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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