Apple Almost Dominated The Early Internet.

Apple almost owned AOL, but we had one of the biggest strategic misses of the internet age.

I worked at Apple in the late 1980s, when Macs were finally hitting their stride and before Windows 3.1 would fundamentally alter the personal computer landscape.

Here are some powerful lessons I’d like to share from one of my experiences there.

AppleLink

Before the Internet as we know it, Apple had a “proprietary” integrated communications platform called “AppleLink.” Think of it like Slack, Dropbox, and Gmail rolled into one—all in the late ’80s.

AppleLink was how Apple employees, dealers, developers, partners and big customers connected. It was cutting-edge and the product worked well internally. As a technology, it was way ahead of its time.

AppleLink was very much aligned with my vision for Grapevine, the “social media” company I founded in the early 80s (and which I posted about previously on LinkedIn). The same idea that drove Grapevine and AppleLink ultimately turned into one of the most valuable startups of the ‘90s - America Online (AOL). Where both Grapevine and Apple failed to hit escape velocity, America Online succeeded.

But, before then, in the late 80s,I was asked to run the product, content and business side of AppleLink. Our mandate was to scale AppleLink as a means to make Apple’s “ecosystem” better integrated and connected, and as a way to help differentiate working with Apple compared to working with Microsoft and PC manufacturers.

The concept worked so well for communications that someone at Apple Customer Support suggested offering this model to consumers as a way to reduce call center volumes. Remember, there was no commercial internet in the 80s and few people had email, so phone was the only way to contact a company.

Different times to say the least.

Fumble in the Endzone

That novel idea for customer service - AppleLInk Personal Edition - was a logical extension of what we were building with AppleLink. However, rather than work with the team that built and operated AppleLink, the customer service team decided to contract with an external company and to keep their work “under the radar.” I never understood why they did this, and it ultimately came back to bite them and Apple.

They chose to contract with a company called Quantum Computer Services, who had built similar technology for Commodore and Radio Shack, which were consumer PC brands at that time. The CEO of Quantum was Steve Case, who went on to become one of the leading entrepreneurs of the 90s.

Steve out-negotiated the customer support team at Apple and created a sweetheart deal for Quantum that was a terrible deal for Apple. The Apple side was led by a relatively junior team that was so focused on their own objectives and constraints that they forgot the bigger “Apple” picture and traded away key assets. They agreed that Apple would promote and market the service and that Quantum would own and operate it. They licensed the Apple and AppleLink trademarks to Quantum who then branded the service “AppleLink Personal Edition.” As a result of this deal, Quantum owned all the customers, all the customer data, and the majority of the revenue with Apple only receiving a small revenue share.

Once senior leaders at Apple became aware of what had happened, this became a CEO level issue. Apple’s brand and customers had been licensed–or basically given away–to a small third party.

It was clear that we needed to renegotiate.

Apple naturally wanted control and ownership of all assets, but that didn't match what Steve Case wanted for Quantum. So, we had to unwind the deal. The original contract gave Apple the option to either buy Quantum Computer Services for $10 million, or to part ways and unwind. In what turned out to be a very shortsighted move by Apple, John Sculley chose the latter.

In order to unwind the agreement while not disrupting users, we had to allow Quantum to continue operating the service. However, this required a name change and an end to Apple’s promotion and co-marketing. Quantum had to change their name and the name of the product.

In this change, “AppleLink Personal Edition” became “America Online (AOL).”

Most people reading this know what happened next. AOL went on to become the market leader in consumer communications, the onramp to the Internet for millions of people, and the leading chat/messaging platform of the 90s. At their peak, AOL hit a market cap of $200 billion and was even immortalized in the Tom Hanks and Meg Ryan film “You’ve Got Mail”. Finally, they acquired Time Warner in one of the most iconic (and ultimately failed) mergers of the Internet era.

Apple passed on buying this company for $10 million. If they had purchased Quantum and rolled out the service under Apple;s control to millions of people, Apple could have become one of the primary “onramps” to the Internet, and might have changed the course of internet history.

In the Rearview

There are several big lessons I took away from this experience. Imagine if Apple, rather than AOL, had become the leading onramp to the Internet in the 90s. We had already built a great network ecosystem that served part of our customer base, and we could have extended that model to our end users if not for the negotiating and acquisition fumble. Apple could have dominated email, internet connectivity, news, and chat and become the primary consumer onramp to the Internet like AOL did for many years. Unfortunately, Apple execs didn't have the vision for that opportunity at the time.

On the other hand, the fact that leadership in customer support could go off on their own and sign the agreement with Quantum that started this whole debacle was an example of a lack of strategic understanding and a suboptimization of the power of Apple. This is a strong example of how Apple was a different company in the years between Steve Job’s stints as CEO (John Sculley was the CEO at the time).

Steve Jobs’ Reflections

Late in his life, in summer 2008 a few years before he passed away, I had the opportunity to spend 90 minutes one on one with Steve at his office in Cupertino. I was being recruited to return to Apple to work on digital media as the company got ready to launch the App Store. The company ultimately decided not to hire someone in the role we were discussing, but it gave me that opportunity to meet with Steve.

Among other things we discussed, I asked him what he felt was the hardest part of his job as CEO. He thought for a bit and said, paraphrased, “Keeping people focused on our core mission and priorities so they don’t go off and do things that are a distraction for the company”.

Steve was not a fan of Google’s famous “20% time” policy — an internal initiative that allowed employees to spend roughly one day a week (20% of their work hours) on projects they were passionate about, even if those projects were outside their official job responsibilities.

That policy has worked for Google, although it has also led to many Google products being launched and then abandoned.

Thinking Big and Small

One of Apple’s biggest success factors over the years has been its laser focus on a small number of insanely great products, and the company’s culture under Steve Jobs was nurtured to maintain that.

My takeaway from Steve’s reflection and Google’s success with a vastly different strategy is that every CEO should ask themselves what culture they want and what is most accretive to the vision they have, the company they are building, and their relationship with their customers.

There is no right or wrong answer to this question, but success is highly correlated to being very intentional and relentless with your answer and how you lead your employees, day after day.

However, in a paradoxical contrast to laser focus, every company has moments where “thinking big” could change their trajectory. Often leadership is so focused on executing what they know and understand that they miss emerging opportunities that could be a natural extension of what they are already doing.

Apple’s failure to see the opportunity in buying Quantum is a perfect example of this.