Dealers of Lightning Read online

  Taylor had spent enough time in academia to know that the most inter­esting intellectual ferment took place well below the stratum of full pro­fessor. "Who are your youngest faculty?" he would ask around. 'What are their ambitions? Where are the most impressive graduate students?" He tracked down the young prodigies, captivating them with the peculiar charm of a leader who seemed inclined more to listen and encourage than to dictate. An impresario needs a company to put on stage; Taylor, in one sense, was holding auditions. In another, he was reproducing one of the most meaningful moments of his own past. The persons he sur­rounded himself with would get there not by chance or breeding. They would be chosen, selected . .. adopted.

  In his first year as director Taylor organized one of what would become an annual series of nationwide IPTO research conferences. On the sur­face this filled a troublesome communications vacuum. Here were the top talents in the field of information processing, all working for ARPA on essentially the same problems. Yet most did not know each other except by reputation. He made the conference an annual affair, held each year at some different and gratifyingly "interesting" place. One year winter might find the group skiing at Park City, Utah; the following year would bring them to New Orleans in time for Mardi Gras.

  Not that the purpose was chiefly to play. Rather, it was to build a net­work of people mirroring the one he would soon propose for comput­ers. Lifelong professional and personal bonds were forged at these events. They would start the day with a communal breakfast, followed by several hours of discussion in the morning. They would eat lunch together, then were set free until dinner, another communal affair. The day ended with further colloquia.

  The daily discussions unfolded in a pattern that remained peculiar to Taylor s management style for the rest of his career. Each participant got an hour or so to describe his work. Then he would be thrown to the mercy of the assembled court like a flank steak to a pack of ravenous wolves.

  "I got them to argue with each other," Taylor recalled with unashamed glee. They went at the intellectual roughhouse with the scientists unemotional candor, oblivious to everything but the substantiation of truth. "These were people who really cared about their work. They weren't interested in politics, they weren't interested in impressing any­body," Taylor said. "If they thought that something I was saying was dead wrong, they'd just as soon tell me as not. They'd just as soon tell one another as not if they thought they were wrong. And in the end these people, all of whom were pretty bright, got to know one another better."

  Of course he had another motive in fomenting tire intellectual free- for-all. It was the best way he knew of gleaning what they were up to. He could have asked any of his principal investigators to sit him down and explain their work, it was true, but he figured the chances were slim that he would even know the right questions to ask. Better to let his experts challenge each other while he watched, like a platoon leader subjecting his men to the rigors of field maneuvers to see whether they will break, and if so, where. "This way I would get insights about their strengths or weaknesses that otherwise might be hidden from me," he said. "If diere were technical weak spots, they would almost always surface under these conditions. It was very, very healthy."

  But it was not to be personal. Impugning a man's diinking was accept­able, but never his character. Taylor strived to create a democracy where everyone's ideas were impartially subject to the group s learned demoli­tion, regardless of the proponents credentials or rank.

  The same principle governed the once-a-year ARPA conferences Taylor established for graduate students. Faculty members and even Taylor himself were barred from these meetings. Barry Wessler, not long out of grad school himself, was delegated to supervise, receiving no instructions other than "to get people together and make something happen."

  At the first session the group piled on an unfortunate wild man from that backwater, the University of Utah, named Alan Kay. Kay had stepped forth in a public session to pitch his vision of a computer you could hold in your hand. He had already coined a name for it: "Dynabook," a notebook- shaped machine with a display screen and a keyboard you could use to create, edit, and store a very personal sort of literature, music, and art.

  "He was crazy," Wessler recalled. "People greeted the whole idea with disbelief and gave him a very tough time. He painted this picture of walk­ing around with a computer under your arm, which we all thought was completely ridiculous."

  Taylor, meanwhile, was fully occupied in finding ways to push for­ward the frontiers of interactive computing. At the time, this meant advancing the technology of time-sharing because there was simply no other way to pay for the enormous computing resources an interactive system demanded.

  During his tenure Licklider had steered most ARPA funding to time­sharing projects of a certain majestic scale, such as MIT's vast Multics program, whose aim was to design a system capable of supporting 300 users at once. Taylor encouraged his contractors to embrace smaller- scale projects as well. One of these, an effort at the University of Califor­nia at Berkeley called Project Genie, was based on the principle that not every university could afford the multimillion-dollar General Electric 645 mainframe Multics required. Instead Genie aimed to design a sys­tem for no more than ten or twenty users. If such a small machine could be widely distributed, Taylor reasoned, time-sharing might actually reach many more users than Multics could ever deliver.

  Genie's host machine was the SDS 930, which was made by an entre­preneurial three-year-old company in Southern California named Sci­entific Data Systems and sold for only about $73,000. The 930 was a popular entry in the commercial market, where it was widely admired for its exceptional speed, excellent reliability, and large storage capac­ity. The Genie team demonstrated that with a nominal amount of new hardware and clever reprogramming the versatile 930 could be turned into a small-scale time-sharing machine. Then they proposed that Taylor arrange for Scientific Data Systems to bring out the modified 930 as a commercial product.

  Taylor gave the idea his enthusiastic endorsement. He invited Max Palevsky, the founder and chairman of SDS, to the Pentagon for what ripened into a memorable encounter. Palevsky, offered a government- funded research prototype on a silver platter, turned him down flat.

  The forty-two-year-old Palevsky was an executive whose heartfelt con­fidence in his own business acumen had been reinforced by his company’s extraordinary success. (In 1965, the year of his encounter with Taylor, SDS had earned more than $5 million in pre-tax profits.) But Palevsky had no use for time-sharing. SDS made its money selling small- and medium-sized computer systems for a niche market of universities and aerospace firms. To Palevsky the technology of time-sharing appeared too elaborate by half and the commercial market a black hole— even IBM, the bellwether performer in the computer industry, had run aground trying to implement a time-sharing strategy of its own. "It was a very sophisticated scheme," Palevsky recalled, "and I just didn't think there were that many sophisticated customers around."

  Equally strong-willed, Taylor and Palevsky conceived an instant mutual antipathy that had them at cross-purposes from the start. Tay­lor tried to draw Palevsky's attention to a terminal in his office linked directly to the reconfigured SDS 930 chugging away on the other side of the continent. Palevsky had not the slightest interest. Taylor judged Palevsky's knowledge of computing shallow and retrograde. Palevsky grew equally impatient with this government bureaucrat whose techni­cal exuberance clearly outran his commercial sense. Beyond that, he announced that the work done by the vaunted Genie team was "full of holes."

  "This thing'll never sell," he said.

  Taylor was shaken to the core. For him interactivity was a sacred cause, and for Max Palevsky to stand in its way was intolerable. Taylor felt his old urge rising to establish his primacy in the pecking order. "You're wasting my time," he snarled. "Why don't you get the hell out of here?"

  He would always cherish his memory of the day he threw Max Palevsky out of his office. Bu
t the issue they had so clumsily debated was not closed. A few minutes later Taylor heard someone knock on his door. It was Rigdon Currie, a courtly Georgian who served as Palevsky's director of sales and marketing. Currie had watched the recent showdown in mounting dismay. One of his responsibilities had been to keep an eye on the Genie team as they transformed the 930. In contrast to his boss, he was deeply impressed by the machine and its commercial potential.

  "I think Max is wrong," he said.

  "I know he is," Taylor replied. 'What are you going to do about it?"

  "I think we can turn him around as long as we get people lined up out­side his door with money," Currie said. "Could I bring the customers up here to see your terminal?"

  "You bet."

  In the next few weeks Currie escorted scores of customers up to Tay­lor’s Pentagon quarters and emerged with more than a dozen solid purchase orders. Palevsky had no choice but to capitulate. He autho­rized the marketing of the Genie machine as the SDS 940 with one stipulation: SDS was to recover all its development costs from the first three sold. As a result, the 940 was priced at $173,000, about $100,000 more than the base 930, although it carried no more than $5,000 in additional hardware.

  The machine became one of the best-selling products SDS ever had, eventually accounting for nearly one-third of its sales. It helped turn time-sharing into a commercially viable business. But Palevsky never fully committed his company to the new venture. Right up until the end, the 940 was manufactured not on a dedicated assembly line, but by trucking conventional 930s to a special plant, where they were torn down and the new hardware installed by hand.

  Taylor won that battle. But his encounters with Max Palevsky were not over, not by a long shot. A few short years later their destinies would con­verge again—this time in the aftermath of one of the costliest miscalcu­lations any American corporation has ever made. The corporation was Xerox.

  CHAPTER 2

  McColough's Folly

  New Years Eve, 1968. From his office on the twenty- eighth floor of Xerox Corporation headquarters in Rochester, New York, Dr. Jacob E. Goldman stared testily out at the filthy weather. Like a prisoner marking off the term of his incarceration on the wall of a cell, he mentally toted up the days since he had seen any trace of the sun.

  The number was thirty-one. Since arriving to take up the job of chief scientist at Xerox on the first of December, Jack Goldman had wit­nessed precipitation in Rochester every single day. He was thoroughly sick of it.

  At that inauspicious moment C. Peter McColough, the company's chief executive, walked in to wish him a happy new year.

  "Peter," Goldman blurted, "I think I've made a great mistake."

  "What's the matter, Jack? Aren't you happy here?"

  "Peter, look out the window."

  Goldman reminded McColough that he had not even had time to move into a proper house. His car spent every night exposed to the elements outdoors, and every morning he wasted a half-hour scraping ice and snow off the windshield. Recently separated and living alone, Goldman even found himself nervously pondering how future candi­dates for his hand might take to Rochester's dismal climate.

  McColough had to be disconcerted by his chief scientist's misery, given the trouble he had taken to get Jack Goldman into the corpora­tion. He believed fervently that Xerox, successful as it was, needed to absorb modern technology. The alternative was to risk sinking into oblivion as its products became supplanted by new developments. Hir­ing Jack Goldman, a visionary technologist and superb judge of research talent at Ford Motor Company, was a critical component of that strategy.

  But to make way for the new appointee McColough had first had to dis­lodge the incumbent chief scientist. This was the aging John H. Dessauer, who had held the post for decades. "McColough thought it was time for Dessauer to step down as the chief technical officer of Xerox, make him emeritus, congratulate him and thank him for eveiything he's done, and get a hotshot technologist in there in his place," recalled one executive from that period. "Naturally Dessauer was very reluctant to go."

  That placed McColough, then the Xerox president, in a delicate spot. Goldman refused to consider Xerox's offer until Dessauer's retirement was assured. As he bluntly told one corporate headhunter in 1966: "Come back when you're prepared to offer me his job." But Dessauer was close to a deity at Xerox. It was he who had inveigled his bosses at modest little Haloid Company into bankrolling the untested duplicating technology of an eccentric inventor named Chester Carlson and shep­herded it toward commercialization. He had supervised the design and development of the celebrated Xerox 914 copier, which became the most successful industrial product in history. To put it bluntly, Dessauer was as responsible as any man alive for the fabulous prosperity of what had evolved into Xerox Corporation.

  To overcome his recalcitrance McColough finally appealed to the lone individual at Xerox occupying an even higher level of divinity: the vener­ated chairman and chief executive, Joe Wilson. Wilson fully sympathized with McColough's desire to revitalize Xerox research. At length the two men came up with a plan to simultaneously announce Wilson's own retirement as chief executive (although not as chairman), McColough's promotion to CEO, and, as part of the changing of the guard, Dessauer's retirement as chief scientist. Almost no one personified an American cor­poration as Joe Wilson did Xerox, most of whose employees had never known another CEO. Dessauer could hardly resist such a self-sacrificing scenario. Grumbling to the end, he finally acquiesced.

  After such maneuvering it would not do for Jack Goldman to get balky after a month on the job. On that snowy New Years Eve McColough thought fast. He decided to mollify his new executive by tipping him to one of the two vital corporate secrets he was at that very moment holding close to his vest.

  "Take heart, Jack," he said. "Things are in the offing. Soon you'll be thinking more kindly of the outside environment."

  Goldman could not guess what exacdy McColough had in mind, but the CEO's portentous manner told him it was something big. In fact, the company was finalizing plans to move its headquarters to Stamford, Con­necticut. Given Xerox's stature as a native Rochester institution, this would be momentous news indeed. The relocation would drain the region's faltering economy of hundreds, maybe thousands, of jobs. Wary of a backlash, McColough had no intention of making the decision pub­lic until months more of subtle groundwork could be laid. Appeased by the hint tliat a favorable change was in the air, even if he could not know what it was, Goldman accepted his boss's holiday wishes in a much improved temper.

  But it was the other secret, the one McColough failed even to hint at that evening, which would wind up exerting a much more powerful force on Xerox's future—and on Jack Goldman's. In a series of highly confi­dential talks, McColough had been negotiating for Xerox to acquire a computer company in Southern California. Less than six weeks into the new year he and its chairman would announce a deal worth nearly one billion dollars.

  Not divulging this secret to his new chief scientist may have been one of the biggest mistakes of Peter McColough s career. Had he only opened up, Goldman mused later, "I could have led him to knowledgeable peo­ple in the computer field. People who would have advised against it."

  Seen another way, however, it was fortunate he did not. For Xerox's purchase of Scientific Data Systems—a flagrant miscalculation when considered solely as an act of business strategy—would lead directly to the founding of PARC.

  It was not that Goldman opposed the idea of Xerox getting into digi­tal computing. After all, his responsibility as chief scientist was precisely to introduce novel technologies into a company grown nar­row-minded and dull. What concerned him was the way it had been handled.

  The urge to enter the computer business came from Joe Wilson, who had long expressed apprehension that new technologies might someday render Xerox's image-to-paper monopoly obsolete. "If we're going to be big ten or twenty years out," he once lectured McColough, "we've got to be able to handle information in dig
ital form as well as graphic form."

  McColough soon concluded that the best way to join the digital revo­lution was to buy a piece of it. This effort, however, turned into a long- running comedy. By the end of 1968 there were few computer compa­nies in existence that Xerox had not approached with an acquisition offer. "Peter turned over every rock," recalled one executive who served on numerous corporate task forces over the course of the saga. "He looked at everybody." Honeywell, Burroughs, Sperry, Control Data—every leading manufacturer then competing with the redoubtable IBM rebuffed the overture. The one time Xerox found a company eager to sell, it developed cold feet. That happened when General Electric, which had uncharacteristically made a hash of its time-sharing business, offered the operation to Xerox at a bargain price. But GE appeared too desper­ate a seller. "They kept increasing the discount and making the terms more favorable," remembered the same executive. "They were trying to give McColough a deal he couldn't refuse. But it was a hopeless proposi­tion. GE had neither technology nor a cutting-edge business, and we turned them down."