Apple starts to rot

Few material objects are capable of stirring such intense loyalty as an Apple Macintosh computer. At last autumn's Apple Expo in London, devotees wore badges with "Windows 95, Apple 89" on them. The implication was that Microsoft was six years behind Apple. The fans pointed out, for example, that plug-and-play - by which the computer automatically reconfigures itself when bits and pieces are added - has been running on the Mac for years. PC users have only just been given plug-and-play, with Windows 95.

So there has been much gnashing of teeth at the news highlighting Apple's troubles. First, a series of resignations highlighted deep divisions at the top of the company. Then two weeks ago the figures for the final three months of last year were published: Apple lost $69m, causing shock waves in a group that has traditionally been highly profitable. And on Thursday Michael Spindler, the beleaguered chief executive, announced he was "redesigning the business": Apple would license its technology out much more widely, and it would leave the bottom end of the market to clone-makers. It would also cut 1,300 jobs, or 8 per cent of the workforce.

The sad truth is that Apple's odds of surviving as a computer maker, or even as a separate company, are lengthening by the day. This is a great shame, not only because Mac loyalists would feel a huge gap in their lives, but because Apple is arguably the founder of the personal computer industry. But it has, to use business jargon, cocked it up something rotten. If it is taken over, or becomes just another software company, it has only itself to blame.

Oddly, Apple's most recent problems have come from excessive demand. In March 1994 it introduced the Power Macintosh. Existing users - particularly those in graphics and publishing who are almost completely Mac-dependent - fell over themselves to order the new model. Apple was unable to cope, and by last summer had a $1bn backlog of orders.

This signified weak management. And poor managementlies behind Apple's much more serious long-term decline. The company was founded in 1976 by the college drop-outs Steven Jobs and Stephen Wozniak, who decided to build a low-cost PC. It was a wild success and by 1980, before either was 25, they were worth hundreds of millions of dollars each. In 1984, Apple launched the Macintosh, which introduced the mouse and the drop- down menu system and so created a now ubiquitous look.

What it did not do was to license its technology to other manufacturers. IBM, which had launched the rival PC in 1981, did, so creating a raft of clone-makers that quickly ate into Apple's market share. Even though the PC's Dos operating system, designed by a little company called Microsoft, was primitive compared with the Mac, lower costs and better marketing pushed Apple into a corner.

Jobs and Wozniak were ousted in 1985, but in the late-Eighties boom the company was highly profitable, establishing the niches it still dominates. Its share of the PC market was only 15 per cent by the end of the decade, but it was a lucrative 15 per cent, because specialist users paid a premium for superior technology.

By the 1990 recession, Microsoft had narrowed the gap. The Windows operating system was not as good as the Mac's, but it was on its way. Apple responded by entering alliances: the Power PC was the fruit of a link-up with Motorola and, ironically, IBM. The joint venture also started work on the Common Hardware Reference Platform that would allow Macs to use a number of operating systems.

But the alliance has been dogged by delays and friction within Apple. Spindler took over in 1993 and announced fresh job cuts as well as a change of direction: henceforth Apple would price aggressively to win a 25 per cent share of the market.

The aim was to ensure that software publishers kept writing programs for the Mac, but many within the company believed it was the wrong way to go. In autumn 1994, the board ordered Spindler to find a buyer for the company: he almost reached a deal with IBM but, when this failed, warfare on the board became intense. Three top executives have since left.

Meanwhile, the company's policies have continued their erratic path. In 1994, Apple finally decided it would license its technology to clone- makers. So far, few companies have taken up the offer. Last summer it dumped its 25 per cent market share goal - the share then was 8 per cent - and last week announced that it was heading off upmarket, not down. This could be bad news for Mac loyalists - the cheapest machine is already pounds 1,000. Unless clone-makers pick up the gauntlet, it will soon be impossible to buy a Mac for a good deal more than this.

Windows 95 could be the final nail in the coffin. It hasclosed the gap with the Mac in many areas, and is available on pounds 500 machines. The Mac may still be better than a PC running Windows 95 but as Richard Shaffer, of Technologic Partners in New York, says, "Better isn't good enough."