chapter one Apple Confidential: The Real Story of Apple Computer, Inc. APPLE CONFIDENTIAL

The Real Story of Apple Computer, Inc.

By Owen W. Linzmayer

No Starch Press The

Forgotten Founder

Thanks to a never-ending campaign by Apple's powerful public relations machine to protect the myths surrounding the company's origin, almost everyone believes that Apple was started in a garage by "the two Steves," Stephen Gary Wozniak, 25, and Steven Paul Jobs, 21. Actually, the operation began in a bedroom at 11161 Crist Drive in Los Altos (the house number changed to 2066 when the land was annexed from the county to the city in late 1983), where Jobs--after having dropped out of Reed College in Portland, Oregon--was living with his adoptive parents, Paul R. (a machinist at Spectra Physics) and Clara (a payroll clerk at Varian). That mere semantic distinction can be forgiven. When the bedroom became too crowded, the operation did indeed move to the garage. The bigger story here is that the two Steves weren't alone in forming Apple. Just as Soviet propagandists doctored photos to remove party members who had fallen out of favor, Apple suffers from a convenient case of institutional amnesia by routinely ignoring the fact that when Apple was originally founded as a partnership on April Fools' Day 1976, there were three founders: Woz, Jobs, and a fellow by the name of Ronald Gerald Wayne, 41. Jobs was freelancing at Atari in the early 1970s when founder Nolan Kay Bushnell hired Wayne as chief draftsman (badge #395) for the video game maker. Despite the difference in their ages, Jobs and Wayne became casual friends and would often have philosophical discussions on the ethics of making money. Desiring a tie-breaker in any potential conflicts with Woz, Jobs enticed Wayne to become a partner in Apple by offering him 10 percent interest in the company. "Either I was going to be bankrupt or the richest man in the cemetery," Wayne recalls thinking. Since Apple was far from a sure thing, Wayne retained his day job at Atari and worked nights on the original Apple logo and documentation for the Apple I. Meanwhile, Jobs was hustling up customers. At a Homebrew Computer Club meeting (the club met monthly at the Stanford Linear Accelerator Center auditorium in Palo Alto), Jobs gave a demonstration of the Apple I to Paul Jay Terrell, who operated the Byte Shop--arguably the first retail computer store chain in the country, which opened its doors on December 8, 1975 (Terrell's birthday). Terrell was intrigued and asked Jobs to keep in touch. The next day, a barefooted Jobs dropped in on Terrell at his store in Mountain View and exclaimed, "I'm keeping in touch." To Jobs' utter amazement, Terrell agreed to buy 50 computers for $500 each, cash on delivery. There was only one catch to the $25,000 order: Terrell wanted fully assembled computers. The trio had originally planned to produce bare circuit boards for $25 each and sell them for $50 to hobbyists who would populate them with the necessary chips and other parts. They didn't have the money necessary to buy all of the parts required to build 50 complete computers, but Jobs was undaunted. On April 6, he obtained a three-month $5,000 loan from Elmer and Allen J. Baum (one of Woz's coworkers at Hewlett-Packard), then convinced suppliers to extend 30 days' credit on $15,000 worth of parts. The young, ambitious Jobs had no qualms about going into debt to fulfill the Byte Shop order, but the seasoned Wayne was anxious. He wasn't convinced Terrell would pay for the computers, and the partnership agreement meant that he had unlimited personal liability for any debts incurred by Apple. Just four years prior, Wayne underwent the emotionally painful experience of folding Siand, his own Las Vegas-based engineering firm. Wayne didn't want to risk another financial failure, so on April 12--less than two weeks after Apple's founding--he renounced his 10 percent interest for a one-time payment of $800. "I had already learned what gave me indigestion," explained Wayne years later. "If Apple had failed, I would have had bruises on top of bruises. Steve Jobs was an absolute whirlwind and I had lost the energy you need to ride whirlwinds." Freed from the financial liabilities of the partnership agreement, Wayne spent his free time consulting on projects such as designing an enclosure for the Apple I. Meanwhile, Woz and Jobs got part-time assembly help from Bill Fernandez, who had originally introduced Jobs to Woz in 1968, as well as from Daniel G. Kottke, who had met Jobs at Reed College and had made a spiritual journey to India with him in 1974. Everyone worked furiously to build the computers by hand. Terrell was a bit dismayed when Jobs showed up on the 29th day to deliver a batch of motherboards stuffed with components. When Terrell asked for "fully assembled" computers, he meant the whole works: a case, power supply, monitor, and keyboard. Nonetheless, Terrell kept his word and handed over the cash, allowing Apple to pay off its parts suppliers in the nick of time. Jobs was excited. Apple had made roughly $8,000 profit, and he was planning to expand the business by going farther into debt with parts suppliers to build even more computers. Jobs' ambitious plans required more money than the Apple I orders were generating, so in August 1976, he approached his old Atari boss, Nolan Bushnell, who recommended he meet with Don Valentine of the venture capital firm Sequoia Capital. At the time, Valentine wasn't interested, but he in turn referred Jobs to Armas Clifford "Mike" Markkula Jr., 34, who had retired a year prior after making a small fortune on his stock options at chipmakers Fairchild Semiconductor and Intel. In November 1976, Markkula came out of retirement to help Jobs devise a business plan. With the Apple I computer boards being sold through just ten retail stores in the U.S., Markkula boldly set a goal for sales to grow to $500 million in ten years. Recognizing a chance to hitch a ride on a rocket that was about to take off, Markkula invested $92,000 of his own money and secured a $250,000 line of credit at Bank of America. Now properly funded, the three of them filed for incorporation of Apple Computer on January 3, 1977. To avoid any possible legal complications, in March the corporation purchased the partnership for $5,308.96 and Wayne was sent a check for a third of that amount to make certain he would have no future claim against the company. Wayne, who had walked away voluntarily for $800 less than a year ago, was thrilled to receive this unexpected windfall. Reflecting on the situation, Woz understands Wayne's decision to bail out early. "Steve had no money. I had no money, and the creditors were going to wind up coming to him for the money that was going to be owed. So he decided it was better to get out of it. At the time it was the right decision." To someone who was there to witness the events firsthand, it may have made sense, but in retrospect, it's hard for an outsider to see Wayne's decision as anything but a mistake of colossal proportions. Granted, Wayne would surely have had to give up some of his interest in Apple as the firm grew. If Jobs' initial 45 percent stake in Apple translated into 7.5 million shares when the company went public in 1980, it's reasonable to assume that Wayne's 10 percent would have equalled more than 1.6 million shares. Following a two-for-one stock split on May 15, 1987, such a holding would have been worth approximately $244 million (not including dividends) when the stock peaked at $73.25 on April 12, 1991, and would still be worth over $42.5 million at $12.75 per share, the lowest price since then. Does Wayne ever regret relinquishing his supporting role in one of the greatest American business success stories ever told? Amazingly enough, 20 years later Wayne convincingly stated, "I have never had the slightest pangs of regret, because I made the best decision with the information available to me at the time. My contribution was not so great that I felt I had been diddled with in any way." A person of lesser character might be paralyzed with bitterness and self-doubt after walking away from such fame and fortune, but not Ron Wayne. He put it behind him and got on with his life. Although Jobs tried over the years to convince Ron to return to Apple as an employee, Wayne continued working at Atari until 1978, at which point he took a job at Lawrence Livermore Labs. In 1980, Wayne opened a small store on Dempsey Street in Milpitas. Dealing in stamps, coins, and other collectibles, Wayne's Philatelics became so successful in just two months that he quit his job at Lawrence Livermore Labs. Following the collapse of the stamp market and two break-ins, Wayne closed the store in 1982 but continued operating the business out of his home. After a brief stint working on documentation and drafting for Scientific Technology Systems, in 1985 Wayne took a job working on slot machines at Thor Electronics of California. The Salinas-based manufacturer has since shifted its focus from slot machines to military electronics, and Ron Wayne continues to work for Thor as chief engineer from his home in Tucson, Arizona.

The Apple Logo

One of Ron Wayne's first duties after co-founding Apple was to design a logo for the infant company. The logo he created was a pen-and-ink drawing of Sir Isaac Newton leaning against an apple tree with a portion of a William Wordsworth poem (Prelude, Book III, Residence of Cambridge) running around the border: "Newton ... A mind forever voyaging through strange seas of thought ... alone." Wayne's logo was used for a short time, but Jobs eventually came to feel that it was too cerebral and not easily reproduced at small sizes, so in April 1977, he instructed Rob Janov, an art director at the Regis McKenna public relations agency, to come up with a better logo. Janov started with a black and white silhouette of an apple, but felt something was missing. "I wanted to simplify the shape of an apple, and by taking a bite--a byte, right?--out of the side, it prevented the apple from looking like a cherry tomato," explains Janov. For a touch of class, Janov added six colorful horizontal stripes that paid tribute to the Apple II's impressive color capabilities. Although separating the green, yellow, orange, red, purple, and blue bars with thin black lines would have reduced registration problems during reproduction, Jobs nixed the proposal, resulting in the Apple logo as we know it today, which former president Michael M. Scott calls "the most expensive bloody logo ever designed." Copyright © 1999 Owen W. Linzmayer. All rights reserved.

ISBN: 1-886411-28-X



CONTENTS The Forgotten Founder................................................1 What Were They Thinking?.............................................9 Broken Breakout Promises............................................17 The Apple III Fiasco................................................21 Code Names Uncovered................................................25 Millionaire Mania...................................................37 The Strangest Bedfellow of All......................................45 From Xerox, With Love...............................................51 The Making of Macintosh.............................................63 Macintosh Insiders..................................................81 The Greatest Commercial That Almost Never Aired.....................87 The Mac Meets the Press.............................................93 Mac Models Timeline.................................................99 Why 1985 Wasn't Like 1984..........................................105 Big Bad Blunders...................................................109 The Remarkable Rise and Fabulous Fall of John Sculley..............121 Windows: What Went Wrong?..........................................133 The Fallen Apple...................................................143 Jobs After Apple: To NeXT and Beyond...............................167 The Star Trek Saga.................................................179 From Diesel to Doctor..............................................183 The Clone Quandary.................................................193 Trademark Tiffs....................................................207 The Doctor's Strong Medicine.......................................215 The Copland Crisis.................................................225 Happily Ever Apple?................................................237 Bibliography.......................................................245 Index..............................................................247