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Okay, listeners, now is a great time to thank one of our big partners here at Acquired, ServiceNow. Yes, ServiceNow is the AI platform for business transformation, helping automate processes, improve service delivery, and increase efficiency. 85% of the Fortune 500 runs on them, and they have quickly joined the Microsofts and the NVIDIAS as one of the most important enterprise technology vendors in the world.
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With ServiceNow's platform, your business can put AI to work today. It's pretty incredible that ServiceNow built AI directly into their platform. So all the integration work to prepare for it that otherwise would have taken you years is already done. So if you want to learn more about the ServiceNow platform and how it can turbocharge the time to deploy AI for your business, go over to servicenow.com slash acquired. And when you get in touch, just tell them Ben and David sent you. Thanks, ServiceNow.
I feel very antiquated my use of text edit now that that's real. Text edit, hey, Next product. It is, it's unbelievable. There's so much still there. Chess from Next. Totally. The screenshot icon finally changed. It was that like big camera until Yosemite and it finally changed that little thing. That was like the last asset remaining. Crazy. I know. Who got the truth?
Hello, GeekWire. Hey, GeekWire.
Awesome. Well, welcome to episode 23 of Acquired, the podcast about technology acquisitions. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. On today's episode, we will be covering a cornerstone of technology today, Apple's 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 we've deviated from that a little bit, and we've gotten into talking about all sorts of acquisitions, recent ones, ones 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 a big, big thank you to GeekWire.
and John and Todd and everybody for hosting 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. Thanks for sticking with us. And we will post it on iTunes and our website, Acquired.fm, once we edit it. With that, we'll dive in. So next, like 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 really the story of how, you know, what I love about it is it's kind of like this is the hero story of Steve Jobs. You know, he had initial success, the initial arc, and then he was off in the wilderness at 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. 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 part picking up at when Steve started Next and how that went integrating that into Apple. Yeah. So we start our journey in 1984, a very good year. That was the year I was born. Yeah.
And Steve Jobs is still at Apple for the first time. The company he co-founded was Steve Wozniak. And what's going on at this time is the personal computer has happened, driven by Apple and the Macintosh. Apple's a 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-ing 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 pitifully underpowered. But what kind of defined a workstation was a, quote, 3M computer. And a 3M computer had one megabyte of memory, megabyte of memory, right?
had a megapixel 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, Ben. 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 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 era of the workstation, but Apple has no offering in the workstation. Right.
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 darling 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 Sculley 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 1984. And Steve gets put in charge of a new division at Apple called the Super Micro Division. 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 fourth M and sell it for $500. He wants to put workstation-esque 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, um, turns out with the technology at the time, it's really hard to, uh, build these workstation computers with off the shelf components, uh, 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. Um, so in May of 1985, uh,
Scully, the CEO, and Arthur Rock, who is a venture capitalist on the board. Be wary of venture capitalists out there. Says the VC. 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 super micro 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 kind of being off, 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, like, we've got these workstations, you know, 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, like, they can't get enough time on the workstations to use them to model DNA computationally and...
wet labs are like even more expensive than that. They can't work with it actually. And so they're, 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, he can't handle this, you know, he sees this problem. And so he's, he says, you know, I, we need to get these powerful computers into the hands of students, uh,
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. 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 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. Selling to students, selling to computer labs for undergrads and high school students to use. That was a big part of their business. Feels a little competitive.
So here's what happens. September 13th, Jobs resigns and,
And there have been books written about this and movies, all of which tell slightly different stories. So here's as 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 Fassbender movie, this is Scarlett Johansson, I think, plays her. She's one of the stars of the movie.
Bud Tribble, George Crow, Rich Page, Susan Barnes, Susan Carey, and Daniel Lewin. 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 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 Scully hits him with. And this is one of the things that just totally destroys his relationship with Scully. Because it's unclear that, like, it was not good before then, but, like, then he sues him. 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 in it, he's asked about this, and he says, it's hard to think that a $2 billion 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 pretty quickly settle the case. And the terms of the settlement, they settle in January 1986, are that Next, the new company Steve is starting, cannot compete with Apple. And Apple gets to review any products that Next makes and releases before Next releases them. And if they determine them to 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 he's
much ink has been spilled on this, but he decides he really wants to do things his own way this time. 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 bat. Well, first off, he puts $7 million of his own money into the company to get it started. And he's
He spends $100,000 right off the bat to get a really famous graphic designer and brand consultant. Paul Rand. Paul Rand. Yeah. 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 for the lowercase E, which stands for education. And coming up with the logo, which is... 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. A hundred pages on this one idea. And the hundred K was delivered up front. Yeah. It's eight. So, but Steve loves it. He goes, so the second thing he does, uh,
He rents office space. And they're like a brand new startup, you're gonna get a scrappy co-working space. 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.M. Pei, the famous architect. And that's their first office. Later on, they moved to Redwood City into a whole complex designed by I.M. Pei
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 everybody can see each other's salary in the company. There is 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 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 kind of at the point that that was violated, which of
of course it's going to happen when you start to hit scale. That's when he switched modes and said, nope, you know, 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, uh, 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. Uh, and that's like the whole Genesis of why he does it this way. And obviously it doesn't really work. Um, but interesting that, you know, he does, he does this experiment. Um, and, uh, for a long time, next did eventually change this and, had different salaries and everything, but he's super idealistic at the get go. Um, and, uh,
So the only question is kind of like, well, what is Next actually going to do? And it's this big secret. Everybody wants to know, what is Next doing? They know they're targeting education, and they want to make powerful computers, but 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 founded two technology companies that were acquired, one by GM and one by Dell eventually. And so he invests $20 million in Next at
at a $125 million valuation. Remember, this is 1986, 87. So, you know, thinking about with inflation and the fact that they're pre-product, like this is a company with 150... They have a brand book. 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 the Big Mac.
that Jobs is working on at 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, 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 gonna launch and it's gonna launch at a $3,000 price point. So not $500 but also not $10,000 that workstations were normally at that time. So somewhat compelling, okay.
As usual, they announce the launch. They announce 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, right?
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, they announced years before 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 Fassbender movie. This is the middle scene, this keynote, 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 is
which by the way is a one foot cube of all black magnesium. Of course it is. Most computers at the time look super ugly, right? And they're huge. 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. Instead of kind of the standard 8-bit. A lot of times you'd turn on a computer, you'd hear a beep, it would make Nintendo-like noises. Very different than today. Yeah, this is real audio. And so the violinist plays a duet with the next computer on stage. And this was, you know, the whole gala. Everybody who attended it got a framed poster, I
commemorating this monumental event, the launch of Next Computer. Talk about a lack of product market fit. For those of us in startups today that are thinking, what's that killer use case that justifies a user actually shelling out from my product? That's a very expensive tech demo. Very expensive. And also famously, also chronicled in the movie, nobody from Apple is invited to this.
3,000 people attend the event. Not a single person from Apple is allowed in the doors. That's just vengeful. Vengeful. So they announced 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 what is this thing? They announced the specs.
25 megahertz Motorola 68030 CPU, whatever that means. 25 megahertz was a lot at the time. Has configurable from 8 megabytes up to 64 megabytes of RAM. So, like, the benchmark for workstations was 1 megabyte of RAM. They have 8 to 64, so...
Knock it out of the park on that. 17 inch megapixel grayscale display, 10 base two ethernet. This is a networked computer. Um, and that's key, right? This, this is something that the Macintosh was not set up to do. I mean, the, the, when they conceived of, of the Mac early on, it was, it was standalone. I mean, the ethernet wasn't a thing. We, 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, uh,
This computer and this operating system is going to be built to network from the ground up. Yeah, the internet doesn't exist. In fact, the internet gets invented on this computer, which we'll come to in a second. The World Wide Web. The World Wide Web, yes. But the World Wide 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
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 Jobs is like, well, but you're networked, you're on the Ethernet, so like that's how you transfer files. Right. But like,
nobody else is on the network. So it's kind of a chicken and egg problem. Right, it's like 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 realized 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 fixed that. But more importantly, and here's where we start to get into like...
What is the real value of Next? The software and the operating system that they created Next over these couple years is just incredible. I mean, there's the moment from when 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 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 PARC 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 PARC
in Palo Alto and steals the graphical user interface and that becomes the Mac. That's what Ben's referring to. - Yeah, and so you know, the Mac gets that, right? For the first time there's, Bill Gates famously kind of 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's saying, you know, yes we got this from Xerox PARC,
What they didn't kind of pull from that was object-oriented programming. So in traditional programming, like 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, you know, this dog has properties and has methods you can call on those properties.
like bark or like back up or like walk forward. And this was only really embodied in small talk at the time, which was not a very popular language. Well, and to not dive too deep into the technical details here, but essentially this is like all modern software is now written this way. Right. And the idea of creating software technology using, you know,
old linear non-object oriented programming, like you just like wouldn't do it. That'd be like trying to like drive across country in like, you know, a golf cart. Like you wouldn't do it. So, so the, the, the kind of, um, breakthrough here is by using objective C, which is incredible how long that, that has actually lived, uh,
at Next and then eventually became kind of the core tool set that's used to now develop Mac applications and iOS applications. You know, 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 than they would be.
than 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
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, "When I went," this is a quote from him, "When I went to Xerox PARC in 1979 and saw the original genesis of the graphical user interface there, they actually showed me three things.
Um, 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. Uh,
And the third was networking. They had several hundred Altos. Alto was the concept computer that Xerox PARC 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. He's making a joke, but...
But what he realizes, and this kind of goes back to what he was trying to do with 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
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 by the way, when the thing finally came out to retail, guess how much it cost? 10 grand? $10,000, which was the price that all workstations 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, right? We're not going to be the, what we know of Apple today is, is an entirely vertically integrated software and hardware company. They're moving away from that. It's just software. And that was kind of in vogue during that time because that's when, uh, the, the Mac was in the era of the clones. I mean, the, the, um,
Mac OS 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. 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 what is the real implication of this power, the World Wide Web is invented on this operating system, on an ex-computer, actually. So Tim Berners-Lee at CERN,
invents the world wide web and it's possible because of object oriented programming and networking obviously. And also fun, other history of this computer, John Carmack at id Software, John's now the CTO I believe of Oculus, John wrote the video game Doom, video games Doom, Quake and Wolfenstein 3D all on Next. - Wow. - Which is amazing.
Wow, wow, I didn't know that. And those were the first 3D games that ever equally revolutionized the game industry. So that's the power that this enables. Yeah, and it's interesting taking a step back and realizing, OK, so very clear recognition of the technologies that were going to be transformational and really the foundation of what the future of competing will be.
really unable to bring it to market in a meaningful way at Next. I mean, all the ideas were right, all the way that they brought a product to customers, you can chalk it up to timing, you can chalk it up to price, just wrong, just poorly executed. And so they needed an out.
Yep, they needed it 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 a Dell... Dude, you're getting a Dell? That was powered by Next. Yeah, basically what 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 the first ever system to do that. And this thing is like...
So the iTunes store, people wonder why iTunes is so clunky and slow and crappy today. It still runs on web objects, which is insane. 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. For a very long time. Yeah.
Finally, 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, this is the era of Windows in the early 90s to mid-90s. Windows 3.0, then Windows 95. Just absolute dominance. Apple's getting decimated. They have no offering for enterprises whatsoever.
in the workstation market, which is cooling down, but still a huge market. And all of NT was doing phenomenally well. Steve Jobs in 97 stands up on stage in January and praises the incredible advancements brought by Microsoft and NT and says, 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 incredible to be... But he was totally right. And so Apple's 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 codenamed, I think Copeland was the first version. And then 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
It kind of reminds me of 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, OK, 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 9. It was System 7 at the time. Right, right, right. 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. Yep. And then finally, what they were envisioning for years, not even until 2001, was Mac OS 10. Yep. Yep.
And so just before Christmas 1996, they buy Next for $429 million that go to Next shareholders, including Ross Perot. And separately, 1.5 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 raised... 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 not that much more money. This was not a home run. Nobody was getting rich 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 is the official plan. And so the acquisition closes in...
February 1997. And Steve's a consultant and some of these events that we were talking about, he comes on stage and he, you know, clearly like the dichotomy between
how Steve talks about the future and his vision and how Gil Emilio, who is the CEO of Apple at the time, who, you know, looked like he actually was like 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, um, yeah, when you watch their, uh, keynotes, just kind of going back and watching a lot of these old keynotes over again, um,
and in preparing for this podcast, it is incredible to see the dichotomy between Gil standing up there and not really commanding the audience's attention and saying things that, um, like it's so important for Apple to, you know, court our core audience and developers, right? It's just, it's not taking a position on anything. And, you know, we, we've all seen, um, managers like that or leaders like that, that, uh,
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 chaotic.
It's night and day 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 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 they're,
Really, there's only one candidate. And September of 1997, Steve Jobs is instated as the interim. The I-CEO. The I-CEO, the interim CEO of Apple. And he remained interim CEO until 2000. So for three years, he was interim CEO. Now, while he's interim CEO, the board doesn't exactly stay intact, right? No.
He basically takes those three years, and it ultimately takes five years from the time Apple acquires Next for OS X to come out. So they spend five years taking the Next operating system and baking it into the full product of the Mac. But during that time, I mean, Steve, there's the technical and product challenges of shipping that, but he cleans house and completely revamps Apple. Yeah.
Well, 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 billing it at the time. And... Kind of awesome that like...
When this acquisition happened, CNET existed, was a website, was a news organization. And they're still archives. And the World Wide Web was invented on Next computers five years earlier. Yeah, I know, I know. So the thing that they say in the article is, Next's cross-platform development environments in the enterprise and internet and intranet space...
allow developers to write once and deploy across a range of internet and client server platforms. Emilio said that Apple expects to ship products with the next operating system in 1997. That's the same year that the acquisition closed. So the way that Emilio 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. Yeah, we'll just slap this OS into our hardware like no big deal. Yeah, and...
What we know today is it didn't ship in 97 or 98 or 99. It shipped in 2001. And by that point, Apple had dramatically less products. 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 I worked on OpenDock 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 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 X 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 Mac OS X. I mean, you look at Next and it had a dock. Nothing else had a dock 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. Right. 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 made the iPhone possible came from the Next acquisition. Yep.
So at this point, you know, wrapping up the history and facts, which was very long, but these stories are just, we love stories on this show. And like, and this is one of the best, this is one of the greatest of all time. Uh, and, um, so we all know what happens. Steve comes back, um, 2001, they launch OS 10. Uh, they launched the iPod. What did
When did they launch the iPod? Was it also 2001, I think, when they launched the iPod? Yep. 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, when they first launched the iPhone, they say, and it runs OS X.
That was a big selling point. This is not a phone like we know phones today with an 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 huge and ridiculous. And people at BlackBerry didn't believe it. They'd look at the scroll performance and say, you can't do that on a phone. 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 X. And then when they launched 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 Next. Yep, and there we go. The rest, as they say, is history.
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Let's move on to our next segment of the show, which is acquisition category. This will be a fun one. What do you think?
And what we do is we categorize the acquisition. 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 acquihires, a technology acquisition. Is it a core piece of technology that's not productized or is it other? Is it 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 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 Steve Jobs. I mean, this is like... This is a great slide. The ultimate...
People acquisition. Oh, yeah. Gil Emilio is listing all the reasons they acquired Next. Yeah, the CEO at the time literally at... Is it at Macworld, I think? Yeah. Has this slide on stage. He's presenting these slides about rationale for the Next acquisition and he has all this stuff that they're getting. Then he flips to the next slide. And it just says Steve Jobs. It's like the only thing on the slide. It's the only thing on the slide. Reasons we acquired Next. So, I mean...
yes, we're still using, uh, next technologies today. Um, yes, they were incredibly forward thinking, but the company needed Steve back. Yep. Um, I mean, it's hard to argue with that. Uh, Steve is, um, I'm just surprised. I mean, like I've read all the books about him. Uh, I've watched so many of his keynotes. I've watched all the movies about him every time I read it. And, and this just like going in and doing a lot of this primary source research. Um,
This is going to be my tech theme later, but I am just so struck by his level of thinking. It is so rare that you find something like that. And when you watch this keynote with Gil on stage and Steve on stage at the same time, and like I said, Gil was a Fairchild semiconductor. He had been a longtime technology CEO. Yeah, he turned around a national semiconductor.
Yeah, he turned around National Semiconductor. You know, he looks like a child compared to this guy. It's like Steve is just a man among boys, you know, or a person among small people. Yeah, special guy, we miss him. Totally. Okay, I agree. So you want to go into what would have happened otherwise? Yeah, 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 Gasset was an Apple employee who kind of opened Europe to Apple. He came in in the early days, knew Steve Jobs well, left Apple to start his own company. Well, before he left Apple, when Steve got fired and left Apple...
Jean took over the Supermicro 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. Monday note. 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. And B, which created BOS, was kind of the other candidate that they were vetting other than Next. And ultimately, the reason that Apple didn't end up making that acquisition of B, number one, I continue to go back to the fact that they all sort of knew they needed Steve back. But they just
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. Something like that, yeah. 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 finally had actually has a product out there, this operating system that is not the business that they were hoping to build but is a decent business, 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...
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 eventually became profitable as a software-only business, but they were not making a lot of money. No. But it was Steve Jobs. Right. Anyway, so they ended up getting acquired, obviously, by Apple, not going public. But that would have been interesting had they. 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 it? Was it Michael Dell? Michael Dell, yeah. Said that, like, they should just shut down the company and give the money back to shareholders. Like, they were just getting creamed. Yeah. So, all right. Tech themes? Tech themes. Yeah, so...
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 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 X. 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, we're 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'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 X. We can give you this power in this operating system that you couldn't have otherwise. Right. But to me, it's like the power of a founder there. And then once you have...
like a tipping point in, 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, the big bargaining chip that affords you. Yep. Um,
That perfectly dovetails with... I have two tech themes. On the show, we do... This is actually my favorite segment of the show. We talk about having gone through this whole history. What are some eternal truths about just the way business, technology, startups operate that we can kind of pull out of this? And I have two. The first one is just what you were saying, Ben, is that the...
or related to 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 object oriented programming and networking and workstations. And like, you 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 like, um,
But all that's only possible because of these 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. 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 of Zillow, talking about the Trulia 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 what is that originality? And it's not really exactly originality. There were QR codes before Snapchat did them. 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. There were messengers before them. They weren't first, but they were the first...
thus far and we'll see how spectacles perform um the first to make like a real product that just works and is delightful and solves a need for a user um and i think that's what this originality means and that's what steve was right like object-oriented programming all this stuff existed at xerox park before next um object-oriented 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 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've just been noodling... Especially as a VC. 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... The question I always ask is like, what...
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. It's like, well, 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 at 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 platform.
app that made your photos look good. Hipstamatic 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 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 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 company's growing and it's doing, getting way better at that, but it's, it's like a famously difficult 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, um,
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 research lab. It was people that were kind of playing around with like, what if we could get this into a computer at some point? And, you know, dismantled that. Yeah, Steve killed that. Because that's totally the,
opposite of 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 is what is so scarce in technology, in startups, and in business. 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, for all the Steve's foibles and all his craziness and like he was just so good at that. And it's it's impressive. So, yeah. OK, 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 saves them, that gets them like $4 billion a year in revenue they otherwise would have had to give up. Big number, right? Like 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 plus, 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 a year.
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. If that was our bar for A+, Apple does like $250 billion a year in revenue now.
and 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 developers who are listening to this will be like,
You use Interface Builder, and Steve demoed Interface Builder as a feature of the Next Development Platform in 1997. These things continue to ship. We were talking about this before the show. Apple has done approximately a trillion dollars in revenue
Since Steve came back. Since Steve came back. Give or take a billion, a trillion. It's like GDP style. I know. I know. And I wish we had... 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...
This illustrates it's better to be lucky than good. Gil Emilio
completed the single greatest acquisition of all time gil amelio who is gil amelio you know like he's he's the george lazenby of apple ceos exactly like um nothing against gil amelio 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 um but yeah i mean like
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. When we were texting last night, I texted Ben. I was like, it's like they were...
You mean when we iMessaged last night? Yeah, we iMessaged last night. And, you know, it's like Steve changed the game on the field. And it's like, yeah, like they were 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 forget. So, yeah, A+, like, for sure. No doubt. Yeah. Well. All right. You want to talk about carve-outs? Yeah, let's do carve-outs quickly. Cool. Go.
Go ahead. This really made me think it was a great podcast I listened to in the last week. The Ezra Klein 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 listen to the episodes that are particularly nerdy. And so he had Stuart Butterfield on, who is the creator of Flickr and now Slack.
And Stuart's just a phenomenally interesting character with a philosophy background and raises a lot of really interesting points, especially
about Slack, about how they got there, about the founder journey, a lot about the similarities and differences of... 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 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 used IRC and then built all kinds of tools on top of IRC. I didn't know they used 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 starting out building that...
Snapchat's just QR codes. I know, right? This is the point. They had a team of developers, and it was 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 spend a couple cycles and make their thing that would become Slack a little bit better, and then they'd go back. And then they'd kind of... It 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'd 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 an acute pain point
with the way that product organizations often work, which is like the PM will propose the product and they'll have the spec and there'll be divergent ideas and people will argue over it. There's a lot more ego in the room. And what Stuart's thrown out there is, you know, 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 software
never-ending games to create a different product. But it is 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 that podcast. The Ezra Klein Show? Ezra Klein Show with guest Stuart Butterfield. Awesome. Mine for the week is this super fun Verge, an 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 did this profile like, what is DJI? It's this company. It's based in Shenzhen. And
And who are they? How do they hire? And it turns out that DJI runs this Robot Wars competition. So, like, you ever seen, like, BattleBots? Oh, yeah. They do a university competition in China that's, like, the most coolest BattleBots 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. They're
work forever and then they come and they compete.
DJI just hires them. And so they get the smartest people. And this is all about robotics and machine vision and autonomously operated robots. So 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...
I don't know, 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 um it won't crash into anything it has sense and avoid all just done with computer vision um and it was like this glimpse of the future uh and and then when they interview frank wang the ceo of dji he's like yeah this is about robotics like drones like sorry like first product but we're gonna build robots that are gonna 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 PARC moment. It was pretty cool. Nice. So we'll link to it in the show notes. We will. Our sponsor for this episode is a brand new one for us. Statsig. So many of you reached out to them after hearing their CEO Vijay on ACQ2 that we are partnering with them as a sponsor of Acquired. Yeah. For those of you who haven't listened, Vijay's story is amazing.
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Well, thank you so much for joining us today. Thanks especially to the GeekWire 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 AcquiredFM. And yeah, have a good one.