General Magic: Right Product, Wrong Time

[00:00:09] Morning folks and welcome to today's episode. It's called General Magic, Right Product, Wrong Time. And I'd heard about General Magic over the years. It was always held up as this almost mythical startup. The company that more or less developed the smartphone but was years too early. And then just two weeks ago I came across a documentary on it. The documentary is called General Magic and it's

[00:00:34] really good. It's well worth watching. So I did a bit more digging, found great articles, additional interviews with the founders and this is the story basically of how one guy had this vision for a new handheld device. How he got top talent from Apple to join him. How they got the biggest tech and telecom companies in the world to join them. How they were stabbed in the back by John

[00:00:59] Scully, the Apple CEO. And how it all fell apart. This is a cracking story. Enjoy. Now the story starts with a guy called Mark Porat. And Porat, he wasn't an engineer. He was an economist. He went to Stanford, where in 1976 for his doctorate, he wrote a dissertation called The Information Economy. So Porat is actually credited with coining the term information economy. Now his argument was basically

[00:01:28] that America was moving into a new type of economy where more and more people were starting to make a living by creating, processing, moving information around. And his dissertation got the attention of the US Department of Commerce. So he goes on to work there for a few years as a senior economist. Then he joins the Aspen Institute. This is basically a think tank where he works on how communications

[00:01:53] and new technologies are going to affect society. So this is a very, very smart guy who spends a huge amount of his time thinking about the future of technology. He goes on to make a documentary on PBS called The Information Society. He then moves into business. He sets up a satellite communications company that has revenues of more than $20 million by the time he sells it in 1988. So he's made some

[00:02:19] money. He's pretty comfortable. And then he gets approached by Apple in 1988, the year that he sold his company. They want him to join their advanced technology group. Now, just to note, Steve Jobs is no longer at Apple by this stage. He'd been forced out in 1985 and John Scully was the CEO. And I know that to an awful lot of Apple fans, John Scully is almost like this Darth Vader. I'm sure there's a lot more to

[00:02:47] him than that. But in fairness, he doesn't come out of this story looking very good either. And there's a whole story as well behind the whole how Jobs was ousted from Apple. But we're not going to get into that here. Now, Porat took the job at Apple and his job was essentially to think about what comes after the personal computer. Because, of course, as we said, Porat had been thinking about this very thing for

[00:03:12] years. And he had a very clear vision. He believed computing was going to move away from the desktop computers and into something much, much smaller. And in 1989, he produced this big red notebook containing his vision for something he called the Pocket Crystal. A small touchscreen device you could

[00:03:33] use to make calls, send messages, buy things, download software. So, really, a smartphone. 18 years before the iPhone was launched. Now, John Scully, the Apple CEO, he loved the idea and gave Porat the resources to develop it. And the first thing Porat does is to convince two of Apple's top people, Bill Atkinson and Andy

[00:03:57] Hertzfeld to join the project. And if you were a computer nerd back in those days, Atkinson and Hertzfeld were superstars. Because when developing the Apple Macintosh, they more or less invented the visual software and the user interface that every computer, tablet and smartphone still uses today. Now, Porat's idea is much bigger than simply building one Apple-branded device.

[00:04:27] He wants to develop the software that will become a standard used by lots of different manufacturers. So, a bit like what Microsoft had done with Windows on personal computers or what Android later did with smartphones in 2008. So, that means that they need partners like Sony, which makes small portable electronic devices. Partners like Motorola, which back then was one of the biggest names in wireless

[00:04:54] technology. And, of course, Porat also needed telecommunication network companies to come on board as partners. Because remember, this was before the internet, kind of as we know it. So, if you want a device to send a message, you know, check share prices, do all the things that Porat envisaged, you need to partner with the telecom networks. Because they already have the communication networks, but they would now have to build new data services on top of the networks to make Porat's

[00:05:23] idea work. Now, it is worth noting as well that at the same time that Porat was getting his team together, Apple was also experimenting with handheld computers, including a project that will eventually become the Newton. But initially, the Newton was a very different idea. It was meant to be this larger pen-based computer where you write on a screen, take notes, organize information, and they

[00:05:51] were looking at a price point of about $5,000. Whereas Porat's device was much smaller, more focused on communication like wireless messaging, making phone calls, etc. Anyway, because Porat's vision was so broad, it was decided that it was too big for Apple to do on its own. So, with the support of John Scully, the Apple CEO, in 1990, they spun out the project into a separate company, and they call it General

[00:06:20] Magic. Apple keeps a stake in the business, and Scully joins the board. That's important, stick a pin in that. Now, with Hertzfeld and Atkinson on board, working in this new top-secret company on an exciting, revolutionary new product, while at the same time, Apple was without Steve Jobs, you now have a lot of senior Apple people who are looking at General Magic, and they are just chomping at the

[00:06:47] bit. They want to join us. As Mark Porat said, it was where you wanted to work if you were cool and smart. Now, also, some very talented but more junior engineers were clamoring to get in, and one who does get in is Tony Fidel. And the reason I mention him is because he becomes a very significant figure in Apple. He would go on to be known as the father of the iPod. He led the hardware development on the

[00:07:12] very first iPhone, and he co-founded Nest, which he sold to Google in 2014 for $3.2 billion. Porat knows that he's going to need some big investment to get the project developed, but he doesn't go near any of the traditional VCs or venture capital, because he realized that the key to the product's success was heavyweight partners, and that they would be able to bring the investment with them. And his first target, the company I already mentioned, is Sony. I mean, Sony is huge

[00:07:39] now. It was even bigger back then because they had created the Walkman a decade earlier, and they are the ideal partner to develop and launch a small portable electronic device. Porat makes his presentation to Sony, and they sign up straight away. Next target, Motorola. Again, huge name, one of the leading manufacturers of mobile phones and pagers at that time. They sign up straight away. So they got their

[00:08:06] first two big manufacturers on board. They now need a telecom company, and Porat goes straight to AT&T, the biggest telco in the US and one of the biggest in the world. And again, they're impressed by Porat, by his vision and his charisma. And this is the thing about Porat. He's reportedly very charismatic. A New York Times journalist wrote that Porat has astonishing persuasive powers, while the Wall Street

[00:08:31] Journal described him as a silver-tongued devil. And in the documentary that I watched, one of General Magic's team said of Porat, Mark was one of the most charismatic presenters you could ever imagine. Now, I watched the documentary, and I wouldn't put Porat above Steve Jobs in terms of charisma or showmanship. But in fairness, that's a very high bar. Like, Porat definitely had a confidence

[00:08:58] and a certain visionary magnetism to it. And it worked, because, you know, you have Sony, Motorola, and AT&T all signing up. And each of those founding partners invests $6 million for a 10% stake in the company. So by 1991, Porat had brought together huge world-class partners, and he had an internal

[00:09:20] team with this massive amount of talent. But building the product is proving a lot more difficult than imagining it. Because the team, they're attempting to create both an operating system and a completely new way for these new devices to communicate with each other. And while the company had some of the

[00:09:44] best minds in Silicon Valley at that time, everything was a bit chaotic in the offices. And this really comes across in the documentary. The office, it's like a frat house. Like, there are toys and pets everywhere, including a rabbit called Bowser, who wasn't in a cage. It was walking around, crapping all over the office. And Bowser actually becomes part of the company logo,

[00:10:08] drawing of a rabbit popping out of a magician's top hat. And while there was very little in the way of what you'd call structured management within the office, people are encouraged to experiment. And from the documentary, you get a really good insight into how passionate and energetic everyone was about the project. They knew that if they could succeed, they really would create

[00:10:35] something that could change the world. So there was such a vibrancy in the company, and it really comes out in that documentary. And of course, because they were working on something so big, so revolutionary, there was a huge amount of secrecy. Even Apple employees who inquired, you know, what are you doing? They were told nothing about the project. But of course, there was one key Apple employee who knew everything, John Scully, the Apple CEO,

[00:11:05] who was also on the board of General Magic. And in May 1992, at the Summer Consumer Electronics Show in Chicago, Scully publicly unveiled the Newton. Now, it's not going to be launched for another year, but the design and the function of the Newton that Scully is presenting to the crowd, it's changed considerably from its initial concept. And during the demonstration at this show,

[00:11:32] they show someone using the Newton to order a pizza by moving little topping icons onto a picture of a pizza and then faxing the order directly from the device. I mean, it just sounds so archaic now, but this was big at that time. And these are the very features that have been lifted directly from General Magic. Like the General Magic team were gobsmacked. Hertzfeld said, Scully was on our board.

[00:12:00] It was a real betrayal. Bill Atkinson said, we felt completely betrayed. Now, Scully attempted to defend his position by saying that he was responsible for Apple and that he believed that the Newton and General Magic's devices could coexist. But, you know, there's no two ways around this. It was a betrayal. And I'm guessing the reason he did it was because Apple was in dire straits financially. Scully,

[00:12:28] he was under huge pressure and I think he believed that the Newton would save his ass and revive Apple. Now, as a result of the Newton announcement, there's now massive pressure on General Magic to get their product out there. So, it forced them to go public with what they were doing because they couldn't afford to stay in the shadows while Apple was grabbing all the headlines. So, Porat goes on a massive PR counterattack.

[00:12:56] The New York Times ran a front page profile naming General Magic Silicon Valley's most closely watched startup. Then, on February 8th, 1993, General Magic finally come out properly into the open at a big press event in New York. And it goes really well because, as I already mentioned, Porat is a very, very good presenter. And he presents this huge vision and he articulated at this event so well

[00:13:24] what this device was going to do and how it was going to change the world. Now, of course, should be noted, the device itself wasn't ready yet. But the reaction they got from this event was huge. The Los Angeles Times describes what General Magic is showing as a pocket-sized peek into the future. The story gets picked up internationally and General Magic, it goes from being this, you know,

[00:13:48] secretive Silicon Valley startup to one of the most talked about technology businesses in the world. Meanwhile, though, over Apple, things are just falling apart. In June 1993, after huge losses, John Scully is fired as CEO. And then, that August, the Newton finally went on sale for $699.

[00:14:11] Apple had poured over $100 million into its development and they had projected sales of 1 million units in its first year. But it doesn't get anywhere near that. Sold about 80,000 units. And the problem is that when people finally get their hands on it, its most famous feature, this new handwriting technology, it's really crap. I mean, one reviewer wrote that taking notes felt like trying to translate ancient

[00:14:41] hieroglyphics. And there were other issues as well. It was a bit too big. It wasn't backless. And while the General Magic team were now relieved that Newton wouldn't pose a threat to their device, the fact is that Newton's very public failure, it kind of soured the entire retail market on personal digital assistants or PDAs. Consumers and the media were very sceptical about them. By March 1994,

[00:15:10] Porat had taken the consortium model into overdrive because now they had 16 multinational corporations as partners, including the likes of NTT, France Telecom, Cable and Wireless, Toshiba, Fujitsu, Sanyo, Mitsubishi. Now, of course, that was the company's MO. General Magic's success, it'll partly come down to having as many manufacturers and telcos on board to push all these different devices using

[00:15:39] their software. And as a result, total strategic investments across the consortium reached $200 million. And while that sounds hunky-dory on paper, the practicalities of managing this, as you can imagine, it's almost impossible. You now had several different telcos, several different manufacturers, all of them fierce competitors, each with their own commercial interests. Like every time another

[00:16:05] partner comes on board, the engineers in General Magic have another set of requirements to deal with. So they're overwhelmed by each partner's custom requests that are coming in all the time. And of course, General Magic is relying on all of these partners to deliver their part of the system on time, and a lot of them are running late. But the biggest problem is that General Magic itself

[00:16:30] is running way behind as well on the development of its software. And this is where the freewheeling, frat house nature of the company, which is credited for helping them be so energized, creative, et cetera, and all that. But this lack of structure, this internal chaos, it adds massively to their problems. You see, Porat himself, he's too busy managing the relationships

[00:16:55] with the main partners. He actually estimates that managing these relationships is taking up about 80% of his time. Now, the board does try to bring in some structure. They put one person in charge as a project manager, but the rest of the team push back because they think it will kill their creativity. So there's nobody really managing the various teams, setting deadlines, you know, all the important

[00:17:20] stuff, which is just crazy because you have to have structure when you're developing products like this. And because there's so little structure, nobody is really there to stop the key people from constantly tinkering, from constantly making changes, which is what happens because Atkinson and Hertzfeld, when left at their own devices, they were perfectionists. Like, Atkinson spent months

[00:17:45] tweaking custom animations, while Hertzfeld kept rebuilding parts of the core software from scratch. And the thing is, the knock-on effect of this is that others take their lead from Hertzfeld and Atkinson. So people would get distracted by something that was really cool and they'd spend loads of time going down these rabbit holes developing these cool, fun things that ended up having no bearing on the

[00:18:13] actual product. As Hertzfeld said, we were too dazzled by what it could possibly do to realise we're biting off more than we could chew. But after numerous delays, they eventually, they had to ship. Now the product isn't ready and they know it. And here's another quote from Hertzfeld. The screens aren't really good enough, they don't run long enough on batteries, and the wireless

[00:18:37] communication infrastructure just isn't there yet. But yet they ship. And in September 1994, Sony launched the Magic Link. It's priced at $995. And when you open the device and you look at the screen, you see a graphic of this Illustrated office and all the clever features the engineers have spent years building. And this is the thing. The tech and the software that they create is, by the standards of that time,

[00:19:04] pretty amazing. This new operating system, they developed a new type of modem, this new, very clever user interface. There are a lot of individual groundbreaking elements. The problem was that the finished product was, I would say, very much less than the sum of those parts. And on this Sony device, if you want to send messages, for example, or make a phone call,

[00:19:32] you need to connect the device to an ordinary telephone socket. The screen has no backlight, so it's difficult to read in poor lighting. As we mentioned, Hertzfeld had said this as well, the batteries don't last very long. General Magic had hoped the first Sony device might sell around 100,000 units. They sold just 3,000 units. But initially, this doesn't mean that General Magic is in trouble. I mean, while internally, some people in General Magic are now very worried,

[00:20:01] the investment and tech community aren't looking at the Sony Magic link as the ultimate finished product. They're looking at it as the first device in what they believe could become a much bigger platform. Sony is just one manufacturer. Motorola is bringing out its own device soon. So there's a lot of hope and expectation that this will be a better device. And General Magic has all these other huge electronic

[00:20:27] consumer manufacturers lined up behind it. So, you know, despite the Sony flop, there's still huge momentum and excitement around General Magic. And so Porat decides to take the company public. And the IPO now is not just about raising money. It's also about buying General Magic some independence from all of their very demanding partners. As Porat put it, we needed to be clear of them. And an IPO

[00:20:53] would get us enough money where we didn't actually have to be so beholden to them. The excitement and expectation around the IPO is huge. And there's a great story about a banker from Goldman Sachs who is so desperate for Goldman to lead the IPO that he offers Porat the actual shirt off his back. And Porat accepts. And the banker literally takes his shirt off in the middle of the office. So that gives you

[00:21:23] the idea of the frenzy, but also just the chaotic nature of General Magic, what it was like to work there. Now, the IPO happened in February 1995. Demand for the shares is huge. They raised $96 million and the company is valued at more than $800 million. Just one month after the IPO, Motorola launches their

[00:21:44] product, the Envoy. And this one can actually connect wirelessly. But the device costs $1,500. It weighs nearly 800 grams. The screen still has no backlight. And the wireless network is slow and massively expensive. The monthly data bill is around $400. Can you imagine consumers willing to pay that after

[00:22:09] already? Splashing out $1,500 on a device that weighs a ton and doesn't really work very well. So I mean, just like the Sony device, it's a huge flop. So now they've two devices, two turkeys. Then on top of all of this, things are starting to move and change pretty significantly and quickly in the tech space. You see, General Magic engineers, they were so focused on their big vision, creating this

[00:22:36] potentially revolutionary product that they weren't tuning into an actual revolution that was starting to happen in 1994. And I am, of course, referring to the internet, the World Wide Web. And initially, in General Magic, they thought the web was rough, all text-based, whereas they were creating this graphic-rich product that you could carry around with you. And while the internet was initially, this text-heavy world that was difficult for most people to access, Netscape launched

[00:23:06] Navigator in December 1994. And suddenly, people could move around the web using pictures, links, and simple point-and-click menus instead of typing commands. So that opened up the web to everyone, to the general public. So now you had this new technology with a worldwide reach, and it was free. Whereas General Magic was developing this closed network with AT&T and other telcos that people

[00:23:34] would have to pay for. And in fairness, by early 1995, within General Magic, there was now a realisation that the next iteration of their device will have to have internet-enabled on us. Now, as an interesting side note, there is someone in General Magic who grasped the internet's huge potential, very early doors. Because Pierre Omidyar is a software engineer in General Magic,

[00:24:02] and in September 1995, he launched a website called AuctionWeb. That site, of course, goes on to become eBay, one of the great early internet companies. Anyway, by the end of 1995, things were not looking good for General Magic. Their losses for the year were $23 million. Netscape had floated in August of that year, kicking off the dot-com boom. So everyone had moved on. General Magic was looking like yesterday's

[00:24:29] news. And then, as if things weren't bad enough, in 1996, the Palm Pilot launches. And the Palm Pilot, it's everything General Magic's devices aren't. It costs $299 to $369. It weighs just 160 grams. It runs for weeks on two small batteries. Now, it doesn't have a wireless modem, but it doesn't try to connect to a massive, complicated network.

[00:24:55] It just synchronises your calendar and contacts with your computer. And it sells hundreds of thousands of units in its first year. And it proves that consumers want simple, cheap, functional organisers back then, at that time, not heavy, expensive communicators.

[00:25:14] And unsurprisingly, the consortium members, AT&T, Sony, Motorola, all of the others, they realised that the General Magic platform is a dead end. By September 1996, its shares were trading at $2. And while they have plans for a much improved device with internet capabilities, a proper cell phone, a much better product overall, it was still going to be a

[00:25:42] very, very difficult product to build. And by this stage, their trade partners are leaving. The engineering team is exhausted. They are totally burnt out and they start to leave. In the words of Porat, we kind of ran out of gas. And in December 1996, Porat is replaced as chief executive. Now, the company does pivot. It turns into a voice recognition company. And it has a few years of

[00:26:08] limited success before finally, at the end of 2002, General Magic, it files for Chapter 11 bankruptcy. In terms of the main characters, Porat, he went on to found a few more startups, mainly in green technology. Hertzfeld, he stayed in software. He joined Google in 2005 and was heavily involved in their Google Plus project before retiring in 2013. While Atkinson, he more or less walked away from Silicon Valley

[00:26:34] altogether and became a photographer. And he passed away in 2025. Now, when I was researching this story, I found myself always comparing Porat to Steve Jobs. And it's easy to see why. Both were charismatic. Both were visionaries. And of course, what General Magic was trying to build was basically the original smartphone. So there's a huge link there. And given Jobs' what you'd call almost unrivaled ability

[00:27:01] to take completely new technology and turn it into products like the iPod and the iPhone, products that didn't just sell, they stopped people in their tracks and completely changed the market. It made me think, and it made me ask the question, of course, if Jobs had been running General Magic, would it have turned out differently? And I don't think it would have. Now, I do think Jobs would have cracked the whip. He would have brought far more discipline into the company. He would have

[00:27:31] stopped people disappearing down all those rabbit holes. And he would have forced them to focus on what actually mattered. And probably would have got a much better and much more beautiful product onto the market. Because Jobs did create beautiful products. Also, I think under Jobs, they'd have developed both the hardware and the software in-house. Jobs was way too much of a control freak to have all of these other manufacturers involved. But even then, I still don't think it would have been enough.

[00:28:00] Because as Kara Swisher rightly says at the end of the documentary, the user base was not there. The technology was not there. The things to do on it weren't there. It's like inventing the television in the 1880s. It doesn't matter if you invented it, because you didn't have the shows. And I think that's really the problem here. It wasn't just the technology wasn't ready. The things you would

[00:28:25] actually use the technology for weren't ready either. Like, when Jobs launched the iPhone in 2007, most people were already using email. YouTube was there. Facebook was there. Everyone was on the internet. And then in 2008, just a year later, you have the App Store. So suddenly, you have all these other things that you can actually do with the phone. None of those things existed when General

[00:28:50] Magic was trying to launch its device. So they were just trying to do too much too soon. And I'm sure the frustrating thing for Porat and the rest of the General Magic team is that they were so right. You know, almost everything that they had drawn on paper, all of these ideas about carrying around one little device that could communicate, send messages, get information, run these different

[00:29:16] services, it all eventually happened. But they were just far too early. And that's why it took another 12 years for the iPhone to launch. And I already mentioned that Tony Fidel, who worked for General Magic, would later become one of the key people behind the iPhone. But there's another significant connection. Andy Rubin, who also worked at General Magic, would go on to create Android. So yeah,

[00:29:42] in one way, General Magic failed. But I mean, what a legacy and what a story. And that brings us to listeners emails. And this one comes from Joseph, who'd love me to do an episode on Mohed Altrad. I hope I'm pronouncing that right. He's the Syrian born French billionaire who started off with a small scaffolding company that now employs over 65,000 people and operates in over 100

[00:30:09] countries. He also owns one of the top rugby clubs in France. And I love my rugby. And his overall story, it is a fascinating one. Thanks so much for the recommendation, Joseph, and for listening. And remember, if you have any comments, any corrections, or any story you'd like me to cover, email me at info at gbspod.com. All the best, folks.