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Episode 23: NeXT (Live show at the GeekWire Summit)

Episode 23: NeXT (Live show at the GeekWire Summit)

Sun, 23 Oct 2016 15:33

Ben & David broadcast live from the 2016 GeekWire Summit covering one of the all-time greats, Apple’s 1996 acquisition of NeXT. This episode has it all: the Steve Jobs hero story, Apple, I.M. Pei, Ross Perot, Aaron Sorkin, Nobel Laureates and… Gil Amelio? Does NeXT rank atop the best acquisitions ever? Our own heroes cast their votes.
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Our presenting sponsor for this episode is not a sponsor but another podcast that we love and want to recommend called the founders podcast. We have seen dozens of tweets that say something like my favorite podcast is acquired and founder so we knew there's a natural fit. We know the host of founders well David Senra. Hi David. Hey, Ben. Hey, David. Thank you for joining us. Thank you for having me. I like how they group us together and then they say it's like the best curriculum for founders and executives. It really is. We use your show for research a lot. I listened to your episode of the story of Akio Maria before we did our Sony episodes this incredible primer. You know, he's actually a good example of why people listen to founders until acquired because all of his greatest entrepreneurs and investors they had deep historical knowledge about the work that came before them. So like the founder of Sony, who did he influence? Steve Jobs talked about him over and over again if you do the research. But I think this is one of the reasons why people love both of our shows and they're such good compliments is on acquired. We focus on company histories. You tell the histories of the individual people. You're the people version of acquired and where the company version of founders listeners. The other fun thing to note is David will hit a topic from a bunch of different angles. So I just listened to an episode on Edwin Land from a biography that David did. David, it was the third fourth time you've done Polaroid. I've read five biographies of Edwin Land and I think I've made eight episodes of them because in my opinion, the greatest entrepreneur to ever do it, my favorite entrepreneur personally is Steve Jobs. And if you go back and listen to like a 20 year old Steve Jobs, he's talking about Edwin Land's my hero. So the reason I did that is because I want to find out like I have my heroes who were their heroes and the beauty of this is the people may die but the ideas never do. And so Edwin Land had passed away way before the apex of Apple. But Steve was still able to use those ideas and now he's gone and we can use his ideas. And so I think what requires doing what a founder trying to do as well is find the best ideas in history and push them down to generations. Make sure they're not lost history. I love that. Well listeners, go check out the founders podcast after this episode. You can search for it in any podcast player. Lots of companies that David covers that we have yet to dive into here on acquired. So for more indulgence on companies and founders, go check it out. I feel very antiquated my use of text at it now that that's really next product. It is it's unbelievable. There's so much still there. So the screen shot icon finally changed it was that like big camera until you know, you're semid and it finally changed that little thing. That was like the last asset remaining. Crazy. I know. Now. Is it you? Is it you? Is it you? Sit me down. Say it straight. Another story on the way. Hello geek wire. Hey, geek wire. Awesome. Well, welcome to episode 23 of acquired the podcast about technology acquisitions. I'm Ben Gilbert. I'm David Rizenthal. And we are your hosts. On today's episode, we will be covering a cornerstone of technology today apples 1997 acquisition of next. So yeah, I think this is one that we've been talking about doing for a very long time. The original tagline of our show was technology acquisitions that actually went well. And kind of we've deviated from that a little bit. And we've we've gotten into talking about all sorts of acquisitions recent ones once we think didn't go well. But this one is super, super true to our roots. So excited to be here and talk about it today. Yeah, this is going to be a blast. And big, big thank you to geek wire and on and on and on everybody for posting us here. This is our first live show. So we're streaming on Facebook. You guys will get to see how the sausage is made. Yeah, thanks for sticking with us. And we will post it on iTunes and our website once we added it with that we'll dive in. So next, Lake Ben was saying I've been looking forward to doing this one for a long time as both devoted Apple users, both of us. This is this is really the story of how you know what I love about is it's kind of like this is the hero's story of Steve Jobs, you know, he had initial success, the initial arc. And then he was off in the wilderness and next for 10 years, then he comes back to Apple. And here we are today where Apple is the most valuable company in the world. How did this happen? And truly like a drama, right? I mean, you can't script this stuff. This they've literally made three movies about it because of how kind of crazy this journey is. So we want to focus just today on kind of the the part picking up at when when Steve started next and how that went integrating that into Apple. Yeah. So we start our journey in 1984, a very good year. Those the year I was born. And Steve Jobs is still at Apple for the first time. The company he co-founded with Steve Wozniak. And what's going on at this time is the personal computer has happened driven by Apple and the Macintosh Apple's public company very valuable. But computing has entered a new wave and we're in the era of the workstation at this point. And I had to do a bunch of googling and Wikipedia because I really had no clue what a workstation was. I think there were a bunch of these in college in the computer lab somewhere and they were made by Sun and I didn't really know what they did. This is dating us a little bit. Yeah, dating us a little bit. So workstations it turns out are really just personal computers on steroids for the time. Now they're like pitifully pitifully underpowered. But what kind of defined a workstation was a quote three m computer. And a three m computer had one megabyte of memory, megabyte of memory, had a mega pixel display that could display one megapixel's worth of content. And it had a mega flops of computing performance. That is floating point operations per second then. And sometimes people added a fourth m to the definition of a workstation. And that was a mega penny, which was how much these things cost, which was about $10,000 a pop. So these are not personal computers. They're mostly used at universities for research, for scientific research, for technical research, large corporations use them. But these aren't the like the server mainframes of the old day. These are single-use computers that are networks that people can log into them, but one user uses them at a time. Gotcha. So that's what's going on. And Apple is kind of in a quandary because this is the computing air of the workstation, but Apple has no offering in the workstation. They're a PC company and just down the street from them, Sun Microsystems has been started from Stanford, Stanford University Network, hence the Sun Microsystems. And Sun is the duraling of technology. They are the fastest growing company in America in the 1980s. They go from founding to $1 billion of revenue in six years. So Steve's still at Apple. All this is going on. He's no longer the CEO. John Skelly is the CEO. And to put this in context around times that computers have been released, this is right after the Macintosh is released, right? A couple years after the Macintosh is released. So this is this 1984. And Steve gets put in charge of a new division at Apple called the Super Microdivision. And that combines the Macintosh and the Lisa. And his remit is to basically start Apple's entry into this workstation market. And so he's working on a top secret project codenamed the Big Mac. And the goal, what he's trying to do is to take a workstation-powered computer, a 3M, and get rid of the 4M and sell it for $500. He wants to put workstation-ask power into personal computers, make them affordable to everybody, students, and individuals. So that's what he's working on. And it's not unfortunately going so well. So turns out, with the technology at the time, it's really hard to build these workstation computers with off-the-shelf components and cheaper components. And so Steve isn't doing too good a job. And Scully and the board are starting to lose faith in him. So in May of 1985, Scully, the CEO, and Arthur Rock, who is a venture capitalist on the board, be wary of venture capitalists. Says the VCs. Says the venture capitalist. So they decide that enough is enough. And they're going to remove Steve from being in charge of this new division, the Supermicro division. And they're basically going to just have him be a figurehead for the company. So they sideline him. He actually, his office gets moved across the street to essentially an empty building. And he's still at Apple at this point. He's still the chairman of Apple. But he has no day-to-day responsibilities. And so he refers to this as being off of it. He calls it being in Siberia. And so for the summer of 1985, he's just hanging out. He has nothing to do. But he's thinking about this problem. And this goes on for the summer. And an interesting thing happens. So over the summer, while Steve's hanging out, he ends up meeting this guy named Paul Berg. And Paul is a Nobel laureate in chemistry. He's a professor at Stanford in the chemistry department. And he's won the Nobel Prize for chemistry. And he complains to Steve. And he says, hey, we've got these workstations, sun workstations at Stanford. But they're really, really expensive. And I'm trying to teach all these undergrads about DNA and recombinant DNA. And there's no way they can't get enough time on the workstations to use them to model DNA computationally. And wet labs are even more expensive than that. They can't work with it. Actually, and so they're having a really hard time learning how to do this. And so this just like doubly strikes the fire in Steve. Like he can't handle this. He sees this problem. And so he says, we need to get these powerful computers into the hands of students to be able to learn and build new things. And we need to get the price point down. But we can't compromise on the power. Yep. So by the end of the summer, he's been thinking about this. He decides to resign from Apple and start a new company to pursue this vision of finally getting the workstation affordable into and merging it with the personal computer. Now, of course, Apple's business had been selling into education, not necessarily into these universities that needed these for super horsepower reasons, right? Of doing a lot of really complex stuff. So the students selling to computer labs for undergrads and high school students to use. That was a big part of their business. It feels a little competitive. So here's what happens. September 13th, Jobs Resigns. And there've been books written about this and movies. All of which tell slightly different stories. So here's his best we can figure out what happens. Jobs resigns on September 13th. And he tells the board he's going to start a new computer company. And he's going to take several people from the super micro division with him. Those people are Joanna Hoffman. If you saw the Michael Fastbender movie, she's, this is Scarlett Johansson. I think plays her. She's one of the stars in the movie. Bud Trouble, George Crow, Rich Page, Susan Barnes, Susan Carrey, and Dan Alluin. So he takes these employees with him. And Apple board says, okay, two weeks later, they sue Jobs for two things. One, stealing trade secrets from Apple. And employees. And two, a breach of fiduciary duty as the chairman and board member of Apple, basically resigning and then going and starting a new computer company. So absolutely wasting no time. I mean, for anyone who's been in these environments a lot of times they drag on and on and on and years it later get a cease and desist or things like that. This is immediate action. Immediate action. Like, company Steve founded two weeks later, boom lawsuit that Skelly hits him with. And this is one of the things that just totally destroys his relationship with Skelly. Because it's unclear that it was not good before then, but like, then he's suzim. And so Steve gives this interview in Newsweek, which is awesome. We'll link to this in the show notes. This is right after he leaves Apple. And he says, and he's asked about this. And he says, it's hard to think that a two billion dollar company with 4,300 plus people couldn't compete with six people in blue jeans. Thus is the classic startup story, right? Classic startup story. So they eventually, they pretty quickly settled the case. And the terms of the settlement, they settle in January 1986 are that next to the new company Steve is starting, can not compete with Apple. And Apple gets to review any products that next makes and releases before next releases them. And if they determine them be competitive, then they can sue again. So Steve's okay with this, but he's just had enough. In February, he sells all of his Apple stock except one share so that he can still go to shareholder meetings. Such a Steve move. So they get underway. And Steve's just had this wild experience at Apple. And you know, he's much ink has been spilled on this. But he decides he really wants to do things his own way this time. You know, not not going to be beholden to an external CEO, not going to be beholden to a board. So what does he do? He spends $100,000 right off the well, first off, he puts $7 million of his own money into the company to get it started. Yep. And he spends $100,000 right off the bat to get a really famous graphic designer and brand consultant to call Rand, to come up with the name and the branding and the logo of this company. And Paul delivers a 100 page brochure naming the company next all capital except the lowercase E, which stands for education. And coming up with the logo, which is at at an exact 28 degree angle at an exact 28 degree angle. So the next logo is rotated at precisely 28 degrees. Now for a lot of people who have commissioned logo work and kind of brand books before, a lot of times there's an iterative process where you get options and you review and you pick from one of the three things like that. This was, you know, Paul Rand goes away into a cave, comes back with one fully formed idea and says here you go. 100 pages on this one idea. And the 100k was delivered up front. Yeah. It's a, so, but Steve loves it. He goes to the second thing he does, he rents office space and you know, like they're like a brand new startup. Like you're going to get a scrappy like, you know, co-working space like, no, not for Steve. He finds the most expensive real estate in Palo Alto rents a pretty big office with a staircase in it designed by I am pay, the famous architect. And that's their first office. Later on they moved to Redwood City into a whole complex designed by I am pay and they're like, Ames chairs everywhere and like $10,000 leather sofas and whatnot. So that's what he does on the setting up the company. He also decides that he has some new management theories that he wants to test out. So the company is not a company. It's a community and there are members of the community. There aren't employees. This sounds very like valve like, you know, before valve. And so there, everybody can see each other's salary in the company. There's complete transparency. But that's not that interesting because there are only two salaries in the company. If you joined before 1986, you made $75,000 a year. If you joined after 1986, you made $50,000 a year. That's it. Everybody. It's really interesting to think about this in the context of Apple's secrecy now. This was jobs sort of laying out, okay, we're going to give this a chance. We're going to let everybody know everything about, you know, other employees within the company, about all the secrets of the company. And we're going to see if making them kind of community members allows us to not be so tight with our secrecy. And I kind of at the point that that was violated, which of course it's going to happen when you start to hit scale. That's when he switched modes and said, nope, you know, this, the rest of the time, you know, when we go back to Apple, this is going to be an entirely top secret, very controlled top down organization. Yep. And what's super, he talks a little bit about this. Like he'd just come from this political ouster at Apple and he's trying to avoid politics. And that's like the whole genesis of why he does it this way. And obviously it doesn't really work. But interesting that, you know, he does this experiment. And for a long time, and next did eventually change this and had different salaries and everything. But he's super idealistic at the get go. And so the only question is kind of like, well, what is next actually going to do? And it's this big secret. Like everybody wants to know what is next doing. Like they know they're targeting education and they want to make powerful computers. But like, what is it exactly? And around this time, Ross Perot of Ross Perot fame failed presidential candidate. Here's about what Steve's up to. And he decides he wants to get involved. And Ross actually, some people know this, but not all, he's actually a technology entrepreneur himself. He'd founded two technology companies that were acquired one by GM and one by Dell eventually. And so he invests $20 million in next at $125 million valuation. Remember, this is 1986, 1987. So, you know, thinking about with inflation and the fact that they're pre-product. Like this is a company with a hundred and fifty. There's not they have a brand book. They've a yes exactly, exactly. Very expensive logo. They have an expensive logo and Steve Jobs. Nothing else. So $20 million in 1987 dollars. So they start getting to figure out like what they're going to do. And so they're obviously, you know, the plan is they're just going to build a big Mac. That jobs is working on an Apple. So they rent out a big factory in Fremont, California that can produce up to 150,000 machines per year. And they start getting to work. And as they start working on the computer, you know, they're building the hardware, they're building the software. They have to revise the pricing a little bit. So they announce in 1987 that they're they're going to launch. And it's going to launch at a $3,000 price point. So not $500, but also not $10,000 that, you know, workstations were normally at that time. So somewhat compelling. Okay. As usual, they announce the launch. They announced it's going to happen. I believe they announced it was going to happen in 1987. It gets delayed. And it gets delayed a long time. So the company basically goes dark. And then late 1988, they emerge again with a big gala event called the next introduction. Now, it's interesting to kind of look at the hallmarks of Apple and looking back in this sort of DNA of where they came from. During the next days, you know, they're announcing price points, they're missing them. They're announcing ship dates. They're missing them. That's not a thing that modern Apple does. They were very clearly scarred by this. And kind of came out of it and said, that's not what we're going to be. Yeah. So I mean, nowadays, like Apple announces an event like one week before the actual event. Like this is the announced years. Right. Where they actually launched anything. But the next gala, I mean, that sure sounds a lot like the modern Apple keynote. Yes. And this was one of the, you know, when you look at the time. So this is one of the scenes in the Michael Fazbender movie. This is the middle scene. This keynote when it when jobs launches the next computer. Finally, everybody's been waiting for this. It's at the Symphony Hall in San Francisco. And it's pretty incredible. So they have a violinist, one of the key features of the next machine, which by the way is a one foot cube of all black magnesium. Of course it is. Most, most computers at the time, like, look super ugly, right? Like, and they're huge and like, this is also huge. But it is solid black magnesium. And they have it on stage and they bring a violinist from the Symphony Up. And one of the key features, like I was saying, is it has digital signal processing and it can play real audio for one of the first times on a computer. And instead of kind of the standard 8 bit, a lot of times you turn on a computer, you'd hear a beep. It would make Nintendo like noises very different than today. This is real audio. And so the violinist plays a duet with the next computer on stage. And this is, you know, the whole gala. Everybody who attended it got a framed poster commemorating the, you know, this monumental event, the launch of next computer. Talk about a lack of product market fit. For those of us in startups today, they're thinking like, what's that killer use case that justifies, you know, user actually shelling up my product. Yeah, yeah. That's a very expensive tech demo. Very expensive. And also famously, also chronicled in the movie, nobody from Apple is invited to this. 3000 people attend the event. Not a single person from Apple is allowed in the doors. That's just vengeful. Vengeful. So they announced, they announced the, the actual device. And it's super cool. We'll link to this in the show notes. Somebody a couple years ago got their hands on one of these things on the initial next computer and did an unboxing of it. It's on YouTube. It's amazing. All right. Put it in the show notes. It's in the show notes. So, so what is this thing? They announced the specs. 25 megahertz, Mulderola 68 030 CPU. Whatever that means. 25 megahertz was a lot at the time has configurable from eight megabytes up to 64 megabytes of RAM. So like the Benchmark for workstations was one megabyte of RAM. They have an eight to 64. So knock it out of the park on that. 17 inch mega pixel gray scale display. 10 base two ethernet. This is a networked computer. And that's key, right? This, this is something that the Macintosh was not set up to do. I mean, that when they conceived of the Mac early on, it was, it was standalone. I mean, the ethernet was a thing. We, we were not living in a world with the internet or even precursors to the internet yet. And, and this is a kind of brand new idea that this computer and this operating system is going to be built to network from the ground. Yeah. The internet doesn't exist. In fact, the internet gets invented on this computer, which will come to in a second. The worldwide web. The worldwide web, yes. But the worldwide web did not exist. And one of the features that they're most proud of about this machine is it has a 256 megabyte magneto optical drive, which instead of a hard drive, they think this is better technology, except the problem is they put that in. So there's no hard drive, there's no floppy drive. It's just this like big cassette thing you put in there that's like magnetic or somehow that's the only storage on the computer. So you can't transfer anything off the computer because the hard drive that the operating system runs on is the thing that you plug in and out of the computer. And, and jobs like, well, but you had your network to your on the ethernet. So like that's how you transfer files. But like nobody else is on the network. So it's kind of a chicken and egg problem. Right. It's like you, you know where you want to be skating, you know where the puck is going, but there's no ice between you and them. Yeah. This is like removing the headphone jack in 1988. They realize pretty quickly after launch that that's a bad idea, and they ship a new version with an actual hard drive and a floppy disk drive. So they fix that. But more importantly, and here's what we start to get into like what is the real value of next, the software and the operating system that they create at next over these couple years is just incredible. I mean, there's the moment from when Steve Jobs, Steve Jobs launches the iPhone in 2007 in the super famous presentation. He says it's five years ahead of anything the competition is doing on the market. This was at least five years ahead. Next step, next step is the operating system that jobs that next made for the computer. It's at least five if not a decade ahead of anything else anyone's doing. Yeah. So it's worth talking about kind of the technology innovations that came out of next or at least that next put into production for the first time. A lot of it dates back to when Steve Jobs was at Apple and got the preview from Xerox Park of what the research technologies were that they'd been working on. And famously it's the graphical user interface in the mouse. This is when Steve Jobs raids Xerox Park in Palo Alto and steals the graphical user interface and that becomes the Mac. That's what Ben's referring to. Yeah. And so the Mac gets that. For the first time, Bill Gates famously freaked out at the demo watching the drawing on screen where the Mac is moving the mouse and it's moving around slowly. And Steve saying, yes, we got this from Xerox Park. What they didn't pull from that was object-oriented programming. So in traditional programming, you look at the way that DOS was running, there's routines and it's moving. It's kind of advancing linearly. There's branching to subroutines. And for the first time with object-oriented programming, you have the ability for software to model real-world objects. And so this dog has properties and has methods you can call on those properties like bark or like backup or like walk forward. And this was only really embodied in small talk at the time, which was not a very popular language. At the end, to not dive too deep into the technical details here, but essentially this is like all modern software has now written this way. And the idea of creating software technology using non-object-oriented programming, you just wouldn't do it. That'd be like trying to drive across country in a golf cart. Like you wouldn't do it. So the kind of breakthrough here is by using objective C, which is incredible how long that has actually lived, licensed at next, and then eventually became kind of the core toolset that's used to now develop Mac applications and iOS applications. Swift is being adopted, but Objective C is still the bread and butter of Apple software development. It enabled next to move much faster than traditional programming methods, and for people to build much more complex programs that they would otherwise. And Steve has this great quote. So when he finally comes back to Apple after the acquisition a couple years later, the first time he's on stage at the first Apple keynote right after Apple acquires next. This is January 97. January 97. He says, I want to tell you guys a story. Steve's famous for telling a story. And he says, you know, when I went, this is a quote from him, when I went to Xerox Park in 1979 and saw the original genesis of the graphical user interface there, they actually showed me three things. And I was so blinded by the first that I didn't hang around to find out about the other two. And it took me years to rediscover them. The first, of course, was the graphical user interface. But the other two things, the second was object-oriented programming. They had it all running back in 1979. And the third was networking. They had several hundred altos. Alto was the concept computer that Xerox Park had designed. They had several hundred altos hooked up to network printing, network file service, email, all in 1979. If I'd only stayed there for another 20 minutes. That's it's he's making a joke. But he would he realizes, and this kind of goes back to what he's trying to do at the Big Mac. It's the combination of those three things. It's the graphical user interface. It's object-oriented programming that allows software developers to develop really powerful, very useful graphical programs for the first time. And then it's networking. And that's what's going to enable this new wave of computing. And it's probably worth fast-forwarding at this point. So next kind of cuts their losses. There comes a point where next says, you know what, this hardware thing, it's hard. We have extremely expensive computers that aren't selling very well. They only ever sold 50,000 units in total. And they were- And by the way, when the thing finally came out to retail, guess how much it cost? Sound 10 grand. $10,000, which was the price that all work stations cost at the time. So nobody buys these things. Yeah. So next decides, okay, we're going to be a software company. And what they do is, they kind of separate out next step, which was the operating system. And then they had kind of the mock kernel underneath, which they sort of brought in house. They separated that out and they said, okay, we're just going to start selling this thing to other computer manufacturers. Yeah. Right? We're not going to be what we know of Apple today is an entirely vertically integrated software and hardware company. They're moving away from that. It's just software. And that was kind of invoked during that time because that's when the Mac was in the era of the clones. I mean, that the macOS ran on other people's hardware, which is totally mind blowing for those of us today, who know, well, what do you mean iOS only runs on iPhones? Yep. And but it's super important. And because of the power of this operating system, and we mentioned earlier, but just to give a sense of like, what is the real implication of this power? The World Wide Web is invented on this operating system, on a next computer, actually. So Tim Berners-Lee at CERN, invents the World Wide Web. And it's possible because of object or even programming and networking, obviously. And also fun other history of this computer. John Carmack at its software, John's now the CTO, I believe, of Oculus. John wrote the video game Doom, video games Doom, Quake, and Wolfenstein 3D. On it next. On it next. Wow. Which is amazing. Wow. I know that. And those were the first 3D games that, you know, ever, you know, equally revolutionized the game industry. Yep. So that's the power that this enables. Yeah. And it's interesting kind of taking a step back and realizing, okay, so very clear recognition of the technologies that were going to be transformational and really like the foundation of what the future of computing will be, really unable to bring it to market in a meaningful way. Next. I mean, all the ideas were right, all the way that they brought a product to customers, you know, you can chalk it up to timing, you can chalk it up to price, like just just wrong, just poorly executed. And so they needed an out. Yep. They needed an out. And so they pivoted eventually to just selling software. They stopped selling hardware. They do that in 1993. It's funny. One of the pieces of software they come out with is this thing called WebObjects, which is one of the first internet application servers. And Dell actually builds their e-commerce site on it. So when you bought it, Dell, dude, you're getting the Dell. Like that was powered by next in the. Yeah. Basically, WebObjects do is they make it so that you know how you go to a website and it's not always the same as every other time you go to that website. It's got dynamic content on it. WebObjects was like the first ever system to do that. And this thing is like still in you. So the iTunes store, people wonder why iTunes like is so clunky and slow and crappy today. It still runs on WebObjects, which is insane. Yeah. For any of the iOS developers and the Mac developers listening, for better or for worse, a lot of these technologies have stayed with us for a very, very long time. Very long time. So finally, you know, meanwhile, while this is going on, Apple is just like they have lost their way. They are getting creamed in the market. On the PC front, it's this is the era of Windows in the early 90s to mid 90s, Windows 3.0, then Windows 95. Just absolutely. Just getting decimated. They have no offering for enterprises in the workstation market, which is cooling down, but like still a huge huge market. And all of NT was doing phenomenally well. Steve Jobs in 97 stands up on stage in January and you know, praises the incredible advancements brought by Microsoft and NT and says, Apple, what's Apple been doing? We've fallen behind. And of course, easy for him to blame while he's not at the company, but you know, incredible to be. But he was totally right. And so Apple is casting about, they're trying to create a next generation operating system. By this point in time, everybody's recognized the power of what we're talking about and Apple just can't do it. They have two competing projects, three at various points, trying to build a modern operating system. They all fail. It's wild to think about. I mean, you can chalk it up to organizational politics or you can chalk it up to the technology just being incredibly hard, but they were building an operating system. Code name, I think Copeland was the first version and then it was they were going to have a second release called Gershwin. There was kind of projects going on in parallel for how are we going to build a next generation operating system? And they just couldn't do it. And honestly, it kind of reminds me the longhorn days at Microsoft. Oh God. Yeah. It turns out operating systems are hard and organizations are even harder. And so you look at Apple and eventually they kind of said, okay, enough is enough. We're going to look elsewhere to try and buy and they had a couple options. They had a couple options for a modern operating system they could buy to replace Mac OS X, OS 9. It was system seven at the time. The future operating system was supposed to be Mac OS 8, which ended up just being an incremental bump and then OS 9, which was another incremental bump. And then finally, what they were envisioning for years, not even until 2001 was Mac OS 10. Yeah. And so just before Christmas, 1996, they buy next, Steve Jopped for $429 million that go to next shareholders, including Ross Perot. And separately, one and a half million shares of Apple stock that go to Steve Jobs. Yeah. So David, you want to talk about that as a VC, based on a return on invested capital, how was the next exit? Well, over its lifetime next raise, so they raised the money from jobs, they raised the money from Ross Perot, Canon, the large camera printer, computer manufacturer, ends up investing another kind of $100 to $130 million in the company as well. So they got sold for more money than they raised, but like not that much more money. Like this was not a home run. Nobody was getting rich off off next. And Steve gets one and a half million shares of Apple stock because he's going to come on board at Apple as a consultant. So he's going to come and help Apple with this transition as the official plan. And so the acquisition closes in February 1997. And Steve's a consultant, and some of these events that we're talking about, he comes on stage, and he clearly, like the dichotomy between how Steve talks about the future in his vision and how Gilimilio, who is the CEO of Apple at the time, who looked like he actually was quite technical and a bit of fair child's at my conductor and all that, but he looked like he'd never met a developer in his life. Like Yeah, when you watch their keynote, it's just kind of going back and watching a lot of these old keynotes over again, and in preparing for this podcast, it is incredible to see the dichotomy between Gil standing up there and not really comming in the audience's attention and saying things that it's so important for Apple to, you know, cord our core audience in developers. Right, it's not taking a position or anything. And you know, we've all seen managers like that or leaders like that that, you know, don't really take a side and you walk out and you're like, well, I didn't disagree with any of that, but I wasn't inspired. And then Steve comes on stage for, you know, just a few minutes to say like, hey, here's where I think we're going, and it's just captivating. Oh, it's nice and like huge applause. And so pretty quickly, acquisition closes in February, over the July 4th weekend, Steve convinces the board of Apple that Gil has no idea what he's doing. Yeah, and he needs to go. And the next week, Apple fired the board, fires Gil. So the company doesn't have a CEO, they start a CEO search. And really, there's only one candidate. September of 1997, Steve Jobs is instated as the interim. The ICEO. The ICEO, the interim CEO of Apple. And he remained interim CEO until 2000. So for three years, he was interim CEO. Now, well, he's interim CEO, the board doesn't exactly stay intact, right? He's at the act. Yeah, he basically, he takes those three years. And it ultimately takes five years from the time Apple acquires next for OS 10 to come out. So he's been five years building, taking the next operating system and baking it into the full product of the Mac. But during that time, I mean, Steve, like, there's the technical and product challenges of shipping that, but he cleans house and completely revamps Apple. There's a good, I looked up the article that came up on CNET, the day that the acquisition was announced and kind of how people were building it at the time. And kind of awesome that like, when this acquisition happened, CNET like existed was a website was a news organization. And they're still archives. And like the worldwide web was invented on next computers five years earlier. I know. I know. So the thing that they say in the article is, next cross-platform development environments in the enterprise and internet and intranet space allowed developers to write once and deploy across a range of internet and client server platforms. Amelia said that Apple expects to ship products with it with the next operating system in 1997. That's the same year that the acquisition closed. So the way that Amelia was looking at this is, you know, we're going to get this company. We're going to start kind of integrating their technologies. We're going to keep shipping our products into our hardware like no big deal. Yeah. And you know, what we know today is like it didn't ship in 97 or 98 or 90 like it shipped in 2001. And by that point, Apple had dramatically less products. I mean, this is the time where there's developers at 1997 worldwide developer conference in July six months after the acquisition closed saying to Steve, hey, so you know, I worked on OpenDoc for many years and we've invested a lot in it. What about OpenDoc? And Steve says, yeah, yeah, a lot of you worked on things that we had to put a bullet in the head of. And I feel your pain and continues to go on and then paint the story of like, Apple has no focus, focus is about saying no, we're doing all these different things. It's not iterative improvements that we need to do. It's it's like dramatic, dramatic changes. So what's really interesting is to look at screenshots from next or next step or actually open step the operating system that they ended up implementing. And you look at OS 10 today or even steps along the way. It is incredible how many pieces of next you can find in or of next step you can find in in Mac OS 10. I mean, you look at next to it had a doc, nothing else had a doc at the time. That was like a new UI paradigm. It's amazing how many pieces of next you can find in your iPhone right in your Apple watch. It's there in 97. Steve is demoing the next step development tool chain. And he's like, here's interface builder. And here's all these tools that people still use today to develop iPhone apps. So the very core fundamentals of what makes the what made the iPhone possible came from the next acquisition. Yep. So at this point, you know, wrapping up the history in fact, which was very long, but these stories are just we love stories on this show and like this is one of the best. This is one of the greatest of all time. And so we all know what happens. Steve comes back 2001. They launched the iPod. What did they launch the iPod? Was it also 2001? I think when they launched the iPod, they launched the iPod, then they launched the iPhone, then they launched the iPad, then they launched the Apple, you know, all this stuff. Yeah, Apple TV. And it's all next. The incredible thing is yeah, that when they first launched the iPhone, they say, and it runs OS 10. That was a big selling point. This is not a, you know, a phone like we know phones today with a embedded operating system. This is a computer in your pocket and to prove it, it's running a variant of the operating system that exists on your computers. And that was like huge and ridiculous. And like people at Blackberry didn't believe it. They look at the scroll performance and say, you can't do that on a phone. Like there's we just don't believe you. And so I think that when you look at the, this was before it was dubbed iOS. Okay, it was a variant of OS 10. And then when they launched, but, you know, the, the iPad, they say, and we're renaming it iOS. It runs on the iPhone and the iPad, then they launched the watch, then they launched the TV. All these things are kind of built off that same Darwin kernel and the core of what they acquired in the next. Yep. And there we go. The rest, as they say, is history. So with that, let's move on to our next segment of the show, which is acquisition category. Yeah. This will be, this will be a fun one. What do you think? Well, and what we do is we categorize the acquisition into, we've got a couple of categories and we decide which it represents. Yeah. So we normally decide if something's a product acquisition, a business line acquisition, a people acquisition, which oftentimes happens in kind of like aquahires, a technology acquisition is it a core piece of technology that's not productized, or is it, you know, other, is it's it's some new thing. And when you look at this, like Apple had been trying to create a technology that they really couldn't create. It was a next generation of operating system with multitasking, with networking, with protected memory, all these different things. But it's not the technology they acquired. You'd be silly to make the case that this was anything but, but Steve Jobs. I mean, this is like, this is a great slide. The ultimate people acquisition, oh yeah, Gill Emilio is listing all the reasons they acquired next. Yeah, the CEO at the time, literally at, is it a Macworld, I think, has this slide on stage. He's presenting these slides about, you know, rationale for the next acquisition. And he has like all the stuff that they're getting that he flips to the next slide. And it just says Steve Jobs, like the only thing comes to the slide. The only thing on the slide. The reasons we acquired next. So I mean, yes, we're still using next technologies today. Yes, they were incredibly forward thinking, but the company needed Steve back. Yep. I mean, it's hard to argue with that. Steve is, I'm just, I mean, like I've read all the books about him. I've watched so many of his keynotes. I've watched all the movies about him. Every time I read him, and this just like going in and doing a lot of this primary source research, this is going to be my tech theme later, but I am just so struck by like his level of thinking, you know, it is so rare that you see that you find something like that. And when you watch this keynote with Gill on stage and Steve on stage at the same time, I mean, like I said, Gill was, he was a fair child, semiconductor. He had been, you know, a long time technology CEO. Yeah, he turned around a national semiconductor. He's kind of a national semiconductor. Yeah, he looks like a child compared to this. It's like, Steve is just a metamung voice, you know, or a person among small people. Yeah, special guy we miss him. Totally. Okay. So you want to go on to what would have happened otherwise? This is fun. So what would have happened otherwise? I think it'd be fun to talk about the other option that Apple had. Yeah, so Jean-Louis we guess say was an Apple employee who kind of opened Europe to Apple. He came in in the early days, new Steve Jobs well, left Apple to start his own company company. Well, before he left Apple, when Steve got fired and left Apple, Jean took over the Super Micro division. He literally replaced Steve Jobs. I didn't know that. Yeah, he literally replaced, so this is a, he's French, Jean-Louis. Great guy. He has a blog now, which is awesome, I'm going to know. So, and he replaced Steve Jobs. But then he left and started his own company. So two people that both kind of walked through that revolving door of that division of Apple both went and started very, very similar companies. Yeah. And B, which created BOS, was kind of the other candidate they were vetting other than next. And ultimately, the reason that Apple didn't end up making that acquisition of B, you know, number one, I continue to go back to the fact that they all sort of knew they needed Steve back. But they just couldn't come to the same agreement on price. Jean-Louis, wanted 300 million for the company. Apple, I think, was willing to shell out 120, 125, somewhere in there. And they just couldn't get the deal done as with, you know, many other deals. I'm sure a lot of our listeners have been involved with. Yeah. But kind of amazing that like, there were these two operating systems that Apple could have acquired. And should have built in-house, right? Like, both of those leaders had been at Apple. Right. They were chartered with building this and the organizational politics at Apple at the time didn't let it happen. Didn't let it happen. This is why Steve Jobs hated politics. Did you see that next was planning an IPO? Yes. That was one of the kind of bargaining chips on the table. Yeah. So this company that, you know, finally had actually, has a product out there, this operating system that, you know, is not the business that they were hoping to build. But is a decent business, you know, is planning to IPO later in the year. And we don't know if that actually would have happened. But it is interesting that that's an alternate future for, yeah. I think there must have been a little bit of Steve Jobs' reality distortion field there too. Like, how they could have gone public, I mean, they had a, they eventually became profitable as a software-only business. But like, they were not making a lot of money. No. But you've Steve Jobs, right? Anyway, so they ended up getting acquired obviously by Apple, not going public. But that would have been interesting. Yeah. I'm going to paint this picture as next had a fighting chance, but probably would not have done very well in the long term. And I don't think Apple would be in business. Yeah. No. Like, they were getting creamed. I mean, there was that famous quote, right? Who said, was it Michael Dell? Michael Dell said that like, they should just shut down the company and give the money back to shareholders. They were just getting creamed. Yeah. So, all right. Tech themes? Tech themes. Yeah. So, I mean, the big one for me is like, you hear this all the time in investor pitches. It's all about the people. I think this is one that's just so clearly illustrative of, we often talk about like 10X engineers. Sometimes there's just like 10X leaders and people that that are truly inspiring. And then the other part of that is how much of a difference it makes to have the founder of a company leading that company that they command a different level of respect from employees. And when they say, this is our strategy, people, people believe it and people do crazy things and march to those orders. And the other thing that I was kind of thinking about in this is Steve makes a plea to developers to start building on this new operating system that they're building that will eventually sort of in some forked way become Mac OS 10. And you don't like win as Microsoft can see with Windows phone recently or a lot of people trying to start sort of like competing app stores and things like that. It's really hard to win over a developer ecosystem. And it's really hard to say, you know, developers were open for business. This is a platform for you. And Steve managed to really like make the plea in a very authentic way and say, hey, everyone who's a Mac developer, why don't you come and you know, you're going to have to rewrite a lot of stuff because this is very different, but make a bet on us and develop your applications for Mac OS 10. We can give you this power in this operating system that you couldn't have otherwise. Right. Right. But to me, it's like the power, the power of a founder there. And then once you have like a tipping point in the network effects that come from building an ecosystem on a platform that you can kind of just keep rolling with that and the big bargaining chip that affords you. Yep. That perfectly dovetails with I have two tech themes for on the show we do. This is actually my favorite segment of the show. We talk about having gone through this whole history like what are some like eternal truths about just the way like business technology startups, you know, have you know, operate that you can kind of pull out of this. And I have two. The first one is just what you were saying, Ben, is that the related what you're saying in technology, like there's this concept of like iteration, not just iteration, but like you're kind of standing on the shoulders of giants. And this a lot of the history and facts like we talked about a lot of pretty deeply technical stuff like objects, oriented programming and networking and work stations and like think about tech companies today. It's like Snapchat and like, you know, messaging and interacting with your friends and like spectacles and like doing this amazing stuff and flying drones and but all that's only possible because of these like building blocks at the operating system level at the deep geeky stuff that needed to be built and installed first. So that's one. But two is something I've been thinking a lot about also related to your first one. Like what made Steve what he was right. And in our we haven't released our last episode yet, but we did. We interviewed Kathleen Phillips, who's the CFO Zillow talking about the truly acquisition. And in a follow-up on that we talked about Snapchat spectacles. And I referenced this tweet that we both read that I thought was super cool that Bill Gurley had retweeted and commented on when Snapchat announced spectacles and John Collison, who's one of the brothers who's the co-founder of Stripe, he tweeted, quote, I'm always impressed by how flamboyantly original Snapchat are. Ghost codes, invisible UI, filters, sunglasses and Gurley responds and he says, that's a really great thing to identify and recognize. And I've been thinking about that because I totally agree. But like what is that originality? And it's not really exactly originality. Like, they were QR codes before Snapchat did them. There were in fact Snapchat acquired a company to do that. They acquired a company doing it. There were glasses you wore on your face. And that took video before Snapchat spectacles. You know, there were messengers before them. They weren't first, but they were the first thus far and we'll see how spectacles perform. The first to make like a real product that just works and is delightful and solves a need for a user. And I think that's what this originality means. And that's what Steve was, right? Like objectorian programming, all this stuff existed at Xerox Park before next objectorian programming, networking, like all this stuff was out there workstations, blah, blah. But like it was technology. It wasn't a product. It wasn't something that like you plugged it in and it just worked and it delighted you and it solved your need. And I think that's like, I don't know, I just been noodling, especially like as a VC. Like this is what we look for so many times. We meet founders, we meet companies and they're doing something cool that's hard technically. And the question is just like, okay, like the question I always ask is like, what data do you have? What signal do you have that people want this? And so many times you get this like blank stare back, you know? Like, well, what do you mean? This was never possible before. Yeah. That's not what I asked. That's not what I asked. Like why are people going to use this? And I think that's what these, you know, whether it's Evan Spiegel, Snapchat, whether it's Steve Jobs, whether it's Mark Zuckerberg, or you know, any of these or Instagram, right? Like Instagram was not the first app that made your photos look good. It's dramatic. Made your photos look good. But that's not Instagram, you know, like it's building this whole solution and having the vision to do that. And I think it's, you know, it's a famously difficult task to take hard complicated problems that are solved in sort of research lab like environments and get those into a mass market product. I mean, you look at, let's let's take two super famous examples. You know, Microsoft has like hundreds or a thousand of PhDs at Microsoft research that do incredible work and do pioneering research. And they try their best to partner with with product teams. But it's, you know, not super often that one of those things gets surfaced in a product in a big way. And you know, the the company's growing and it's doing getting way better at that. But it's, it's like a famously problem to sit in the organization in the right way to make your kind of very forward looking things that may dangerously obsolete your current thing. You know, something that you bring back into product. And in fact, when Apple, my second example is when Steve went back to Apple, they had kind of an advanced technology division. And that was purely for the, it was a, it was a research lab, as people that were kind of playing around with like, what if we could get this into a computer at some point and just, you know, dismantled that. Steve killed that. And the totally the office of the what we're talking about. Right. You want to get those things into product and kind of reorganized and said, look, everybody who's doing that pioneering research, you need to be doing it with the lens of how are we going to build this into this product? And how does it fit into the story of this product that we're trying to ship? Yep. And I think that's what's, that is what is so scarce in technology, in startups, and in, you know, in business, like the ability to take a potentiality, whether it's technology or something else, and turn that into a product that like just works and that people want, it's so scarce. And I think that's what, you know, is for all the Steve's foibles and all his craziness and like, he was just so good at that. And it's impressive. So yeah. Okay. Should we wrap this one up? You want to grade it? That's great. We were going back and forth on text over this last night. Yeah. So a couple episodes ago, we did the Android acquisition by Google. And you look and you can kind of figure out the main reason for Android to be there is to make it so that when people are searching on mobile, they're not always searching from iPhones and Google doesn't have to pay Apple for all those searches. So that says, and that gets them like $4 billion a year. In revenue, they otherwise would have had to give up big number, right? Like for, for kind of a small acquisition. So I want to like talk about the next acquisition and what it did for Apple in the context of that being an A+. Of kind of like saving the company $4 billion a year. There was leaked things in the Oracle trial that Android as a division has made about $31 billion since being acquired. When you look at the things that have happened at Apple since the next acquisition, it's like a sci-fi story compared to those numbers. Like if that was our bar for A+. Apple does like $250 billion a year in revenue now. And like probably would have gone out of business. Number one, if this acquisition didn't happen, they're the most valuable company in the world as David said. Not only would they have gone out of business and now this reverse course, the technology that they acquired in next is core and fundamental to every single product that they ship today. It's the core of the Mac, the core of all the iOS devices, everything we've been talking about. And I mean developers who are listening to this, like you use interface builder and like Steve Demoed interface builder as a feature of the next development platform in 1997. And these things continue to ship. And we were talking about this before the show. Apple has done approximately a trillion dollars in revenue since Steve came back. Give or take a billion. A trillion. I know. I wish we had, you know, we have nothing higher to give than an A+. But this is by far the best acquisition we've ever looked at. And I think probably ever will look at. Yeah. It is hard to argue with that. I mean, what's funny? Like, it's so this is such a like illustrates like it's better to be lucky than good. You know, like Gill Emilio completed the single greatest acquisition of all time. Gill Emilio. Who is Gill Emilio? You know, like he's the George Lason B of Apple CEOs. Exactly. Nothing to get skill Emilio. But like what's so funny is like he didn't see any of this. Like this was not some brilliantly crafted move on his part, like brilliantly crafted on Steve's part. But yeah, I mean, like this is just the sheer numbers. You cannot argue. I don't think you can argue that this isn't the greatest acquisition of all time. I mean, it literally created a trillion dollars in revenue. That's just goofy. That's like a fake number. That's a fake number. Where we were texted last night, I was like, I texted bed. I was like, it's like, you know, they were you were like, you know, we I message last night. Yeah, I message last night. And you know, it's like Steve changed the game on the field. And it's like, yeah, like they're playing football. And like Apple was like behind by like 30 points in the fourth quarter. And Steve, like, ran a play that scored a thousand point touchdown. Like, you know, you just can't, you can't, you can't say, yeah, a plus like for sure. No doubt. Yeah. Well, all right. You want to talk about Carvats? Yeah, let's do Carvats quickly. Cool. Go ahead. This really made me think it was a great podcast I listened to in the last week. The Ezra Client Show is one of my favorite podcasts. He interviews people. He's the creator and editor-in-chief at Vox, I believe. And he has great guests on that range from all different walks of life. And of course, I I listened to episodes that are particularly nerdy. And so he had Stewart Butterfield on who is the creator of Flickr and now Slack. And Stewart's just a phenomenally interesting character with a philosophy background. And raises a lot of really interesting points about Slack, about how they got there, about the founder journey. A lot about the similarities and differences of, you know, he started two companies that started as a kind of crazy out there never-ending game and ended up being a super widely used consumer product. And talking about sort of how how they got there. And one of the interesting points that he brought up was that when they were building what would eventually become Slack, they they used IRC and then built all kinds of tools on top of IRC. I didn't know these IRC. Yeah, they actually did. It's all this criticism of like it's just IRC, like it actually is just IRC. So when they were when they were starting out building that, Snapchat's just QR code. So I know right. This is the point. They had a team of developers and there's three technical co-founders and someone else they hired and they would encounter these problems with chat when it was like, okay, we should build something to make this chat thing a little better. So they'd pull those developers off of product and they'd you know, spend a couple cycles and make their their thing that would become Slack a little bit better and then they'd go back and then they kind of had a lot of bake time. They'd use it for like three or four months and then they'd go in and say, ah, we actually need to make it a little bit better and they go and make it a little bit better. And when you compare that sort of product development where a person is solving their own need very, very directly and at a cute pain point with the way that product organizations often work, which is like the PM will propose the product and they'll the spec and there'll be divergent ideas and people argue over it. There's a lot more ego in the room and what Stuart's thrown out there is you know, when when we're just trying to solve our own problems and like nobody wins by having our internal tool be better except that sort of everyone wins, there's a lot less ego in the equation and it's kind of an interesting way to develop software. And you know, we're not all going to go and set out to start very expensive, never ending games to create a different product, but it is like interesting to think about how can we, how can we kind of spoof that environment where we're all users of the product, we're all using it to solve our own pain point internally and take the ego out of the equation. That's super cool. I got to listen to to that packet there as your client show as we're client show with guest Stuart Butterfield. Awesome. Mine for the week is this super fun, verge, and eye opening, verge article, big investigative piece that they did last week or the week before on DJI, the drone company, DJI released or announced their new product, the Mavic Pro. This thing is amazing. It's the size of a water bottle and it's a drone and it flies for 27 minutes. You can fly it four and a half miles away from you with rock, solid 1080p video. It fits in your pocket. It's amazing. But they went and they were like, you know, did this profile like, what is DJI? It's this company. It's based in Shenzhen. And who are they? How do they hire? And it turns out the DJI runs this robot wars competition. So like you ever seen like battle bots? Yeah. They do a university competition in China. That's like the most coolest battle bots you've ever seen. And they get teams from 200 universities in China to create teams. And this is like, you know, NCAA football of China. And then they come, they work for, you know, forever and then they come and they compete. And the winners, DJI just tires them. And so they get like the smartest people. And this is all about like robotics and machine vision and autonomously operated robots. So like you can, the rules of the game are that you can't see what's happening on the field. You have to rely on your robot sensors and most of it's autonomously driven. And they fight each other and their goals and stuff. And so as a result, DJI now has like over a thousand PhDs working on computer vision and machine understanding. And that's all baked into stuff like enabling this drone, you know, the size of a water bottle that you can do stuff like you can just tap on yourself on the image. And then it'll track you. Like it knows who you are. It can follow you as you run around. And it won't crash into anything. And it has sent an avoid all just done with computer vision. And it was like this glimpse of the future. And then the interview Frank Wang, the CEO of DJI is like, yeah, this is about robotics. Like drones, like, sorry, like first product, but we're going to build robots that are going to like do agriculture and like serve you in restaurants, like all this stuff. This is like the future of robotics. It felt a little bit like, you know, Steve Jobs, Xerox Park moment. It was, it was pretty cool. Nice. So we'll link to it in the show nets. We will. Well, thank you so much for joining us today. Thanks, especially to the geek wire folks for having us and for setting this all up. Really appreciate it. And if you're new to the show and would like to subscribe, find us on iTunes or your favorite podcast client, tweet at us at acquired FM. And, yeah, have a good one.