The Pepsi Challenge
With John Sculley, 1984
The Courtship
Mike Markkula had never wanted to be Apple’s president. He liked designing his new houses, flying his private plane, and living high off his stock options; he did not relish adjudicating conflict or curating high-maintenance egos. He had stepped into the role reluctantly, after he felt compelled to ease out Mike Scott, and he promised his wife the gig would be temporary. By the end of 1982, after almost two years, she gave him an order: Find a replacement right away.
Jobs knew that he was not ready to run the company himself, even though there was a part of him that wanted to try. Despite his arrogance, he could be self-aware. Markkula agreed; he told Jobs that he was still a bit too rough-edged and immature to be Apple’s president. So they launched a search for someone from the outside.
The person they most wanted was Don Estridge, who had built IBM’s personal computer division from scratch and launched a PC that, even though Jobs and his team disparaged it, was now outselling Apple’s. Estridge had sheltered his division in Boca Raton, Florida, safely removed from the corporate mentality of Armonk, New York. Like Jobs, he was driven and inspiring, but unlike Jobs, he had the ability to allow others to think that his brilliant ideas were their own. Jobs flew to Boca Raton with the offer of a $1 million salary and a $1 million signing bonus, but Estridge turned him down. He was not the type who would jump ship to join the enemy. He also enjoyed being part of the establishment, a member of the Navy rather than a pirate. He was discomforted by Jobs’s tales of ripping off the phone company. When asked where he worked, he loved to be able to answer “IBM.”
So Jobs and Markkula enlisted Gerry Roche, a gregarious corporate headhunter, to find someone else. They decided not to focus on technology executives; what they needed was a consumer marketer who knew advertising and had the corporate polish that would play well on Wall Street. Roche set his sights on the hottest consumer marketing wizard of the moment, John Sculley, president of the Pepsi-Cola division of PepsiCo, whose Pepsi Challenge campaign had been an advertising and publicity triumph. When Jobs gave a talk to Stanford business students, he heard good things about Sculley, who had spoken to the class earlier. So he told Roche he would be happy to meet him.
Sculley’s background was very different from Jobs’s. His mother was an Upper East Side Manhattan matron who wore white gloves when she went out, and his father was a proper Wall Street lawyer. Sculley was sent off to St. Mark’s School, then got his undergraduate degree from Brown and a business degree from Wharton. He had risen through the ranks at PepsiCo as an innovative marketer and advertiser, with little passion for product development or information technology.
Sculley flew to Los Angeles to spend Christmas with his two teenage children from a previous marriage. He took them to visit a computer store, where he was struck by how poorly the products were marketed. When his kids asked why he was so interested, he said he was planning to go up to Cupertino to meet Steve Jobs. They were totally blown away. They had grown up among movie stars, but to them Jobs was a true celebrity. It made Sculley take more seriously the prospect of being hired as his boss.
When he arrived at Apple headquarters, Sculley was startled by the unassuming offices and casual atmosphere. “Most people were less formally dressed than PepsiCo’s maintenance staff,” he noted. Over lunch Jobs picked quietly at his salad, but when Sculley declared that most executives found computers more trouble than they were worth, Jobs clicked into evangelical mode. “We want to change the way people use computers,” he said.
On the flight home Sculley outlined his thoughts. The result was an eight-page memo on marketing computers to consumers and business executives. It was a bit sophomoric in parts, filled with underlined phrases, diagrams, and boxes, but it revealed his newfound enthusiasm for figuring out ways to sell something more interesting than soda. Among his recommendations: “Invest in in-store merchandizing that romances the consumer with Apple’s potential to enrich their life!” He was still reluctant to leave Pepsi, but Jobs intrigued him. “I was taken by this young, impetuous genius and thought it would be fun to get to know him a little better,” he recalled.
So Sculley agreed to meet again when Jobs next came to New York, which happened to be for the January 1983 Lisa introduction at the Carlyle Hotel. After the full day of press sessions, the Apple team was surprised to see an unscheduled visitor come into the suite. Jobs loosened his tie and introduced Sculley as the president of Pepsi and a potential big corporate customer. As John Couch demonstrated the Lisa, Jobs chimed in with bursts of commentary, sprinkled with his favorite words, “revolutionary” and “incredible,” claiming it would change the nature of human interaction with computers.
They then headed off to the Four Seasons restaurant, a shimmering haven of elegance and power. As Jobs ate a special vegan meal, Sculley described Pepsi’s marketing successes. The Pepsi Generation campaign, he said, sold not a product but a lifestyle and an optimistic outlook. “I think Apple’s got a chance to create an Apple Generation.” Jobs enthusiastically agreed. The Pepsi Challenge campaign, in contrast, focused on the product; it combined ads, events, and public relations to stir up buzz. The ability to turn the introduction of a new product into a moment of national excitement was, Jobs noted, what he and Regis McKenna wanted to do at Apple.
When they finished talking, it was close to midnight. “This has been one of the most exciting evenings in my whole life,” Jobs said as Sculley walked him back to the Carlyle. “I can’t tell you how much fun I’ve had.” When he finally got home to Greenwich, Connecticut, that night, Sculley had trouble sleeping. Engaging with Jobs was a lot more fun than negotiating with bottlers. “It stimulated me, roused my long-held desire to be an architect of ideas,” he later noted. The next morning Roche called Sculley. “I don’t know what you guys did last night, but let me tell you, Steve Jobs is ecstatic,” he said.
And so the courtship continued, with Sculley playing hard but not impossible to get. Jobs flew east for a visit one Saturday in February and took a limo up to Greenwich. He found Sculley’s newly built mansion ostentatious, with its floor-to-ceiling windows, but he admired the three hundred-pound custom-made oak doors that were so carefully hung and balanced that they swung open with the touch of a finger. “Steve was fascinated by that because he is, as I am, a perfectionist,” Sculley recalled. Thus began the somewhat unhealthy process of a star-struck Sculley perceiving in Jobs qualities that he fancied in himself.
Sculley usually drove a Cadillac, but, sensing his guest’s taste, he borrowed his wife’s Mercedes 450SL convertible to take Jobs to see Pepsi’s 144-acre corporate headquarters, which was as lavish as Apple’s was austere. To Jobs, it epitomized the difference between the feisty new digital economy and the Fortune 500 corporate establishment. A winding drive led through manicured fields and a sculpture garden (including pieces by Rodin, Moore, Calder, and Giacometti) to a concrete-and-glass building designed by Edward Durell Stone. Sculley’s huge office had a Persian rug, nine windows, a small private garden, a hideaway study, and its own bathroom. When Jobs saw the corporate fitness center, he was astonished that executives had an area, with its own whirlpool, separate from that of the regular employees. “That’s weird,” he said. Sculley hastened to agree. “As a matter of fact, I was against it, and I go over and work out sometimes in the employees’ area,” he said.
Their next meeting was a few weeks later in Cupertino, when Sculley stopped on his way back from a Pepsi bottlers’ convention in Hawaii. Mike Murray, the Macintosh marketing manager, took charge of preparing the team for the visit, but he was not clued in on the real agenda. “PepsiCo could end up purchasing literally thousands of Macs over the next few years,” he exulted in a memo to the Macintosh staff. “During the past year, Mr. Sculley and a certain Mr. Jobs have become friends. Mr. Sculley is considered to be one of the best marketing heads in the big leagues; as such, let’s give him a good time here.”
Jobs wanted Sculley to share his excitement about the Macintosh. “This product means more to me than anything I’ve done,” he said. “I want you to be the first person outside of Apple to see it.” He dramatically pulled the prototype out of a vinyl bag and gave a demonstration. Sculley found Jobs as memorable as his machine. “He seemed more a showman than a businessman. Every move seemed calculated, as if it was rehearsed, to create an occasion of the moment.”
Jobs had asked Hertzfeld and the gang to prepare a special screen display for Sculley’s amusement. “He’s really smart,” Jobs said. “You wouldn’t believe how smart he is.” The explanation that Sculley might buy a lot of Macintoshes for Pepsi “sounded a little bit fishy to me,” Hertzfeld recalled, but he and Susan Kare created a screen of Pepsi caps and cans that danced around with the Apple logo. Hertzfeld was so excited he began waving his arms around during the demo, but Sculley seemed underwhelmed. “He asked a few questions, but he didn’t seem all that interested,” Hertzfeld recalled. He never ended up warming to Sculley. “He was incredibly phony, a complete poseur,” he later said. “He pretended to be interested in technology, but he wasn’t. He was a marketing guy, and that is what marketing guys are: paid poseurs.”
Matters came to a head when Jobs visited New York in March 1983 and was able to convert the courtship into a blind and blinding romance. “I really think you’re the guy,” Jobs said as they walked through Central Park. “I want you to come and work with me. I can learn so much from you.” Jobs, who had cultivated father figures in the past, knew just how to play to Sculley’s ego and insecurities. It worked. “I was smitten by him,” Sculley later admitted. “Steve was one of the brightest people I’d ever met. I shared with him a passion for ideas.”
Sculley, who was interested in art history, steered them toward the Metropolitan Museum for a little test of whether Jobs was really willing to learn from others. “I wanted to see how well he could take coaching in a subject where he had no background,” he recalled. As they strolled through the Greek and Roman antiquities, Sculley expounded on the difference between the Archaic sculpture of the sixth century B.C. and the Periclean sculptures a century later. Jobs, who loved to pick up historical nuggets he never learned in college, seemed to soak it in. “I gained a sense that I could be a teacher to a brilliant student,” Sculley recalled. Once again he indul............