Will Steven Jobs’ Computer Sell? : New PC Has Everything, Including a $6,500 Price Tag
Apple Computer co-founder Steven P. Jobs unveiled this month the first computer from his new company, Next Inc. The $6,500 machine, which features a vast memory, stereo-quality sound and a high-resolution screen, is exclusively for the higher education market. For packaging several new wrinkles in technology in a single machine, the Next computer won raves from some analysts. But will the company be a commercial success? Will the computer sell? Free-lance writer Meredith Chen put those questions to various experts, and excerpts of the interviews follow:
Paul Saffo, research fellow with the Institute for the Future:
“I certainly suspect that it will succeed, but the real question now is, will their manufacturing plant meet their expectations in terms of quality and reliability?
” . . . I think you can have a commercial success selling to the universities. Jobs made a very persuasive case with his numbers. The cost advantage of the university approach is that it makes their distribution channels incredibly simple. To make it successful they need to stay the course.
“A lot of the parts that they are using in that machine are going to be in short supply. Selling low volumes is a good strategy until they can get the kind of hardware volumes they need.
“Steve Jobs has told us that this is the fourth wave machine. The question is what is the fifth wave and when does it hit? A freshman buying that machine a year from now will be out in the labor force for about a year when the fourth wave is five years old and that is just about the right time to introduce the fifth wave. A credible strategy is to build a really solid company and then hit the business market a couple years from now after they have evangelized the students who will be entering the labor force. There is an old Jesuit saying, ‘Give me the boy and the man will be mine.’ This is Jesuit marketing.”
Stewart Alsop, publisher of PC Letter:
“I do think the Next computer will sell well. In terms of a start-up company, which is what Next is, he doesn’t have to sell very many units to be a successful enterprise.
“I think he can make it a success outside of the academic community, but not right away. And clearly he’s not trying to accomplish that right away, but, just as clearly, he is intending to become another major computer company and broaden out into the business world in 1991 or 1992.
“The biggest perceived drawback is the lack of a floppy disk and a way for distributing small pieces of software. The biggest hurdle for the development of commercial software sold in retail stores is a way to distribute that software to the customer in a way that the customer wants to get it. Steve Jobs can overcome this because the market that he is selling into and the model that he is working on is one where commercial distribution of software is not a big deal.
“The people who evaluate computers tend to focus on the general marketplace, not on the university market. You’re going to hear a lot of criticism of the machine based on factors that are meaningless to the target market. A lot of the criticism is related to the floppy disk and that it is an expensive machine. However, it is a breakthrough in price performance.”
Michael Murphy, editor of California Technology Stock Letter:
“Our estimate is that they’ll sell about 50,000 machines in the first two years. That will be about a little over $300 million in revenues and that for two years is certainly a successful company. The other important point is that the gross profit on the product is 50%. That is just as high as Apple’s gross profit. It will be not only a good unit seller, but it will also be profitable.
“They have a very strong strategic reason for selling them only to universities and that is that universities are not consumers of software, they are producers of software. By getting as many machines as possible into the university environment, they’ll have the largest amount of technical software they can get for basically no expenditure of money. Some of that software will form the basis for commercial products in the future.”
Victor Alhadeff, chairman of Egghead Discount Software:
“His initial distribution is very limited, but I think within the context of the limited distribution it will sell exceedingly well. Initially, I think the machine is a very exciting piece of equipment. The way that it integrates sound, the way that it operates, the way that it looks, I mean it’s like a new Porsche or Ferrari. It’s a very sexy computer and I think it will do well for that reason at the outset.
“My understanding is that the computer lacks an installed base of software to draw from. I think that they are going to have to work with the software development community and develop a clear software strategy. There has been nothing that I have seen or read at this point that identifies a clear strategy for software that would make it a business-oriented machine.
“The new machine does not represent a technological advance, but it does represent an advance in terms of integrating existing technology. From my perspective, for its long-term success, it does require a clear strategy with the software development community. The process of selling computers or hardware is a software-driven process. It’s not a hardware driven process.”
Clare Fleig, director of research at International Technology Group:
“I think it looks like a good machine, and I think he’s got a good marketing strategy. I also think it is a gamble. He is targeting sales exclusively to the university community, which is something other companies are not doing. Right now you cannot purchase that product unless you are associated in some way with a university.
“The gamble is whether or not that strategy will pay off in terms of getting what’s needed with the new architecture that Jobs has created. It’s not compatible with anything that is currently on the market. He has to build a critical mass of users and also of software developers who are interested in writing software for the product. The gamble is, if you are limiting distribution, are you going to be able to build your critical mass fast enough and in a large enough volume to attract the kind of software developers who are going to make the Next machine a sought-after product? To make it a commercial success, I think that at some point they are going to have to broaden out beyond universities.
” . . . It is an interesting stroke for Steve Jobs to license the technology to IBM. I recall the introduction of the Macintosh as being directed as a direct competitor against IBM. I think it shows a realization on his part that he’s got to work within the market and not be a complete renegade against it.”
H. Ross Perot, founder of Electronic Data Systems and a major investor in Jobs’ company:
“Steve assembled an incredible team around him. He motivated them to a degree that few people I have ever known can. . . . He has hit a home run.
“It is kind of fun when you’ve been around as long as I have to watch these young guys in their 30s. Most people never do something once like the (Apple II) computer, then Steve did the Macintosh computer, so he did it twice. That’s more than enough for any guy and now he’s done Next. My interest in Steve is what will he be doing when he is 45? That’s what will be fun to watch.”
Susan M. Hayes, an analyst with the market research firm Yankee Group:
“One main reason why it will sell, if it sells, is that Steve Jobs is who he is. There aren’t many start-up companies that are as fortunate as Steve financially who are able to get the right people and the right companies involved such as Ross Perot and IBM. And also he has already proved himself.
“The universities that have invested time and effort into the Next computer will probably be the first supporters and then the others will catch on. Depending on the universities’ interest and willingness to invest, it could change or revolutionize the way universities teach. If universities have creative programming and think of creative ways to use the computers in their classroom and then incorporate it into the learning process, that is where there could be a market. And that is the market that hasn’t been tapped.
Raymond K. Neff, vice president for information services at Case Western University in Cleveland:
“I think it is going to be successful. It is too expensive for almost all students, but I think that universities will buy them and put them in the labs and libraries for students to use. At $6,500, they’re beyond the price most students can tolerate. And furthermore, we really have a very difficult time asking students to buy a $6,500 computer, however good it might be, because the rich students can afford it and the students who don’t have much money--and that is most students going to college nowadays--would be deprived.
“I see it becoming a commercial success in the greater market. The music capability of that machine is phenomenal. I think that is outstanding and there are so many applications in that area. There are all kinds of applications where you want to marry different media like text and graphics.”
