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Subject: Leaning Hard on Software; A Mellower but Still Driven Steve Jobs Plots Next's
Date: Sun, 22 Nov 92 09:18:27 EST
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Leaning Hard on Software; A Mellower but Still Driven Steve Jobs
Plots Next's Strategic Shift<By Mark Potts=Washington Post Staff
Writer=

 REDWOOD CITY, Calif.>Despite his considerable reputation as a
technological visionary, Steve Jobs never seems to get things
right the first time.

 He and buddy Steve Wozniak sold only a couple hundred of their
garage-built Apple I personal computers; their Apple II was a
roaring success. Jobs's Apple Lisa computer was an expensive dud;
its successor, the Macintosh, was a hit. And even the Mac, now
the industry's best-selling computer, was a flop at first. It was
little more than a pricey toy before the unexpected development
of desktop publishing finally gave it a foothold in the corporate
world.

 "If you look at my life, I've never gotten it right the first
time," Jobs concedes. "It always takes me twice."

 Or maybe three times, in the case of Next Inc., the company Jobs
founded after being forced out of Apple Computer Inc. in 1985.
Originally conceived as a maker of powerful workstation computers
for the academic and scientific markets, Next has changed direc-
tion not once, but twice - first becoming a less-than-successful
maker of high-powered personal computers for corporate customers,
and now mutating into what is rapidly becoming a software company
purveying a PC operating system that Jobs boasts is several years
ahead of the competition.

 "The path we've taken at Next, for better or worse, is not very
different from the path I've taken" before, Jobs says. "The first
product at Next ... wasn't quite right. The current products we
have are improvements over those products."

 The brightest spot in Next's product line is not a computer -
although Next's sleek black machines are among the most powerful
in the $5,000-to-$15,000 workstation class. Instead, Next is bet-
ting its future on the software it developed for those machines,
NextStep, an operating system whose "object-oriented" architec-
ture allows corporate customers to use programming building
blocks to design sophisticated customized computer applications -
"custom apps," in Jobs-speak - in a fraction of the time they
could do it on other systems.  "I get asked ... all the time, are
you a software company or a hardware company? And the answer is:
'Yes,' " Jobs says with a grin. "We make great hardware, but our
software is our jewel."

 The newest version of NextStep even runs on high-end IBM-
compatible PCs based on Intel Corp.'s popular 80486 chip, not
just on Next's expensive machines - opening a potentially vast
market for Next as an upscale alternate to Microsoft Corp.'s ubi-
quitous Windows. But Microsoft, in turn, is working on a new ver-
sion of Windows that contains many of the kind of object-oriented
features found in NextStep.  Next suddenly has a blue-chip custo-
mer list: Chrysler Financial Corp., Mobil Corp., oil trader Phi-
bro Energy Inc., the Pentagon and First National Bank of Chicago
are among the buyers of Next machines or NextStep 486 software.

 But most of those sales have been relatively small, and it
remains to be seen whether Next truly can cash in on the market
that Jobs envisions.

 Its checkered history and identity changes have made Next a
tough sell to skeptical business customers who would prefer to
deal with a more stable company. Despite Jobs's boasting, Next's
technological lead may not be enough to give it a significant ad-
vantage over Microsoft and the rest of its fast-closing competi-
tion, experts say.

Lost Time<Many industry analysts believe that Jobs was too slow
to recognize that Next's strength was its software, not its
hardware, and lost valuable time - perhaps as much as two years -
before deciding on the current strategy.

 Next's transformations have come at huge cost. The company has
lost tens of millions of dollars - much of it Jobs's Apple for-
tune - in trying to find its way, and is only now reaching the
break-even point, at revenue of around $150 million this year.
The deep pockets of Jobs and other investors, including his buddy
Ross Perot, who owns an 11 percent stake, have cushioned Next
from financial problems that would have killed any other company
- some observers believe the company has spent most of its rough-
ly $200 million initial capitalization, and Jobs reportedly has
met some payrolls out of his own pocket as recently as this year.
Next has run through a couple of sets of top managers - a chronic
Jobs problem. (Next's current management team, including recently
hired President Peter van Cuylenberg, a computer industry
veteran, and marketing Vice President Mike Slade, generally gets
good marks from industry analysts.) The trials and errors of Jobs
and Next have seemed to all but sidetrack the career of the per-
sonal computer industry's first superstar, the enfant terrible
who declared war on International Business Machines Corp., raised
a pirate flag over the building in which Macintosh was being
designed and finally got himself thrown out of his own company by
his handpicked executive partner, Apple Chairman John Sculley.

 As Next has struggled, Jobs's image has slipped. Computer en-
trepreneurs who once dreamed of following in Jobs's successful
footsteps now fear winding up like him, a talented visionary
squandering his considerable fortune in a vain search for another
winner - burned out at the tender age of 37.

 But Jobs is no burnout case. The flair for spotting hot techno-
logies and marketing them with evangelical fervor that put the
Apple II and Macintosh over the top is still there. Even his de-
tractors say they'd never bet against him.

 Jobs has become a sort of pragmatic visionary, willing to adapt
to changing times and markets. He's toned down the arrogant brat
who insisted that the Macintosh be designed to prevent anyone
from opening it up to see what was inside and who refused to
share the Mac's technology with other manufacturers who might
have helped it proliferate across the industry - a mistake that
limited the Macintosh's growth, he now admits.

 Jobs still is given to greeting visitors to Next in jeans and a
black turtleneck, and to lacing on rollerblades to skate to week-
end breakfasts near his home in tony Woodside, but he seems just
as comfortable in an expensive suit making a smooth pitch to win
corporate business for his new company.

 His second marriage and the recent birth of a son are said to
have mellowed him, made him more introspective, taken off some of
the rough edges; the man noted in Silicon Valley for having a
huge motorcycle in his living room now has a child seat strapped
into the back seat of his big gray Mercedes-Benz.

 "We all learn as we grow up," he says, a little defensively. "We
get older and we learn more."

Showman, Salesman<But Jobs still has the drive, the intensity,
the sense of showmanship and salesmanship that made him success-
ful and famous - the computer entrepreneur as rock star. Never a
technological wizard - that was the role of Wozniak and, later, a
string of talented technologists at Apple and Next - Jobs's gift
is a visionary ability to spot somebody else's "totally neat"
technology, figure out a market for it and then sell the day-
lights out of it.

 At a presentation for potential federal and corporate Next cus-
tomers in Washington last summer, Jobs confidently and
enthusiastically put Next's wares through their paces, showing
the appreciative audience how the object-oriented features of
NextStep software could be used to construct a simple, good-
looking database program from scratch in a couple of minutes - a
task that would take days of programming on any other system.

 "We're seeing a technical revolution," he said, gesturing and
pacing the stage of the auditorium at the National Museum for
Women in the Arts. "This is where we come in. ... All this stuff
just works." He went for the kill: "We'd love to have a chance to
suit up and see if some of our stuff could suit some of your
needs."

 Jobs's current pitch is a far cry from his original plan for
Next.  Introduced in 1988, the Next machine fit Jobs's vision of
a powerful desktop computer for university laboratories. Next
counted among its investors Stanford and Carnegie-Mellon univer-
sities; representatives of several other schools sat on an ad-
visory board to the company.

 But the first Next computer flopped. While clearly superior to
anything on the market, it relied on several nonstandard techno-
logies, and its $6,500 price tag was offputting to many academic
customers. Reportedly, fewer than 30,000 Next machines were sold
in their first two years of availability, 1989 and 1990.

 Next found some buyers in the university market it sought -
academic buyers still account for nearly 25 percent of the
company's sales - but not enough. And the Next computer was just
too unusual to substantially crack the much bigger and more lu-
crative business market. A brief marketing alliance with IBM - an
unthinkable alliance in Jobs's Apple days - foundered, dealing
the company another setback.

 Still, Next found a few tiny niches in the corporate world, much
as the Mac had sneaked in through desktop publishing. Corporate
users found the Next machine a powerful and increasingly flexible
alternative to those made by arch competitor Sun Microsystems
Inc., the industry leader in the workstation market. Next made
beachheads in several financial services firms, and in such odd
places as the Los Angeles County sheriff's department, which
bought Next workstations to automate its executive offices and
financial operations.

 But these sales to corporate and government customers came in
dribs and drabs, a dozen machines here, 100 there, and it was
clear that Next was not going to make it solely as a seller of
powerful desktop computers to corporations. The company's losses
mounted, and rumors abounded in Silicon Valley that Next was in
financial trouble. Japan's Canon Inc., a major investor, pumped
in tens of millions of dollars to help keep the company afloat.

The Next Step: NextStep<The savior was the software, in the form
of NextStep.

 Such object-oriented software combines chunks of prewritten code
into "objects" that perform specific functions, which in turn can
be combined into programs. These easily connectable building
blocks, which are made possible by advances in software technolo-
gy and faster computers, handle fundamental functions, freeing
programmers to write code for more complex, custom needs. That
allows users to put together or modify complex programs in a
fraction of the time it would take to write traditional software.

 Jobs believes that object-oriented programming will be as signi-
ficant a development in the personal computer industry as the
Macintosh's icon-based graphical operating system was nearly a
decade ago. "I believe with every bone in my body that this is
going to define the '90s, just like graphical user interface de-
fined the '80s," he said.

 It became clear to Jobs and company that customers loved the
ability to use NextStep to write customized "mission-critical"
software applications for such specialized markets as health
care, financial services, government and law enforcement. In
financial trading, for instance, NextStep allowed users to almost
constantly customize their software to keep up with the ever-
changing variety of financial trading instruments.

 Vincent Loud, director of management information systems at Phi-
bro Energy, in Westport, Conn., an early Next corporate customer
that is now selling customized NextStep systems to other com-
panies, said, "It really gives you quick prototyping, high pro-
grammer productivity and an easier programming curve, because as
you go on, you start to develop a library" of programming rou-
tines, the building blocks of object-oriented software. "We anti-
cipate that (building custom programs) will be done in what will
be half the time to do it in a conventional environment," he
said.

"We used to see ourselves as a hardware company that happened to
have great software," Jobs said in explaining the change in busi-
ness plans - which he resisted until last year. "We now view our-
selves as a software company that happens to have great
hardware."

 The different philosophy means a potentially different bottom
line. Ultimately, Jobs believes, 75 percent of Next's revenue
could come from software, the remaining 25 percent from hardware,
with Next continuing to make machines that make optimal use of
NextStep's features. The percentage markup on a $300 box of
NextStep software is much larger than the markup on a $10,000
Next computer, particularly in the increasingly competitive and
commoditized world of computer hardware today. The hope is that
what Next loses in revenue in shifting its emphasis to software -
it will probably never be a $1 billion-a-year company, dashing
one of Jobs's dreams - it will make up in hefty profits.

 The strategy already is paying off. The privately held company
does not disclose financial figures, but van Cuylenberg, the
British-born company president whom Jobs hired away from British
telecommunications firm Cable & Wireless PLC earlier this year,
indicated that Next is finally profitable, or very close to it.

Profits Ahead?<Jobs and van Cuylenberg believe Next finally is on
track for a string of profitable quarters that will allow Next to
sell stock to the public for the first time sometime next year.

  That is, if Next can pull off its latest strategic sea change.
Many industry analysts are skeptical, particularly given the na-
ture of the competition. "The software is great, but I don't
think it's great enough," said Esther Dyson, publisher of Release
1.0, a computer industry newsletter.  "The more people who use it
(the more who) love it, but it hasn't reached critical mass, and
I don't think it will."

 While NextStep's object-oriented architecture does have a jump
on the competition, it may be short-lived. The rest of the per-
sonal computer industry is working on its own object-oriented
software for release over the next couple of years, and offerings
from the Apple-IBM joint venture and, especially, Microsoft's
forthcoming Windows NT, are expected to find instant markets with
the large number of customers much more comfortable with those
industry giants than with an upstart like Next.  Jobs "is in an
enviable position to lead the charge, but in an unenviable posi-
tion to capture the advantages of the revolution," said Tim Baja-
rin, an computer industry analyst at Creative Strategies Interna-
tional in Santa Clara.  "He's got at least a 50-50 shot of trying
to pull this off, but he's got more competition than he's ever
had."

 However, Bajarin said, "It's taken Steve Jobs six years to fig-
ure out what he wants to be. ... For the first time since he
started Next, Steve has a real vision for what his company is and
what it should be doing."<02:05 11-22C9999-----

Copyright 1992, The Washington Post.  This story is from the
Washington Post's Capitol Edition On-Line and is not to be ar-
chived or redistributed.

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