Thread
128k Mac - What were apple thinking!
Needless to say, high margins per se do not necessarily translate to large profits. It's not at all a solid argument that (over)pricing the Mac was essential to saving Apple from declining income. It's really a question of market elasticity. If a drop in price (or larger memory, say) increases your market disproportionately, then profits may actually increase. So, the real question is whether Sculley's pricing by fiat was self-defeating. The rapid flattening of Mac sales suggests that it was. A strong case can be (and has been) made that introducing the Mac with 512K without a price increase would have enabled developers to offer compelling applications sooner, and thus make the Mac a truly useful computer, rather than having it be the lovely toy that the 128K essentially was.
So you think Apple could have released a 512k Mac for $1995 or even $2495 in 1984? I don't think that would have been possible. 256k maybe, but not 512k.
According to the folklore, the jump from $500 to $1995 was pretty much because of RAM prices, the decision to go with the 68000 instead of the 6809, the Sony FDD that cost more than the Twiggy, and so on. That $500 target started before the Mac was nothing more than an idea, and the requirements grew pretty quickly.
Supposedly Scully raised it another $500 to $2495 to pay for extra marketing, and Jobs eventually backed down.
So it doesn't sound like $1995 would have been possible for anything more than 128K.
Supposedly Scully raised it another $500 to $2495 to pay for extra marketing, and Jobs eventually backed down.
So it doesn't sound like $1995 would have been possible for anything more than 128K.
In engineering, 500 is one of those special round numbers. It rarely emerges from a mathematical calculation, and so one might suspect it was just made up. Well, there's no need to speculate. Apple enjoyed industry-record margins of ~60% on the 128K Mac at its introduction. That's a fat margin, thanks to Sculley's $500 brainstorm. And those margins only increased over time.
Spot prices for 64kbit DRAMs at the end of 1983/beginning of 1984 were between $2 and $4, depending on volume and negotiating power (by 1985, 64kbit DRAMs were selling for one-tenth that, as the Japanese came on strong). Even if you pessimistically assume Apple could do no better than to pay at the higher end of that range, we're looking at about $60-$65 of memory for the 128K Mac. So, there's no rigorous justification for the statement that Apple couldn't have afforded to sell the Mac for less. It would have been trivial for Apple to lower the price to improve market share. Alternatively, they could've kept the price high, but offer more RAM, enabling apps writers to provide compelling programs to entice users to the new platform. To do so with the 64k generation would have been cumbersome, but eminently possible, and would have added only $100-$200 in cost above that for the 128K model (again, depending on what assumptions you make about Apple's ability to negotiate).
It's hard not to conclude that the pricing was at best a weak function of hardware cost, and that ordinary greed was a more operative factor. I'm hardly against capitalism, but I am for an accurate telling of historical events.
Spot prices for 64kbit DRAMs at the end of 1983/beginning of 1984 were between $2 and $4, depending on volume and negotiating power (by 1985, 64kbit DRAMs were selling for one-tenth that, as the Japanese came on strong). Even if you pessimistically assume Apple could do no better than to pay at the higher end of that range, we're looking at about $60-$65 of memory for the 128K Mac. So, there's no rigorous justification for the statement that Apple couldn't have afforded to sell the Mac for less. It would have been trivial for Apple to lower the price to improve market share. Alternatively, they could've kept the price high, but offer more RAM, enabling apps writers to provide compelling programs to entice users to the new platform. To do so with the 64k generation would have been cumbersome, but eminently possible, and would have added only $100-$200 in cost above that for the 128K model (again, depending on what assumptions you make about Apple's ability to negotiate).
It's hard not to conclude that the pricing was at best a weak function of hardware cost, and that ordinary greed was a more operative factor. I'm hardly against capitalism, but I am for an accurate telling of historical events.
The Apple II was a cash cow that carried Apple, and the Mac, into the 90s. The Mac did not become truly successful until the SE & Mac II were introduced in 1987.
I don't think anybody here advocated delaying a launch until RAM prices dropped. That would be foolish. Bill Gates would have released Windows 1.0 and no one would have anything else to compare it to and Apple really would have been dead, lawsuit or no. The argument as Tom Lee so astutely puts it is that Apple was and is a greedy company that was making far more than they actually needed to. They had more money than they knew what to do with at the time and would have done far better with the Mac had they sold it for less and targeted a wider audience. It did incredibly well for being as underpowered as it was thanks to Sculley's marketing campaign. But once the initial fascination wore off on the early adopters of this revolutionary technology, the bread and butter consumers avoided it thanks to the high price and poor reviews it was receiving. If it weren't for Apple's wise decision to get as many software developers on board from the launch, they might well have dried up and blown away by August '84. Between the huge selection of software and growing enthusiasm for the platform, they made it. Apple's investment in education really turned the tide, which ultimately saved them as students quickly embraced the Mac and bought them for themselves as soon as they had jobs. But, they failed to learn their lessons from Lisa, which was no matter how revolutionary if people can't justify the cost they will make due with something else. Yes RAM was expensive, yes it was hard to come by, but in the end, that isn't what kept the price artificially high for the underpowered 128K.
And it was only in education where the IIe was carrying it's weight. The IBM PC had pretty much pushed the Apple II's out of offices and competition from other makers of 8 bit computers like Atari and Commodore were taking the home users. The IIe had become a niche machine and the writing was on the wall for it. Jobs knew they wouldn't be able to depend on the IIe forever with PC's proliferating. Eventually the IIe's would have been pushed out of the schools which was why he got so into the Macintosh project. Mac was going to be the future of Apple when the IIe stopped selling. If the Mac failed, it would have been the end for Apple because the successors of the IIe (the IIGS, IIc and IIc+) all failed to achieve the same popularity.
Those early Macs had to have high prices to pay for the development costs as well as the advertising and promotion. If they had gone with Jobs pricing or upped the specification without a price increase, Mac would have dragged Apple down and might not have survived to 1987 when things started looking up to the point where Apple could think about dumping the Apple II and going exclusively Mac. Mac had to start recovering it's costs or the technology might have died before it achieved wide acceptance. Apple would be defunct and Macintosh would be nothing more than a blip on the timeline of computer history.
There's no argument that Apple needed to earn money from the Mac. However, you continue to make the assumption that high prices implies high profits. That could be true, but it is not necessarily true. By extension of your logic, Sculley should not have stopped at a $500 increase.
The flattening of Mac sales after the initial rush of purchases by early adopters ultimately led to Jobs' exile and ouster. It is not at all obvious that this flattening was inevitable. Indeed, in examining the conventional explanations for why sales saturated (e.g., high price for little capability), one can construct a coherent argument that the wound was self-inflicted (and therefore preventable).
Wow. I would really like to see some citations for this hypothesis. I've read almost every book about Apple there is and none of them painted this picture. Yet all of them make pointed reference to Apple's greed. Also, more sales balance out lower prices. It's basic economics. Period. The Mac did not have to be high priced to support Apple's R&D. It just needed to sell well, as I said before they had lots of money in the bank at that time. The fact it did both for the first 4 months is irrelevant. It certainly didn't help them survive the fall that resulted in Jobs dismissal. They were essentially hoist by their own petard.
I also question the validity of your statement that the Apple II was strictly a niche computer for education only. Hard to imagine releasing the IIc after the Mac, releasing the IIGS at ALL, updating the IIe in 1987, and redesigning the IIc Plus in 88, much less continuing most of the product line into 94 ONLY to support a niche and education market when the Macintosh had almost taken over completely by 1987.
The apple II was very useful for the (chemical) industry
It was easy to made custom cards (and the necessary software) to connect weighing units, things they couldn't do with the early macs
a part of my apple collection,some IIgs including the custom cards are acquired when the IIgs wheren't used any more .... in 2003
the metal inside is corroded but they are running smootly
Sculley tacked on that extra $500/Mac to pay for the famous 1984 TV commercial. Even though the Apple II cash cow brought Apple enough funds to pay for the 1984 CM, Sculley most likely viewed the Mac product line as separate and therefore wanted the Mac line to pay for itself at some point, rather than cannibalize profits from a separate product. (The Apple II and Mac teams were NOT one in the same, nor did they collaborate so much -- watch Pirates of Silicon Valley for a glimpse of the internal strife generated by Jobs himself.)
So you honestly believe that if Apple sold the Mac for $1995 with 512k that they would have survived if sales of the Apple IIe started to slow down at that point? The IIe was only a year old in 1984. Nobody knew then it would run until 1993 especially since it was obvious that 16 bit systems would become the norm within a few years. Lisa was slow selling, the Apple /// flopped, the Commodore 64 dominated home users, PC's were taking over the business environment, Mac was a huge risk. Apple's future was uncertain and they could ill afford for the Mac to fail before it paid for itself. Sculley did what he had to do to mitigate the risk by raising the price, aggressively promoting the Mac and selling it with a low specification.
That's of course one of the official justifications for doing it. However, very little written about this actually draws this conclusion from analysis of the numbers, no more than those same sources suggest Sculley does. In fact they make it appear as though Sculley arbitrarily pulled that number out of a hat. There is any number of ways to justify a price point, it doesn't necessarily make it good business.
Also another point of clarification. Quadraman implies that Jobs somehow was a champion of lower price for the Mac. The reality is from everything I read, if Jobs smelled profit, he found a way to maximize it. In fact he is allegedly the one who jumped in and began driving the price up. Sculley didn't know what the hell he was doing having only sold softdrinks, but one thing he and Jobs seemed to have in common was greed. Perhaps that is why they got along so well. Under Jobs supervision, the Mac price gradually creeped up to the dismay of the entire Mac team who bought into Jobs propaganda that they were building a computer for the rest of us. According to all reports he lost very little sleep in breaking the news to them that the Mac was going to sell for $2500. This is the same guy who insisted they build their own hard drives and floppy drives so they didn't have to pay anybody else and could reek all of the profits – again, decisions that nearly wrecked the company. Remember Jobs is the guy who took a job and offered to split the fee with Woz who ended up staying up all night, doing all the work. Steve told Woz it was something like $100, when in reality it was like $2,000. In fact Apple is founded on the Apple I which was used inexpensive parts he could, thanks to Woz, assemble in his garage and sell for a huge markup. And he's still doing it today. But it's a different world today, there's a disposable income market and lots of middle-class millionaires now who value style and will pay handsomely for it when combined with innovation. The same was not entirely true in 1984 as the computer wasn't really understood my most and definitely not a necessity.
Bottom line: Charging a premium for an under-powered appliance of any kind, no matter how stylish, especially when the choice for most is not must-have but an extravagance, is ultimately a bad business move. Only arrogance and greed can explain it away. IMHO.
I'm not sure why you persist on raising this straw man from the dead. No one but you has suggested this combination. So, just to bury that straw man once and for all, the two alternatives that actually were discussed by others were:
1) Introduce the 128K Mac at less than 2495.
2) Sell a 512K Mac at about 2495.
And from the actual financial data I've offered, the overall answer is yes, not only would Apple have survived, they most likely would have thrived. Selling as in option 2) above would not have forced a per-unit loss (indeed, the margins would have remained healthy), but would have increased sales volume, and with it, increased market share. Needless to say, that would not have been a bad thing.
Again, it is improper to equate high per-unit margins with high company profits.
It is not improper at all. Anyone knows that when you have a high profit margin you don't have to sell as many units to recoup your costs. Do you really think Sculley was so stupid that he didn't know this? No, you're right. Sculley managed to become chairman of Pepsi and Apple based on his stupidity. If they had sold the Mac using your examples of 512k for $2495 or 128k for $1995 it would have taken more units to cover their investment. Units they may not have sold at all if the Mac failed. Also, the loweer profit margin would have meant no 1984 Super Bowl spot, no Steve Jobs promotional extravaganzas or any of the other clever Chiat Day advertising that got people to buy Macs. So now you have a situation where Lisa is dead, the IIe is an 8 bit computer in an emerging 16 bit world and no 16 bit machine either on shelves or in development so now what do you do? It took 5 years to develop the Mac from concept to production. Can Apple afford to wait until 1989 to produce another 16 bit machine? Microsoft will have Windows 3.x out by then and Intel will have introduced the 486 chip. 1989 is too late to be playing around with 68000's with small memory configurations.
Now you're just degenerating into silliness.
No, I am not. I am looking at the situation from all possible angles, which you have failed to do and which would be required of the CEO of a large corporation. Do you think you are so much better than Sculley that you know your way would have worked for certain? What is the name of the last multinational corporation you were CEO of? Feel free to post your resume showing how you are better qualified to make those sorts of decisions than he was. Please, do.
As my last post on this thread, I'll point out several flaws implicit in your attempted argument-by-résumé. First, had I argued that, in Sculley's shoes, I would have made a different decision, you might have a point. However, that's not at all what I have said. It is precisely with the benefit of hindsight that we can see that Sculley's pricing strategy was indeed self-defeating. Support for that statement may be found in the historical data of saturating sales for the Mac.
As for failing to consider the situation from all points of view, I leave it to others to judge which of us has offered data in support of a position, and which of us has not.
As for failing to consider the situation from all points of view, I leave it to others to judge which of us has offered data in support of a position, and which of us has not.
Three main reasons the price of the Mac went from $500 to $2500:
(1) Raskin underestimated the cost of the basic concept he had; a more realistic price would have been $1,000 to $1,500 instead of $500.
(2) Raskin's concept initially didn't include a bitmapped GUI; adding this on increased needed resources and therefore cost, leading to a computer that would have cost about $1,500-2,000.
(3) Apple's gargantuan ad budget for the new machine added a full $500 onto the price of each unit, bringing it up to $2,500.
So I would say that a Macintosh built under Raskin's leadership would have cost about $1,500, give or take.
But - with all due respect to Mr. Raskin and the revolutionary ideas he had - I very much doubt the Mac would have caught on with customers, or inspired the industry, had it come to market as he intended - see for example the Canon Cat, which was much closer to what Raskin had in mind for the Mac.
Finally, the thing that really saved the Mac's bacon was the advent of the Laserwriter, Postscript, and Pagemaker. That, combined with the release of the Mac 512k, made the platform viable for getting real work done in a number of graphics, ad, and publishing-related fields.
Best,
Matt
(1) Raskin underestimated the cost of the basic concept he had; a more realistic price would have been $1,000 to $1,500 instead of $500.
(2) Raskin's concept initially didn't include a bitmapped GUI; adding this on increased needed resources and therefore cost, leading to a computer that would have cost about $1,500-2,000.
(3) Apple's gargantuan ad budget for the new machine added a full $500 onto the price of each unit, bringing it up to $2,500.
So I would say that a Macintosh built under Raskin's leadership would have cost about $1,500, give or take.
But - with all due respect to Mr. Raskin and the revolutionary ideas he had - I very much doubt the Mac would have caught on with customers, or inspired the industry, had it come to market as he intended - see for example the Canon Cat, which was much closer to what Raskin had in mind for the Mac.
Finally, the thing that really saved the Mac's bacon was the advent of the Laserwriter, Postscript, and Pagemaker. That, combined with the release of the Mac 512k, made the platform viable for getting real work done in a number of graphics, ad, and publishing-related fields.
Best,
Matt
Ok, I lied. One more post. 
Yes, the standard histories cite, inter alia, the ad campaign's expense as the reason for Sculley's adding $500 to the Mac's price. But the numbers are curiously inconsistent with that standard recounting.
The print ads + the Superbowl spot cost around $3M (source: Wikipedia). If the $500 story is to be believed, then Apple expected to sell fewer than 10,000 Macs in 1984. However, Jobs had already cranked out several times that number, from a gigantic factory in Fremont capable of manufacturing 1,000,000 units a year. They actually managed to sell 250,000 Macs that first year.
The arbitrariness of the $500 figure, the inconsistency of the official recountings with the actual data, and knowledge of the personalities in charge, all point to an alternative hypothesis for the introductory price.
Yes, the standard histories cite, inter alia, the ad campaign's expense as the reason for Sculley's adding $500 to the Mac's price. But the numbers are curiously inconsistent with that standard recounting.
The print ads + the Superbowl spot cost around $3M (source: Wikipedia). If the $500 story is to be believed, then Apple expected to sell fewer than 10,000 Macs in 1984. However, Jobs had already cranked out several times that number, from a gigantic factory in Fremont capable of manufacturing 1,000,000 units a year. They actually managed to sell 250,000 Macs that first year.
The arbitrariness of the $500 figure, the inconsistency of the official recountings with the actual data, and knowledge of the personalities in charge, all point to an alternative hypothesis for the introductory price.
The "$500" SRP was a dream price rather than something rooted in reality. For Raskin was never in control at Apple, even in his own little section. The very fact that Jobs took over the Mac project is evidence of that. Had Jobs not been at Apple while Raskin was overseeing the project, $500 may well have been a goal set by the company and the Mac may have been something very different (e.g., the Canon CAT) than what we saw debut in 1984.
I read some Apple history book or other back around '93. It was written by one of the well known columnists, such as Pogue or Kawasaki. It's probably in a box in the attic somewhere.
In that book it said that the Mac team believed they were working on a computer which would cost about $500 to make and that they would sell for $1000. $500 was the production cost target.
I do not believe that it was ever their intent to build a computer that would sell for $500.
IIRC, the book implied that they got very close to the $500 production cost, but (again, IIRC) then the book states that Jobs hiked the selling price up to $2000 without telling/consulting the Mac team and many of them were quite disillusioned when they became aware of this. Then I guess Scully added the extra $500 on top of that.
In that book it said that the Mac team believed they were working on a computer which would cost about $500 to make and that they would sell for $1000. $500 was the production cost target.
I do not believe that it was ever their intent to build a computer that would sell for $500.
IIRC, the book implied that they got very close to the $500 production cost, but (again, IIRC) then the book states that Jobs hiked the selling price up to $2000 without telling/consulting the Mac team and many of them were quite disillusioned when they became aware of this. Then I guess Scully added the extra $500 on top of that.
Quote from the bottom of page 97 in Apple Confidential 2.0, by Owen W. Linzmayer:
Quote from the bottom of page 325 in The Little Kingdom, by Michael Moritz:
Also be sure to see the table on page 90 of Apple Confidential 2.0, which shows a target price point of $500 was set several times during the Mac's development, varying by spec (May 1970, September 1979 and October 1979). Target prices set from 1980 and later were $1,000 and higher.
Quote from the bottom of page 325 in The Little Kingdom, by Michael Moritz:
Quote from the bottom of page 181 in Revolution in the Valley, by Andy Hertzfeld: