APPLE : HAS IT LOST ITS BITE? : Critics Contend the Firm Needs to Regain Vision That Created the Macintosh

CUPERTINO, Calif. —  The year is 2000, and Prof. Bradford in Berkeley is desperately trying to pull together a last-minute lecture on deforestation of the Amazon for his 4:15 class. He flips on his notebook-sized computer and starts talking, ordering libraries of research papers, a few animated charts and even some help directly from a colleague across the country.

The computer, a revolutionary device by any standard, doesn’t exist today except in a slick, six-minute video produced by Apple Computer Inc. to illustrate what Chairman John Sculley calls a vision of “my technology” for the future.

Meanwhile, at Apple’s corporate campus, which resembles nothing less than a yuppie theme park for bright young MBAs and computer engineers, the technology powering the company’s awesome spurt to a $5-billion-a-year operation isn’t significantly different from the original Macintosh personal computer Apple introduced five years ago.

And therein lies Apple’s central dilemma: It wants to get to the 21st Century with real revolutionary products, not merely “vision rollouts” of devices such as Prof. Bradford’s “Knowledge Navigator” computer in a notebook. But at the same time, analysts say, it seems reluctant--or perhaps unable--to break away from the Macintosh and go beyond simply refining a hit product line.

Similar challenges face other high-tech companies, but it is keenly felt especially at Apple because the stakes go far beyond the traditional methods of score-keeping, such as sales, earnings and market share. Perhaps more important to many inside the company is the desire to protect the company’s well-burnished reputation for risk taking, visionary spirit and technological innovation.

But so far Apple has failed to satisfy even some of its staunchest supporters that its technology goals will have a life much beyond videotape. And some observers are not sure that the company even wants to break out of the comfort of the Mac pack.

“I wish there were more science and less science fiction,” complains Richard A. Shaffer, editor of Technologic Computer Letter. “I don’t have any sense from Apple that there is the great vision from the top.”

Adds Esther Dyson, a software newsletter publisher: “I get the sense that the top management doesn’t even agree on what has to be done. . . . I want them to do well, but I can’t produce any credible evidence that they will.”

Pretty harsh criticism for a company whose sales have doubled since 1986 and whose very name is synonymous in high-tech circles for what Apple co-founder Steven Jobs called “insanely great” products and a bold view of the future.

Moreover, responds Sculley, it’s unfair.

“Apple is a company that gets measured on a different yardstick,” says the intense 49-year-old chairman who joined Apple five years ago after being wooed away from the presidency of Pepsi Cola.

“Apple is talked about as though it lives on the edge of reality. People expect it to have superhuman powers. But the fact is that we are mere mortals.”

And the mortals at Apple these days, explains Sculley, are interested in pursuing an evolutionary rather than revolutionary strategy. Translated into action, this means that Apple will continue to make incremental improvements to its existing Macintosh system, a line whose sales total nearly 3 million machines.

In the marketing world, where Sculley blazed trails while at Pepsi in the 1960s and ‘70s, this approach is called “line extension”: the creation of a family of vaguely similar products (i.e., cola, cherry cola, diet cola, caffeine-free cola) to appeal to the broadest audience.

Transferred to the world of high tech, the approach has produced a series of improvements to the Macintosh, not one of which radically stands out, but which together have produced a broadly accepted personal computer, widely considered to be the easiest and most enjoyable to use of the machines available.

Does it matter to Sculley that the basic Macintosh technology was developed in the early half of the 1980s by a team of engineers led by Jobs, who left Apple in 1985, and that his own leadership has produced nothing of the magnitude of Jobs’ contribution?

No, not really. Sculley says there’s more to running a high-tech company than far-out technology and state-of-the-art wizardry.

“People would like it if we could come up with something so revolutionary that they would gasp,” he explains. “But then the Macintosh would be immediately obsolete. And we have had too much success with the Mac to do that. We have to do it with incremental innovations.”

Wall Street Wary

But incremental innovations might not be enough. Market researchers and Wall Street analysts say they are growing increasingly concerned that the key competitive edge the Macintosh has long enjoyed over its PC competitors--namely its easy-to-use features--is fast disappearing.

Presentation Manager, a software program developed by IBM and Microsoft for IBM personal computers offers users some of the same easily understood graphics features originally introduced on the Macintosh. As the product gains acceptance, many fear that the Macintosh technology will lose much of its luster.

“People won’t dump their Macs because of it,” says Dyson, the newsletter publisher. “But if they want the latest system, they might go with IBM.”

Although Apple has introduced two pieces of technology that enhance the capabilities of the Macintosh--including an indexing system called HyperCard and the Hyper TV video system--neither has a proven appeal for the general office user, the person for whom the vast majority of computer purchases are made. And neither is considered sufficiently exciting to prop up the value of the Mac’s graphic features.

But even more disturbing, Dyson says, is her sense that Apple executives don’t seem concerned by the looming competition. “It’s hard to tell whether they have even recognized this threat,” she says. “I get conflicting senses of direction from the top managers.”

Apple’s top executives, installed during two thorough corporate reorganizations in the past few years, are also a concern to other outsiders.

“I certainly have some doubts,” says Bruce Lupatkin, a high-technology analyst for Hambrecht & Quist, a San Francisco brokerage. “I’d like to see the results of all the reorganizations and product development work . . . . I want to know if all the right people are in the right management slots now.”

Chip Shortage Blamed

Lupatkin says his growing concerns about the company prompted him to stop recommending the stock to clients about a month ago. Apple stock has been hovering in recent weeks in the mid- to high-$30s, down from a 52-week high of $47.75 late last year.

He is particularly concerned about the company’s announcement last month that earnings for its quarter ending March 30 could be as much as 42% lower than they were a year earlier.

The company blames the projected decline on its peak-price purchase last summer of shortage-plagued memory chips and a subsequent decision--since reversed--to increase Macintosh prices to cover the higher chip prices.

But last week, at least three other investment houses issued negative comments about Apple. Montgomery Securities, lowered its rating of the stock to “neutral”; Prudential-Bache cut its earnings estimate for the company, and a Kidder, Peabody & Co. analyst was quoting as saying he is concerned that the company is losing some of its competitive edge.

The investment analysts’ comments came in response to Apple’s decision last week to offer rebates to spur sales of its products. The annoucement was viewed as yet more evidence that the company’s profits will be squeezed this year.

Lupatkin and others question whether top management--particularly Sculley, who was on a much publicized sabbatical last summer--was paying sufficient attention to operating details. “I think there was a breakdown, no matter what the company insists,” Lupatkin says.

For his part, Sculley says there was little he or anyone at the company could have done, given the tight market for dynamic random access memory chips last year. Now, he says, the company is back on course.

But that’s not necessarily any reason to cheer, says Stewart Alsop II, publisher of a personal computer newsletter. Alsop has repeatedly criticized Apple’s product development efforts and singles out the company’s long-delayed introduction of a Macintosh laptop model, now scheduled for unveiling later this year, as an example of the company’s product problems.

“There is no basic leadership in product design,” he says. “Is it legitimate to have a product like the laptop under development for two years, when the world’s basic understanding of computer technology changes every nine to 18 months? They should cancel the product right now and start over. It won’t be the right product when it comes out.”

Diamond Earring

Others question whether Apple has even fully exploited the potential of the Macintosh. For example, one analyst notes that HyperCard, a unique and sophisticated indexing system, is ideal for database management requirements of businesses. But the company, he claims, may be losing that market to inferior systems because it has failed to move quickly enough.

Often singled out for criticism is Jean-Louis Gassee, president of Apple Products and the man ultimately responsible for new product development. Critics sneer that Gassee, the former head of Apple’s marketing effort in France, has gotten as far as he has because he rhapsodizes philosophical with a French accent and wears a single diamond earring.

“He runs around talking philosophical, but basically his job is to provide products that people want to buy,” says one critic who asks to remain anonymous. “But in 3 1/2 years on the job, he’s introduced four products.”

Sculley, who has blamed the laptop delay on inadequate technology for the screen resolution, fiercely defends Gassee and his product introductions. He says more than 50% of Apple’s revenue has come from new products during Gassee’s tenure at the helm of the product research operation, an achievement he calls “an extraordinary record of success.”

Nevertheless, Sculley admits that Gassee has his critics. “He loves to be very French; he loves to bathe his language in a thick French accent. He’s controversial, but he’s exciting.”

If that excitement can be translated into a steady stream of innovative products that ultimately creates the “Knowledge Navigator”--or something close to it--is still another question.

And there’ll be no quick answer. According to Chris Espinosa, who joined Apple at age 15 when it was housed in Jobs’ garage, new product development in some ways have become a victim of Apple’s success.

“Now that we’re in mainstream businesses and offices, people are having to use our technology because that is what the company has purchased. They’re not necessarily choosing to use us like they did before. It means we can’t get away with as much as we did before when just our devotees bought Macs,” says the 27-year-old Espinosa.

Still, Espinosa says a fire has been lit under the advanced technology engineers. Sculley’s “Knowledge Navigator” video, he claims, was designed more to inspire engineers within Apple than outside audiences. One result, he notes, is that the advanced technology group is organizing around integrated computer concepts, rather than around specialized technologies, such as video and audio that must be married at a later point.

And he says the focus goes far beyond the Mac. “We’re looking at how this technology can be used in totally new ways,” he says. “This is the first time that we’ve done this across the large organization.”

The task may not be an easy, or quick, one. Explains Randy Battat, vice president of product marketing, “We’re taking the Holy War to the next frontier.”

A MACINTOSH CHRONOLOGY January, 1984: Macintosh is unveiled at Apple Inc.’s annual shareholders meeting, after being previewed to the nation in the history-making “1984” commercial shown only during the Super Bowl.

September, 1984: New, more powerful Macintosh, the 512K, is introduced.

January, 1985: Lisa, the Macintosh’s technological grandmother, is officially renamed Macintosh XL, but is dropped from the product line four months later because of poor sales.

New LaserWriter printer is introduced, cementing the Macintosh’s trailblazing role in desktop publishing.

January, 1986: Macintosh Plus is introduced.

April, 1986: Macintosh 512K Enchanced replaces the Macintosh 512K.

January, 1987: Macintosh SE, an expandable machine with two floppy disks, and Macintosh II, an open architecture machine, are introduced. This is hailed as the “new generation” of Macintosh.

August, 1987: Debut of Desktop Express, an electronic mail and document delivery service that allows users to send and receive graphics and text over the MCI Mail network.

HyperCard, a unique indexing software system, is introduced.

January, 1988: LaserWriter II printer is introduced.

Apple and Digital Equipment Corp. announce agreement to link Macintosh computers with DEC’s powerful VAX systems.

March, 1988: Apple CD-ROM optical storage platter is introduced. It can store up to 270,000 pages of typewritten data.

September, 1988: Top-of-the-line Macintosh IIx system is introduced, employing new state-of-the-art microprocessors.

January, 1989: Hyper TV unveiled.