The genesis of Apple

Apple Confidential 2 cover
Editor’s Note: The following article is excerpted from Apple Confidential 2.0: The Definitive History of the World’s Most Colorful Company (No Starch Press, 2004). It can be purchased online at Amazon.com.

On March 5, 1975, the first meeting of the Amateur Computer Users Group—or Homebrew Computer Club, as it was commonly called— convened in the Menlo Park garage of Gordon French. The group quickly grew from a few dozen to several hundred, so the meetings moved to the Stanford Linear Accelerator Center auditorium in Palo Alto. Steve Wozniak and Steve Jobs regularly attended Homebrew meetings where they swapped ideas with other hobbyists who dreamed of building their own computers.

Most club members focused their efforts around the $179 Intel 8080 chip at the heart of the Micro Instrumentation and Telemetry Systems Altair 8800, which had appeared on the January 1975 cover of Popular Electronics as the world’s first kit computer. Intel’s microprocessor was truly impressive, but it was out of Wozniak’s price range. As a result, Wozniak scouted around for a less-expensive alternative. At the Wescon electronics show in San Francisco, Wozniak discovered the MOS Technology 6502, which was a capable microprocessor that cost just $20. Wozniak wrote a BASIC interpreter to run on the 6502 and tested it on an HP computer that simulated the chip. Confident he could make it work, Wozniak began designing a computer around the 6502. Instead of using eight front-panel toggle switches to enter data, as on the Altair, Wozniak designed his computer to use a standard QWERTY keyboard. For output, Wozniak’s computer would connect to an ordinary television, not an expensive printer or monitor.

By March 1, 1976, less than two months after getting married at the age of 25, Wozniak had completed the basic design of his computer, and he proudly showed off his work at the Homebrew Computer Club meetings. Jobs quickly saw the potential to profit from Wozniak’s computer. Rather than pass out schematics of the computer for free, Jobs tried to convince Wozniak that they should produce printed circuit boards and sell them as a product. “Steve didn’t do one circuit, design, or piece of code,” recalls Wozniak. “But it never crossed my mind to sell computers. It was Steve who said, ‘Let’s hold them up in the air and sell a few.’” Jobs admits, “I was nowhere near as good an engineer as Woz. He was always the better designer.”

Wozniak was comfortable pulling down $24,000 annually from his job in the calculator division at Hewlett-Packard, and with a new wife at home he wasn’t about to quit to sell a bare circuit board to hobbyists. He didn’t share Jobs’ vision of a huge personal computer marketplace, nor did he have the ambition to build his own company to exploit it. Ever the dutiful employee, Wozniak approached his employer and tried to convince HP to consider making microcomputers. “I pitched my boss, the calculator lab manager, and got him all excited, but it was obvious it didn’t have a place at HP,” recalls Wozniak. Although his boss didn’t think Wozniak’s computer was appropriate for his division, he instructed an HP lawyer to call each division head asking, “You interested in an $800 machine that can run BASIC and hook up to a TV?” Everyone declined, saying “HP doesn’t want to be in that kind of market.”

Turned down by Wozniak’s employer, the duo approached Jobs’ employer. “After we had the Apple I built on a board, we showed it to Al Alcorn of Atari,” recalls Wozniak. “Atari had just come out with their first Home Pong game and it was going to be so big that they had their hands full. They thought the Apple I was a great thing, but they had plenty going themselves.” Like Hewlett-Packard before it, Atari wanted no part of Wozniak’s creation. Spurned by both of their employers, Jobs convinced Wozniak they should go it alone. To scrape together the cost of producing the original printed circuit boards for the computer, Jobs parted with his red and white Volkswagen bus for $1,500 and Wozniak sold his beloved Hewlett-Packard 65 programmable calculator for $250.

Steve Jobs inspects a ‘Blue Box’ with Steve Wozniak in 1975.

Because they were going into business, they needed a name for their company. According to Wozniak, it was Jobs who thought up the name for their new computer company one afternoon as the two drove along Highway 85 between Palo Alto and Los Altos.

“Steve was still half involved with a group of friends who ran the commune-type All-One Farm in Oregon. And he would go up and work there for a few months before returning to the Bay Area. He had just come back from one of his trips and we were driving along and he said ‘I’ve got a great name: Apple Computer.’ Maybe he worked in apple trees. I didn’t even ask. Maybe it had some other meaning to him. Maybe the idea just occurred based upon Apple Records. He had been a musical person, like many technical people are. It might have sounded good partly because of that connotation. I thought instantly, ‘We’re going to have a lot of copyright problems.’ But we didn’t. Both of us tried to think of technical-sounding mixtures of words, like Executek and Matrix Electronics, but after 10 minutes of trying, we both realized we weren’t going to beat Apple Computer.”

Realizing that Apple would be hopelessly deadlocked if they disagreed on any major issues, the two sought someone who could serve as a tie breaker and help get the company off the ground. Again, they looked to their places of employment, and it was at Atari that Jobs found his man: Ronald Gerald Wayne, 41, the video game maker’s chief draftsman. Despite the 20-year difference in their ages, Jobs and Wayne had became casual friends in the workplace and would often have philosophical discussions on the ethics of making money.

Jobs enticed Wayne to become a partner in Apple by offering him 10 percent interest in the company, with the remainder split between Jobs and Wozniak. The three formally filed the partnership papers for Apple Computer Company on April Fools’ Day 1976. “Either I was going to be bankrupt or the richest man in the cemetery,” Wayne recalls thinking. Because Apple was far from a sure thing, Wayne retained his day job at Atari and worked nights writing documentation and designing a logo for the infant company. The logo he created was a pen-and-ink drawing of Sir Isaac Newton leaning against an apple tree with a portion of a William Wordsworth poem (Prelude, Book III, Residence at Cambridge) running around the border.

When the first batch of printed circuit boards was ready, Jobs began hustling up customers. At a Homebrew Computer Club meeting, Jobs gave a demonstration of the “Apple Computer” to Paul Jay Terrell, who operated the Byte Shop—arguably the first retail computer store chain in the country. Terrell was intrigued and asked Jobs to keep in touch. The very next day, a barefooted Jobs dropped in on Terrell at his store in Mountain View and exclaimed, “I’m keeping in touch.” As testament to Jobs’ salesmanship, Terrell agreed to buy 50 computers for $500 each, cash on delivery. There was only one catch to the $25,000 order: Terrell wanted fully assembled computers.

The trio had originally planned to produce bare circuit boards for $25 each and sell them for $50 to hobbyists who would populate them with the necessary chips and other parts. They didn’t have the money necessary to buy all of the parts required to build 50 complete computers, but Jobs was undaunted. On April 6, he obtained a three-month $5,000 loan from Elmer and Allen Baum, then he convinced suppliers to extend 30 days’ credit on $15,000 worth of parts.

The young, ambitious Jobs had no qualms about going into debt to fulfill the Byte Shop order, but the seasoned Wayne was anxious. He wasn’t convinced Terrell would pay for the computers, and the legal nature of a partnership agreement meant that he had unlimited personal liability for any debts incurred by Apple. Just four years prior, Wayne underwent the emotionally painful experience of folding Siand, his own Las Vegas-based engineering firm. Wayne didn’t want to risk another financial failure, so on April 12—less than two weeks after Apple’s founding—he renounced his 10 percent interest for a one-time payment of $800. “I had already learned what gave me indigestion,” explained Wayne years later. “If Apple had failed, I would have had bruises on top of bruises. Steve Jobs was an absolute whirlwind and I had lost the energy you need to ride whirlwinds.”

The Apple I.

Also troubling was that Wozniak hadn’t obtained a legal release from HP for his computer. It wasn’t until April 28 that he requested same. Fortunately, HP promptly granted the release on May 5. Freed from the financial liabilities of the partnership agreement, Wayne spent his free time consulting on projects such as designing an enclosure for the Apple Computer that had roughly the same shape eventually used on the Apple II, but with a tambour front like on a rolltop desk.

Meanwhile, Jobs roped in sister Patti and Reed College buddy Daniel G. Kottke to help furiously build the Byte Shop’s computers by hand for a buck a board before the bill for the parts was due. Contrary to the widely held belief that Apple was started in a garage, the operation actually began in a bedroom at 11161 Crist Drive in Los Altos (the house number changed to 2066 when the land was annexed from the county to the city in late 1983), where Jobs was living with his adoptive parents, Paul R. and Clara. It wasn’t until the bedroom became too crowded that the operation moved to the garage.

Terrell was a bit dismayed when Jobs showed up to deliver a batch of motherboards stuffed with components. When Terrell asked for “fully assembled” computers, he meant the whole works: a case, power supply, monitor, and keyboard. Nonetheless, Terrell kept his word and handed over the cash, allowing Apple to pay off its parts suppliers with just one day to spare. The Byte Shop “finished” the computers by putting them into handmade cases with power supplies and keyboards.

Jobs was excited. Apple had made roughly $8,000 in profit, and he was planning to expand the business by going farther into debt with parts suppliers to build even more computers. Jobs’ ambitious plans required more money than orders were generating, so in August he approached his former boss, Nolan Bushnell, who recommended he meet with Don Valentine of the legendary venture capital firm Sequoia Capital that backed Atari. At the time, Valentine wasn’t interested, but he in turn referred Jobs to Armas Clifford “Mike” Markkula Jr., 34, who had worked under him at Fairchild Semiconductor. Markkula had retired a year prior, after making a small fortune on his stock options at chip makers Fairchild and Intel.

While Jobs was securing the financing necessary to feed Apple’s growth, Wozniak stuck to what he loved: improving the functionality of his computer. The original Apple Computer was a lot better than the other kit computers of the day, but it was a far cry from an easy-to-use device. Programming the thing required meticulously entering hexadecimal data by hand before you could even begin to use BASIC. At Terrell’s urging, Wozniak solved the data entry problem with a simple $75 card that plugged into the computer’s sole expansion slot and allowed the loading of programs stored on standard audio cassettes. Wozniak continued to work on improving his original computer, and by late August he had a working prototype of what would become known as the Apple II.

While nobody could hold a candle to Woz’s engineering skills, Jobs understood that form was as important as functionality. He hated the crude metal cases of the hobbyist computers of the time and insisted that the Apple II have a professionally designed plastic enclosure that would appeal to consumers. Furthermore, he felt that Wayne’s logo was too cerebral and not easily reproduced at small sizes. In early 1977, Jobs hired Regis McKenna Advertising, which defined a new logo and logotype (Motter Tektura) and created Apple’s first professionally produced ads.

Working under account executive Bill Kelley, art director Rob Janoff started with a black and white silhouette of an apple, but felt something was missing. “I wanted to simplify the shape of an apple, and by taking a bite—a byte, right?—out of the side, it prevented the apple from looking like a cherry tomato,” explains Janoff. Furthermore, the lowercase company name could snuggle into the bite. At Jobs’ insistence, Janoff added six colorful, horizontal stripes that paid tribute to the Apple II’s impressive color capabilities. Although separating the green, yellow, orange, red, purple, and blue bars with thin black lines would have reduced registration problems during reproduction, Jobs nixed the proposal, resulting in the world famous Apple logo, which Scott called “the most expensive bloody logo ever designed.”

The revolutionary $1,298 Apple II was introduced under the badge of the new logo during the first West Coast Computer Faire held at San Francisco’s Civic Auditorium on April 17, 1977, and it took the fledgling computer industry by storm. It was the first personal computer designed for the mass market thanks to its attractive low-slung case that was complete with standard keyboard, power supply, and color graphics capability.

In August 1977, Apple achieved positive cash flow and Michael Scott, Apple’s first president, negotiated to pay $21,000 for an eight-year license to Microsoft’s version of the BASIC programming language. After some fiddling by a high schooler named Randy Wigginton (who went on to create MacWrite), Microsoft’s modified code was released as Applesoft (floating-point BASIC). Over the years, tens of thousands of useful programs were written in Applesoft for the Apple II series, contributing in a large part to the computer’s popularity.

The Apple II was a successful product, but it wasn’t until two new products aligned that the small California company was propelled into the big leagues. The first piece fell into place in July 1978 in the form of the $495 Apple Disk II drive. Just as he had created a unique cassette interface to solve the data storage problem of the Apple I, Woz came up with a completely novel design for a 110K 5.25-inch floppy drive with a controller card that fit in one of the Apple II’s eight expansion slots. The drive was half as expensive as competitive products and gave the Apple II the lead in storage capabilities at a time when most computers were still using temperamental cassette drives.

The second key to the success of the Apple II didn’t come from Woz or anyone else in Cupertino. Rather, it was invented on the other side of the country independently of Apple. In January 1979, Daniel Fylstra, from Boston-based Personal Software, showed Markkula and Jobs a prototype of an Applesoft program called Calculedger. Written in an attic by 26-year-old Daniel Bricklin, a first-year Harvard Business School MBA student, and his MIT friend Robert Frankston, Calculedger was a cross between a calculator and a ledger sheet that solved complex “what if” financial problems by establishing mathematical relationships between numbers. Fylstra offered to sell the program for $1 million, but Apple turned him down.

The wizards in Cupertino were not alone in failing to grasp the importance of the program. Bill Gates also declined to purchase the program because Microsoft was too busy selling BASIC directly to computer manufacturers to get involved in publishing applications, stating, “We do not talk to any end users.” By the time it was unveiled publicly at the West Coast Computer Faire in San Francisco that May, Calculedger had been renamed VisiCalc (a contraction of “visible calculator”), and the world got its first look at an electronic spreadsheet.

While Personal Software was completing VisiCalc for its eventual release in October, in June Apple introduced the $1,195 Apple II Plus featuring 48K of memory, additional color capabilities, and Applesoft in ROM, which eliminated the need to load it from tape or floppy. It was a modest upgrade, but when combined with the Apple Disk II and VisiCalc, the Apple II Plus transcended the home market and became an essential business tool. VisiCalc sold 200,000 copies in two years, becoming the world’s first “killer application,” a program so compelling that people bought hardware just to run it. Because VisiCalc didn’t run on any other computers, Apple II sales took off.

[ Owen W. Linzmayer is a San Francisco-based freelance writer who has been covering Apple since 1980. He is the author of Apple Confidential 2.0: The Definitive History of the World’s Most Colorful Company (No Starch Press, 2004). ]

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