Why Newer failed and how Apple may follow! by Bob Moriarty |
I can't spell. That little portion of the brain which controls spelling must be cross wired, or something, in my head. I simply cannot spell. If someone forced you to read anything I have ever written before it was passed through a spell checker, you would think you were reading something written by a fool or an illiterate. Hell, you may think that after it's gone through a spell checker. I sold and used the first IBM PCs released in 1981 running PC DOS. At the time, I couldn't help but feel whoever designed them just didn't get it. They looked like computers and acted like computers but instead of making my life easier, I spent most of my time arm wrestling the machine to get it to do what I wanted. Which was spell correctly. That's all. I sat down with a 512K Mac in early 1985. It could write but it couldn't spell. You had to go out and buy a third-party program to do your spell checking. So I did. And naturally, then as now, the salesman didn't have a clue as to the limits of the program. It would take a body of writing and pass it through the program looking for each spelling error which in my case was a lot. What the salesman didn't tell me was that it could only handle about 30 pages of text. I found that out for myself the first time I wrote 31 pages of text and the program exploded, leaving bits of words spread all over my table. |
But whoever designed the Mac OS got it right. You didn't have to arm wrestle the machine to make it work. Time passed and software improved. Today I doubt there is any real limit to the number of pages of text you can cram into a spell checker. How could a product so well-designed possibly fail? I can't possibly be the only idiot in the world who can't spell? There must be an almost unlimited supply of people in the world who could find some value in a computer which does what you want to do rather than one which requires a full-nelson to boot up. The first time I saw someone open up a 7500 in the summer of 1995, I felt the same way Saul must have felt on his way to Damascus. I saw the light, literally. Here was a machine almost beautiful in efficient design. You could open the machine up and expose its guts in a matter of seconds. The machine had tons of expansion room for memory, VRAM slots for millions of colors on a 21" monitor, three PCI slots, all at a low cost. Popping out the hard drive and installing a new one couldn't have required more than a minute or so. I know of no finer machine ever built by any computer company. Best of all, in my mind at least, you could yank out the old processor in seconds and drop in unlimited speed. I saw a new industry built around the ability to double or triple your speed at a reasonable cost. It took another 18 months for the number of easily-upgradeable machines to reach the critical mass necessary to create the demand for processor upgrades and third-party companies to manufacturer them. Then as now, Apple simply didn't get it. You don't really need a new machine every year, adding upgrade potential of any sort adds value to the platform at zero cost. |
Daystar announced the first processor upgrades, then Newer, then XLR8. Daystar suffered from poor cash management and did little more than create demand for others to fill. Newer began shipping in earnest about four years ago followed in short order by XLR8. At MacCPU we tried and tested upgrades from every manufacturer, including cards we never felt it worth our time trying to create a market for. With one or two minor exceptions, Newer cards were superior in most ways. They were rarely cheap but they did work for most users straight out of the box. In comparison, one of the other still-existing manufacturers used to sent us batches with up to 88% failure rate and the largest manufacturer around today consistently sent us cards failing 15-20% of the time. With profit margins well below 15% I know of no way a vendor can survive when returns have to exceed profit all of the time. For all practical purposes, there was unlimited demand for processor upgrades. At no time in the last four years could you walk into a store and buy every upgrade announced, you can't go anywhere on the web and buy every processor. At all times, demand has exceeded supply. So how can Apple consistently fail for 20 years with a superior OS? And fail they have. Apple currently supplies less than 3 percent of computer products sold worldwide. That's failure according to any measure. Face it, even Microsoft admits their goal is to be "Mac-like." And Windows is Mac-like in the same way an ink-jet copy is "Mona Lisa-Like" the original. I cannot sit at a Windows machine and help but wonder how it is possible that anyone could want to waste their time using a machine so inhuman in design. |
It may even be possible to get a Windows machine to run a spell-checker if you are prepared in advance for the salt-over-the-left-sholder and stomp up and down three times trick just to turn it on. PC people inevitably use their machines to perform one or two jobs. Yes, you can write and spell-check on the same day, but you are pushing the edge of the envelope and you had better be thinking extended memory and IRQs if you want to add software or hardware. All Apple has had to do is follow the lead of Newer. You can have truly superior products and unlimited demand and still fail. All you have to do is consider your customers the enemy. We were Newer's biggest customer for at least 18 months. Four years ago, I used to have giant shouting contests with them. They didn't really believe the upgrade market had much potential. For months we sold every CPU upgrade we could get our hands on at full list. But they didn't think it was important to actually produce the upgrades. They just wanted to collect orders. At one point they bragged about having $40 million in back orders. We were drowning in phone calls and eMail from disgruntled customers and Newer thought they were on the right track. We begged them to stop signing up dealers. We couldn't deliver the orders we had payment for and they wanted more orders. But didn't think it important to actually deliver. |
When you define your customers as being the enemy, lying to them becomes part of corporate policy. After all, why would you ever tell the truth to your enemy? We asked for delivery schedules from Newer more times than I can count. Over the years, we must have made thousands of phone calls to Wichita and I doubt we ever failed to ask for accurate delivery information. It would be nice in the computer business if every order was filled immediately but it doesn't work that way. In the many many conversations we had with Newer we were lied to every single time. At no time did they ever warn us of problems. We used to get production schedules showing a product would be produced, say, during the week of Feb 15th and our back order filled. But more often than I can count, we would get the matrix in March and they were still claiming they would be delivering six weeks in the past. I can understand not knowing what you might deliver next month but any company should have a fairly good idea of what they delivered last month. We would buy $250,000 worth of product one day, and two days later we would see a competitor selling the same product 30 percent cheaper than our cost. Newer consistently would cut a deal with one vendor one day and slice their throats the next. We weren't their worst customer, we were their best customer but it was meaningless to them. The remnants of Newer are already trying to put a spin on the latest bankruptcy. They went bankrupt before, about four years ago. Memory prices took a dive starting in January of 1996. Six months later Newer got caught with too much inventory. If you listened to Newer, all they talked about was how memory prices caught them off guard. Right, like with six months of prices declining every day, they got caught off guard? Are they kidding? That was simply poor management. |
Dennis Huffman, the CFO of Newer claimed three weeks ago, " I can categorically deny this company is going out of business." Roger Kasten, Newer VP of Strategic Development and Evangelism claimed today, "Virtually no one in the company was completely in the know as to how bad things were until the end." If you believe either statement, I have a bridge in Brooklyn I'll make you a hell of a deal on. Maybe neither of them can add. In February Newer announced the third postponement of an agreement on $14 million in debt owed by Newer to not only their suppliers, but to their dealers. If the creditors agreed to yet another delay on getting paid, Newer gained 12 months grace. But what were the real chances of Newer making sufficient profit in 12 months to pay off $14 million in debt? Near zero, they had in place the same anti-customer policies that they have always had. Newer hasn't made $14 million in profit in their entire history, much less one year. Newer didn't go bankrupt in the last day or so, they went bankrupt last February and merely hoped no one would notice. Apple's market is disappearing. It's been declining for years and sales today equal maybe 30% of what the total market was four years ago. Apple's been quietly imploding while no one noticed. But it's never because of stupid decisions on Apple's part. It's because of the clones or the gray market or greedy third-party manufactures who want to steal from Apple. |
Newer made one decision about three years ago which we believed was so catastrophic that they could not possibly recover without a total redefinition of the company. Apple made one decision last June just as foolish and destructive. In the Fall of 1997, Newer was the only company in the world delivering G3 CPUs. The self-serving decision of Steve Jobs to unilaterally tear up a perfectly valid contract with Motorola and Power Computing resulted in Newer Tech alone delivering G3s in any form. Newer owned the market at that point. In January of 1998, at MacWorld, Newer announced G3 upgrades for the Nubus machines, the 6100, 7100 and 8100 and actually had them on demo. In one step, they doubled or tripled their potential market. A market already so large they couldn't possibly fill demand for even the upgrades already announced. They used 2nd quarter pricing for chips in their calculations and indeed, didn't plan on any deliveries until at least May of 1998. The next day Sonnet announced G3 upgrades for the Nubus machines. So Newer proceeded to announce that instead of delivering in May, deliveries would be moved up to February. A mere six weeks away. Somehow they thought people would believe they could deliver in 1st quarter at 2nd quarter pricing. We met with Wiebe, our rep and the head of marketing and begged them to reconsider. By preannouncing, they were destroying the value of the existing inventory and would end up taking more orders than they could fill. Some customers who ordered Nubus upgrades three years ago from Newer are still waiting. There hasn't been a single day since then that Newer had all the Nubus upgrades available. So by using customers as a weapon against Sonnet, Newer only destroyed all credibility with customers. Sonnet's still around. Their products aren't very good in our view but they didn't lie to customers quite as much as Newer did. |
Newer's gone. And everyone at Newer believes some third party did them in. In June, Apple canceled the contracts with 44 outside companies who specialized in dealing with schools. In one fell swoop, thousands of man-years of education sales experience got tossed away. Guess what? Education sales by Apple are in the tank. So Steve Jobs hired a VP and gave her a nice office. She is sending out nice coupons for $100 off to schools. That was such a stupid decision that surely business schools will be using Apple as a case study for the next hundred years. How can you succeed in business with a superior product and unlimited demand? Listen to your customers. Get to know them and deliver what they want to buy, not what you want to sell. Put their needs ahead of yours. After all, when you run out of customers, you close the doors no matter how superior your product is in theory. |
How do you fail in business with a superior product and unlimited demand? Don't listen to your customers. Lie to them and screw them at every opportunity. After all, they are the enemy. Don't get to understand their real needs. Dictate to them, there is always an unlimited supply of fools willing to buy your overpriced products which don't solve any real problems. I still can't spell. But my computer can. We have about a dozen Macs floating around and when one finally wears out the electrons, I'll fire up another one until I wear them all out. I'll buy my next new computer when I can buy it from a company which doesn't treat me as if I'm the enemy. Rest in peace Newer. You finally ended up in the very deep grave you spent years digging. There will be more companies soon in the same graveyard. We aren't entering a recession, it's the big "D" and I don't mean divorce. |
| December 29, 2000 |
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