The case took a couple of years. They lost, and we did get money from them. Just a few hundred thousand dollars, not the millions I thought it was worth. But it was enough to stop them.
More About the Floppy Disk
The floppy disk was invented by Alan Shugart in 1967, when he was working at IBM. The first floppies were 8 inches across—and they were called floppies because they were on a thin, bendable piece of magnetic material. Later, floppies went to a smaller format, the 5.25-inch format.
Later on, when they were in an even smaller 3.5-inch format and in a nonbendable plastic cover, people started calling floppies "diskettes."
Chapter 15
The Woz Plan
Just before we went public in late 1980, a guy called me and asked whether he could buy some shares of my stock at $5 a share. He wanted to buy 10 percent of it.
I loved the idea, because it meant I could afford to buy Alice and myself a house. We were still living in the Park Holiday Apartments in San Jose, paying a rent of $150 a month.
But I like to do things different. I valued the employees at Apple—there were more than a hundred by then—as a community. I'd had that philosophy about a company being like a community since my first job, and maybe even earlier.
So I decided it would be better to sell some of my stock to employees and let them benefit, rather than some outside investor.
It was apparent to a lot of people at this point that Apple was going to have a very successful IPO—that, reasonably, the stock was going to be worth a whole lot more than $5, at any rate. And top executives and founders at Apple had a lot of stock. We were all likely to make millions. But a lot of other employees were left out, the majority of them.
I decided I was going to offer to sell some stock really cheap to people who deserved it. Regular employees didn't get all the
stock options the executives got. Which wasn't fair. So I came up with something I called the Woz Plan. Any engineer or marketing person could buy 2,000 shares from me at a really low price of $5.
Almost everybody who participated in the Woz Plan ended up being able to buy a house and become relatively comfortable. I'm glad of that. But at first our lawyers told me I wasn't going to be allowed to sell stock to all these people. They told me they had to be sophisticated investors or something. But finally our attorney, A1 Eisenstat, said, "Okay, Steve, you can do it."
Then there was the matter of some of our earliest employees who didn't get stock at all. Randy Wiggington, who'd helped me do the floppy disk, had been there before we started Apple even. Chris Espinoza, Dan Kottke, and my old neighbor Bill Fernandez were other examples. These employees weren't just around, they offered the inspiration that really allowed me to do the great stuff. I thought of them as part of the family, part of the family that had helped me design the Apple I and Apple II computers.
I gave each of them stock worth about a million dollars.
In those days, giving stock away to people you thought deserved it was just unheard of. Companies at the time just didn't give stock to all the workers. They were like, "Why should we give these people stock? They did what they did for what they got paid and they didn't have stock." Never would any company go back and say, "Okay, well, you were real nice. So now I'll give you some stock." So this was different because I was giving them my own stock—like a gift—it wasn't coming from the company.
• o •
I think behind the scenes Steve thought I was weak because of this—sort of ditching the company a little bit in kind of a sellout. But I sold that stock at about $5 a share to forty people in the Woz Plan—2,000 shares a pop—and then I was able to buy a really nice house for me and Alice. I bought it in cash. I figured, once you own a house, it's great. All you have to worry about is
the maintenance of the house if you don't have a job or anything. So I bought it and owned it outright.
It wasn't a very big house, but it was a nice house. It was probably the very favorite house of my life. It was just beautiful— located in the middle of the Santa Cruz Mountains, in Scotts Valley. It was an all-wood house—knotty pine with the holes in the wood. There was a big master bedroom upstairs. And I remember I could walk upstairs through the bedroom and walk out onto a balcony and look down into the family room and a little aviary with a bunch of windows. I had a gate out front with a wooden mural I had done of dogs. I got my first huskies there. I loved everything about that house.
Alice and I didn't stay together in that house very long, though. Even though we now had money like we'd never dreamed of, it wasn't enough to make up for the fact that we had different interests. She wanted to go out every night with her friends. I wasn't into that. I wanted to stay home and work. I didn't want to get divorced—I never wanted to get a divorce, ever. I'm the kind of guy who always wanted to get married to someone forever, and I wanted that with Alice.
But what could I do? I mean, by then the Apple stock was worth so many hundreds of millions of dollars, and she just told the counselor we were seeing that she wanted to see who she was without me and be on her own in life. She never once said to the counselor that I worked too hard, which is kind of a myth about my divorce that got in the press later. No, that's not what she said. She said she wanted to be on her own.
Let me tell you that I opposed that divorce as strongly as I could. I never wanted to get divorced in my life. But finally I realized there was no way to stop it. So I just took Alice to a park in Cupertino and wished her well and said goodbye. I walked back to Apple feeling really different. Different like it was time to move on. Alice was gone.
• o •
By this time Apple had its own building on Bandley Drive. By 1981 computers all of a sudden became the happening thing in life. There were articles in newspapers and magazines and TV shows talking about computers; it was just immense. Computers, personal computers, and home computers—suddenly everyone was wondering if they were going to make our lives better in the future, lead to better education systems, cause us to be more efficient and more productive. It looked like computers were going to enlighten us, improve our brains, let us think less and get correct answers sooner.
There was also a constant stream of articles in the trade press comparing our product with others on the market, and because we were the best technically, we were always rated as the best product. We were the one everyone wanted the most.
There were also stories about how we were just two people, Steve and I, and how we'd started with nothing and suddenly were so successful. We got all this publicity and all the benefits from it. Sales. Fame. We were just the hot, shining star.
In December of 1980, Apple's stock went public on the NASDAQ exchange.
• o •
It was the most successful IPO up to that time. It was on the front page of every major newspaper and magazine. Suddenly we were legendary. And rich. Really rich.
This was a pretty amazing accomplishment. After all, we had started from virtually nothing. It turned out Mike Markulla was right. We really were going to be a Fortune 500 company in five years.
Just a year later, we were going head to head with IBM's first personal computer, the IBM PC. Nonetheless, we had this major, major IPO. We also had the Apple III, a machine targeted to business, coming out—there were just rumors of it—and I think that
was part of the reason the timing was right. (Another reason was that because so many people had received shares, the reporting hassle to the SEC was harder than going public!)
That computer, the Apple III, was a strong, strong statement to the business world. It was like, after this incredible Apple II phenomenon, we were suddenly going to be able to compete with the then-new IBM PC.
• o •
The Apple III had some terrible problems, though. It was nothing like the Apple II, which was reliable all the time. I'm serious. You could buy an Apple II on eBay today, and it'll work. There is no modern product that is as reliable. In every speech I give, I talk to people who are still running Apple lis, and they say those machines are still running after this many years.
No, the Apple III had hardware problems, serious ones. It would get to a store, for instance, boot up a couple of times, and then it would crash. Sometimes it wouldn't even boot up at all. My brother had a computer store by this time in Sunnyvale, and he told me Apple engineers would come down to fix it, but they could never get a machine that worked. Never. The first few months of the Apple III went by, and many of the stores had the same experience. Every Apple III came back not working. And what do you do when you're a computer dealer and this happens? Well, you stop selling it and you keep selling the original machine, the Apple II. That's why the Apple II was going to be the largest-selling computer in the world for at least three more years. In fact, by 1983 it would hit a huge milestone—it was the first computer to sell a million units!
So why did the Apple III have so many problems, despite the fact that all of our other products had worked so great? I can answer that. It's because the Apple III was not developed by a single engineer or a couple of engineers working together. It was developed by committee, by the marketing department. These
were executives in the company who could take a lot of their power and decide to put all their money and resources in the direction of their own ideas. Their own ideas as to what a computer should be.
Marketing saw that the business community would be the bigger market. They saw that the typical small businessman went into a computer store, bought an Apple II, a printer, the VisiCalc spreadsheet program, and two plug-in cards. One was a memory card, which allowed them to rim larger spreadsheets. And the other was an eighty-column card, which allowed them to present eighty columns of characters across the video display, instead of the normal forty. Forty columns was the limit of American TVs.
So they came up with the idea that this should all be built into a single machine: the Apple III. And it was built.
Initially there was virtually no software designed for the Apple III. Yet there were hundreds of software programs you could buy for the Apple II. So to have a lot of software right away, Apple built the Apple III as a dual computer—there was a switch that let you select whether the computer started up as an Apple II or as an Apple III. (The Apple III hardware was designed to be extremely compatible with the Apple II, which was hard to improve on.) It couldn't be both at once.
And it was here they did something very wrong. They wanted to set the public perception of the Apple III as a business computer and position the Apple II as the so-called home hobby machine. The little brother of the family. But get this. Marketing had us add chips—and therefore expense and complexity—to the Apple III in order to
disable
the extra memory and eighty- column modes if you booted it up as an Apple II.
This is what killed the Apple Ill's chances from the get-go. Here's why. A businessman buying an Apple II for his work could easily say, "I'll buy an Apple III, and use it in the Apple II mode since I'm used to it, but I'll still have the more modern machine."
But Apple killed the product that businessman would want by- disabling the very Apple II features (extra memory and eighty- column mode) he was buying the computer for.
Out of the chute, the Apple III got a lot of publicity, but there was almost nothing you could run on it. As I said, it wasn't reliable. And in Apple II mode, it was crippled.
To this day, it boggles my mind. It's just not the way an engineer—or any rational person, for that matter—would think. It disillusioned me that big companies could work this way.
• o •
Finally, finally, about a year after Apple was able to make the Apple III reliable enough so it wouldn't break constantly, the computer still wouldn't sell. Because by then it had such a bad rep as a terrible, unreliable machine. You see, first impressions matter. When a computer passes by its period of acceptance, you just aren't going to get people jumping on the bandwagon by fixing the problem.
My feeling was, Hey, try to forget about it, and just change the name of the Apple III to the Apple IV and make it look different on the outside, and maybe then you could sell some.
• o •
From the years 1980 to 1983, Apple made the Apple III its highest priority. It's fair to say that Apple became the Apple III company. An Apple III company that just happens to sell Apple lis.
By 1983 everybody at Apple was forced to have an Apple III on their desk. Suddenly, whenever I walked into the company, they'd be talking like, "Oh my god, did you see such and such new piece of software running on the Apple III?" And it was like, Who cares? I would go around the country in those days and give speeches to computer groups. I would talk to computer groups all over the place, and everywhere I went there would be ninety people with Apple lis and three people with Apple Ills.
Why would Apple pretend it was an Apple III company when it wasn't? That was my question.
After all, during these years the Apple II was the largest- selling computer in the world. The Apple II was carrying us. In those days, almost every ad Apple ran in major magazines like
Time
and
Newsweek
showed an Apple III. They never showed an Apple II. The executive staff cut plans for all Apple II products. Totally. There were only a couple of education-related products left.