It’s hard to imagine now that Apple is a trillion-dollar company, but Apple very nearly went under in the 1990s. For a time, it seemed the company could do no right. So why did Apple fail in the 90s? And how did it manage to find its way?
Apple’s problems in the 90s were twofold: Its operating system was outdated and its products were expensive and uninspiring. Apple turned around when Steve Jobs changed the company’s message and took some chances with the design.
Putting Apple in the context of the early 90s
The early 90s were a tough time for the computer industry. At the start of the decade, Windows’ success wasn’t established yet. Two companies we normally associate with the previous decade, Atari and Commodore, still had significant market share. Commodore and Apple were even still selling 8-bit computers at the onset of the decade. They weren’t huge sellers at that point, but they still sold in enough quantities that neither company could afford to pull the plug on them just yet.
But the industry was changing fast. Computers were becoming much more powerful. The idea of multitasking, or running more than one program at a time, was taking hold. With it came a need for memory protection. This was the idea that if you had both Word and Excel running at the same time, Word couldn’t access Excel’s memory and vice versa.
These were still new ideas in 1990, but several companies were working on them. Commodore’s Amiga was the best at multitasking in 1990, because the operating system decided how to divide up time, rather than the applications fighting for the CPU’s attention like Windows 3.0 and Apple’s System 7 did. None of them had memory protection, but IBM’s OS/2 and Microsoft’s upcoming Windows NT did. Apple had a comparable OS in the works called Copland, but never finished it.
Why Apple failed in the 90s: Windows
For most of the 80s, PCs were boring beige boxes. Really boring. Monochrome text-only displays, a beeper for a sound, and a single-tasking text-based operating system. In 1987 IBM introduced a new color graphics system as part of its PS/2 line called VGA. The same year, a music professor slapped a Yamaha sound chip on a plug-in card for IBM PCs and called it the Ad Lib. When it hit the mass market in 1990, you didn’t have to buy an Apple, Atari or Commodore computer to have great color graphics and sound anymore. And in the late 1980s, Intel’s CPUs caught up with Motorola.
In 1990, Microsoft released Windows 3.0. That was the final ingredient. By 1990, a PC with a 386 processor and Super VGA graphics was reasonably affordable, and Windows 3.0 ran pretty smoothly on it. You could add a sound card if you wanted, and it wasn’t terribly expensive either. Or if you didn’t want sound, you could forego it and save a little money.
The important thing was at this point, for the first time in half a decade, you could buy a PC and not feel like you were missing much. Microsoft sold 4 million copies of Windows 3.0 in 1990, its first year. Apple sold 1.3 million Macs that year, and only followed it up with 2.1 million sales in 1991. By 1992, Microsoft was selling a million copies of Windows every month.
Microsoft wasn’t standing still. Microsoft initially planned for a new version of Windows with pre-emptive multitasking like an Amiga in late 1993. Like many Microsoft products, that didn’t happen and it was delivered late. Really late. Finally, in August 1995, Microsoft released its successor to Windows 3.1, called Windows 95. And people stood in line for it at midnight, like an Apple product. Really.
I worked at Best Buy until August 1995 and the hype was electric. I was an Amiga and OS/2 fan, so I was probably just as disgusted by it as the average Apple fan was. And not everyone liked Windows 95 right away, but as long as you ran native 32-bit software on it and had stable 32-bit drivers for all of your hardware, it worked well. The UI gave Apple a run for its money, and it was smoother and more stable.
If Windows 95 wasn’t good enough for you, 11 months later Microsoft shipped Windows NT 4.0, which married Windows NT’s modern pre-emptive multitasking and memory protection and its associated stability with the Windows 95 user interface.
Apple’s System 7 was technically inferior even to Commodore’s Amiga OS. But Commodore only sold a million Amigas in a year once, in 1991, so it wasn’t much of a threat to Apple. But Microsoft was. Microsoft sold a staggering 40 million copies of Windows 95 in its first 12 months. Apple sold 4.5 million Macs that year. Microsoft continued selling Windows 3.1 until 1997, and was selling Windows NT in 1995 as well, so Microsoft was outselling Apple 10:1 and the gap was widening.
Underpowered, uninspired design: Apple’s most obvious 90s failure
The other problem Apple had in the mid 1990s was its design. Early 90s Apple products didn’t look bad, but by the mid 90s, it looked like Apple’s design specifications were to use a beige box but not look like Dell. So Apple hid the eject buttons and put the CD-ROM drive on the other side. The result more often than not looked like a PC with a combover.
I thought they were ugly, and I remember a woman calling HR on me in 1998 when I said that generation of Mac was ugly and hard to work on. But Apple had a bigger problem. I ran into this when I was working at retail in 1995, and the problem only grew worse over time.
Power, or lack of it
People would come in to Best Buy wanting to buy a Mac. We sold those, and I worked in that department, so I’d show them to them. Managers liked it when I showed Macs to people because I actually understood the product literature and could explain it.
The problem was wandering eyes. The customer would look at the spec sheet, then glance over their shoulder at the Compaq PCs facing the Macs on the other side of the aisle. The Mac was more expensive than the Compaq. Quite a bit more expensive, in fact. The two machines had the same amount of RAM, but the Compaq had about 20% more CPU speed and nearly double the hard drive space.
Sometimes the person would ask me to tell them about the Compaq. I never brought up the Compaq. Every Mac I sold kept management off my back for the rest of the week, so I was motivated to sell that Mac. But every time someone came in to buy a Mac, they either walked out of the store with a Mac grumbling about it, or they bought a Compaq.
When someone spends a whole paycheck or two on a new computer, you want them to be excited about it, not second-guessing whether they just made a big, expensive mistake.
How Steve Jobs changed Apple’s designs
Not everyone liked Apple’s new designs under Steve Jobs. I didn’t. I thought they looked like cheap toys. And when I was working in IT in the late 90s, once the supply of beige Macs dried up and all we could get were the translucent blue ones, I got complaints. And my boss got complaints. Someone might have called HR again.
But they were different, and that’s probably what mattered. In the early 90s, when Chrysler was considering redesigning its Ram pickup truck, the big rig-style design had mixed reviews. 80 percent of the people surveyed hated it. But 20 percent loved it. Bob Lutz noted they had 4 percent market share, so they could potentially gain a lot of market share with the design. They did it. And now all pickup trucks look a lot more like a 1993 Dodge than a 1992 Dodge.
Apple in the 90s was a lot like Chrysler in the 90s. Any change was probably going to be for the better.
Modernizing the OS
Once it was clear the Copland project was going to fail, Apple looked for an alternative. They considered two possibilities. One choice was Be Inc., founded by Apple alumnus Jean-Louis Gassée. The other was Steve Jobs’ NeXT. Apple offered $125 million for Be, but they wanted $300 million. Apple paid $429 million for NeXT instead.
Be is an interesting might-have-been. A Be-derived OS X could have hit the market more quickly, perhaps a couple of years more quickly. Whether that would have been enough to turn Apple around in 1998 or 1999 is another question, but I knew people who thought so at the time.
Instead, Apple bought NeXT and began the arduous task of adding a compatibility layer for legacy Mac applications to it. It didn’t appear until 2001, which was pretty late in the game. But Apple’s base was forgiving. Pre-emptive multitasking and memory protection brought the Mac into the current decade.
Without a modern operating system, Apple would have failed completely in the 90s.
Closing the hardware gap
The hardware gap was the tougher problem. The hard drive disparity issue was easy enough to address. Apple started putting commodity IDE hard drives in all their systems. They were the same drives everyone else used, so that put an end to the storage disparity between Apple and other computers.
The processors were a bigger problem. Steve Jobs could only tell people for so long that the Motorola and IBM CPUs Apple was using were just as fast as Intel CPUs with higher clock rates. Eventually this led to Apple switching to Intel CPUs, but that happened later, not in the 90s.
How Apple could fail in the 90s but succeed later
Apple wasn’t the only computer company to fail in the 90s. Far from it. Even some PC makers didn’t make it out of the 90s alive. Apple could have just as easily gone the way of Atari and Commodore if several other things hadn’t happened, but the critical thing was that Apple didn’t run out of money. Commodore failed because it was out of money. Atari had money but lacked a viable product to sell. Atari probably never considered buying Commodore, because the timing would have been wrong.
It may have been Microsoft’s legal problems that saved Apple. At the very least, it played a part. Walter Isaacson’s biography of Steve Jobs states that in 1997, as the Department of Justice was preparing its massive antitrust case against Microsoft, Jobs told the DOJ not to seek massive amounts from Microsoft, but to tie them up for a couple of years while Apple worked on developing products that could compete. Presumably one of those products he was referring to was OS X.
But Jobs needed Microsoft, too. One of the best-selling software packages on the Mac was Microsoft Office, and there was no comparable competing office suite available on the Mac. Without Office, the Mac would be in a world of hurt. Jobs told Gates he wanted a commitment to continue developing Office for the Mac, including on the upcoming OS X, and he wanted an investment. The $150 million investment from Microsoft was less money than Apple had just paid for NeXT. But it was something.
I don’t know how Apple and Microsoft arrived at the $150 million figure. But the peace treaty with Microsoft helped. Apple got some cash, and could concentrate on development, rather than litigation with Microsoft.
Emergence in 2001: Finally a fair fight
In 2002, Microsoft signed a consent decree with the DOJ, agreeing to stop certain monopolistic behaviors. By then, Apple had released OS X. Both OS X and Windows XP came out in 2001, and it was a fair fight. Apple had the edge in design, but for the first time since 1995, Apple had pre-emptive multitasking and memory protection. From 1995 to 2001, it was like Microsoft had jet fighters and Apple had propeller-driven planes.
With OS X, Apple was set to compete. And by then, Apple was establishing other revenue sources, having just released its first MP3 player. Apple was on its way to becoming more than a computer company.