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How In 1987 Apple's Steve Jobs Plotted To Take Over Xerox Corp
1987: Sculley, Jobs plotted to take over Xerox
By Evelyn Richards and Denis Collins Mercury News(This article originally appeared in the Mercury News on September 1, 1987.)
John Sculley and Steven Jobs, giddy with enthusiasm and flush with confidence, plotted in mid-1984 for Apple Computer Inc. to take over Xerox Corp., according to a manuscript of a forthcoming book by Sculley.
In scheming to acquire a company six times Apple's size, Sculley and Jobs were doing what they knew best: to think big, to defy the odds, to go for broke. If there is one thing that the now-estranged Sculley and Jobs still share, it is the gambler's soul. Gambling was the essence of their passionate life together at Apple.
It started with the day in 1983 that Jobs dared Sculley to leave his secure, comfortable presidency at Pepsi Cola for the rough-and-tumble world of Silicon Valley. And it ended with Sculley's own challenge to a dumbstruck board of directors in April 1985: "I'm asking Steve to step down, " he said. "You can back me on it and then I take responsibility, or we can do nothing, and you're going to have to find yourselves a new CEO."
In between, the twosome rode a roller-coaster of risk and reward, success and failure, time and again putting the future of Apple Computer on the line. In "Odyssey: Pepsi to Apple . . . A Journey of Adventure, Ideas and the Future, " Sculley describes Apple in the language of life and death. His experiences there, he writes, were like "peering down the barrel of a nuclear missile silo."
One of the boldest schemes was the half-formed dream of acquiring Xerox. Sculley describes how the idea took shape during one of their many heart-to-heart discussions in the heady days of 1984.
"Steve, " I said, "We really aren't thinking big enough on this thing."
Rather than just make marketing alliances with large companies, as they had done with General Electric, Sculley thought, Apple ought to actually buy other companies outright. Not small companies, as Jobs suggested. Big companies.
"We're not thinking big enough, " he told Jobs. "Maybe we should expand our band width and think if there's a big company out there that could really help us take advantage of this technology. The obvious one to me is Xerox."
The target was the 38th largest corporation in America, with $9 billion in sales. Apple, with $1.5 billion in sales at the time, ranked 234th in the Fortune 500.
The idea itself was intoxicating. Jobs and Sculley bounced the prospect off former Xerox computer scientist Bob Belleville and then took it to Al Eisenstat, Apple's in-house general counsel and a confidant of both Sculley and Jobs.
"Holy Jesus!" Eisenstat is quoted as saying in the book. "What are you two up to now? You've got to be kidding?"
The Xerox gamble fizzled, though, not because of Eisenstat but — in part — because of Jobs. Just as Jobs' impetuous behavior eventually cost him his place at Apple, it got the better of him during earlier talks with Xerox executives. Best behavior
Just a few months earlier, Sculley and Jobs had met with top Xerox officials, including the firm's vice chairman, at Rickeys Hyatt House in Palo Alto. "I had coached Steve to be on his best behavior, " Sculley writes, seeming to play the consummate paternal role. He recalls saying to Jobs: "I know you don't admire Xerox as a company because it hasn't been able to commercialize its computer products very well. But let's just go in and listen and keep our minds as open as possible. Let's demonstrate to them that we're really mature people."
Although Sculley remembers Jobs promising to "behave, " he claims the chairman began to attack Xerox almost immediately, proclaiming, "I really shouldn't say this, but I'm going to say it. You guys don't have any idea of what you're doing."
That sour moment alone may have been enough to make any Apple-Xerox marriage tricky, but after a few days, reason got the better of Sculley and "we thought that acquiring Xerox was a little bit too outrageous, even for us."
Still, the pair had plenty of other rounds of roulette to keep them busy.
Bet the company
More than once, the duo — acting secretly without input from other executives — planned ways to "bet the company." It was as if the word "moderation" were not in their vocabularies.
To Sculley, April 24, 1984, marks the date he and his close companion "sealed a double pact . . . a hyper-ambitious deal, not meant for the slow or unsure." In a carry-over from Sculley's Pepsi days, they vowed first to make Apple what Sculley calls a "consumer marketing company." That meant swallowing big bucks. They staged gala product introductions, spending $15 million for the Mac debut and $2 million on an extravaganza at Moscone Center to introduce the semi-portable Apple IIc.
And their advertising itself was bold. The eerie, now-famous "1984" TV ad introduced the Mac. For the Apple IIc, one spot featured Charlie Chaplin's cane shoving aside the IBM PCjr, the biggest threat to the Apple II.
Indeed, in choosing his think-big strategy, Sculley was using the only way he knew to compete with IBM, the company that practically invented the computer industry. With sales of $46 billion in 1984, IBM towered over Apple.
Christmas gamble
The second part of their pact was sealed in July 1984 when Jobs and Sculley launched their riskiest venture of all. While sketching out their sales projections for the Christmas selling season, their minds went into high gear. Although the company had only sold $422 million worth of computers in the previous quarter, the pair salivated at the thought of a $1 billion Christmas-season quarter. Building up inventory would take more than $100 million of the $155 million cash the company had on hand, Sculley writes.
"We've taken risks before, " he told Jobs, "and we bet the ranch. We bet the whole company on the Macintosh and we did it again on the II."
Sculley relates the moment of truth. "Steve and I looked at each other, wondering whether we should go for it again." Then Jobs broke the silence: "Yeah, let's do it. Let's bet the company again."
They did — and they almost lost the company. Despite grumblings from the board of directors, Apple ramped up to build more than 80,000 Macs a month and to reach overall sales of $1 billion in the quarter. They didn't come close: quarterly sales were $700 million, and Mac sales quickly tumbled to barely 20,000 a month.
Market factors
The disaster wasn't entirely of Sculley and Jobs' making. The bottom simply fell out of the personal computer market. Indeed, the instability in the marketplace is one of several facts of life in the computer industry Sculley realized only later that he hadn't understood.
"Mistakenly, Steve and I tried to turn Apple into a consumer marketing giant, " he writes. "What I hadn't realized was that Apple would never be a consumer products company. It was a computer company in a technology industry." Sculley also came to regret his go-for-broke tactics, and acknowledges in the book that he lacked perspective on the computer industry and its inventory, pricing and research characteristics.
Financial matters aside, perhaps the biggest risks of all were those Jobs and Sculley brought upon themselves. Their high public profiles brought along a sobering note of reality. Their personal safety, according to Sculley, was in jeopardy.
At times, Sculley writes that he received bomb threats at his home, and after an attempted kidnapping, he took to jogging with a gun-toting bodyguard. For two months, his house was guarded by ex-FBI agents who spent the nights in the living room, weapons at their sides.
Still, the Apple leaders didn't shirk from the exposure. Six security guards escorted them to the 1985 Super Bowl at Stanford, but Jobs and Sculley left their bullet-proof vests at home.
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