John Sculley: ‘If you want to build a billion-dollar company – empower the consumer’ (video)

28 May 2015158 Shares

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Former Apple CEO John Sculley talks about his new smartphone Obi, the age of unicorns and why he believes Apple could be worth a lot more

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Former Apple CEO John Sculley reveals how he plans to empower the next 2bn members of the world’s middle classes with his Obi smartphone and how success in business today requires harnessing the power shift to consumers’ opinions.

In the 1970s, John Sculley became a living legend in the boardrooms of corporate America when he took a struggling regional brand called Pepsi and made it a global brand in the Cola Wars against Coca-Cola.

“Most people don’t realise that in the 1970s in the US Pepsi was a regional brand that was outsold 10:1 by Coca-Cola. We launched the Pepsi Challenge as part of what we termed ‘experience marketing’, which was all about selling the experience, not the product.

“It’s all about empowering the consumer. If you want to build a multi-billion dollar business today you need to take advantage of the power shift that has enabled consumers through mobile and social. Consumers pay attention to the opinions of other consumers.

“You could have a brand as brilliant as YouTube and then a challenger comes along in the form of Facebook,” said Sculley, who has penned his thoughts on 21st century business in a book entitled Moonshot.

Sculley, who was the guest of honour at Socialbakers’ Engage 2015 event in Prague last week, said that storytelling and the relating of experiences by other consumers was what elevated Pepsi from a regional to a national and international brand. And they did it without the power of social media.

“People didn’t talk about Pepsi in their own voice. We didn’t have social media in those days, but the power of passing along experiences by doing taste tests that we broadcast in ads led to us eventually passing out Coca-Cola and becoming one of the largest consumed packed goods in the States. That shift was only possible because we respected the opinions of customers.”

Sculley is famous for being the CEO that clashed with Steve Jobs at Apple, contributing to Jobs’ decade-long exile from the company. However, Sculley himself fell afoul of technology trends when he chose the PowerPC architecture for the Mac over the more dominant Intel architecture and was himself ousted by the board.

Sculley said last week that he did not actually fire Steve Jobs from Apple.

He said that Jobs departed after the board removed him from the Mac line over the failure of the Macintosh Office bundle.

“Steve was never fired. He took a sabbatical and was still chairman of the board. He was down, no one pushed him, but he was off the Mac, which was his deal – he never forgave me for that.”

John Sculley on Apple’s iconic 1984 Super Bowl ad: ‘We showed it to the board and there was dead silence. Two of the board members put their heads in their hands’

Sculley expressed his remorse that he and Jobs never renewed their former friendship. “It was never repaired, which was such a shame – I look back and think what a mistake on my part. Corporate America was secular and there just wasn’t the passion you see today where there is such respect for founders. To remove a founder, even if he was never fired, was a mistake. I wish we had got together and renewed our friendship, but it didn’t happen.”

1984

Despite the Steve Jobs clash, Sculley presided over two notable successes at Apple – the iconic 1984 marketing campaign and the first golden age of the Mac between 1989 and 1991.

Recalling how the 1984 ad that saw a young woman pushing through an army of automatons to break free came about, Sculley said that Apple was facing competition from brands like IBM, Atari and Commodore and wanted to somehow capitalise on the fact that 1984 was coming and it was also the title of the famous George Orwell novel.

“We wanted to pre-empt everyone else and aimed for the Super Bowl. We showed it to the board and there was dead silence. Two of the board members put their heads in their hands. Nobody said anything, one of them looked up and said ‘you’re not going to run that are you?’ We had paid US$1m for one minute and suddenly tried to sell the time and no one wanted it, so we ran it anyway. What ensued was we got US$45m worth of free publicity because the TV networks kept running it over and over. Sometimes you have to get lucky.”

Responding to my question about his understanding of the tech industry when he joined Apple, Sculley said he was pursued by Jobs because Jobs understood experience marketing and that doctrine is still embraced by Apple.

“I wasn’t recruited because I knew anything about technology. Steve was intended to be my partner so he focused on the Mac and I focused on Apple II, which was to be the only source of Apple’s cash for the next three years. When we launched the Mac no one had advertised computers like that. Apple today still follows the same principles of what Steve called ‘insanely great products’.

“When we had to sell the time for the 1984 [ad] no one wanted to buy it so we defaulted to running the ad anyway. The big idea was that Business Week had declared IBM the winner of the PC wars and we hadn’t even introduced the Mac at the time. Our big idea was ‘hey world, wake up’! And so the advertising was designed to wake the people up and the Mac experience would hopefully live up to the promise. The expectation often leads to reality and we set a high expectation with the 1984 Macintosh commercial.”

Empowering citizens in developing economies

John Sculley, former Apple and Pepsi CEO

John Sculley, former Apple and Pepsi CEO

Sculley says that his new Obi smartphone, which involves the design team behind the Mac, isn’t designed to compete with the iPhone. Instead it is being designed for markets where iPhones won’t sell. The device will be an Android phone and will sell for around US$100 in the developing world.

“Apple is alone at the top and doesn’t play by anybody else’s rules. But for everybody else price is a factor and the reality is that in a commodity market there is not much of a difference between one cola and another – at the end of the day it’s just bottled water. So how do you differentiate? You start with design and that’s why I brought in the original Mac design team.

‘Many people in the developing world say the most important things now are food, water, shelter and a smartphone. It is the ladder to life’

“The other thing is you need to have a noble cause – there are 1,000 Chinese factories making Android phones and not one of them has a noble cause. Our noble cause is to reach out to the next 2bn people who want to join the world’s middle classes.

“Many people in the developing world say the most important things now are food, water, shelter and a smartphone. It is the ladder to life. For many it can mean a platform for lending, subsidies, pension payments, information about crops and health information.”

He highlighted the use of disposable bio-sensors that can be used in conjunction with smartphones to diagnose severe diseases. “Smartphones have the ability to change lives and that’s why it’s a noble cause. We intend to be in over 70 markets in over a year. This is a very different vision in a commodity industry where there are more than 1,000 Chinese factories. We don’t plan to bring Obi to the US or western Europe, for us these are saturation markets. We are focused on the emerging markets where half the population is under 25.”

Sculley said that Obi is working with Qualcomm and will use its Snapdragon processors. He said Obi will also make skilled use of social media to sell the devices.

“Sony is getting out of smartphones, HTC and others are struggling and many can’t make a profit at the end of the day. Our design centre is US$100 and we aren’t even trying to compete with Apple.”

Obi, he said, is a different approach to smartphones. The company is headquartered in Dubai, the device is designed in Silicon Valley and its distribution is managed by Inflexion Point in Singapore.

“It is hard to change the culture of a company that is large and established. It is much easier to create the culture around a noble cause when starting a new company. How would you take McDonalds and convince people you have a noble cause? You couldn’t. You would have to set up a new food service company focused on nutrition where access to quality of the food experience you never had before is the goal and that can be embraced in a noble cause. People would be suspicious if you never had a noble cause from the start.”

Inspiring the next generation

Sculley said he had no intention of writing another book after Odyssey, which he says entrepreneurs have credited with changing their focus.

“I had no intention of writing another book, but there are so many interesting things happening now that there are lessons I believe my generation needs to pass on.

“You only learn from mistakes, you don’t learn from successes. Let the next generation have the courage to learn that it’s okay to make mistakes. Entrepreneurs are always taking risks. Social media is giving customers the power to listen to opinions of other customers, which is far more powerful than anything we’ve seen in marketing before.

“Entrepreneurs can now dream bigger dreams, build businesses far faster and for far less investment than was conceivable a few years ago.

“Social media provides insights that are just not taught in business school. It’s the voices of other people. The biggest insight I can offer is never compromise on exceptional customer experience.

‘You only learn from mistakes, you don’t learn from successes. Let the next generation have the courage to learn that it’s okay to make mistakes’

“I advise firms to create customer plans rather than business plans, where they aim to make a person a loyal member of the ecosystem.”

Sculley said that while firms are being built faster than ever before, they are also failing faster. “Look at Kodak – it was the biggest photography company in the world and then the iPhone came along. It was just as Steve Jobs launched the iPhone in 2007 that Kodak lowered the cost of film processing to compete with the Walmart single-use camera. In a few years Kodak filed for bankruptcy. The real lesson is that even the most respected and established brands that dominate industries can disappear. The same happened in mobile phones. 2G was all about testing and email. 3G was about photos.”

For consumers in today’s world it is all about instant gratification – instant video feeds, instant alerts. “Leaders may have vision but the timing and technology has to be right. We are in one of those moments right now.”

Industries that are ripe for reinvention include consumer credit, particularly in the US where 175m people are seeking credit every year but 70pc don’t get their preferred rate. “That is a huge problem that needs to be solved. Imagine if you could resolve credit scores in a novel way.”

The future of Apple

While it is two decades since Sculley left Apple, you can tell he respects and admires the company hugely. While the company is approaching a US$1 trillion valuation, shareholders like Carl Icahn believe Apple could be worth a lot more. Sculley agrees.

“I think Apple has a lot of opportunity to increase the value of the company. It is a very bravely run company and I think it will continue to be an innovator. But they aren’t always first to market. Apple is not a technology company in the way most technology companies are. But it is a beautiful design company that is great at building platforms. It is now building vertical platforms for connected health and connected cars and it is doing things that are making it hard for Samsung to follow.

“A few years ago Samsung made a lot of noise about building a Silicon Valley campus, but now it doesn’t have a lot to show for it. My sense is that we probably will see Samsung become a vendor to Apple. It is investing US$15bn in fabrication capabilities and Samsung is a talented company that will probably become more of a partner than a competitor with Apple.”

I think Apple has a lot of opportunity to increase the value of the company. It is a very bravely run company and I think it will continue to be an innovator

The moral of the story Sculley says is that technology companies are constantly having to re-adapt. “I’m currently fascinated by Microsoft right now. It missed one of the biggest technology opportunities ever, even though it built a great business software business. But now it seems to have enlightened leadership and I’m impressed how Satya Nadella has been able to shift the mindset to suddenly opening up to other platforms. I have a lot of hope for Microsoft and Windows 10 is going to be available on many devices. I no longer consider Microsoft out of the mobile game.”

Looking to the future, Sculley said he believes that a major shift is occurring and that the time for female leadership in technology and other industries has finally arrived.

“It was very hard in our generation for women to get into the jobs you needed experience in. Fortunately the world is changing – look at leaders in the tech industry today, many are women. Women offer the type of leadership today and it plays to the strengths that women have more naturally than men: they are more collaborative and better listeners.

“In American universities the gender split is 60pc women and 40pc men and the best students are the women. The women’s time is coming – men made a mess of things in a lot of fields. I am a big supporter of women in public service, enterprise, education and science and women will have an increasingly important role.”

In the age of unicorns

John Sculley, former Apple and Pepsi CEO, at Engage 2015 last week

John Sculley, former Apple and Pepsi CEO, at Engage 2015 last week

Asked about his view on the rise of unicorn companies that are valued in the billions of dollars. Ride-sharing app Uber is valued at more than US$43bn, for example, and Sculley gives Uber credit for bringing about change in a market overdue for change.

“There will always be over-valued companies. But before Uber launched, the taxi industry was a US$150m-a-year industry in San Francisco and it was impossible to get a cab. Now, less than five years later, Uber is a US$500m-a -year industry in San Francisco and you can also get an Uber. The taxi industry is still a US$150m-a-year industry and it didn’t go away. But Uber solved an industry problem that needed to be solved.

“Uber is not a technology company, it’s a black-car company that has built a service that is easy to use over a smartphone and it is outrageously profitable.

“But will it end up like Groupon or Facebook, I have no idea. But the reality is we are seeing an entirely new kind of business emerge – infrastructure as a service – that is being led by players like Uber and Airbnb.

“These are new inventions of what a corporation can look like,” Sculley concluded.

“You have to look at it through a different lens.”

Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com