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How Apple Built the Computer Age but Lost the Computing Market

By Alex Planes - Apr 16, 2013 at 11:33AM

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Learning from the market's past to understand its present.

On this day in economic and business history...

The era of personal computing didn't really begin when IBM (IBM 1.74%) launched the PC in 1981. It began four years earlier, on April 16, 1977, when more than 12,000 computer enthusiasts flooded into the San Francisco Civic Auditorium to take part in the first West Coast Computer Faire. One booth in prime convention entry-hall space was staffed by a young and enthusiastic pair of guys both named Steve, exhibiting a machine that would become the gateway into technology for millions of children and young adults during the following decade: the Apple (AAPL 4.08%) II.

Source: Cook.

Apple had formally incorporated only four months earlier to secure the funding necessary to produce the first Apple IIs. The Steves -- Jobs and Wozniak, of course -- paired with early angel investor (and eventual Apple CEO) Mike Markkula to raise $250,000 in funding to build the new machine. It was the first truly complete computer ever sold to the public, as competition would not arrive on store shelves until that October with the launch of the Commodore PET, followed in November by the Radio Shack (RSHCQ) TRS-80. The Apple II, meanwhile, was commercially available in June of 1977, a mere two months after the West Coast Computer Faire.

How did the Apple II come about, and how did it transform the computing industry from one built on the mainframe model to one dedicated to putting a computer into every home and office around the world? Time's Techland blog tells the story:

The vision that it displayed reflected the wildly different, complementary gifts of its two fathers, Jobs and Wozniak. Mike Markkula, the retired millionaire who provided the money and business experience that turned Jobs and Woz's garage outfit into an actual company, also deserves attention and praise. Without him, the II might never have made it out of the Homebrew Computer Club meeting where Woz demoed an unfinished prototype in December, 1976.

The insides of the Apple II weren't purely Wozniak's handiwork. (Rod Holt, for instance, was responsible for the super-efficient power supply.) But Woz came awfully close to designing it from scratch. He designed most of the circuitry, including ingenious technology for displaying color graphics and controlling the disk drive, and wrote the early software. And he did it for fun, not to make money. (He only quit his day job when Markkula insisted that he devote full attention to Apple.)

Like many an Apple product to come, the II shipped with some notable holes in its initial lineup of features. ... Yet the Apple II -- again, like future Apple products -- had the right features in place. It didn't have what would later be known as a graphical user interface, but it did have a richer, more interactive feel than other PCs -- it was one of the first models to do color graphics and sound right out of the box, and even came with two game paddles as standard equipment. In these respects, it had more in common with another product introduced in 1977, by a former employer of Steve Jobs -- Atari's VCS videogame console -- than it did with other PCs. Such features made it a natural for games and educational software; they also made it an uncommonly inviting device, period.

Apple would not become the sales leader of the 1977 "trinity" until much later, and this victory would ultimately be too little, too late. Apple's corporate tendency to seek out high margins at the expense of market share was evident even then, and the Apple II wound up costing more than $2,500 for a high-end model, compared to about $600 for Radio Shack's TRS-80. The TRS-80 became the industry sales leader before there was much of an industry to lead, and it wasn't until 1983 -- three years after Apple's immensely successful IPO -- that Apple IIs outsold the TRS-80 on the strength of the IIe model, which is the version most familiar to millions of school-age children of the 1980s.

By this point, however, the IBM PC had begun to take off. Eventually, 5 million Apple IIs were produced by the time production ceased in 1993 and the Macintosh took complete control of Apple's computer lineup. By this point, an estimated 125 million IBM PCs and PC clones had been sold since that device's release in 1981.

By the end of the 1990s, virtually every company even loosely associated with the IBM PC standard had seen its share price shoot to the moon, and four of the largest PC-era companies had earned a place on the Dow Jones Industrial Average (^DJI 1.76%). None of the original trinity saw much long-term success with their early ambitions. Commodore failed in 1994. Radio Shack left the computing market around the same time Apple discontinued the Apple II. Apple itself enjoyed only tepid share-price growth during a period of incredible gains everywhere else. Its stock roughly doubled from its IPO to the discontinuation of the Apple II at a time when a double was underperformance, and it took the rehiring of Steve Jobs and the launch of the iMac for Apple's stock to finally surpass the Dow's threebagger gains from 1994 to the end of 1999. It seems the first-mover advantage means little when it comes to technology -- or, at least, when it comes to personal computers.

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