Looking back at John Sculley's rise as Apple's CEO, and fall on October 15, 1993
After Steve Jobs, the best known head of Apple was John Sculley and yet he resigned from Apple in profitable disgrace just as the company headed toward destruction. AppleInsider looks at Sculley's tenure with the company, and how history has treated the man since.
Next time you're asked to become CEO of a major company, make sure you negotiate your exit fee before you sign the contract. Until you sign, until you start the job, the company wants you and will give you practically anything. That's surely what John Sculley did because when he resigned Apple on October 15, 1993, he left with the equivalent in today's money of $17.5 million.
That included severance pay, a one-year consulting fee and Apple's commitment to buy Sculley's mansion and Lear jet.
And the reason he resigned on October 15, 1993 was because of what happened the day before when Apple announced its quarterly results. The firm did actually make a profit and it even increased its sales — but just barely enough to beat the dire predictions of analysts. The reality was still dire, though, as Apple's 1993 fourth-quarter earnings were down 97 percent from the same time in 1992.
To put this into context, this means that Apple's net income was $2.7 million in this 1993 quarter compared to $97.6 million the year before, which is equivalent to $4.7 million and $175.6 million today. We don't know what Sculley was earning in 1993, but CNBC says that in 1987 he was the highest-paid executive in Silicon Valley, taking home $2.2 million annually.
That's hard to support in a company doing so badly and it's also hard to stomach. Even if it weren't routinely believed that Sculley fired Jobs, you can imagine he wasn't the most popular person at Apple then.
Yet it all seemed so very different just ten years before.
Sculley joins Apple
You know the famous line that Steve Jobs said to John Sculley when persuading him to join Apple. "Do you want to sell sugar water for the rest of your life, or do you want to come with me and change the world?"
He said it because at that moment, Sculley was president of Pepsi. Up to then he was famous, if only within the retail industry, for how he created The Pepsi Challenge.
Again, that's not quite accurate, but Sculley commissioned research that ultimately led to this long-running ad campaign. The ads featured members of the public in a blind taste test between Pepsi and its then much more successful rival, Coca-Cola.
Unsurprisingly, in every ad shown, Pepsi won. However, it's fair to say that Pepsi genuinely won at least most of these taste tests that were tried.
In his 1987 book, Odyssey: Pepsi to Apple, Sculley says that his study "showed that, on a blind basis, consumers overwhelmingly favored the taste of Pepsi over Coke. But Pepsi only won the taste test when both Pepsi and Coke remained unidentified. We didn't know how to exploit this competitive advantage, so we didn't act upon it."
In a move reminiscent of what Apple refers to as a skunkworks, one Pepsi executive went ahead and worked up what would become the Pepsi Challenge. When the Pepsi board, including Sculley, refused to pursue the idea, Larry Smith, Executive Vice President for Pepsi's bottling plants division, did it himself.
He hired an ad agency and created the campaign. That was in 1971 and Sculley moved to Pepsi's international division before returning in 1974. Sculley saw the challenge "as a far more powerful idea" when he returned four years later.
Where Larry Smith had done the Pepsi Challenge to help areas where the drink was being overwhelmed by Coke, Sculley turned it into a national campaign. He didn't have the idea and he didn't create the campaign, but Sculley took it across the US and that made it the famous success it is.
Although when Sculley himself took the Pepsi Challenge, he didn't go well. "I made the mistake of publicly taking the Pepsi Challenge once at the Daytona 500 car race in Florida," he wrote in Odyssey. "We had timed a massive campaign in the state to coincide with our sponsorship of the race. I took the Challenge and chose Coke! Fortunately, the media weren't there to witness my embarrassing gaff."
Steve Jobs and Apple
He's not as known as Jobs or Steve Wozniak, but Mike Markkula is crucial to Apple's story and to Sculley joining. Markkula guided Apple when it was a fledgling business. He even came out of retirement in 1977 to do so and had only intended to help the company grow for a few years before he would step away again.
However, circumstances meant he instead became president in 1981 and Steve Jobs took over Markkula's previous role as chairman. Apple's board, including Markkula, wanted a new CEO and Jobs made his choice. He wanted IBM's Don Estridge — but Estridge didn't want Apple.
It's said that one of Jobs's criteria for picking a CEO was that he or she be someone Jobs could manipulate. If that's true, it ultimately didn't faze Sculley. After some 18 months of Jobs pressing him, John Sculley joined Apple.
He did it to change the world and gave up his $500,000 Pepsi salary for a mere $1 million at Apple — plus $1 million in a signing bonus, a $1 million contract clause, the option to buy 350,000 Apple shares, and relocation expenses.
The Apple Challenge
It's easy to criticize Sculley for how Apple went downhill, but he did have successes. Steve Wozniak credits Sculley with the survival of the Mac.
"The Macintosh failed, really hard," he said to The Verge in 2013, "and who built the Macintosh into a success later on? It wasn't Steve, he was gone. It was other people like John Sculley who worked and worked to build a Macintosh market when the Apple II went away."
"You know, I loved the Newton. That thing changed my life," added Wozniak. "John Sculley got demeaned by Steve a lot, but he did the Knowledge Navigator, the Newton, HyperCard — unbelievable things."
Sculley also brought the Pepsi Challenge idea to Apple and created a campaign called Test Drive a Macintosh. In a 1984 edition of Newsweek, Apple took out 16 pages of advertising, costing more than $2.5 million according to "Apple Confidential 2.0," promoting this idea.
You can read it all online and there were also TV spots to do with it.
If you had a credit card for security and you filled out a form, you could take home a Mac to try. Some 200,000 people did. However, Sculley was sure that just using a Mac would convince people to buy it.
You see his point but it didn't work out like that. Instead, a large proportion of Macs were returned — and many were slightly damaged on the way.
1985 won't be like 1984
Steve Jobs and John Sculley were fast friends in every sense but they weren't it for long. By 1985, there were strains. Apple was struggling financially and Sculley was persuaded that Steve Jobs was less an asset and more a liability.
It isn't true that Sculley actually fired Jobs, but they did have boardroom battles. Ultimately, Sculley removed Jobs from any kind of company responsibility.
This led to Jobs quitting to form NeXT. And it led to Sculley pressing on at Apple for another eight years.
What happened next
You can look at the post-Jobs era of Apple as being when John Sculley invented the Newton and so started us all off on a road to the iPhone and other smart devices.
The less generous view is that Sculley believed himself to be a technological innovator and he wasn't. He created an idea called Knowledge Navigator which arguably predicted much of what we do today with the internet, but it was more a collage of existing ideas set to music.
Apple did most definitely create the Newton on his watch, except he had to be talked into it. And at the very same time he had a team creating the Newton, he had another team spun off into General Magic aiming to make effectively the same thing.
Then he caved to pressures from the Apple board and made a big announcement about the forthcoming Newton. It was a hugely successful announcement but it was 14 months premature.
Newton cost too much and competitors had a long time to create cheaper rivals.
You don't need to be an engineer to run a technology company and you don't need to be a visionary to make a success of a business. John Sculley acted like a visionary leader but he needed to actually set the trends in a timely fashion — or set the company's course to where those trends were going on time and not too early or too late — instead of bending to other pressures.
He was the archetypal corporate manager yet he failed to manage Apple the way that Apple needed to be run at the time.