John Sculley, path dependence, and the Great Man theory

The explosion of commemorations after Steve Jobs’s retirement and untimely death has focused on his intense and demanding management style, his infusion of aesthetic sensibility into the world of computing, the remarkable success-exile-triumph arc of his career, and most of all on the transformative impact of the innovations he shepherded to market. From NPR to the BBC, from China to Europe, and from one end of the business and tech Internet to the others, it was all Jobs all the time for a couple of weeks. This treatment left no doubt that Jobs was a Great Man.

The man who fired Jobs from Apple and sent him to Medina–whoops, make that NeXt and Pixar–was John Sculley. Sculley is now treated as a definitively Not Great Man, and his own comments on his times with Jobs have, for the last several years, been appropriately humble. I myself have pointed in class to specific decisions he made (and rationales he offered) that were offenses to economic theory and business strategy.

And yet Sculley’s decisions have shaped today’s computing environment as profoundly as Jobs’s. 

When the Macintosh hit the market, it was the only bit-mapped (graphical) personal computer. Since Microsoft Windows versions 1 and 2 were completely inadequate, it remained the only such device on the market for about five years. Even more than today, five years in the late 1980s tech market was like fifty years in a mature industry. During this long period of GUI exclusivity, Sculley set high (50%) gross margins, kept Apple’s production capacity small, made no serious effort to penetrate the corporate market, and generally settled for being a niche product in an environment with massive increasing returns on both the demand side (due to network effects) and the supply side (thanks to economies of volume in building and maintaining operating systems and device-driver suites).

While debate within and around Apple raged over whether the system should be opened to clone makers, the real strategic question–whether to go for high volumes (and hence lower margins) in order to exploit strong increasing returns–never got asked. But if Sculley and Apple had chosen to pursue that aggressive strategy, the course of computing history would likely have been very different. Given the vast superiority of GUIs compared to the old character-based systems like DOS, a price-competitive Mac, along with a more business-friendly marketing and application development approach, could have garnered a dominant share of sales and would have quickly built a vast installed base (remembering that the personal computer industry then was still in its early penetration stages). Apple could have ended up like the old IBM, controlling both the hardware and the software on which everybody worked, becoming the “safe” and easy-to-use option, while its competitors would have been relegated to trying to compete based on hardware metrics of dubious relevance to the mass market. It is therefore not that much of a stretch to view Sculley as the father of Windows’s dominance in personal computing.

One lesson to be learned from this episode is that in markets with strong increasing returns, we are in a world of men rather than laws. “Path dependence” doesn’t mean, as has often been asserted, that the winners of standards wars are the undeserving beneficiaries of random forces. Rather, it means that strategic judgment and the quality of execution in the service of that judgment determine how history comes out.

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9 Comments on “John Sculley, path dependence, and the Great Man theory”

  1. […] Here’s a post by Steve Postrel on John Sculley, path-dependence and the great man theory. […]

  2. teppo says:

    I’m interested in our ability (or lack thereof) to understand the effect size of a given person, someone like Jobs. Obviously hard to tease out with all the interactions (agent-agent, agent-technology, agent-environment etc etc). Certainly there is a sense that Jobs was a renaissance man. Though, with any of the greats – you can also make the argument that they are simply a product of their time and context, a lucky one to whom we impute (way too) much.

    There’s an interesting debate on these issues in music – where some sociologists make a strong sociological, context-dependent argument about, say Beethoven (sociologist Tia DeNora – the ‘construction’ of genius) and others argue for the genius itself (philosopher Peter Kivvy – see his book, the possessor and the possessed about Mozart etc).

  3. Ian leslie says:

    That’s funny – for a moment I thought you were going to say something interesting. But it turns out you’re just repeating the conventional (albeit probably true) wisdom: Sculley did a bad job. I’d like to see someone at least try arguing the opposite, and that much of SJ”s success was perceptual.

    • srp says:

      Even Sculley doesn’t think he did a good job, as you’ll find if you follow the link to the 2010 interview. One thing he did accomplish was untangling Apple’s then-paralyzed product-development process to get the PowerBook line out the door. But this is a post about strategy, and it would be hard to defend Sculley there.

  4. Always a lot to think about in any good post… Thanks.

    I do not see that high production volume means lower profit margins. I understand that volume can lower production costs – after investments in capital. But you can still charge whatever the market will bear. You do not need to lower your price as long as people perceive the value.

    “Penetrating the business market” has never happened for Apple, in the sense of “everyone” having one, the way we all have PCs. In fact, this is being written on my Mac White Book. (The PC is on my desk. I am on the couch.) And, to the point, last night at a Mac User Group Print & Publishing SIG meeting, when someone made the same point about Mac not being used in business, I replied that the only times I used a Mac until I bought one in June 2008, was in business: technical writing for Kawasaki Robotics (1991-1993); and editor at a newspaper (1999-2000).

    The businesses not on the Mac were the myriad millions of think-alike copycat managers who knew they could not get fired for recommending IBM. That is not entrepreneurship…. or even “intrapreneurship.”

    Apple’s strategy was always to market its being different. That scares people away… but the ones you attract are the ones you want.

    Moreover, the success of Apple obviously has been in areas not even perceived by makers of “business computers:” iPhone, iTunes, iPad, … and now we schedule iWork on the iCal.

    Bottom line: John Sculley was a great business manager at PepsiCo, if not getting fired is the measure of success. What he failed to do was to commoditize the Macintosh for people who think that Pepsi is different than Coke. The strategy for that may not exist.

  5. […] me Steve’s post raises the age-old questions of whether the “greats” are geniuses or simply products of […]

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