[MUSIC PLAYING]
Good afternoon,
ladies and gentlemen,
and welcome to the
second [INAUDIBLE]
presentation by the
Distinguished Speakers
Series [INAUDIBLE].
We are honored to have
with us today Steve Jobs,
the president and
chief executive officer
of NeXT Computer Corporation.
Steve has consistently been
one of the computer industry's
foremost entrepreneurs.
Along with partner
Steve Wozniak,
their entrance into
the industry was
by the traditional
entrepreneurial route
of building computers
in a garage.
[INAUDIBLE] auspicious
start, however, [INAUDIBLE]
the creation of Apple,
a formidable challenge
to IBM in the personal
computer market.
A true visionary,
Steve was known
at an early age for
his belief that a PC
could be put on every desk and
made simple enough for use.
Educationally, he had
the right credentials
to make it big in the
computer industry,
because he dropped
out of Reed College.
[LAUGHTER]
[INAUDIBLE] and the
growing corporate culture
diverged, both eventually
left Apple to establish
their entrepreneurial roots.
In 1985, Steve founded
another computer company,
NeXT Corporation, to design a
revolutionary computer called
the Cube.
Targeting the high end
workstation market,
NeXT has found the going
tough against [INAUDIBLE]
competitors, such
as Sun Microsystems.
However, with 1991 revenues
hitting $127 million,
business has grown
substantially.
With the backing
of Ross Perot, NeXT
shouldn't be short of
funds in the future.
Or in a more unlikely
scenario, a friendly year
in the White House.
The current plans
for NeXT computer
involve a public offering,
possibly in the next 14 months.
We hope to hear today just what
a good investment that should
be.
Steve has consistently been
recognized for his contribution
to America's largest
high tech industry.
Most recently, he was appointed
to the president's Export
Council last August,
with the role
to advise on government
policies and programs that
affect trade performance.
Outside of work, Steve is
married to Laurene, previously
an MBA student at
Stanford University,
and also a sister of one of
our classmates, Brad Powell.
The couple met when Steve
gave a similar speech
to this afternoon's at Stanford,
days before the Bay Area
earthquake.
Let's hope that history
doesn't repeat itself.
[LAUGHTER]
Ladies and gentlemen, we are
extremely grateful for Steve
to giving up his time to
be with us this afternoon.
Could you please
give a warm welcome
to our distinguished
guest, Steve Jobs.
[APPLAUSE]
Thank you.
Hi.
I guess we get to spend an
hour or so together today.
And most of the time,
I wanted to spend just
talking about what
you want to talk
and answering some questions.
But I thought if you wanted,
I'd take about 10 minutes or 15
minutes upfront and tell
you what we're doing at NeXT
and why the world might need
another computer company.
Is that something you guys
think about these things?
OK.
I thought I'd tell you
about some of our mistakes.
Maybe that would be more useful.
We have a lot of scar tissue.
There is a really
interesting book
that was written by a guy
named Paul Strassmann.
And Paul has one of the more
interesting jobs in the planet.
He's the Chief
Information Officer--
CIO of a very large organization
called the Pentagon.
And they really
understand software there.
I had a conversation with him
not too long ago, and he said,
the lesson from the Gulf War
was that the best software
will win the war.
And so they're trying
to do a lot of work
in the software area.
He wrote a book,
though, before he
got this job called The
Business Value of Computers.
It's rather thick, and it's
not good bedtime reading.
But you can plow
through it, and there's
some incredible stuff in it.
And he asked two
questions in particular.
One was, he surveyed
a bunch of companies
from not very successful
all the way up
through really successful.
And there's somebody
taking notes here.
[LAUGHTER]
He asked how much they spent
on information technology
as a percentage of revenues.
And he got a very
counter-intuitive answer,
right?
You'd think that either the
really successful companies
would either spend
more or less than
the not-successful companies,
depending on your theory.
But it was exactly the same.
They all spent
about 2% of revenues
on information technology.
And he found this curious, and
so he asked another question.
How did they spend their money?
And he found out that the
really successful ones--
actually, let's start with
the not-so-successful ones.
As success increases
and dollars increase,
he found out that the
not-so-successful ones spent
the majority of their money
on management productivity,
and the more
successful ones spent
the majority of their money
on operational productivity
applications.
Now, this was not very
pleasant for me to read,
because I spent the
first 10 years of my life
on management productivity,
which was PCs.
PCs and Macs never attacked
operational productivity.
They just attacked
management productivity.
Why is that?
Because you can't go down
to your local computer store
and buy an app that will
help you do stock trading,
or will help you run a
hospital, or will help you
in whatever operational
part of your business
you want to automate.
Unless you're a very,
very small business,
then you can run some
accounting packages.
But other than that, if you
were a medium-sized or large
business, these
things never attacked
operational productivity.
So we zoom out and we
say, how have people
attacked operational
productivity
with information technology?
Well, in the '60s, they
bought a mainframe,
and they got some terminals and
a bunch of COBOL programmers,
and they wrote a few apps.
And most of them were
kind of back-room apps.
And it sort of worked
for the very few
that could afford to do this.
In the '70s, they got a
mainframe and some terminals,
and they did the same thing.
And a few of them got a few
mini computers and terminals
and tried to do it
a little cheaper.
In the '80s, nothing changed.
Mainframe and terminals,
minis and terminals.
Until maybe about two
or three years ago.
What happened two
or three years ago
was that the front
office started
to realize that they needed
operational apps so bad
that they couldn't depend
on the MIS folks anymore.
They started taking life
into their own hands
and sometimes working with the
MIS folks to start downsizing
and getting some
servers and running
some industry-standard
databases like Sybase or Oracle
in the servers, and making
a little local area network,
and getting maybe
some Sun Workstations,
and spending about
two years writing
some mission-critical
operational applications.
Like trading apps for Wall
Street, perfect example.
And it kind of worked.
And the reason that
they needed to do this
was because more and more,
they were discovering
that things like new
products required a custom
operational application.
An example, if you're
in financial services
and you come up
with a new product,
it's only three things.
It's an idea, it's
a sales force,
and it's a custom app
to bang on databases
to make the product real,
to do the mortgage swaps
or whatever it is
you want to do.
Without the app, you
don't have a product.
And so there has been an
increasing buildup of demand
from the front parts
of corporations
to create more and more and
more of these operational
applications.
And I think it's going
to get to the point
where this becomes
fairly clear that this
is the next big revolution
in desktop computing,
is to attack the
operational productivity.
And as we start to
re-engineer the way
we do things, to automate a lot
of this in custom applications.
Sounds a little strange
now, to most people.
Sounds like desktop
publishing in 1985.
Nobody knew what
it was, everybody
thought it was kind of a strange
vertical thing over there.
But my guess is it's
pretty horizontal.
And we're attacking
vertical markets now
that know they want this.
And it's going extremely well.
Sun is the only company that's
really had any success at this,
and we're knocking
them out of the box.
Because we came up
with the software
called NeXTSTEP which
lets you build apps
five to 10 times faster than
anything anyone's ever seen.
And after you build them,
they're deployable and usable
by mere mortals,
because it's really
easy to use, this computer.
And you can interoperate
your custom apps seamlessly
with a bunch of off-the-shelf
productivity apps.
So we go to these companies
that use Suns and take
two years to write their
apps-- or are thinking
about using Suns, and
they can write their apps
in about 90 days on a NeXT.
Now, if you're on
Wall Street and you
can create a new product in
90 days versus your competitor
in two years, that's
eight new products
you can field for
their every one.
And you can start to see the
competitive advantage that
can be created this way.
Now, we had no idea that
we were any good at this
when we started NeXT.
A lot of times you don't know
what your competitive advantage
is when you launch
a new product.
Let me give you
historical example.
When we created-- how
many of you guys use Macs?
Anybody?
Good.
[LAUGHTER]
How many of you
have seen a NeXT?
Oh, how many of you use a NeXT?
Oh, that's not so bad.
We'd like to change
that ratio a little bit.
[LAUGHTER]
We're on the right track.
When we did the
Macintosh, we never
anticipated desktop publishing
when we created the Mac.
Sounds funny, because
that turned out
to be the Mac's compelling
advantage, right?
The thing that it did not one
and a half or two times better
than everything else, but
four or five times better
than anything else, where
you had to have one.
We never anticipated it.
We anticipated bitmap
displays and laser printers,
but we never thought about
page maker, that whole industry
really coming down
to the desktop.
Maybe we weren't smart enough.
But we were smart enough
to see it start to happen
nine to 12 months later.
And we changed our entire
marketing and business strategy
to focus on desktop publishing,
and it became the Trojan horse
that eventually got the
Mac into corporate America,
where it could show its owners
all the other wonderful things
it could do.
Likewise, when we
created NeXTSTEP,
this revolutionary
object-oriented software
that we have, our
target customer
coming from the PC world, where
shrinkwrapped apps were king,
was Lotus and Adobe
and WordPerfect
and all the shrinkwrapped
apps developers.
And the purpose was to let them
create their apps five to 10
times faster for these
shrinkwrapped apps.
And it worked.
We have a ton of
shrinkwrapped apps, now.
Best of breed in
almost every category.
But it wasn't
until early in '91,
early last year, a
little over a year ago,
that some really big
companies came to us and said,
you don't understand
what you've got.
The same software that allows
Lotus to create their apps five
to 10 times faster
is letting us build
our in-house mission-critical
apps five to 10 times faster.
And this is the biggest
problem we've had.
This is a huge problem for
every big company, and almost
all medium-sized
companies, and you
have a solution in your hands,
and you dummies don't even
know it.
And it took them about three
months before we finally
heard it.
And then last summer, we changed
our whole sales and marketing
strategy around
to focus on that.
And it's taken
off like a rocket.
And we grew about 4x last year,
and probably grow about 2x
this year.
And our customer list
is now very, very strong
and growing like crazy.
We just got back from spending a
few days in DC and in New York.
And we're talking to
customers we only dreamed
of talking to a year ago.
So that's what we do.
And our arch enemy Sun,
they want to kill us.
Which is good.
They should try to do
that as soon as possible,
because the sooner they
do it, the cheaper it
will be for them.
[LAUGHTER]
I think it's gone past the
point where it's possible.
And the greatest
thing is, hardware
churns every 18 months.
It's pretty impossible to
get a sustainable competitive
advantage from hardware.
If you're lucky, you can make
something one and a half or two
times as good as your
competitor, which
probably isn't enough to be
quite a competitive advantage.
And it only lasts
for six months.
But software seems to take
a lot longer for people
to catch up with.
I watched Microsoft
take eight or nine
years to catch up with
the Mac, and it's arguable
whether they've even caught up.
It takes a long time.
And we think that
the soonest we're
going to have a true competitor
is probably four to five years.
So we've got that amount
of time to grow ourselves
a $1 to $2 billion
company so that we
can compete with them on scale.
See, today we can't
compete with them on scale.
We never have as many
salespeople as they do,
as Sun does.
We don't have the ad
budgets that they do.
So we've got to have
a better product.
And I hope we always
have a better product,
and I think we can.
But I'd also like to be
able to at least give them
a run for their money on scale.
So we've got the next
three to four years
to run really fast,
so that by the time
they even get close to
having a competitive product,
we're at a large enough
scale to where we
can start to compete with them.
And that's what we're doing
with our lives right now,
spending a lot of
time with customers,
spending a lot of time
making NeXTSTEP better,
and that kind of thing.
So that's the strategic
basis of what we do.
Does that make any sense to you?
Have you run across the concept
of sort of operational custom
applications at all?
I mean, most of you have come
from companies where you've
had work experience, right?
And you've all done that?
So do you have this problem in
the companies you come from,
of a lot of pressure to write
these operational custom
applications and hardly anything
coming out of the spigot
to satisfy this thirst?
How many of you
from Wall Street?
Good.
[LAUGHTER]
Good How many of you from
manufacturing companies?
Excellent.
Where are the rest of you from?
[LAUGHTER]
Consulting.
How many from consulting?
Oh, that's bad.
[LAUGHTER]
A mind is too
important to waste.
[LAUGHTER]
You should do something.
Why is that bad?
A consultant can come into a
company and use your system,
and basically build
their applications
in predictably short
amounts of time,
and show them a working product.
The only consultants I've seen
that I think are truly useful
are the ones that help
us sell our computers.
No seriously, I don't
think there's anything
inherently evil in consulting.
[LAUGHTER]
I think that without
owning something,
over an extended
period of time--
like, a few years--
where one has a chance
to take responsibility
for one's
recommendations, where one
has to see one's recommendations
through all action stages
and accumulate scar
tissue for the mistakes
and pick oneself up off the
ground and dust oneself off,
one learns a fraction
of what one can.
Coming in and making
recommendations
and not owning the results,
not owning the implementation,
I think is a fraction
of the value,
and a fraction of
the opportunity
to learn and get better.
And so you do get a broad cut at
companies, but it's very thin.
It's like a picture of a--
I'm a vegetarian, so
I won't use steak.
But it's like a
picture of a banana.
[LAUGHTER]
You might get a very
accurate picture,
but it's only two dimensional.
And without the experience
of actually doing it,
you never get three dimensional.
So you might have a lot
of pictures on your walls.
You can show it off
to your friends.
You can say look, I've
worked in bananas,
I've worked in peaches,
I've worked in grapes.
But you never really taste it.
And that's what I think.
[APPLAUSE]
You're also a variable expense.
And in hard times,
you find yourself.
You find yourself
variable, right?
If it's the software that's
going to make or break
your company, how come you're
putting out on platform.
Why don't you put it on Sun's?
They have a much larger base.
Right, very good question.
I'm going to generalize
your question.
Why don't we just become
a software company, right?
That's a very good question.
It's a subtle question.
I'm going to try to go
through some several things,
and I'm sorry if I jump around.
We got a lot of
requests from customers
last year that they would
love to see NeXTSTEP
on other platforms,
and primarily,
Intel-based platforms
like the 486.
So we decided to do just that.
And we have ported
NeXTSTEP to the 486,
and we're finishing it now.
And it will ship in the
September, October timeframe.
And it's exactly the same stuff
we run in our own computer.
Same app, same user
interface, same training,
same development environment.
And we're going to
sell it for $9.95,
and we're OEMing it to a bunch
of companies whose names you'll
recognize quite easily,
and OEMing it to them
at a much cheaper price.
And everybody's coming out
of the woodwork to help us.
We're getting help from Novell.
We're getting help from
all the developers.
Intel's really helping us.
And they really
want us to succeed.
Why is that?
Right.
They all want to make sure that
there's a choice out there,
and they're all really
scared about Microsoft.
And they see NeXTSTEP
as the only thing
on the horizon
that can challenge
Microsoft in system software
for the next several years.
So we're enjoying a lot of
help, and boy we need it,
so that's good.
Now, we've also had
a lot of requests
from companies to port
NeXTSTEP to other platforms.
And we're talking to some of
those companies right now.
Now, we've got a lot of
requests from Sun customers
the port NeXTSTEP to Sun.
So a lot of them
are saying, look, we
may not want to
buy them anymore,
but we already bought
500, and we don't
want to throw them in the bay.
So can we put your
software in them?
Because Sun's falling
behind in software.
Now, Sun says they'd rather
stick needles in their eyes
than help us do this.
[LAUGHTER]
That's a quote.
And so we're evaluating
right now, which
will be worse for Sun, if we
port it or if we don't port it?
And since we're fairly
customer-driven,
we'll probably end up doing
what the customers ask us to do,
because we want to
make them happy.
Now, this leads one
into the question,
should we just be
a software company?
And we think the answer is no.
We think we should be a software
company and a hardware company.
In making the decision
to put NeXTSTEP
on more than our own
platforms, we clearly
decided that we will
sell less than 100%
of the NeXTSTEP hardware.
However, we think that
the marketplace will grow,
and we will sell more
absolute hardware.
And secondly, the charter
of our hardware division
is to make the best
NeXTSTEP hardware.
Might not be the cheapest, might
not be this, might not be that.
But we think all in all,
we can make the best stuff.
And I would love
at nothing better
than if someday we
only sold 20% or 25%
of the NeXTSTEP hardware.
But I still think that's a
billion-dollar-plus hardware
business.
And I'll get into one other
hardware-related reason
in a minute.
There are some things I
can't talk about here.
In addition to that, if you look
at how we sell our computers
right now, we have a
sales force in the US
of about 130
professionals in the field
out selling NeXT computers.
They spend 90% of their time
selling NeXTSTEP software,
and then 10% of their
time selling the hardware.
In other words, if they
can get the customer
to buy into NeXTSTEP,
then they're
going to sell the hardware,
because right now we have
the only hardware it runs on.
So they are out there
selling NeXTSTEP right now.
And this is what is
required to launch
a new innovative product.
The current
distribution channels
for the computer industry
over the last several years
have lost their ability
to create demand.
They can fulfill demand,
but they can't create it.
If a new product
comes out, you're
lucky if you can find somebody
at the computer store that
even knows how to demo it.
So the more innovative
the product is,
the more revolutionary
it is and not
just an incremental improvement,
the more you're stuck.
Because the existing channel
is only fulfilling demand.
Matter of fact, it's
getting so bad, that it's
getting wiped out, because there
are more efficient channels
to fulfill demand, like the
telephone and Federal Express.
So we're seeing the channel
become condensed on its way
to I think just telebusiness.
So how does one bring
innovation to the marketplace?
We believe the only
way we know how
to do it right now is with
the direct sales force,
out there in front of
customers showing them
the products in the environment
of their own problems,
and discussing how
those problems can
be mated with these solutions.
A software-only
company could never
afford to field a
direct sales force.
With average selling prices
of $500 a software package,
you could never afford 130
professionals in the field.
With an average selling
price of $5,000, you can.
And that's why I
don't think we're
going to see any more systems
software companies succeed.
I don't think it's possible
to fund the efforts to educate
the market about a revolutionary
product with ASPs that low.
And if it's not a
revolutionary product,
I don't think the
company can succeed.
So our strategy
has been that we've
got to be a hardware company
in order to make our software
business succeed.
And we think we can do
really well at both of them.
I know that's a long answer,
but it's a complex problem too.
Yes?
[INAUDIBLE]
Sure.
If you ask us who
our competitors are,
we'll say really three things.
One is Sun's Solaris software,
the other is Microsoft,
and the third is Taligent.
Let's take them in that order.
Sun for a while had a
software value added,
because they had the best
Unix in the marketplace.
But the market's moved way
beyond that, and unfortunately,
Sun hasn't.
So their software's falling
further and further behind,
and while we take
them very seriously,
we don't think Solaris is
going to be much competition.
It doesn't have an object
in it, and it's pretty much
what they have today.
Microsoft is doing NT, which
is their sort of second attempt
that a Unix wannabe.
And that's great,
and I think it will
be better than the last
one, which was OS/2.
But fundamentally, it's
just an operating system.
It's better plumbing
for Windows.
That's a good way
of thinking of it.
Unfortunately, you're
still stuck with Windows
in all of its glory, including
the worst development
environment that's
ever been invented.
And so we don't think
that this is really
going to present a challenge to
what we're going after, which
are these
mission-critical custom
apps, because the development
environment is horrendous,
it's not object-oriented, and
even with the better plumbing,
we think it will be widely
rejected for what we do.
In terms of Taligent,
Taligent represents
the first true competitor
that we could have.
They're going to ship
a product around 1995,
if they execute to their plans.
And I think if they do
execute to their plans
and work really hard,
by about the mid '90s,
they'll have roughly
what we have today.
And that's not meant as a joke.
It still means we
have to run very hard,
because they will have a lot
of resources at their disposal.
I think there's a lot of
questions as to whether they
will ever ship a product.
I think they're a few years away
from having something running,
unquote.
But we take them very seriously.
Now, they've helped
us enormously,
because they've blessed
object-oriented programming.
And right now,
we're the only folks
that have it, and will be for
the next three or four years.
So if we can't
compete with Taligent,
it's probably because we've
shot ourselves in the foot.
You couldn't ask for
something better.
IBM and Apple saying, these
guys are right on track,
and come back in five years
and we'll have it too.
It's great.
And so the ball's in our court.
Yes, in the back.
You describe NeXTSTEP as an
environment and an operating
system.
And what I hear you talk
about is a great way
to develop an application.
I don't develop applications.
I use other operating systems.
Do you see a fracture of
the operating system market
into a specialized niche
that you're describing,
and then the general
market for those of us
who don't develop apps?
Or are you saying
that you can then
bridge from an environment
that allows you to develop apps
into an operating system that'll
be like Windows or MS DOS
on a lot of machines?
Well, let's get our
terminology straight.
We look at NeXTSTEP as
an operating environment.
Much more than an
operating system.
Unix, which is our operating
system, is 10% of NeXTSTEP.
So in these modern
operating environments,
when you develop a
custom app in NeXTSTEP,
it doesn't run on the
Mac or on Windows.
It can't.
You need all the objects
that come with NeXTSTEP
to make it work.
And let me go into a
little detail there.
How many of you
are technical here?
A lot, OK, great.
Well, we've
discovered something.
You don't write code
any faster in NeXTSTEP
than you do in any other
operating and development
environment that we know of.
However, to do a particular app
on average, you write about 20%
of the code that you do in any
other development environment
we know of.
About 20% of the code than
in Sun or in anything else.
So the code that's
the fastest to write,
the code that's the
easiest to maintain,
and the code that never breaks,
is the code you don't write.
So that's our strategy,
write a lot less code.
And the way we do this is
we enable the developer
to use a lot of objects
that others have written.
We ship six years worth
of objects with NeXTSTEP.
You can create your own
objects for your own company,
and then reuse them
around your developers.
And there's now independent
third party companies
not selling system software,
not selling applications,
but selling objects.
There's not quite 10 of
them, and it's starting.
And I think it's going
to be a very big thing.
So in order to deliver
these apps that
are created on the NeXTSTEP,
you have to have NeXTSTEP
so they can run on
top and take advantage
of this rich
community of objects.
And that's why we're
porting NeXTSTEP to the 486.
That's why you'll see NeXTSTEP
running on several hardware
platforms.
And will there be a
fracturing, if you will?
Sure, to some extent.
And I tend to look at
it as a transition.
Was there a fracturing
when Mac came out?
Yes.
And there's been
more of a transition,
as people either move to Mac
or in the case of Windows,
adopt what's good about the Mac.
Same thing's going
to happen here.
We believe very strongly
that the benefits
from these object-oriented
environments-- not only just
rapid development, but a
much richer user environment.
If you use a NeXT, it's a
lot nicer than a Mac or a PC,
even if you never
developed an app.
Other environments will absorb
some of those breakthroughs,
and more and more people
will use NeXTSTEP.
And things will tend to balance
themselves out over time.
But there will be a transition.
And our goal is to make
sure we're part of it.
Yeah.
You spoke earlier that
your competitive advantage,
you felt lied in the fact that
these companies today were
needing development on
the operational basis,
as opposed to the management.
Many companies, though--
or some, perhaps--
outsource their development.
How does this change
you business strategy?
Good question.
If our business strategy says
that we do a lot of things
well, but the tip of our
arrow, or our Trojan horse,
which is getting us into these
large and medium-sized accounts
is our custom application
development ability,
then our growth is going to
be paced among other things
by the development community
available to these companies
to develop these apps.
Now, even though we have
shrunk the development time
down to a fraction
of what it was, still
without developers out there,
we're not going to win.
Fortunately, most
companies have really
increased the staffs of good
people in their IS departments
dramatically in the
last several years--
last four or five years.
There's now really
bright people who
know something about computer
science in IS departments.
And most of the
industries we talk to,
whether they're healthcare,
financial services, even
law enforcement, places like
that have on-site developers
in their IS teams.
If not, they're starting
to become a lot of vars,
and people out there
that we're using
in LA or in New York where
I just was, we probably
have about 10 independent third
party companies helping parts
of Wall Street develop things.
So I think that's not going
to be a stumbling block.
My personal opinion
is the number
of people in applications
development is shrinking.
It exploded in
the '80s with PCs,
but now that industry
is consolidating.
It's consolidating down
to very few companies.
And there's a lot
of excess people
out there, that I think are
starting to get channeled
into some of these other areas.
So far, it hasn't
been a problem.
But if you want to do that,
please call us and tell us,
because we always need more.
So what are you guys all going
to do when you get out of here?
You going to go back
to your companies?
How many of you are
going to go back?
How many aren't
going to go back?
What are you going to do?
[INAUDIBLE]
[LAUGHTER]
Well yeah, I think
we always have
jobs for really smart,
technical people.
You know,
technically-based people.
And you guys are getting a
great business education here.
Yeah, we'd love to
talk to you about it.
Yes, sir.
Well, I don't want to
step on any toes here.
Go ahead.
But where do you Apple would
be had you not left it?
And specifically, could it
have come out with something
as revolutionary in
the tech industry?
Well, these are deep questions.
[LAUGHTER]
I'll tell you, I've obviously
thought about this a lot.
And I don't want to
get into it too much.
But I will say that I
think everybody lost.
I think I lost.
And I wanted to
spend my life there.
I think Apple lost.
I think customers lost.
And having said
all that, so what?
You go on.
It's not as bad as
a lot of things.
Not as bad as losing your arm.
So people go on,
and companies go on.
And I think Apple--
I'm very happy every
time Apple ships a Mac.
It makes me very, very happy.
I think the PowerBooks
are decent products.
I like them.
But Apple has been struggling
the last few years.
They've been having
a real struggle
with who they want to be.
And this is nothing new.
We always had that.
That was part of what
kept Apple alive, I think.
And there were two
camps within Apple.
Camp one wanted to be the
next serious computer company,
and camp two wanted to sort
of be the Sony of computers.
And that struggling I think was
somewhat tearing Apple apart.
And fortunately, the
Sony guys have won.
They've kind of decided to
go be the Sony of computers.
And so the PowerBooks
are pretty good,
but the Quadras suck wind
right now, the high end stuff.
And they're basically not
putting a lot of resources
onto the power
users on desktops,
and they've put most
of their best people
now on the portables
and on consumer products
that they're going to
be coming out with.
And I think they'll
do very well at that.
Now, there's a problem
in there, in that
if you look at the
consumer products that
sell over a million a year, you
can count them on a few hands.
It turns out, there's not--
I mean, consumer
electronics products,
not like toothbrushes.
But electronics products.
And so let's assume they have
one of those or two of those.
Let's say they have a product
that sells two million a year
at a $500 ASP to them.
So it sells to the consumer at
$795 or something like that.
That's what, a billion
dollars, right?
two million a year, $500 apiece.
It's a billion dollars.
They still have to get the
other $7 billion of revenue
somewhere.
So it's going to be an
interesting transition
as the ASPs get lower.
The volumes have to
get much, much higher,
and you run into
some scale issues
when you look out at the
consumer electronics industry.
Not that it's not possible.
And I think it's going to be
really interesting to watch.
And we also see a lot of not
quite that clarity of movement,
but some movement in
the Windows and PC world
again towards taking
what they have now
and making it portable.
But not giving the top third
of the market more power.
You know, System 7 on
the Mac was supposed
to be the second coming.
And it wasn't.
It turned out to be an
incremental improvement.
OS/2 was supposed to take
us into new dimensions,
and it turned out to
be a complete failure.
And they're going to
throw another $100 million
after it just to make sure
you all know about it.
[LAUGHTER]
And so there is a
third of those desktops
out there that the users and the
people that want to deploy more
sophisticated apps are--
they're in the desert
wanting something to drink.
And I think there's a
tremendous opportunity
to give them some solutions.
Now, that doesn't
mean that Apple is not
going to be successful.
It just means they're going to
go off in another direction.
Who knows what
would have happened
had all this not happened.
Yes, up in the corner?
You've talked a lot
about making products.
I wonder if you could talk
about the management at NeXT,
and if you see changing
at all, as you hope, go
from $120 million company
to a $1 billion company.
Sure.
Yeah, we're-- we've done
a lot in the last year.
The most significant
things we did
were, one, we hired
this guy right here.
Mike Slade is our
VP of Marketing.
He spent-- you can stand up.
[INAUDIBLE]
No.
[LAUGHTER]
And he's cheap, too.
[LAUGHTER]
And Mike spent seven or
eight years at Microsoft.
And I originally met him, he was
the Product Manager for Excel
when it first came
out, and ended up
running big pieces of
marketing for Microsoft.
So Mike runs all the
marketing at NeXT.
And Mike came in to
NeXT just about the time
when we were finally hearing
what these big companies were
saying about mission
critical custom apps.
And so we've worked
very closely together
to redefine the marketing
strategy of the company.
And Mike is done just
a superb job at that.
The second big thing we did
was, about three months ago,
a little over three
months ago, we
consolidated our hardware design
engineering, our manufacturing,
our worldwide distribution,
and hardware service
all into one chunk called
the hardware division.
So from cradle to grave, they
have hardware responsibility.
And we're in the process of
forming the software division
right now, so that we're all
still under the same roof,
but we have clarity
about the fact
that we've got to make
two businesses successful.
The third thing
that we did was--
and we have a
really great person
running that, Rich Page, who
is one of the founders of NeXT.
And he's doing a great
job running that.
We hired a new CFO
recently, Marcel Gani.
He's from Intel, spent
12 years at Intel doing
some pretty interesting jobs.
He ran all of
finance for Europe.
He ran all of internal
audit for the Board.
He ran all of manufacturing,
planning, and scheduling
for a while, and
things like that.
He's a pretty good guy, went to
Cyprus for a year and a half,
and then came to NeXT.
And he's great.
And then recently,
as a matter of fact,
about last week, I hired a
Chief Operating Officer, a guy
named Peter van Cuylenburg.
And Peter is someone
I first met when
we were looking for an
Executive Vice President
to the Sales and Marketing.
And he turned me
down for the job.
And we subsequently decided
not to hire that position.
And I've been chasing him
for the last year and a half
almost.
He's really good.
He spent a lot of time at
TI as [? run ?] Europe,
and about three years ago, went
to a company called Mercury
Communications in England--
they're the MCI of the UK--
and turned that company
around to about $2 billion,
and then was promoted
to run half of Cable &--
or half of Mercury's parent
company, Cable & Wireless,
and was running--
they're about $6 billion.
And he went there when he
thought that communications
and computing were
going to, kind of,
come together, but
never happened.
And he figured out
that his real love
is in the computer business.
He's very, very
good, operationally,
so that's just
happened last week.
It seems like all the good
people I really want to hire,
it seems take me a
year to hire them.
Them And it's always been
that way, even at Apple.
Some of the best technical
people, or whoever,
it always seemed to take me,
like, a year to pry them out
of HP, or wherever, and took
me over a year to hire--
I think Mike has the award.
You're about a year and a half.
And they're all worth it.
What happens is, I usually meet
somebody that is really good--
I think is very, very good.
And you can't get them.
And then you go try
to find other people.
And nobody measures up.
You know, when you meet
somebody that good,
just, you always compare
them to this one person.
And you know you're going to
be settling for second best
if you compromise.
And I've always
found it best not
to compromise, and just
keep chipping away.
So I think we're
doing quite a bit.
It feels like we're
running the company a lot
better now than we ever have.
We've definitely made
our share of mistakes.
Yeah?
What technological
advances do you
see coming over the
next five to 10 years?
and how is NeXTSTEP structured
to take advantage of those?
I'll give you a global answer.
Then we can descend
into some details.
I believe that you can use
the concept of technology
windows opening, and
then eventually closing.
And what I mean by that
is, enough technology,
usually from fairly
diverse places,
comes together, and makes
something that's a quantum
leap forward possible.
And it doesn't come
out of nowhere.
If you poke around the labs, and
you hang around the Media Lab
here at MIT and other places,
you can, kind of, get a feel
for some of those things.
And usually, they're
not quite possible.
But, all of a sudden, you
start to sense things coming
together, and the
planets lining up,
to where this is now
possible, or barely possible.
And a window opens up.
And it usually takes around--
my experience anyway,
my life has been,
it takes around five years to
create a commercial product
that takes advantage of that
technical window opening up.
Sometimes you start before
the window is quite open.
And you can't get through it.
And you push it up.
And you push it up.
Sometimes it just
takes a lot of work,
took that long
with the Apple II,
took that long with the Mac.
You know, it took a Lisa
along the way, $100 million.
It takes a while.
It's a expensive to
push those windows open.
And in our case, you know,
our first product failed.
We came out with this cube.
And we sold 10,000 of them.
Why?
Because we weren't
quite there yet.
And we made some
mistakes along the way.
And we had to course correct.
You know, Macintosh was a
course correction off the Lisa.
So with Apple II and III,
we did it in reverse.
It takes around five years, or
some number of years like that,
to realize that window opening.
And then it seems to take
about another five years
to really exploit it
in the marketplace.
And let me give
you some examples.
from my life.
Apple II lasted 15
years, 15 years.
The hardware churned.
But basically, it was
the same for 15 years.
DOS-- you know, DOS,
just passed 10 years.
I don't think anyone
would disagree
that it's going to easily
last another five, right--
unfortunately.
And Mac, you know, Mac is
eight years old, right?
No question it's going to
last another four or five
years, right?
These things are hard.
They don't last because
it's convenient,
or even because it's economic.
They last because
they're really--
this is hard stuff to do.
And so when we are
pushing that window open,
I think with our current
generation of products,
we finally got the window open.
After six years, it's open.
We've got an extremely
elegant implementation.
And we've got five years
of work to do to exploit it
in the marketplace.
You know, we'll
peak in five years.
Five years, we'll
all sit around,
and say, OK, it's time to get
started on the next thing.
It's time to get going
on the next thing-- maybe
four years from now.
But we've got a lot
of work ahead of us
just to move this thing
out, and educate the market,
and continue to refine it
based on market feedback.
So everything I know about
technology windows that
are open, or just about
open, is in NeXTSTEP,
or we're working
on it in the labs.
And these things generally
don't come along independently.
They, kind of-- clumps
of them come together,
has been my experience.
So the things that aren't
in there right now that I
can talk about, there's
some video stuff that's
really interesting, that's
going to be integrated in.
There some security stuff
that's really fascinating
that's integrating in.
But most of the core
technologies in there--
products are getting
smaller and portable.
Products are getting
much, much faster.
But these things are well known.
You know, the products
that we can put on--
that we can give to you
in the next year or two
are going to be
running at speeds
that I find hard to believe.
And I've been doing
this for a while.
So I think the windows open.
And I think
object-oriented technology
is the biggest
technical breakthrough
I have seen since
the early '80s,
with the graphical
user interfaces.
And I think it's
bigger, actually.
It will prove to be
bigger over time.
Yes?
I have a question.
If the value
[INAUDIBLE] and things
like operational
applications, and NeXTSTEP
is a tool to help
you build those,
where do you draw the
line in capturing the most
value between actually
developing applications,
something like Word or
Excel, and becoming a tool
builder to support those people
who may capture a little bit
more of the value?
Where do you want to
draw the line there?
If you're a software company?
If you're a software company.
Well, Microsoft
has made it easy.
Repeat the question.
Yeah, oh, sorry,
the question is,
if you're a software company,
should you develop apps,
or should you develop
objects and tools?
And see, the software
industry, with Microsoft,
and Lotus, and WordPerfect
made it real easy.
Unless you've got $20
million or $30 million
burning a hole in your pocket
so you can go out and hire
a few hundred people to develop
what it takes to develop one
of these polished shrink-wrapped
apps on Mac or on Windows,
then you don't have
much of a choice.
There's not a real
opportunity there to--
assuming you had the
best spreadsheet today,
you could easily
spend $50 million
marketing it before you'd
be breaking even selling it,
because of just how expensive
it is to market a product today.
But that's only for
existing spreadsheets.
If you're trying to develop a
next-level generation of it,
a different type of product.
Well, assume that you have
a breakthrough spreadsheet.
Again, on mainstream platforms,
it will take $50 million
to just rise above the
noise level and market it.
So what the brightest people
I know of today are doing
is they're writing objects.
They're writing hunks of
things that other developers
are going to use to build apps.
And they're going
where everybody isn't.
And that's, I think, going
to be the next new thing.
Yeah?
You mentioned that a
possible problem for Macs
is the lack of developers
and consultants out there
who recommend it.
Based on that view,
what's the NeXT view
of how to market itself
to academic institutions?
I think your
question is, what is
our philosophy on marketing our
products to higher education?
Mhm.
Well, we started
off selling only
to higher education, which
arguably, was a mistake.
And But we've done
really well there.
And our hearts are there.
And we sold a lot of
Macintoshes there too,
when we were at Apple.
And I think it's a no-brainer.
I think you take your products.
You discount them as
heavily as you can.
You sell them into
higher education.
Higher education is
a wonderful place
to give you great
feedback about how
to make your products better,
and what's wrong with them.
And it's a great place
to educate bright people
that you can hire, and
that your customers can
hire when they graduate,
so we do exactly that.
We have-- I think were
sold on about 350 campuses
in the United States.
We are clearly the number
one selling workstation
across the US.
And we're the number two
selling computer of any type
at campuses, like
here MIT or Stanford,
right behind the Macintosh.
We sell more computers
at MIT than PCs
through the institutional
resale engines.
So we do as much as we can.
And I think it's been
pretty effective.
What do you think?
I mean, for example,
[INAUDIBLE] is going away.
Like, the support
[INAUDIBLE] is going.
Right.
I mean, I'm talking about,
not just selling computers.
I'm talking about
establishing a network
of institutionalized
system [INAUDIBLE]..
Well, what's happening is--
see, the Project Athenas
didn't succeed for a reason.
They didn't succeed, because
they had a lot of good ideas
as a research project,
but the people
necessary to
commercialize those things
and make them into
real products aren't
necessarily the
same people that are
going to pioneer the ideas
at a university like MIT.
And so those projects
never quite get baked.
The recipes, kind of, developed.
And you make a few samples.
And it's pretty good,
but the computer industry
is pretty advanced.
And so other people
pick up those ideas,
and make them into
real products.
And they, kind of, leave the
research projects in the dust
if the researchers
drop research and start
trying to commercialize stuff.
And I can point to 100 examples
of that in higher education.
So it's probably good
that Project Athena has
a beginning, a
middle, and an end,
so that those people
don't get stuck
trying to do commercial software
in an academic environment.
It's, kind of, a mismatch.
As far as we're concerned,
what we're doing is,
there's a lot of
labs that are being
put in in higher education.
And we're winning almost
every one of those.
And we really go
hard after the lab,
so that people that can't
afford the computers
have public access.
And most universities now have
fairly elaborate campus-wide
networks.
It's no longer a new
cutting-edge thing.
And we plug right into those.
So I think it's--
life's moved beyond where it
was a few years ago, where
those kind of projects
were really important.
And the knowledge to do that
exists fairly widespread.
I think a few more and-- yeah?
What's the most important
thing that you personally
learned at Apple, that
you're doing at NeXT?
Good question.
I'm not sure I learned
this when I was at Apple,
but I learned it based on
the data when I was at Apple.
And that is, I now take a
longer-term view on people.
In other words, when I see
something not being done right,
my first reaction
isn't to go fix it.
It's to say, we're
building a team here.
And we're going to do great
stuff for the next decade, not
just the next year,
and so what do
I need to do to help so that
the person that's screwing up
learns versus how do
I fix the problem?
And that's painful sometimes.
And I still have that first
instinct to go fix the problem.
But that's taking
a longer-term view
and people is probably the
biggest thing that's changed.
And then and I don't know.
That's maybe the part
that's biological, but--
[LAUGHTER]
Yes?
To pull off on that
question, I wanted
to ask you about your
management style,
and specifically, how
do you resolve conflict
in your organization?
What's our management style?
How do we resolve conflict?
I've never believed
in the theory
that, if we're on the
same management team,
and a decision has to be
made, and I decide in a way
that you don't like, and I say,
come on, buy into the decision.
You know, buy into it.
Like, we're all
in the same team,
you don't agree,
but buy into it.
Let's go make it happen.
Because what happens is,
sooner or later, you're
paying somebody to do
what they think is right,
but then you're trying
to get them to do
what they think isn't right.
And sooner or later, it outs.
And you end up
having that conflict.
So I've always
felt that the best
way is to get
everybody in a room,
and talk it through
until you agree.
Now, that's not
everybody in the company,
but that's everybody
that's really
involved in that decision,
that needs to execute it.
And so that's how
we try to run NeXT.
The way we run NeXT is,
we have a team at the top
we call the Policy Team.
There's eight people.
Mike is on it.
I'm on it.
We have six other people on it.
And the key-- we have
two things we try to do.
One is, we try to differentiate
between the really
important decisions and the
ones that we don't have to make.
And the really
important ones, we
work on it until we all agree,
because we're paying people
to tell us what to do.
In other words, I
don't view that we
pay people to do things.
That's easy, to find
people to do things.
What's harder is to
find people to tell you
what should be done, right?
That's what we look for.
So we pay people a lot
of money, and we expect
them to tell us what to do.
And so when that's
your attitude,
you shouldn't run off and do
things if people don't all
feel good about them.
And the key to making that
work is to realize there's
not that many things that any
one team really has to decide.
And we might have 25
really important things
we have to decide on
a year, not a lot.
So that's how we try to run it.
Sometimes it works.
And sometimes we're
still working on it.
I can't think of once--
I can't-- maybe
there's once or twice,
but I can't even recall a
time when I've said, dammit,
I'm the CEO.
And we're doing it
this way, you know?
I can recall a time when I've
said, we don't see eye-to-eye,
and you're off the team.
[LAUGHTER]
You know?
I've had to say
that once or twice,
over a prolonged period of
time, when a person has not
wanted to go in the
same direction we've
wanted to go in as a team.
It's my job every once
in a while to say, hey,
you want to go this way?
We want to go this way.
It's not working.
But when people are on the
team, then we work it out.
Yeah?
You've, kind of,
chosen this direction,
this niche towards
the premium product,
versus you've
discussed Macintosh
going into
portability, and a lot
of these portability issues.
Do you think portability
is exclusive?
Can you do that and still do
some of the market-driven type
stuff as well?
I want to come back to
your premium product
characterization, because
our products actually cost
close to half of what Sun's do.
And the reason they do is,
we have the most automated
factory in the industry.
And we have a great
VLSI design group,
which designs stuff
in a lot less parts.
Do you guys-- manufacturing,
do you care about that?
Yeah.
Yes.
Yes.
Yeah.
We should talk about
that in a minute.
The industry is
bifurcating right now.
And what's happening is, is
that the Macs and the PCs as you
know them today are all going
to be just like this-- hold up
your PowerBook.
They're all going to be
just like this, only lighter
and smaller, before very long.
And they're taking the
technology we have today,
not particularly changing
it, and getting it
off the desktop
in portable forms.
And they're giving up
a few things for that,
but nothing terribly profound.
However, we're getting
all sorts of signals
from certain parts
of the markets
that they want things that
are the enemy of that, right?
Well, what are they?
Well, speed-- speed is
the enemy of portability,
because speed
takes power, right?
So the kind of speed
that our customers want,
it would run for 3 and
1/2 minutes on batteries.
And that's useless.
The second thing
they want is, they
want a lot more storage
on their disk drives,
and a lot more memory, again,
the enemy of portability
for power and size reasons.
Another thing they want is
really high-speed networking,
right?
The radio LANs on
these things, at best,
are going to go 19.2
kilobits per second.
Our customers want 100
megabits per second and higher.
You're not going to do
that with a radio LAN
anytime in the next five years.
Another thing our
customers want is our mix
has shifted to, like, 80% color.
And they want true
color to do photographs.
There is no flat panel
color display today
that will do
photographic-quality color.
And they want big ones, because
once you have multitasking,
and you run a bunch
things at once,
you need a bigger window
into this electronic world.
When you're using your computer
for two or three hours a day,
you don't want to be looking
through blinders this big.
You want something bigger.
So these are all the
enemy of that today.
And we're working on
smaller products, for sure,
but it's really
tough to get both.
And we're optimizing
for the power,
because we see a
giant hole there
for running these
mission-critical custom apps.
And what people are
doing needs more power,
so that's what we're
optimizing for.
Let's talk about manufacturing.
How many of you have a
manufacturing background?
Oh, that's great.
I love manufacturing.
And what kinds of things?
What kinds of companies?
You have--
Pharmaceuticals.
Pharmaceuticals?
Any auto people here?
Yeah.
Him.
Auto?
Electronics?
Which
TI.
TI, uh-huh.
Motorola.
Motorola?
Is it true you're sending
your manufacturing
overseas, or just--
I heard--
Yeah, I heard that rumor, too.
No, it couldn't be
further from the truth.
We love manufacturing at NeXT.
And when I was at Apple,
I had the good fortune
to lead the effort to
build a Mac factory.
And we designed, and built,
and operated that factory.
And it was a real breakthrough.
It was the best
factory in the industry
until we built the at NeXT.
And we made a lot of--
[LAUGHTER]
We made a lot of
mistakes, though.
As an example, I remember
walking through it.
You know, one of
the things you learn
when you start building
factories is that warehouses
are really bad, right?
Warehouses are bad, because
you tend to put things in them.
And inventory is really bad.
Inventory is really bad,
because if it's defective,
you don't find out
about it for a while.
And you don't close the quality
feedback loop with the vendor,
and correct the problem, until
they've made a zillion of them.
What you want to do
is find the problem
the first one that
comes in the door,
and stop them from making more
until you fix the problem.
So warehouses also cost money,
because you put all this stuff
in them.
And the stuff-- you have to
go borrow money from the bank,
or use money that could be used
in a more productive purpose,
so warehouses are bad.
And you want to go to JIT.
I'm sure you've studied this
all, and studied examples.
I was walking through
the Mac factory one day,
and the two biggest pieces
of automation we put in
were a giant small-part
storage and retrieval system.
It was the totes
that ran around.
And the second one
was this giant burn
in system at the end.
And a few tens of millions of
dollars worth of equipment.
And I realized, unfortunately
too late, that both of them
are warehouses.
They're just
high-tech warehouses.
And so when we
looked at NeXT, we
said no warehouses of any kind.
We have a true JIT factory.
Stuff comes in, and is delivered
right to the point of use
on the factory floor.
There is no warehouse.
Deliveries are made daily,
sometimes more frequently
than that.
There is no outgoing warehouse.
Everything is visible.
And the reason that we were able
to do a lot of what we've done
= because we looked at-- well,
I'll give you an example.
When we were learning
about manufacturing at Mac,
we hired a Stanford
Business School Professor
at the time named Steven
Wheelwright, who Harvard
has since stolen away, I think.
And he did a neat thing.
He drew on the board a little
chart, first time I met him.
He said, you can
view all companies
from a manufacturing
perspective this way.
You can say there's
five stages--
one, two, three, four, five.
They all have these things.
And stage one is companies
that view manufacturing
as a necessary evil.
They wish they didn't have to
do it, but damn it, they do.
And all the way up
through stage five,
which is companies
that view manufacturing
as a competitive opportunity for
competitive advantage, right?
We can get better
time to market,
and get new products out faster.
We get lower costs.
We get higher quality.
And in general, you
know, you can, sort of,
put the American flag here,
and put the Japanese flag here.
[LAUGHTER]
[APPLAUSE]
And that's changing, however.
That's changing.
And it's changing,
because people like you
are going into manufacturing.
Companies are starting
to realize that we
were great at this one time.
And then we took it for granted.
And people are starting to
pay good salaries now, and get
good people.
And so we want to
be one of these.
And we try very hard.
By the way, just going back
to software for a minute,
I often apply this scale
to computer companies,
and how they look at software.
See, I think most computer
companies are stage one.
They wish software had
never been invented.
I put Compaq in that category.
And IBM is maybe stage
two, and things like that.
And I think there's only--
you know, Suns maybe, sort
of, in the middle, maybe here.
I think there's only
three companies here,
and that's us, Apple, and
Microsoft, in stage five.
We start everything with
the software and work back.
But anyway going back
to manufacturing,
we started looking at the
factory as a software problem.
And the first people
we hired in the factory
were some software engineers.
We convinced them to move
from R&D into software,
which was not easy.
We had to give them bonuses.
We had to cajole them.
We had to promise them
they could come back
if they hated it.
And they went over there.
And we said, this is really
just a software problem
with interesting I/O
devices called robots.
That's all it is.
And so we started building
the software first.
And our first robots that
we got, we specced them out.
And we bought them
completely turnkey,
with the robot arms on them,
and all the electronics,
and the software
to control them.
And we specced it out,
but we didn't write it.
And they didn't--
they worked OK.
Some of them are still in
use, but they weren't great.
And being software folks,
we weren't real happy.
They weren't elegant.
We couldn't do what we
wanted with the robots.
We couldn't tie-in a quality
information system to them,
and all this other
stuff we wanted.
So the second generation,
we specced out the hardware,
and had somebody build
the hardware for us,
but we wrote all the software
on our own computers.
We're object-oriented, so we
started writing robot objects,
quality objects, you
know, all sorts of objects
to control this factory.
And we found in our
computer was great for it.
And so our whole
factory now runs
on this object-oriented
factory and quality system.
The last generation of-- our
latest generation of robots,
which we've deployed this year,
we actually built the hardware.
I've been to Japan maybe--
oh, a lot of times-- maybe 30,
40 times.
And I love to have
factories over there.
They always amaze
me, because they
built everything themselves.
They weren't afraid of anything.
They needed a robot.
They tried to buy one.
But if they couldn't,
they'd actually
engineer it and build it.
And you'd think this
was really expensive,
but we found out
it's pretty cheap.
It's actually cheaper
than buying them.
And so we've actually
now designed our--
and specced out our own robots.
We don't mill the
metal or anything.
We get that all made.
We put them all together.
And we do the software
top-to-bottom.
And we have now some
extraordinarily advanced robots
in the factory.
And our computers are
built, start to finish,
on the key components,
completely untouched
by human hands.
So we're pretty convinced
we're the low-cost producer.
We do it in Fremont, California,
right under our nose.
And we export them to Japan,
and all sorts of other places.
And Canon is our
partner in Japan.
And they do very, very
thorough quality audits.
And we're now at the
point where we're directly
shipped to stock with them.
And they say we're a very
high-quality supplier.
How do your lines tie
in with your research--
your development team?
Because I had heard
that they could actually
change the line from their
own computers [INAUDIBLE]
Yeah, they can.
Well, we don't give everybody
permission to do that, but
[LAUGHTER]
--yes, they can.
Here's how it works.
One of the things we
do is we actually--
when we want to build an
engineering prototype--
see what happens in most--
one of the key things
that manufacturing
can contribute to competitive
advantage is time to market.
Why is that?
Because the way
most things work is
you design your product here.
And after you're done, you
throw it over the wall.
And you design your
manufacturing process here,
sorting out a bunch of things
that maybe weren't done right
here, fixing them, changing
them, and then completing
the process design.
What you want to do is
do this, and ship it
right here while your
competitors are still here.
And that's what we've been
able to do in many cases.
What we do is, we suck
data out of our CAD systems
in engineering.
We zing them around over
the local networks over a T1
to [INAUDIBLE] factory
is about 15 minutes away.
And in our own
computers, we compute
all of the robot placement
programs' fully-optimized path.
We compute all the
vision system programs.
We check it against the bill
of materials in the IS system.
And we download
it to the robots.
And we're ready to build
a board, lot size of one,
in-between two production
CPU boards on the line,
full surface mount with all
of our automation technology.
Now, the key is that
manufacturing did that so well
for engineering, that we
haven't built a prototype
in engineering for two years.
We haven't built a wire wrap,
or any other kind of prototype
in engineering for two years.
Everything has been
built in the factory.
Now, what does that mean?
What that means
is, manufacturing
gets involved from day one.
Because the-- the
engineering guys
call up manufacturing go, hey,
we want to build a prototype.
We're going to need these
special parts in that thing.
Take a look at this.
Tell us what you think.
We'd like to do it tomorrow.
Let us know if that's
OK, blah, blah, blah.
They get involved from day one.
And what it also means is--
so we get this parallelism.
Secondly, a lot of times,
when you build prototypes,
it's not quite the
same technology
as you're going to
use in production.
And so all the
accumulated knowledge
you get from building
your prototypes,
you throw away when
you change technology
to go into production.
And you start over in
that accumulation process.
Because we don't
change technology,
we don't throw anything away.
We don't waste time.
And it's led to one of the
healthiest relationships
between an engineering and
manufacturing group I've ever
seen in my life.
They're all working
off the same databases.
They're all working
on the same processes.
They're all working in a
very disciplined process
environment, to where, when
any processes are change,
they all get together
and review the proposals,
and all buy into it.
And it's not that hard.
The key to it all,
though, was we
didn't go out and hire a
bunch manufacturing people.
We went out and hired engineers.
And we convinced them that we
were going to be different.
We were going to pay
them exactly the same
as-- as a matter of
fact, we paid them
a little more at the beginning.
But we pay him exactly the
same as R&D, no different.
There's migration,
both directions,
not just from manufacturing
into R&D, but both directions.
And they're not
second-class citizens.
They have the same offices.
They have the same
test equipment.
They have the same
computers on their desks.
And it took us a
while to convince them
that we were really serious.
For about the first few
years, we had more PhDs
in manufacturing than we
did design engineering,
until design engineering
stole a few of them away.
So it's really paid
off for us, and I
think it's one of our
real opportunities
for competitive advantage.
Yeah, I think one or two
more, and we've got to run.
And probably, you do too.
Yes, up there, [INAUDIBLE]?
So you have no
warehouses, is that true?
You are doing true JIT?
[INAUDIBLE]
Yeah.
How are you getting your
products or your raw materials?
How are we getting
our raw materials?
Yeah.
You mean, like, what
truck line brings them in?
Or what do you mean?
[LAUGHTER]
Is it air?
Is it truck?
I mean, how are you getting
everything in that quickly?
See the key thing is,
that's not our problem.
That's our suppliers' problem.
So we agree with our supplier
when the stuff is going
to arrive on our factory floor.
And if they can-- if they're
together enough to ship it
by truck, that's fine.
If they have to ship it
by air, that's too bad.
If they want to have a warehouse
next to ours, because they're
not good enough, well,
then they have to do that.
Now, we're not
giant, so we can't
go command people to do things.
But what's happened is, is we
have a fairly narrow supply
base.
We don't have three
billion suppliers.
And they see tremendous
advantages in working with us.
We're pushing our quality
information systems back
to them.
As an example, Motorola is
one of our key suppliers.
Almost every key supplier
has NeXT computers.
And we send them statistical
quality information,
sometimes daily--
daily-- off our automated
quality information systems
on their parts.
And those kinds of things are
extremely valuable to them.
So while we're
not Goliath, we're
a very valuable
David to work with.
And so they really bend over
backwards to work with us.
And we try to push the
problems where they belong.
If it's our problems, we take
full responsibility for them.
We own our process.
But they-- it's their job to
get us a zero defect material
on-time, per agreements.
And our philosophy is, our money
doesn't break after we give it
to them, so their
parts shouldn't break
after they give them to us.
[LAUGHTER]
[APPLAUSE]
Yeah?
Do you see any possibility
of bringing NeXT over
to [INAUDIBLE] portable Macs?
And do you see the future
of Macs [INAUDIBLE]
dying out, or what [INAUDIBLE]?
You know, I think Macs are
going to continue to grow.
It depends on what Apple does.
I think certain segments
of the Mac market
are going to continue to grow.
I think certain segments
of the Mac market
are not going to be
targeted for future growth.
And I think Macs are good
computers to do certain things.
But to do the things
that people I think
are going to want to
do in a few years,
I don't think you
can do them on a Mac.
I don't think you can do
them on DOS and Windows.
And so I think there's a
need for some new technology.
Just like, you know, there a
lot of things that you can do
on DOS when the Mac came out,
but there were some new things
you just couldn't.
And it would take a long time.
And I think it's the
same way with the Mac.
Hey, we have to head
off into the sunset
back to California,
but thanks for a chance
to be with you
all for some time.
[APPLAUSE]
