, keyboard, and mouse. The operating system was named NeXTstep, based on a variant of Berkeley Unix with low-level functions borrowed from Carnegie Mellon, and it had an object-oriented development environment that was the envy of the industry.

Unfortunately, the NeXT cube was also priced unlike any other personal computer to date: Jobs set the retail price at $9,995. That wasn't unreasonable for a workstation, which DEC, HP, and Sun were selling at the time, but universities tended to be more interested in price and performance than aesthetics. NeXT was far too expensive to be a popular success, and even though the interface was speedy, adding a hard drive to supplement a pioneering 250MB reusable magneto-optical drive upped the price still more.

The cube was a flop. Businessland, a chain of computer stores, had hoped to sell up to 15,000 a year, but had sold only 360 by the end of 1989. The automated factory was nearly idle. And NeXT, still unprofitable, was burning through cash far too quickly. Jobs' other venture, Pixar, was struggling too.

In September 1989, Jobs tried again. He rented Davies Symphony Hall in San Francisco for the launch of the NeXTstation, which was the pizza-box successor to the cube. It wasn't as expandable (the cube had four slots, one of which was filled by the motherboard), or as elegant, but it was far cheaper to manufacture. Perhaps more importantly, the NeXTstation was available in color; the original cube was only available in two-bit greyscale. Jobs relented on another point and added a 3.5" floppy disc drive.

But prices remained anything but inexpensive. The NeXTstation started at $4,995 for a greyscale model. Sales picked up, but were a fraction of what Sun Microsystems, which made unattractive but highly functional boxes, could boast.

By 1991, as NeXT's dismal sales became public, the once-iconic entrepreneur was savaged. A Forbes article reported: "There are very few miracle workers in the business world, and it is now clear that Steve Jobs is not one of them...Now, three years after NeXT's workstation debuted in a splashy press event, the 36-year-old Jobs is in serious trouble. NeXT has sold only 15,000 machines in its history, according to Vicki Brown, vice president at market researcher International Data Corp., little more than 10 percent of the volume Sun Microsystems does in a single year. A large but unknown fraction of NeXT's sales have been at steep discounts to schools."

The burn rates at NeXT and Pixar remained far too high. Without a dramatic change, Jobs risked insolvency. Meanwhile, his longtime rival, Bill Gates, was worth billions.

That dramatic change came in 1993, when NeXT decided it would cease making hardware. The sleek cube, which Tim Berners-Lee used to develop the World Wide Web and which gave birth to the first-person shooter Doom, would become a museum piece. NeXT continued to improve its pioneering software, but it was hardly a marketplace success.

By this point, Jobs had been virtually ignored by the media, until his other company, Pixar, released Toy Story. Pixar's initial public offering in November 1995 made Jobs a billionaire overnight. (Jobs' biological sister, Mona Simpson, wrote a book around this time that was a thinly veiled profile of her sibling. Its opening line: "He was a man too busy to flush toilets.")

It was anything but obvious at the time, but that marked the beginning of the return of Steve Jobs and the start of greatest second act in American business. In December 1996, Apple announced it was buying NeXT, now called NeXT Software, for $400 million. Jobs would become an "adviser," reporting directly to Apple chairman and CEO Gilbert Amelio. By the following July, Amelio was out, and Jobs was, as CNET reported at the time, taking an "expanded role as a key adviser to Apple's board and executive management team."

Beyond a leadership shakeup, Apple had another problem: Macintosh technology was no longer head-and-shoulders above Microsoft's. Windows 95 was an undeniable success, adopting many of the Mac's features, and it was followed by Windows 98. Plus, Windows PCs were being powered by the very capable Pentium chip; meanwhile, Apple suffered from too many product variations and competition from clone makers. Worse, it was losing money.

"What would I do? I'd shut it down and give the money back to the shareholders," Michael Dell told a crowd of several thousand IT executives in 1997.

Jobs soon curbed the practice of cloning and, within a year of his return, Apple introduced the landmark iMac. But it was NeXTstep that morphed into OS X and gave Apple a badly-needed technological boost by including features like true multitasking, a superior development environment, and an advanced interface resting on top of a stable version of Unix. OS X was finally introduced in 2001, followed by the iPod, retail stores, the iTunes Store, the iPhone, and the iPad.

The irony? An operating system that grew out of one man's pursuit of perfection, and pique at being forced out of the company he founded, saved Apple from the fate predicted by Michael Dell. If history had unfolded a little differently, and Jobs had spent the late 1980s tending his garden or touring Europe, Apple might no longer exist, and the computer industry would be a far different place today.

(Copyright 2011 CBS San Francisco. All rights reserved.)

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