1975–1985: Jobs and Wozniak

Pre-foundation

Steve Jobs and Steve Wozniak first met in mid-1971, when their mutual friend, Bill Fernandez, introduced then 21-year-old Wozniak to 16-year-old Jobs. Their first business partnership began later that year when Wozniak, a self-educated electronics engineer, started to build his original “blue boxes” that enabled one to make long-distance phone calls at no cost. Jobs managed to sell some two hundred blue boxes for $150 each, and split the profit with Wozniak. Jobs later told his biographer that if it hadn't been for Wozniak's blue boxes, "there wouldn't have been an Apple".

Jobs and Wozniak, also referred to collectively as "the two Steves", had withdrawn from Reed College and UC Berkeley respectively by 1975. Wozniak designed a video terminal that he could use to log on to the minicomputers at Call Computer. Alex Kamradt commissioned the design and sold a small number of them through his firm. Aside from their interest in up-to-date technology, the impetus for the two Steves seems to have had another source. In his essay From Satori to Silicon Valley (published 1986), cultural historian Theodore Roszak made the point that the Apple Computer emerged from within the West Coast counterculture and the need to produce print-outs, letter labels, and databases. Roszak offers a bit of background on the development of the two Steves' prototype models.

In 1975, the two Steves started attending meetings of the Homebrew Computer Club. New microcomputers such as the Altair 8800 and the IMSAI inspired Wozniak to build a microprocessor into his video terminal and have a complete computer. At the time the only microcomputer CPUs generally available were the $179 Intel 8080 (equivalent to $850 in 2019), and the $170 Motorola 6800 (equivalent to $808 in 2019). Wozniak preferred the 6800, but both were out of his price range. So he watched, and learned, and designed computers on paper, waiting for the day he could afford a CPU.

When MOS Technology released its $20 (equivalent to $90 in 2019) 6502 chip in 1976, Wozniak wrote a version of BASIC for it, then began to design a computer for it to run on. The 6502 was designed by the same people who designed the 6800, as many in Silicon Valley left employers to form their own companies. Wozniak's earlier 6800 paper-computer needed only minor changes to run on the new chip.

By March 1, 1976, Wozniak completed the machine and took it to a Homebrew Computer Club meeting to show it off. When Jobs saw Wozniak's computer, which would later become known as the Apple I, he was immediately interested in its commercial potential. Initially, Wozniak intended to share schematics of the machine for free, but Jobs insisted that they should instead build and sell bare printed circuit boards for the computer. Wozniak also originally offered the design to Hewlett-Packard (HP), where he worked at the time, but was denied by the company on five occasions. Jobs eventually convinced Wozniak to go into business together and start a new company of their own. In order to raise the money they needed to produce the first batch of printed circuit boards, Jobs sold his Volkswagen Type 2 minibus for a few hundred dollars, and Wozniak sold his HP-65 programmable calculator for $500.

Apple I and company formation

On April 1, 1976, Apple Computer Company was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne. The company was registered as a California business partnership. Wayne, who worked at Atari as a chief draftsman, agreed to become a co-founder of the company in return for a 10% stake. However, Wayne was somewhat gun-shy due to the failure of his own venture four years earlier. On April 12, less than two weeks after the company's formation, Wayne left Apple, selling his 10% share back to the two Steves for only $800 and leaving them as the active primary co-founders.

According to Wozniak, Jobs proposed the name “Apple Computer” when he had just come back from Robert Friedland’s All-One Farm in Oregon. Jobs told Walter Isaacson that he was "on one of my fruitarian diets," when he conceived of the name and thought "it sounded fun, spirited and not intimidating ... plus, it would get us ahead of Atari in the phone book".

Soon after the company was formed, the two Steves made one last trip to the Homebrew Computer Club and demonstrated the finished version of the Apple I. Paul Terrell, who operated a computer store chain named the Byte Shop, was in attendance, and became impressed with the machine. He handed the two Steves his card, and told them to "keep in touch". The following day, Jobs dropped in on Terrell at the Byte Shop store in Mountain View, and tried to sell him the bare circuit boards for the Apple I. Terrell told Jobs that he was interested in purchasing the machine, but only if it came fully assembled, saying he would order 50 assembled computers and pay US$500 each on delivery (equivalent to $2,200 in 2019). Jobs then took the purchase order that he had been given from the Byte Shop to Cramer Electronics, a national electronic parts distributor, and ordered the components he needed to assemble the Apple I. The local credit manager asked Jobs how he was going to pay for the parts and he replied, "I have this purchase order from the Byte Shop chain of computer stores for 50 of my computers and the payment terms are COD. If you give me the parts on net 30-day terms I can build and deliver the computers in that time frame, collect my money from Terrell at the Byte Shop and pay you".

The credit manager called Paul Terrell, who was attending an IEEE computer conference at Asilomar in Pacific Grove and verified the validity of the purchase order. Amazed at the tenacity of Jobs, Terrell assured the credit manager if the computers showed up in his stores, Jobs would be paid and would have more than enough money to pay for the parts order. The two Steves and their small crew spent day and night building and testing the computers, and delivered to Terrell on time to pay his suppliers. Terrell was surprised when Jobs delivered him a batch of assembled circuit boards, as he had expected complete computers with a case, monitor and keyboard. Nonetheless, Terrell kept his word and paid the two Steves the money he had promised them.

The Apple I went on sale in July 1976 as an assembled circuit board with a retail price of $666.66. Wozniak later said he had no idea about the relation between the number and the mark of the beast, and that he came up with the price because he liked "repeating digits". Eventually, about 200 units of the Apple I were sold.

The Apple I computer had a few notable features. One was the use of a TV as the display system, whereas many machines had no display at all. This was not like the displays of later machines, however; the text was displayed at 60 characters per second. However, this was still faster than the teleprinters used on contemporary machines of that era. The Apple I also included bootstrap code on ROM, which made it easier to start up. Finally, at the insistence of Paul Terrell, Wozniak also designed a cassette interface for loading and saving programs, at the then-rapid pace of 1200 bit/s. Although the machine was fairly simple, it was nevertheless a masterpiece of design, using far fewer parts than anything in its class, and quickly earning Wozniak a reputation as a master designer.

Encouraged by the success of the Apple I, Jobs started looking for investments to further expand the business, but banks were reluctant to lend him money; the idea of a computer for ordinary people seemed absurd at the time. In August 1976, Jobs approached his former boss at Atari, Nolan Bushnell, who recommended that he meet with Don Valentine, the founder of Sequoia Capital. Valentine was not interested in funding Apple, but in turn introduced Jobs to Mike Markkula, a millionaire who had worked under him at Fairchild Semiconductor. Markkula, unlike Valentine, saw great potential in the two Steves, and decided to become an angel investor of their company. He invested $92,000 in Apple out of his own property while securing a $250,000 (equivalent to $1,120,000 in 2019) line of credit from Bank of America. In return for his investment, Markkula received a one-third stake in Apple. With the help of Markkula, Apple Computer, Inc. was incorporated on January 3, 1977. The new corporation bought out the old partnership the two Steves formed nine months earlier.

In February 1977, Markkula recruited Michael Scott from National Semiconductor to serve as the first president and CEO of Apple Computer, as Jobs and Wozniak were both insufficiently experienced and he was not interested in taking that position himself. That same month, Wozniak resigned from his job at Hewlett-Packard to work full-time for Apple.

Apple II

Almost as soon as Apple had started selling its first computers, Wozniak moved on from the Apple I and began designing a greatly improved computer: the Apple II. Wozniak completed a working prototype of the new machine by August 1976. The two Steves presented the Apple II computer to the public at the first West Coast Computer Faire on April 16 and 17, 1977. On the first day of the exhibition, Jobs introduced the Apple II to a Japanese chemist named Toshio Mizushima, who became the first authorized Apple dealer in Japan. In the May 1977 issue of Byte, Wozniak said of the Apple II design, "To me, a personal computer should be small, reliable, convenient to use, and inexpensive".

The Apple II went on sale on June 10, 1977, with a retail price of $1,298. The computer's main internal difference from its predecessor was a completely redesigned TV interface, which held the display in memory. Now not only useful for simple text display, the Apple II included graphics and, eventually, color. During the development of the Apple II, Jobs pressed for a well-designed plastic case and built-in keyboard, with the idea that the machine should be fully packaged and ready to run out of the box. This was almost the case for the Apple I computers, but one still needed to plug various parts together and type in the code to run BASIC. Jobs wanted the Apple II case to be "simple and elegant", and hired an industrial designer named Jerry Manock to produce such a case design. Apple employee #5 Rod Holt developed the switching power supply.

While early Apple II models use ordinary cassette tapes as storage devices, they were superseded in 1978 by the introduction of a ​5 1⁄4-inch floppy disk drive and interface called the Disk II. The Disk II system was designed by Wozniak and released with a retail price of $495.

In 1979, the Apple II was chosen to be the desktop platform for the first "killer application" of the business world: VisiCalc, a spreadsheet. So important that the Apple II became what John Markoff described as a "VisiCalc accessory", the application created a business market for the computer and gave home users an additional reason to buy it: compatibility with the office. Before VisiCalc, Apple had been a distant third place competitor to Commodore and Tandy.

The Apple II was one of the three "1977 Trinity" computers generally credited with creating the home computer market (the other two being the Commodore PET and the Tandy Corporation TRS-80). A number of different models of the Apple II were built thereafter, including the Apple IIe and Apple IIGS, which continued in public use for nearly two decades. The Apple II series went on to sell about six million units in total before it was discontinued in 1993.

Apple III

While the Apple II was already established as a successful business-ready platform because of Visicalc, Apple management was not content. The Apple III was designed to take on the business environment in an attempt to compete with IBM in the business and corporate computing market. While the development of the Apple III started in late 1978 under the guidance of Wendell Sander, the machine was subsequently developed by a committee headed by Steve Jobs. The Apple III was first announced on May 19, 1980, with a retail price ranging from $4,340 to $7,800, and released in November 1980.

The Apple III was a relatively conservative design for computers of the era. However, Jobs did not want the computer to have a fan; rather, he wanted the heat generated by the electronics to be dissipated through the chassis of the machine, forgoing the cooling fan.

However, the physical design of the case was not sufficient to cool the components inside it. By removing the fan from the design, the Apple III was prone to overheating. This caused the integrated circuit chips to disconnect from the motherboard. Customers who contacted Apple customer service were told to "raise the computers six inches in the air, and then let go", which would cause the ICs to fall back into place.

Thousands of Apple III computers were recalled. A new model was introduced in 1983 to try to rectify the problems, but the damage was already done.

Apple IPO

In the July 1980 issue of Kilobaud Microcomputing, publisher Wayne Green stated that "the best consumer ads I've seen have been those by Apple. They are attention-getting, and they must be prompting sale". In August, the Financial Times reported that

Apple Computer, the fast growing Californian manufacturer of small computers for the consumer, business and educational markets, is planning to go public later this year. [It] is the largest private manufacturer in the U.S. of small computers. Founded about five years ago as a small workshop business, it has become the second largest manufacturer of small computers, after the Radio Shack division of the Tandy company.

On December 12, 1980, Apple (ticker symbol "AAPL") went public selling 4.6 million shares at $22 per share ($.39 per share when adjusting for stock splits as of March 30, 2019), generating over $100 million, which was more capital than any IPO since Ford Motor Company in 1956. Several venture capitalists cashed out, reaping billions in long-term capital gains. By the end of the day, the stock rose to $29 per share and 300 millionaires were created. Apple's market cap was $1.778 billion at the end of its first day of trading.

In January 1981, Apple held its first shareholders meeting as a public company in the Flint Center, a large auditorium at nearby De Anza College (which is often used for symphony concerts) to handle the larger numbers of shareholders post-IPO. The business of the meeting had been planned so that the voting could be staged in 15 minutes or less. In most cases, voting proxies are collected by mail and counted days or months before a meeting. In this case, after the IPO, many shares were in new hands.

Steve Jobs started his prepared speech, but after being interrupted by voting several times, he dropped his prepared speech and delivered a long, emotionally charged talk about betrayal, lack of respect, and related topics.

Competition from the IBM PC

By August 1981 Apple was among the three largest microcomputer companies, perhaps having replaced Radio Shack as the leader; revenue in the first half of the year had already exceeded 1980's $118 million, and InfoWorld reported that lack of production capacity was constraining growth. Because of VisiCalc businesses purchased 90% of Apple IIs; large customers especially preferred Apple.

IBM entered the personal computer market that month with the IBM PC in part because it did not want products without IBM logos on customers' desks, but Apple had many advantages. While IBM began with one microcomputer, little available hardware or software, and a couple of hundred dealers, Apple had five times as many dealers in the US and an established international distribution network. The Apple II had an installed base of more than 250,000 customers, and hundreds of independent developers offered software and peripherals; at least ten databases and ten word processors were available, while the PC had no databases and one word processor.

The company's customers gained a reputation for devotion and loyalty. BYTE in 1984 stated that

There are two kinds of people in the world: people who say Apple isn't just a company, it's a cause; and people who say Apple isn't a cause, it's just a company. Both groups are right. Nature has suspended the principle of noncontradiction where Apple is concerned. Apple is more than just a company because its founding has some of the qualities of myth ... Apple is two guys in a garage undertaking the mission of bringing computing power, once reserved for big corporations, to ordinary individuals with ordinary budgets. The company's growth from two guys to a billion-dollar corporation exemplifies the American Dream. Even as a large corporation, Apple plays David to IBM's Goliath, and thus has the sympathetic role in that myth.

The magazine noted that the loyalty was not entirely positive for Apple; customers were willing to overlook real flaws in its products, even while comparing the company to a higher standard than for competitors. The Apple III was an example of its autocratic reputation among dealers that one described as "Apple arrogance". After examining a PC and finding it unimpressive, Apple confidently purchased a full-page advertisement in The Wall Street Journal with the headline "Welcome, IBM. Seriously". The company prioritized the III for three years, spending what Wozniak estimated as $100 million on marketing and R&D while not improving the Apple II to compete with the PC, as doing so could hurt III sales.

Microsoft head Bill Gates was at Apple headquarters the day of IBM's announcement and later said "They didn't seem to care. It took them a full year to realize what had happened". The PC almost completely ended sales of the III, the company's most comparable product. The II still sold well, but by 1983 the PC surpassed it as the best-selling personal computer. IBM recruited the best Apple dealers while avoiding the discount grey market they disliked. The head of a retail chain said "It appears that IBM had a better understanding of why the Apple II was successful than had Apple". Gene Amdahl predicted that Apple would be another of the many "brash young companies" that IBM had defeated.

By 1984 the press called the two companies archrivals, but IBM had $4 billion in annual PC revenue, more than twice that of Apple and as much as the sales of it and the next three companies combined. A Fortune survey found that 56% of American companies with personal computers used IBM PCs, compared to 16% for Apple. Small businesses, schools, and some homes became the II's primary market.

Xerox PARC and the Lisa

Apple Computer's business division was focused on the Apple III, another iteration of the text-based computer. Simultaneously the Lisa group worked on a new machine that would feature a completely different interface and introduce the words mouse, icon, and desktop into the lexicon of the computing public. In return for the right to buy US$1,000,000 of pre-IPO stock, Xerox granted Apple Computer three days access to the PARC facilities. After visiting PARC, they came away with new ideas that would complete the foundation for Apple Computer's first GUI computer, the Apple Lisa.

The first iteration of Apple's WIMP interface was a floppy disk where files could be spatially moved around. After months of usability testing, Apple designed the Lisa interface of windows and icons.

The Lisa was introduced in 1983 at a cost of US$9,995 (equivalent to $25,700 in 2019). Because of the high price, Lisa failed to penetrate the business market.

Macintosh and the "1984" commercial

By 1984 computer dealers saw Apple as the only clear alternative to IBM's influence; some even promoted its products to reduce dependence on the PC. The company announced the Macintosh 128k to the press in October 1983, followed by an 18-page brochure included with magazines in December. Its debut, however, was announced by a single national broadcast of a US$1.5 million television commercial, "1984" (equivalent to $3,700,000 in 2019). It was directed by Ridley Scott, aired during the third quarter of Super Bowl XVIII on January 22, 1984, and is now considered a "watershed event" and a "masterpiece". 1984 used an unnamed heroine to represent the coming of the Macintosh (indicated by her white tank top with a Picasso-style picture of Apple's Macintosh computer on it) as a means of saving humanity from "conformity" (Big Brother). These images were an allusion to George Orwell's noted novel, Nineteen Eighty-Four, which described a dystopian future ruled by a televised "Big Brother." The commercial ended with the words: "On January 24th, Apple Computer will introduce Macintosh. And you'll see why 1984 won't be like 1984".

On January 24, 1984, the Macintosh went on sale with a retail price of $2,495. It came bundled with two applications designed to show off its interface: MacWrite and MacPaint. On the same day, an emotional Jobs introduced the computer to a wildly enthusiastic audience at Apple's annual shareholders meeting held in the Flint Auditorium; Macintosh engineer Andy Hertzfeld described the scene as "pandemonium". Jobs had directed the development of the Macintosh since 1981, when he took over the project from early Apple employee Jef Raskin, who conceived the computer (Wozniak, who had crucial influence over the initial design and development of the program with Raskin, was on leave during this time due to an airplane crash earlier that year). The Macintosh was based on The Lisa (and Xerox PARC's mouse-driven graphical user interface), and it was widely acclaimed by the media with strong initial sales supporting it. However, the computer's slow processing speed and limited range of available software led to a rapid sales decline in the second half of 1984.

On January 24, 1984, the Macintosh went on sale with a retail price of $2,495. It came bundled with two applications designed to show off its interface: MacWrite and MacPaint. On the same day, an emotional Jobs introduced the computer to a wildly enthusiastic audience at Apple's annual shareholders meeting held in the Flint Auditorium; Macintosh engineer Andy Hertzfeld described the scene as "pandemonium". Jobs had directed the development of the Macintosh since 1981, when he took over the project from early Apple employee Jef Raskin, who conceived the computer (Wozniak, who had crucial influence over the initial design and development of the program with Raskin, was on leave during this time due to an airplane crash earlier that year). The Macintosh was based on The Lisa (and Xerox PARC's mouse-driven graphical user interface), and it was widely acclaimed by the media with strong initial sales supporting it. However, the computer's slow processing speed and limited range of available software led to a rapid sales decline in the second half of 1984.

The Macintosh was too radical for some, who labeled it a mere "toy". Because the machine was entirely designed around the GUI, existing text-mode and command-driven applications had to be redesigned and the programming code rewritten; this was a challenging undertaking that many software developers shied away from, and resulted in an initial lack of software for the new system. In April 1984 Microsoft's MultiPlan migrated over from MS-DOS, followed by Microsoft Word in January 1985. In 1985, Lotus Software introduced Lotus Jazz after the success of Lotus 1-2-3 for the IBM PC, although it was largely a flop. Apple introduced Macintosh Office the same year with the lemmings ad, infamous for insulting potential customers. It was not successful.

For a special post-election edition of Newsweek in November 1984, Apple spent more than US$2.5 million to buy all 39 of the advertising pages in the issue. Apple also ran a "Test Drive a Macintosh" promotion, in which potential buyers with a credit card could take home a Macintosh for 24 hours and return it to a dealer afterwards. While 200,000 people participated, dealers disliked the promotion, the supply of computers was insufficient for demand, and many were returned in such a bad shape that they could no longer be sold. This marketing campaign caused CEO John Sculley to raise the price from US$1,995 (equivalent to $4,900 in 2019) to US$2,495 (equivalent to $6,100 in 2019). The Macintosh also spawned the concept of Mac evangelism, which was pioneered by Apple employee, and later Apple Fellow, Guy Kawasaki.

1985: Jobs and Wozniak leave Apple

By early 1985, the Macintosh's failure to defeat the IBM PC became clear. This triggered a power struggle between Steve Jobs and CEO John Sculley, who had been hired two years earlier by Jobs using the famous line, "Do you want to sell sugar water for the rest of your life or come with me and change the world?" Sculley and Jobs' visions for the company greatly differed. The former favored open architecture computers like the Apple II, sold to education, small business, and home markets less vulnerable to IBM. Jobs wanted the company to focus on the closed architecture Macintosh as a business alternative to the IBM PC. President and CEO Sculley had little control over Chairman of the Board Jobs' Macintosh division; it and the Apple II division operated like separate companies, duplicating services. Although its products provided 85% of Apple's sales in early 1985, the company's January 1985 annual meeting did not mention the Apple II division or employees. This frustrated Wozniak, who left active employment at Apple early that same year to pursue other ventures, stating that the company had "been going in the wrong direction for the last five years" and sold most of his stock. Despite these grievances, Wozniak left the company amicably and as of January 2018 continues to represent Apple at events or in interviews, receiving a stipend over the years for this role estimated in 2006 to be $120,000 per year.

In April 1985, Sculley decided to remove Jobs as the general manager of the Macintosh division, and gained unanimous support from the Apple board of directors. Rather than submit to Sculley's direction, Jobs attempted to oust him from his leadership role at Apple. Informed by Jean-Louis Gassée, Sculley found out that Jobs had been attempting to organize a coup and called an emergency executive meeting at which Apple's executive staff sided with Sculley and stripped Jobs of all operational duties.

Jobs, while taking the position of Chairman of the firm, had no influence over Apple's direction and subsequently resigned from Apple in September 1985 and took a number of capable Apple employees with him to found NeXT Inc. In a show of defiance at being set aside by Apple Computer, Jobs sold all but one of his 6.5 million shares in the company for $70 million. Jobs then acquired the visual effects house, Pixar for $5M (equivalent to $11,700,000 in 2019). NeXT Inc. would build computers with futuristic designs and the UNIX-derived NEXTSTEP operating system. NeXTSTEP would eventually be developed into Mac OS X. While not a commercial success, due in part to its high price, the NeXT computer would introduce important concepts to the history of the personal computer (including serving as the initial platform for Tim Berners-Lee as he was developing the World Wide Web).

Sculley reorganized the company, unifying sales and marketing in one division and product operations and development in another. Despite initial marketing difficulties, the Macintosh brand was eventually a success for Apple. This was due to its introduction of desktop publishing (and later computer animation) through Apple's partnership with Adobe Systems, which introduced the laser printer and Adobe PageMaker. Indeed, the Macintosh would become known as the de-facto platform for many industries including cinema, music, advertising, publishing, and the arts.