Return to the Little Kingdom (33 page)

Though Apple’s early stock sales were wreathed in anonymity, the reputations of the early investors were too large to hide. Their interest in Apple was precisely the sort of thing that provided snippets of gossip for venture capitalists. It was just the stuff that would make the rounds at the monthly lunches of the Western Association of Venture Capitalists, or be shared among bankers in the first-class section of the wide-bodied jets plying between San Francisco and New York, or for others who would breakfast at Rickey’s Hyatt House on EI Camino Real in Palo Alto. The more industrious could ferret out the information by sorting through the files in the meanly furnished lobby of the California Department of Corporations office in San Francisco.

 

Investors who laid their money on the table were one sign of confidence. Stock analysts who put their opinions on paper were another. In the late seventies one of the most influential Wall Street electronics analysts was Ben Rosen. Rosen had followed the electronics industry for years. He was fond of gadgets. He spent several weeks a year industriously traipsing around trade shows, kept an eye on new products, wasn’t swept away by the accounts of senior managers, and would patiently solicit opinions of middle and junior managers.

Markkula and Scott were just two of the younger managers Rosen had run across. He had known them both while they were still at Fairchild and on one of his inspection tours of Intel had taught Markkula how to operate a programmable calculator. Apple’s managers took care of Rosen, who started using an Apple in April 1978. Rosen was given the sort of customer service reserved for sheikhs and princes. When he didn’t understand some feature of the Apple and couldn’t find an adequate explanation in the manual, he called Jobs or Markkula at home. Markkula even offered to sell Rosen some Apple stock but was politely rebuffed. However, he would visit Apple and was almost always given straight answers to straight questions. Scott said,“Ben always had the data two or three years in advance of what was actually going on.” The attention paid off.

Many of the journalists who followed the early years of the microcomputer industry were the people who had monitored the semiconductor industry and they had learned to trust Rosen. Among a crowd of men who made it their business to boost companies and tout stocks, Rosen they considered impartial. He always returned telephone calls, offered comprehensive reports on companies, and would provide pithy quotes based on shrewd observations which often wound up in
The Wall Street Journal, The New York Times, Business Week, Fortune, Forbes,
and the news-weeklies. The reporters who trooped through Rosen’s New York office found that he was using an Apple. So Rosen became, in some ways, Apple’s most influential sponsor. Regis McKenna, Apple’s publicist, who was given an introduction to
Time
at a luncheon organized by Rosen, thought “Ben gave Apple real credibility,” while the venture-capitalist Hank Smith felt he was “one of Apple’s best salesmen.”

Apple’s select financial following was important and started to feed off itself. When Rosen and another Morgan Stanley analyst, Barton Biggs, lunched with Arthur Rock in San Francisco, their conversation was summarized in a two-page memo circulated around the New York banking house. Written by Biggs, it had a breathless tone: “Arthur Rock is a Legend with a capital ‘L’ like Ted Williams or Fran Tarkenton, Leonard Bernstein and Nureyev. . . . In his line of business he is a player who is several orders of magnitude better than anyone else who has ever been in the game.” Biggs dutifully reported Rock’s comments about Apple to his colleagues at Morgan Stanley. “The people running this company . . . are very bright, very creative and very driven.” Words like those were guaranteed to make readers (and investors) froth at the mouth.

The early descriptions of Apple’s marketing campaign were hardly guaranteed to have the same effect as tips from one of the country’s most experienced venture capitalists. In set speeches and formal presentations, Markkula was given to describing Apple’s grand plan in three words: “Empathy. Focus. Impute.” The muddle of nouns and verbs provoked giggles among the advertising account executives but Markkula was expressing, in a peculiarly modern way, an old idea. In the 1940s, for example, IBM had used a similar strategy when it opened a lavish showroom on New York’s Fifth Avenue, and the company founder, Tom Watson, had later explained. “We were carrying the corporate image far out in front of the size and reputation of the corporation.”

At the start, Apple’s marketing strategy was not the result of any clearheaded vision. Notions of product life cycles resembled the sort of patterns that were common in the semiconductor industry where chips were liable to be superseded within twelve months of introduction. The early gaffes were concealed by the forgiving nature of an expanding market. At first there was great uncertainty at the Regis McKenna Agency about Apple’s prospects. The account executive, Frank Burge, explained, “People who knew Markkula and Apple wondered whether they would make it. We kept saying ‘These guys are flakes. They’re never going to make it.’ Jobs and Wozniak looked as if they were on something. It was counter to everything we believed in.” The agency people looked at Markkula, whom they didn’t consider to have much of a reputation for marketing, and Scott with his manufacturing instincts, and worried that nobody at Apple had any experience selling to consumers.

To hedge his bets McKenna took on another computer company, Video Brain, which at the start of 1978 announced a non-programmable computer named The Family Computer, with the hope that people would plug cartridges in and use the machine at home. The product was greeted enthusiastically by the press and by buyers for major department stores who felt that consumers wouldn’t want to learn how to program. Eventually consumers balked at the price, which kept creeping up, aided by the company’s ambitious decision to make the semiconductors for the machine. Video Brain failed.

However, for some months McKenna had a tough time trying to decide whether to dump Apple in favor of Video Brain. Though the agency chose to stand by Apple, its caution was reflected in the size of the advertising budget it proposed for the company’s second year. McKenna proposed that Apple spend $300,000. Markkula insisted that the budget be doubled. Markkula was convinced that it was futile for Apple to try to eke out a living on a small share of the microcomputer market and steadfastly insisted that Apple had to look imposing and pretend to be large if it was ever to become a force in the industry. McKenna explained, “I’m always conservative with very young companies. I don’t want to be stuck with unpaid bills of one hundred thousand dollars. Markkula kept saying ‘We must develop a position early.’ He really pushed for that. It was a very important decision.”

 

The advertisement that introduced the Apple II showed a kitchen with a woman merrily at work beside a chopping board while her husband sat at the kitchen table using the computer to attend to more worldly chores. The copy was unequivocal about what the computer could be used for: “The home computer that’s ready to work, play and grow with you . . . You’ll be able to organize, index and store data on household finances, income taxes, recipes, your biorhythms, balance your checking account, even control your home environment.” The advertisement also carried a lot of technical specifications which were aimed at the ardent hobbyist but were not calculated to appeal to the layman. Keen hobbyists with agile hands and a technical bent were told they could buy the Apple II in the form of a single printed circuit board for $598.

A large poster which started to appear in computer stores about the same time carried the distinctly equivocal slogan APPLE II: THE HOME/PERSONAL COMPUTER. Markkula was quoted at the time as saying that Apple would not be an exhibitor at the National Computer Conference, the traditional showcase for manufacturers selling to businesses, but would concentrate its efforts on the Consumer Electronics show. Apple’s advertising manager, Jean Richardson, admitted, “There was not a lot of sophisticated strategy. They thought they were selling to people in a home.”

The magazines in which the advertisements appeared were more important than the copy or the look. Compared to companies like Compucolor, a Georgia company that produced a color computer, Apple’s earliest advertisements were wan. As well as buying space in hobbyist magazines like
Byte,
Apple, during its first year, also advertised in
Scientific American
and
Playboy
. They were expensive places to advertise but the nature of the magazines helped lift Apple above the crowd of other small computer companies. Apple also placed little adverts, designed to boost the corporate image, that didn’t say much about the computer but were bright and perky and written by McKenna himself. One of the most popular began: “A is for Apple. It’s the first thing you should know about personal computers.”

At the end of 1977 Digital Research’s Gary Kildall again wrote to Jobs and among other subjects politely recited his concerns about Apple’s marketing: “From our earlier discussions I believe you want to address the consumer market. . . . The Apple advertising is somewhat misleading. . . . The Apple II is not a consumer computer and, even though I have had ‘previous computer experience,’ I had some difficulties getting parts together, and making the system operate. . . . Further, commercial appliance manufacturers do not advertise products which do not exist. . . . Your advertisement implies that software exists (or is easily constructed) for stock market analysis and home finance handling. Do these programs exist? Secondly, a floppy disk subsystem is promised by the ‘end of 1977.’ Where is it?” Kildall was right on all scores, and the program that allowed an Apple to connect to the Dow Jones ticker appeared a year after it was first announced. All told, Apple’s early ads reflected Markkula’s own hobbyist bent.

Though the line of the early advertisements missed the mark, there was a change in strategy within six months of the Apple II announcement. It was the sort of luxury given to a tiny, invisible company in an industry that was too small to be taken very seriously. Apple was able to take advantage of its obscurity and the forgiving nature of an expanding market and consequently had much more freedom to maneuver than a large company whose blunders would be magnified.

A memo to Apple from the McKenna Agency in early 1978, outlining a marketing strategy, demonstrated a clear understanding that the time when consumers would use computers in the home was far away. It also reflected McKenna’s anxiety that Apple not ruin a consumer market by making promises that couldn’t be fulfilled. The agency also began to identify its targets, recognizing the differences between the hobbyists, the “programmable calculator market,” and the markets in schools and universities. And within thirty-six months of its earliest advertisements, Apple started running television commercials that tried to remove the impression that the Apple II was a plaything or home computer. The spots featured talk-show host Dick Cavett posed with housewives who were using their Apples to run a small steel mill or trade in gold futures.

Apple’s advertisements were devised for an industry where small companies drenched their computers in superlatives. For skep-tics there wasn’t much room to argue. There was no authoritative market research. MITS had taken out full-page advertisements with the copy shaped in the form of a large figure 1, boasting that the Altair was the leading computer: “When you buy an Altair, you’re not just buying a piece of equipment. You’re buying years of reliable, low-cost computing. You’re buying the support of the NUMBER ONE manufacturer in the micro-computer field.” Vector Graphic called its machine “the perfect micro-computer”; the IMSAI 8080 was dubbed “the finest personal computer”; Radio Shack announced “the first complete, low-cost micro-computer system.” Processor Technology named the Sol “The Small Computer.” Apple trumpeted its machine as loudly as the rest.

In July 1978, barely a year after the first Apple II was shipped, a double-page advertisement in the trade magazines carried the banner headline WHY APPLE II IS THE WORLD’S BEST SELLING PERSONAL COMPUTER, a boast that just proved that numbers can be dredged up to support any claim. About the same time another advertisement, which also stretched reality, read “No wonder tens of thousands have already chosen Apple.” Chuck Peddle, who worked on the Commodore PET, thought “Apple consistently overstated their position and contribution.”

The corporate image was also reflected on the counters of computer dealers. Many of the stores were in a fragile state. They were strapped for cash and managed by hobbyists who sometimes seemed more interested in the computers than they were in their customers. Apple had a hunger for dealers. Some prospective independent dealers trooped to California, were antagonized by officials at Commodore, and found far more affection at Apple. From the start Apple also understood that the attitude and appearance of its dealers were important. For instance, it forced a dealer in San Francisco to switch his company’s name from Village Discount to Village Electronics and modeled the dealer agreements on those used by Sony.

When Computerland, a franchise chain of computer stores, started to open outlets around the country, Apple tagged along, Markkula was the linchpin for setting up the original arrangements with Computerland. He took to attending store openings and giving computer demonstrations. Ed Faber, the head of Computerland, said, “It was one of those mutually advantageous relationships. Apple had a product; we had the beginnings of a retail distribution system. The more success we had, the more success they had. The more success they had, the more succcess we had.” Apple, however, also used it dealers to help a limited amount of money go a long way. It was the first company in the personal-computer business to start a co-op advertising program where factory and dealer shared the costs of advertisements. Faber said, “It frightened other manufacturers. They thought we were so closely allied with Apple that they wouldn’t get any recognition in our stores.”