The Original Macintosh:    88 of 127 
Price Fight
Author: Andy Hertzfeld
Date: October 1983
Characters: Steve Jobs, John Sculley, Burrell Smith
Topics: Marketing, Twiggy
Summary: We feel betrayed by the unexpectedly high price

The Macintosh was originally intended to be a very low cost, high volume personal computer. We wanted to keep the price as low as possible, so the Mac would be affordable to ordinary individuals, and Apple could sell them by the millions. The initial target price was $500, less than half the price of an Apple II at the time, but it quickly rose to $1000 after the design team added up the cost of various components.

In early 1981, after switching from the 6809 to the more expensive 68000 microprocessor and doubling our RAM size to 128K bytes, we realized that we'd have to raise the retail price to $1500 in order for Apple to make its standard profit margin. $1500 was approximately the original price of the Apple II, and it seemed like that was about as high as you could go while still being affordable to individuals. We worked hard to keep the price from rising further, and were able to hold it at $1500 for most of the time the product was under development.

Pricing a brand new computer is tricky, because costs are highly dependent on volume: the more units of a component that you were willing to order, the lower the price per unit. But how can you predict how well a new type of computer will sell? It's literally a confidence game, and we had no shortage of that. Steve Jobs knew that we were going to sell Macintoshes by the millions, and he was good at convincing our suppliers to share some of the risk with us via lower initial prices, to be rewarded as volumes soared in the years ahead. For example, Steve was able to get Motorola to commit to a price of $9.00 for the 68000 microprocessor, less than a quarter of what they were currently quoting at the time.

By the summer of 1983, it was becoming clear that the disk division's Twiggy floppy disk drive wasn't going to make it, and if we weren't careful, it could drag down the Macintosh with it. We had to scurry (see Quick, Hide In This Closet!), but we were able to replace Twiggy with the Sony 3.5 inch drive without slipping the schedule, which was better in every way except one: it cost us an extra $50 or so. When combined with a few other recent splurges, it pushed us over the top, so we grudgingly accepted that the Macintosh would have to debut for $1995.

Meanwhile, Apple hired a new CEO, John Sculley, in April 1983. John was the former CEO of Pepsi, and a world-class marketing whiz, having invented the concept of the "Pepsi Generation" and other successful promotions. He was hired by Apple mainly to apply his marketing skills to the personal computer market, and the Macintosh in particular. But big time marketing costs big time money.

In October 1983, as plans for the Macintosh launch were being finalized, and we were frantically trying to finish the software, Steve Jobs strode into the software area one evening, looking angry. "You're not going to like this," he told us, "but Sculley is insisting that we charge $2495 for the Mac instead of $1995, and use the extra money for a bigger marketing budget. He figures that the early adopters will buy it no matter what the price. He also wants more of a cushion to protect Apple II sales. But don't worry, I'm not going to let him get away with it!"

The design team was horrified. One of the main reasons that we were so passionate about the Macintosh was that we thought we were working on something that we would use ourselves, along with our friends and relatives. It was crucial that it be affordable to ordinary people. $2500 felt like a betrayal of everything that we were trying to accomplish. We worked very hard to keep the price down in every aspect of the design, and now it was being artificially inflated for reasons that didn't make sense to us. But we thought that Steve would prevail, and be able to convince John that we'd do better at the lower price.

But finally, much to our surprise and dismay, after a week or so of wrangling, Steve was the one who gave in, and the Mac was priced at $2495 at launch. Even though it sold quickly at first, soon sales bogged down, partially due to the lack of available software, but also because of the price. Even after sales picked up in 1986, with the Mac Plus and the proliferation of desktop publishing, Apple continued to overcharge for the Macintosh, preferring huge profit margins to growing their market share, which eventually led to big problems when it caught up with them in the nineties.

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How sad. I think this sort of thing still stymies Apple. I don't want to sound cynical but it strikes me that for all of Jobs great sense of humanity or karma or what have you he's totally lost touch with the original concept. I'd always thought Apple was for the masses. At least, meant to be. I've been reading these stories for the last few weeks. I've read them all. a purveyent theme seems to be that artisans were making a tool for artists. That's what the Mac is now. I can think of no other machine in the computer world that more readily makes itself available to the creative process in both form and function. And yet, I don't know a single artist getting started that can afford one. Oh well. I sacrificed my tax refund and two months pay to get my current iBook. It was worth it. I just would have liked to have done it so much sooner.
The $2,495 launch price in 1984 is equivalent to $4,326 in 2002, according to an inflation calculator I found on the net.
Apple eventually did learn its lesson in the late 90's. Today, an entry-level Mac (an eMac) can be purchased for $800, and it is more than capable of running a typical user's software suite. And the high-end model (a dual 2.5GHz G5 tower) at its $3000 starting price is cheap compared to similarly-powerful computers from other vendors. Unfortunately, Apple's past reputation for overpriced and underpowered systems (with the 20th anniversary Mac being the most egregious example of this) still exists. It may take quite a bit more time before this reputation finally dies off.
Well Andy, it looks like I owe you somewhat of an appology about the whole pricing and proprietary issue. To this day, as I look back at the earlier years of the Mac, I know that I was NOT able to afford a Mac, and neither were my parents. Even today, Macs are over priced compared to their Window's counterparts--you get "more hardware for the buck" type thing. It would have been great if Apple could have actually sold Macs at a lower price. But, you know what they say about hindsight. I got to tell ya, I can't blame the whole Mac debacle on you, Andy or even Steve Jobs now after reading this article. In truth, it all came down to cooporate greed. That greed eventually made the PC the dominant Personal Computer in the world, and I don't see Apple ever regaining dominance (at least not in my lifetime). This does not mean that I see you, Andy, Steve or others on the origianl Mac team in greater light: from the articles you have written on this web sight so far, I think very little of your personal character, as well as Steve's and Andy's (even though that may be unfair after twenty-something years). But, as I said earlier, please accept my appologies for blaming you and the entire Mac development team for overpricing the Mac, when clearly it was not your doing (or Steve's for that matter).
Lou, clearly you haven't been paying attention to current Mac prices.
I have, and they are still (relatively) high as compared to the windows PCs. Look at what you get with a Mac as compared to what you get with a PC--this is where I am comming from.
Yes - you get a ton of high quality software (not a pile of shareware junk with no cohesiveness) that could cost a bundle for each program in and of themselves, you get an incredibly more stable and secure OS, you get an out of box experience that no PC can rival, and you really *don't* pay much or any more for it. I've owned a lot of PC's over the years, and the Macs I own now are certainly better bargains. Just getting away from windows and into OS X alone would be worth it, even without all the other benefits I mentioned above. I don't see a problem. You are looking solely at specific things like graphics cards or something. You sure aren't looking at the entire user experience. BTW, Pc's always require antivirus and antispyware software, and they take a lot more effort and time to keep secure and running optimally. Windows people take that for granted. I am enjoying not having to do so any longer. I don't even look at my wife's computer anymore now that she's on a mac. It's disingenuous not to count factors like this in when you talk about the cost of a PC.
I don't see any reason to "think very little" of Andy's personal character from these stories, Lou. From his accounts, I might conclude that Bob Belleville and Steve Jobs were a bit dodgy (although I wouldn't believe it as gospel, since I've never spoken to any of these characters), but most of the engineers and designers come across as people who worked obsessively hard to produce something they felt would be inspirational.
Ditto the above comment. Other than being out of my element with the engineering geekspeak, for me Andy and the others seem like they'd be cool guys to hang out with.
A pity I've found this excellent website only recently since it shows some great insight of what is involved to truly create an incredible product. @Andy: thanks a lot of sharing with "the rest of us". Since I was a youngster by the time homecomputing was becoming big I'd like to share how I perceived Apple. Around my neighborhood, or at school for that matter, Commodore began to rule. This was most certainly due to the better price resulting in exorbitant unit sales plus an incredible growing list of "games" and other software compared to all existing competition. This was around 1984. I've heard of Apple, even the Macintosh, and because you didn't buy an Apple if you were just into gaming, I always thought of Apple as the more serious company, something for adults. Apple as an option for the very first computer was not discussed at all, the price tag being a huge part of it, I guess. So, I ended up starting out with a Commodore C16, shortly followed by a used Atari 800 XL, which drove me nuts since I couldn't get my Epson printer to work flawlessly with Print Shop. From there I migrated to an Amiga 500 in 1990, finally being able to print text flawlessly but the limited RAM and a rather unstable version of a word processing software I bought for big $$$, drove me crazy when all I wanted to do besides gaming, was to compose and print text without headaches. I switched from that ill fated, expensive WSIWYG word processor to a character based one, but couldn't accept the fact to go backwards, guessing what a document might look like rather than knowing. When the Amiga 1200 became a steal around 1994 I got one and gave WYSIWYG word processing another shot, this time with better results, but since this expensive word processing program wasn't further developed I was sitting on a still function limited Ver. 1.0. I switched to Wordworth but in the end the Amiga was clearly a passing system and I envied the other systems with a great choice of ink printers (there were ink printers for Amiga, too, but I did not want to buy into it, rather saving up for a "real" PC by now). In 1996 I bought an expensive 100 Mhz Pentium PC, Windows 95, and a Lexmark ink printer, Word 6.0 and finally I was able to produce satisfying documents. I want to stay true and saying that I preferred buying Commodores, Atari also for the gaming experience back then, but I ended up always looking for the Holy Gral in satisfying word processing. So, between 1986 and 1996 I had spent equally or more money on competing systems than a Mac Plus cost, counting hardware and software. Today I own by chance a 4MB Mac Plus and I am surprised by the productivity and quality it offered. And I can say for sure it's quality and usefulness surpasses all the systems I used to have back then. Heck, if it wasn't for the internet, digital photos and music, it could still last in a home. It still can be useful for a small business, if all you do is word processing and spread sheeting and emails. So, if I could do it again with what I know today, an investment into a 1986 Macintosh Plus, despite inflated prices maybe, were the way to go for immediate satisfying results and saving headaches and further hard- and software investments for years to come. The Plus would have served me well until internet and email would eventually become standard and affordable. Breaking this down into coins, a very wise investment. The problem: back then I thought and felt differently and Apple did not do anything to communicate a different message than Macintosh is only for truly professionals on a fat budget (they maybe didn't say so, but the combination of where the Mac was used plus the price tag created this reputation). Since it wasn't used at my school, I even hadn't had a chance to see one in action. Again, they were only with the professionals, and then with only the creative ones. So, in retrospective, a more moderate pricing could have helped to regard it as the only tool ever needed for a long time to come. Like it was, it surely wasn't the computer "for the rest of us". A missed chance!
"The Plus would have served me well until internet and email would eventually become standard and affordable. Breaking this down into coins, a very wise investment." BTW, Apple helped this a lot by ensuring that, for example, it can run all the way up to System 7.5.5. Apple supported it for a long time as well. BTW, it is well known that Apple is the biggest buyer of flash memory.
I must say this does not surprise me a bit. It is very typical. Engineers do their best to optimize, work on narrow margins, and are paid what they are worthed themselves. Market gobblers just ride on their backs, and grab each and every penny that cost so hard to shave off by tremendous, highly qualified efforts in optimizing. And who gets paid for these "marketing costs"? guess who. Obscene revenues by b**tters, when compared to revenue for brilliant engineer work. But there is also an insight about Steve Jobs. All his RDField b**, all his bullying of his subordinates, all this "either you kill yourselves over weekend to show me by monday or else", all the "bending reality" to "achieve results" b**, comes to view for what it really is, when Steve had his chance to prove himself: when face with the manager types and marketing types, his "RDF" was nill, 0, zero, Not even a penny cut on the price, by negotiating between 2k and 2k5. So there goes the true assessment of Steve Jobs RDF power. Bully subordinates to grab reputation, and yeld to the higher above boss.
@pfa - yielding to your boss is, ultimately, what one has to do. or quit. the RDF stories are used more to illustrate his ability to get subordinates to achieve what they thought was unachievable. that is a great skill to have...even if you cant convince your bigtime CEO boss to drop the price.
It has been many years since this article, and the next latest comment. I was a young engineer in 1984, just out of college, and after playing around with a Mac at a local computer store I decided that I was going to buy one. They were running a special, bundling an ImageWriter with the Mac for $2495, a price that my girlfriend and I saw as astronomical. I was making a salary of $23K at the time, and we realized that we had to take out a bank loan for the computer. The banker nearly laughed at us, and asked if we had any collateral. We finally got a loan, and I spent my spare time learning to program the incredible machine in various languages such as Pascal, FORTH, and Assembler. This experience eventually landed my a hardware/software job developing products for the entire Macintosh line (which by then included the SE and MacII). Today, I am typing this note on my Mac Studio with 64GB of memory, and the machine cost me just about the same amount of 2023 money ($2600). My career wouldn't have been the same if I had not taken the chance of buying that "expensive" Mac in 1984. Macintosh forever!