Reprinted from Fortune, February 7, 1983, pp. 36-41.

Apple Lisa

“I get my jollies building good computers,” says Steven P. Jobs, 27, chairman of Apple Computer. Critics of Apple’s product line might assume Jobs hasn’t had a good belly laugh in some time. Apple’s first and, so far, only big winner is the Apple II, six years old and showing signs of age. But during the past three years Apple has been working on a new computer called Lisa. Jobs is betting that Lisa – though five times the price of the Apple II and aimed at a different market – will keep him jolly by keeping his company in the forefront of a rapidly changing industry.

In a series of interviews before Lisa’s introduction this week, Apple detailed for FORTUNE the technical and marketing strategies that shaped the new product. These were designed to capitalize on the company’s acknowledged strengths. No company has done more than Apple to dispel the notion that computers are inscrutable beasts. Indeed, demystifying the machine has been Apple’s greatest strength.

The company took off in 1977 with the Apple II, one of the first personal computers that wasn’t a hobbyist’s kit. The machine fit easily on a desktop, cost less than $3,000, and sported the industry’s least intimidating logo, a rainbow-colored apple with one big bite missing. Apple encouraged thousands of independent programmers to invent applications for the Apple II, and the result is a library of 16,000 software programs. These range from such games as Snack Attack to budget analysis programs like VisiCalc and farm management programs like Swine Ration Formulation, which tells farmers how much to feed their pigs. At its core, Apple II isn’t easier to use than other small computers, but straightforward engineering, good design, clever marketing, and all those programs have so far enticed over 700,000 buyers.

Lisa draws heavily on Apple’s talent for disarming computerphobes. The new machine, which wears a hefty $10,000 price tag and is aimed at the office market, is set apart from other computers by ease of operation. Lisa is, pardon the computer jargon, exceedingly user friendly, if not outright seductive. She turns the tedious chore of drafting office reports into something close to playing a video game. (See box, page 38.)

Unveiled on January 19, with first shipments sometime in the spring, Lisa comes none too soon for Apple, although sales in 1982 reached $583 million (up 74% from 1981) and net earnings were $61 million, or $1.06 per share, up 51%. Apple went public late in 1980, selling shares for $22 each. Since then, the stock has gone as high as $35 and as low as $10. Now it’s selling for about $30.

Steve Jobs (left) and John Couch, director of the Lisa project, walk the mountain roads of Los Gatos, California, where both men have homes.

Those numbers mask some disconcerting facts. The Apple II is a six-year-old machine competing in a market where technology improves almost daily. Moreover, Apple has yet to prove it is capable of repeating its success. In 1981 the firm tried expanding the product line with the Apple III, a more powerful version of the Apple II aimed at offices. But the Apple III was so full of worms that the first 14,000 were recalled, and the machine was eventually re-engineered. The second version of the Apple III is not selling very well. Ulric Weil, a security analyst at Morgan Stanley, estimates Apple III is selling between 3,000 and 3,500 a month. Apple II sales are now close to 30,000 a month.

During the Apple III debacle, the company lost time, face, and a good piece of the office market to the phenomenally successful IBM Personal Computer. The PC, as IBM’s machine is called, owes its success mainly to IBM’s reputation and a skillful introduction. Big Blue’s logo on the front inspires customer confidence that no other company can match. The PC is now selling at the rate of about 20,000 per month.

Apple watchers have been increasingly wondering whether the invention and success of the Apple II owed more to luck than to savvy. The company’s sales force has been meeting resistance in stores. Says one marketing manager: “Apple III has a stigma attached to it. And Apple II? How can we expect our salesmen to sell the same dingdong product in this market for five years running?” The firm was able to keep Apple II sales up during the past six months principally by offering package deals that effectively cut the list price by about 25%.

Although Lisa is the first really easy-to-use personal computer, she is not much for looks – a chunky box with an overhanging brow reminiscent of the primitive visage of an ape. But that impression is totally misleading. Inside the box, Lisa contains a microprocessor that can manipulate data in many cases four times faster than the Apple II or III and twice as quickly as the IBM PC.

In addition, Lisa has the memory of an elephant. The processor’s main memory alone can hold one million bytes of data, or roughly 160,000 words. Attached to the central processing unit are two floppy disk drives, which Apple designed for Lisa, and one hard disk drive. Total external memory: 6.7 million bytes.

Lisa’ most distinguishing feature, though, is the massive programming Apple engineers have stored in her memory. To operate even the simplest personal computers today, a user must learn a myriad of arcane commands and procedures. The industry calls this computer literacy. Apple engineers have taught Lisa to be people literate.

Lisa takes orders primarily from a mouse, not a keyboard. The mouse is a cigarette-pack-size plastic box with a button on top and a cable connected to the computer. When the mouse is moved on the surface of a desk, an arrow moves on Lisa’s TV-like monitor screen. This permits the user to juggle words or statistics around in much the same way that a child uses a joystick to manipulate spaceships in a video game. Lisa also has a standard keyboard, but the operator has to use that only to type in text or statistics.

This deceptively simple system should save computer neophytes days, or even weeks, in learning to use the machine. For example, it takes about 20 hours of practice to become handy with a business-budget, or “spreadsheet,” program like VisiCalc on an Apple II. The rankest amateur will need only an hour or so to operate a similar program on Lisa.

The ease of use is also increased because the commands are the same for all Lisa programs. With other personal computers, an executive who has spent several days mastering a word processing program usually must then spend a similar amount of time learning spreadsheet accounting or any other program. Initially, Lisa will include six basic functions: word processing, graphics, spreadsheet analysis, data base management, project scheduling, and drawing. By Apple’s estimates, a novice should be able to learn all six in a day. It might take a month to master those skills on other computers.

Another of Lisa’s features is the ability to swap information between programs. Budget estimates, for example, can be transferred to the graph program and turned into a bar or pie chart. Then both the statistics and the chart can be incorporated into a memo being drafted with the word processing program. The sharing of commands and the flow of information from one program to another, known as integration, is a major goal of the software industry in the 1980s. Some integrated programs like C-MBA and 1-2-3, much less ambitious than Lisa’s, have already been introduced.

Teaching Lisa her tricks was a major undertaking. The programs, which are permanently stored in Lisa’s memory, contain a staggering two million bytes of information. The internal Apple II programming, by comparison, has only 16,000 bytes and the Apple III contains 200,000. Three years in the making, Lisa’s software alone devoured $20 million and 200 man-years of labor. John D. Couch, 35, the Lisa manager, estimates the total start-up cost of Lisa will reach $50 million. “If we had known how big Lisa would get,” says Couch, “I’m not sure we would have begun at all.”

The whole project started with the notion of user friendliness. When the Apple II began selling briskly in 1977 and 1978, the company was surprised to find that a large number of the machines were going into offices. At that point Apple faced a fundamental decision on market strategy. Should it go after the home computer market or the business market? Apple decided to go to the office, where profit margins are higher and its new product’s advanced technology would show off better. Says Jobs: “I figured that we could sell five or ten times as many computers in the office if they were easy to use.”

Jobs’s first task was to lasso talent, and John Couch was his initial recruit. The two met in 1978 when Couch, then 30, was a rising young manager at Hewlett-Packard. They agreed that software would be the key to success in the computer field and that good software had to be easy to use. Couch scuttled his career at Hewlett-Packard, taking a cut in salary from $55,000 to $40,000 and reducing his management responsibility from 141 people to none. Both cuts, as it turned out, were temporary.

When the idea of an easy-to-use computer got rolling, Jobs and Couch had no trouble convincing others of its dazzling promise. The project at present employs 140 engineers and programmers, mostly in their 20s. Eighteen programmers followed Couch from Hewlett-Packard. Lisa’s chief engineer, Wayne Rosing, 36, came from Digital Equipment Corp. One day in 1980, Rosing was on a quick trip to California when he stopped in to see Couch on the recommendation of a friend. Within minutes he knew he wanted to work for Apple. By the next day he had a deal with Couch and phoned Digital to resign. Four colleagues from Digital joined him at Apple. Lawrence G. Tesler, 37, who was the software manager for Lisa, was formerly a computer researcher for Xerox. In December 1979 he was demonstrating some techniques in computer friendliness Xerox had developed to a troupe of Apple engineers and marketing executives led by Jobs and Couch. “I was expecting a bunch of hobbyists,” Tesler recalls, “and was impressed to find people sophisticated in computer science.” Tesler decided on the spot to join Apple.

That day of briefings at Xerox was the turning point in Lisa’s development. Although Jobs and Couch had been brainstorming about the project, occasionally while sipping brandy in the hot tub at Couch’s house in Los Gatos, and company engineers had been busy building prototypes of a new machine, the critical software remained only a vague concept. The Xerox researchers demonstrated a programming language called Smalltalk that worked with a mouse. Suddenly the possibilities became apparent.

Xerox has since incorporated some features of Smalltalk into a product called Star. While a technological marvel, Star has not sold well since its introduction in April 1981. Each Star computer costs $16,600 and won’t work well unless hooked up to a large disk drive costing $55,000 or more. According to industry rumors, Xerox is working on a smaller, less expensive version of Star. E. David Crockett, senior vice president of Dataquest, a market research firm in Cupertino, California, says Xerox is selling about 100 to 200 Stars per month. “It’s a product looking for a home,” he says. In one sense, it has found a home at Apple.

The Apple group resolved to create on Lisa’s screen the look and procedures of an everyday office. To do this, they have used pictures to represent certain procedures – wastebasket for the disposal of information, a clipboard for temporary storage, a folder for filing data. But they soon discovered that even the simplest improvement demanded much more software. The mouse on Xerox’s Star, for example, has two different command buttons. It took the Apple team six months to reduce their mouse’s buttons from two to one.

Wayne Rosing recalls that one of the issues they had to resolve was how to show the wastebasket on the screen. When a trash can is drawn the size of a thumbnail, it has almost no distinguishing characteristics. So I to make the picture understandable, Apple’s programmers playfully added a few flies I buzzing around the top. That was too palsy-walsy for Rosing, who feared Lisa would become the butt of jokes. Eventually the flies were replaced by a lid, slightly askew. The image is less vivid, but clear.

While Apple was trying to keep Lisa under wraps, word of the project leaked out about 18 months ago. When the machine did not appear on the market as soon as expected, speculation grew that Lisa was being delayed to avert the kind of recall disaster that befell the Apple III. Jobs admits that the Apple III experience slowed Lisa down a bit. But, he says, “Lisa was just bigger than we anticipated. Scheduling is an art. Most of Lisa’s software was created from scratch, and that’s very hard to predict.”

The greatest mystery of all in the Lisa development was how to integrate the different computer applications, such as word processing, statistical, and graphics programs, so that the user could easily swap material. Tesler says he estimated in 1980 it would take anywhere from two months to two years to accomplish that. Years was closer to the mark. By last summer, however, the programs were beginning to come together. One July afternoon, Tesler recalls, the programmers succeeded in getting all six application programs on the screen at the same time. Lisa was expertly pulling the budget report, for instance, out of the middle of the pile of documents and then putting it in full view on top.

To celebrate their achievement, the programmers broke out bottles of Stanford, a California champagne (price: $4.29 per bottle). Soon feeling giddy, some people decided to work on the next project: moving the data from within one program to another.

Lisa’s mouse, foreground, takes a lot of the complexity out of operating the computer. The keyboard is used for entering text and numbers into the machine. The mouse gives the commands.

The schedule allotted two weeks for this development, but with their champagne-induced confidence, the programmers had it working within hours. So they had a second champagne party that night – this time uncorking Korbel, which is twice as expensive as Stanford. “Since then, there have been a lot of parties,” says Tesler. “But we really knew we had done well when the marketing department started paying for the bubbly.”

If Lisa sells well, the marketing department will deserve a party in return. Many industry watchers agree with Dataquest’s David Crockett, who says: “Apple is taking on a new market and a new product at the same time. Typically, that means a slow start.”

Apple expects more than one-third of Lisa’s sales in the first year will be to the 2,300 U.S. companies with over $120 million in annual revenue. Big corporations, however, will be relatively new territory for Apple, which has marketed its other machines to small firms and hobbyists, mainly through a network of 1,300 independent retailers. The company has organized a sales staff of 100 so-called national account representatives who will work with about 100 of the independent retailers to tackle the new market. Sales may be difficult. Apple will be going directly up against IBM. Distribution thus is expected to be a serious problem for Apple.

Even before Lisa was introduced, Apple already faced competition. VisiCorp, the publisher of the best-selling VisiCalc program, announced that this summer it will begin selling a product called VisiOn, a system of integrated software that works with a mouse. VisiCorp claims that it will provide many of Lisa’s features at a lower cost for IBM and Digital personal computers. But a demonstration model of VisiOn, which the company has been showing since November, appears more limited than Lisa. Terry L. Opdendyk, VisiCorp’s president, promises the final product will be more powerful. However, no one can be certain about the cost or delivery date of VisiOn. Computer projects are well known for being both late and over budget.

Perhaps the greatest question facing Lisa is cost. Will companies pay the $10,000 price? Though much cheaper than Xerox’s Star, that is more than twice the price of the normally equipped IBM PC. Much will depend on Apple’s still undetermined volume discount policy. Says Jonathan Seybold, an editor of the Seybold Report on Office Automation, which tested the machine for two weeks: “Lisa is clearly a milestone product. After Lisa the professional computing world will never be the same again. But the price is at the very high end of the acceptable range. I think that the right price for Lisa would have been $7,500.”

Lisa is not the only new Apple in Jobs’s basket. The company has also just unveiled an updated version of the Apple II, the IIE. And later this year Apple will introduce a less powerful, less expensive version of Lisa, the Macintosh. Jobs himself has directed that project.

Apple’s new products will leave the firm with a slightly confused and overlapping line of old and new personal computers. The old generation Apple IIE has a basic list price of $1,395, while that of the Apple III is $2,995. The new generation Lisa will be $10,000, but the Macintosh may be as little as $2,000. Even though the Macintosh may be delayed and end up costing much more, rumors about it could hurt Lisa’s sales. And in the end, Macintosh may be Apple’s real winner.

One of the most difficult stages in the development of a young, entrepreneurial firm like Apple comes when it tries to repeat its initial success with a new product. Companies in fields as diverse as cars and calculators have stumbled and lost the market they once dominated. Lisa and Macintosh will determine whether Apple joins those failures or remains among the leaders of the computer industry.

by Peter Nulty

Sidebars:

	“IBM comes on strong”
	“The mouse that roars – a day with Lisa”