The Vanishing Act

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Timing is everything with new tech products.

General Magic had all the cards to launch the first smartphone but still flopped. Why?

According to its mission statement, the bold start-up’s vision was compelling and ambitious—and very much in the mold of Apple pioneer Steve Jobs. It dreamed of “improving the lives of many millions of people” with the aid of “intimate life support systems” that could be carried everywhere. Organizing, communicating, access to information—all of it would improve. Indeed, the device would “change the way people live and communicate.”

Only this wasn’t 2007, the year Jobs announced Apple’s world-changing iPhone device. It was 1990, and the company was General Magic, a start-up populated by some of the best and brightest minds in Silicon Valley. Founder Marc Porat, a visionary tech thinker who coined the term “information economy” and was working at Apple, convinced John Sculley, then Apple’s CEO, to back a start-up within Apple and then spin it out in 1990 to become its own ambitious enterprise. Joining him as cofounders were Andy Hertzfeld and Bill Atkinson, two of Apple’s legendary software developers. What Porat and his team had in mind was a smartphone with the look and feel of the devices we rely on today.

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In the technology business, of course, failure is as much a part of the industry’s DNA as success. The litany of failed start-ups that litter the tech highway is long and impressive, from Pets.com to Theranos. But it would be difficult to identify a failure as epic as that of General Magic, a company so laden with all-star talent that it seemed impossible for it to flop. But flop it did, and the lessons are indelible. Indeed, the company’s legendary failure has even been chronicled in the 2018 documentary General Magic, which lays out the catastrophic journey in painful detail.

With much of the original team that had created Apple’s groundbreaking Macintosh computer, General Magic was poised to revolutionize the computer industry as it raced toward the millennium. On board were people like Tony Fadell, who would later lead the Apple development team that created the iPod and iPhone; Pierre Omidyar, founder of eBay; Andy Rubin, who developed the Android smartphone; and Megan Smith, who served as chief technology officer of the United States under President Obama. Together, the goal was to create a pocket-sized, do-all device nicknamed Pocket Crystal. “Everything was going to become very small and in your hand, and intimate and jewelry-like,” Porat told author Adam Fisher in his book Valley of Genius: The Uncensored History of Silicon Valley (As Told by the Hackers, Founders, and Freaks Who Made It Boom).

With his team in place, Porat convinced nearly 20 top technology players, including Sony, Motorola, AT&T, Philips, Matsushita, and British Telecom, to become partners, then set up spartan offices where the team worked 100 hours a week, sleeping on the floor under desks and eating cold pizza. Most famously, the nascent company’s logo was a rabbit emerging from a top hat and there were rabbits literally running free in the office. “The feeling was anything was possible,” Atkinson says in the documentary.

But there was serious trouble in paradise. First-mover status in high tech has always been a significant advantage for a start-up. And while General Magic was far ahead of the pack, it also turned out to be far too early in a market that wasn’t technologically equipped to allow its product to succeed.

Soon after its IPO, which raised $200 million in 1995, things began to turn sour. The alliance General Magic had cobbled together was complex and ultimately unworkable. The IPO was the first “concept” public offering, a company without a product and revenues, and raising so many millions of dollars put impossible stress on the team to deliver. Porat was unable to focus his team and keep them on track.

But more important, the technology landscape was not capable of supporting such an ambitious device. The internet was in its nascent stages but was not close to being able to handle massive amounts of wireless data. The device’s processors were underpowered, rendering it painfully slow. And unbeknownst to Porat, Apple’s Sculley was about to launch the Newton, the company’s first crack at a personal digital assistant, which would undermine General Magic’s target audience.

“They were way too early both in terms of the cost of the devices and the existing wireless infrastructure,” says John Markoff, a former New York Times technology reporter who covered Silicon Valley.

Ultimately, General Magic’s first product launch, sold under Sony’s brand as Magic Links, was a disaster. Only 3,000 of the bug-laden units were sold, most of them to friends and family. The stock price tanked, and by 1999 shares were down to $1.38. The company filed for Chapter 11 bankruptcy protection in 2002.

General Magic’s legacy? Five years later, Jobs introduced the first iPhone, the breakthrough device that changed the world. In the film, Porat describes his humiliation, which he carried for years. But his company’s greatest sin was being 15 years too early to the dance.

Authors

  • Glenn Rifkin

    Managing Editor, Korn Ferry Briefings