Tim Harford
Tim Harford’s long-running column in the Financial Times, “The Undercover Economist,” reveals the economic ideas behind everyday experiences. His first book, The Undercover Economist, was published in 30 languages and sold…
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It’s 1990. A new company called General Magic is going to build its vision of the future: the smart phone. They have talent, almost unlimited cash, and a 15 year head start on the iPhone. What could go wrong?
This episode was based, with permission, on David Epstein’s book Inside the Box: How Constraints Make us Better. For a list of sources, see the show notes.
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Pushkin. This cautionary tale is based, with permission, on David Epstein's book Inside the Box, How Constraints Make Us Better. Let's start with the idea, and the man whose idea it was. His name was Mark Peratt. Peratt was a man with a vision of a technology so powerful it would catalyse a new age of civilisation. That doesn't happen often. Thousands of years ago, the plough was a technology that unleashed the agricultural age. In the 1760s, the first practical steam engine started the industrial age. And what comes next? The information age, of course. We know that now. Half a century ago, it wasn't so obvious. But Mark Peratt saw it back in 1976 in his doctoral research. Here he is a few years later, presenting his own primetime PBS documentary. It's called The Information Society.
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Today, many people believe that information tools are the third technology to change the course of civilisations. changing our relationship to nature, to each other, to the very way we experience reality. Of all the information tools, the computer is probably the most powerful.
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That was 1980. The information age was just getting started. Where would it go? What would people do as computers became more and more powerful, more and more ubiquitous? Mark Peratt knew. His doctoral dissertation coined the phrase the information economy. But Peratt was more than just an analyst of long-term macroeconomic trends. He was a charismatic, visionary speaker. One colleague said, the thing about Peratt when he speaks is he Everybody in the audience says to themselves two things. They say, my God, this guy's right. I can go to the roof of this building and if I jump, I will fly. There are risks to listening to charismatic speakers. And the other thing? The second thing they would think is, and that guy up there on the stage and me, we're the only two guys who really get it. In the late 1980s, after a few years as a freewheeling big thinker, Mark Peratt joined the Advanced Technology Group at Apple Computer. His job was to think about what kinds of products the information society would need. Computers, yes, of course, but not just desktop machines. In a big red notebook, Peratt described what he saw as the information and communication product of the future. It must offer the kind of personal satisfaction that a fine piece of jewellery brings. It will have a perceived value, even when it's not being used. It should offer the comfort of a touchstone, the tactile satisfaction of a seashell, the enchantment of a crystal. That product? His big red book contains a sketch. It's a slim, glazed rectangle. No buttons, just a touchscreen. And its functions? A phone, a messaging device, a portable television, a portable games console. You could even use it to book a plane ticket. It was 1989. Most mobile phones were the size of bricks. Apple's new portable computer weighed 16 pounds. There was no World Wide Web. And Mark Peratt had just imagined the iPhone. I'm Tim Harford, and you're listening to Cautionary Tales. Peratt called his idea the pocket crystal. He imagined that people would carry them everywhere. It would be small, intimate, like jewellery. You'd wear it all the time, he explained. And if there was a fire in your house, you'd think, family goes first, and then I grab my pocket crystal. Peratt wasn't just a visionary. He was an evangelist, and a brilliant one at that. He showed his idea to a colleague called Bill Atkinson. Atkinson called his friend Andy Hertzfeld. He was beyond excited. You've got to see this new thing. It's the next thing. You've got to meet with this guy Mark. Andy was convinced too. Bill Atkinson and Andy Hertzfeld were legendary figures in Silicon Valley. And they weren't big picture future trends people like Peratt. They were technically brilliant programmers. They were both central in the design and operating system of the original Apple Macintosh, one of the most influential computers ever made. Have you ever used a drop-down menu on a computer? A hyperlink? Double-clicked on a mouse? That's the work of Atkinson and Hertzfeld. Peratt, Atkinson and Hertzfeld were convinced that the pocket crystal was the future of personal computing. So up to a point was the boss of Apple, John Scully. But this idea was too big for Apple, a company which made stylish personal computers, not phones. It would require new hardware, new software and new partnerships. Phone companies would need to be involved. so would businesses which specialised in portable electronics. So in 1990, it was agreed that the Pocket Crystal would need to be developed by a new company, a spin-off. Peratt, Atkinson and Hertzfeld would run it. Apple would provide some funding, and Scully would sit on the board. But this bold young company would be able to forge partnerships with other huge players in the electronics and the telecommunications industry. And it would be called... What would it be called? Arthur C. Clarke, the influential science fiction writer, had once said that any sufficiently advanced technology is indistinguishable from magic. That was the name then. General Magic. As David Epstein explains in his new book, Inside the Box, general magic took off fast. Here's David's description. Scully introduced the founding trio to Sony. They made their pitch, and within days, Sony was on board with a stake and a licensing deal. Next came Motorola, and then AT & T. Philips was next. And then Sony's bitter rival, Panasonic. then Toshiba, then France Telecom, and on and on. Everyone in the communications industry wanted a piece of general magic, so much so they needed an antitrust lawyer in their meetings to make sure their discussions weren't falling foul of competition law. It was, says Epstein, the biggest consortium of global companies that had ever existed in American business. Each partner in the alliance put in millions of dollars. General Magic was swimming in money, but still felt they needed more. It's not cheap to invent the future, after all. Peratt and the team decided they would raise money from regular investors by giving them the chance to buy shares in General Magic, pouring more cash into the company in exchange for a slice of any future profits. It's not unusual to seek money from regular mom-and-pop investors, but this case was unprecedented, because not only did General Magic not have any profits, they didn't even have any revenues. In fact, they didn't even have a product. They just had an idea. Could you really sell tens of millions of dollars of shares to the general public just on the basis of an idea? You could, if it was a good enough idea. Wall Street loved it. Investment bankers from the likes of... of Goldman Sachs elbowed each other aside for a piece of the action. In the documentary film General Magic, Mark Peratt remembers them queuing up to pitch. One of them said, what would it take? If I gave you the shirt off my back, would that do it? And I said... Yeah, it would. And he stripped down, and there we were, standing in the conference room with a half-naked banker. He got the deal. After launching General Magic shares on the stock market, the share price promptly doubled. General Magic had all the money it could possibly want. Money is useful, of course. But you also need talent. General Magic had a charismatic leader in the form of Mark Peratt, a man who could persuade you and the half-naked investment banker standing next to you that if you flapped your arms, you could fly. The company also had Andy Hertzfeld and Bill Atkinson, the rock star programmers who gave the world the Apple Macintosh. Fine, who else? Joanna Hoffman. She'd been in charge of marketing the Mac. Susan Cain. She had done the graphics. And just as important, all the ambitious young guns who so admired Hertzfeld and Atkinson and Hoffman and Cain, young software and hardware engineers desperate to make a dent in the universe. They'd camp outside General Magic's offices. They'd call every day to beg for a job. General Magic had their pick. The best of the best. Money. Talent. everything. Which raises the question, why has nobody ever heard of General Magic? Cautionary Tales will be back after the break. While the world's great investment banks were backing General Magic, and the world's great technology companies were scrambling to be part of the alliance, the young team of programmers under Bill Atkinson and Andy Hertzfeld had been busy. Very busy. Busy making what? Wonderful things. Things that astonished the alliance members who'd invested in them. For example, when a couple of General Magic's young engineers flew out to Japan to show Mitsubishi a hardware prototype, Their hosts abruptly halted the meeting to call in more employees, all dressed in factory overalls. Apologising, the host asked the General Magic team to start again with the demo, from the beginning. So they did. Well, this is where there's no modem, because we've done it entirely in software. No modem? Just software? Incredible technology. There's a moan from the audience. One man, a manager called Mr Kato, slumps forward and strikes his head against the desk. The host apologises again. You have just obsoleted Kato-san's division. Like I say, wonderful things. What else were General Magic obsoleting? The answering machine for one. General Magic's operating system included a digital voicemail feature. Arcade machines. General Magic were writing games, in case you got bored while sitting in the back of a cab or waiting for an appointment. You could just pull out your Pocket Crystal and play a game. Books, too. There was a virtual library stocked with e-books. The keyboard and mouse. What a drag. Pocket Crystal had a touchscreen. No need for a mouse. The keyboard was virtual, just displayed on the touchscreen by the software. But the Pocket Crystal wasn't just obsoleting existing electronic technology. It was creating something completely new. The General Magic team developed a new kind of interconnecting cable, the precursor to today's USB. They developed a new programming language, Telescript. to allow portable devices to talk to each other and to a network, you know, for social media or e-commerce. Not that anyone used those terms yet. A reminder that this is all happening in the early 1990s, about 15 years before the iPhone and Facebook. They called their portable network the cloud. The crystal's touchscreen was filled with skeuomorphic graphics. These are icons that visually represent a function. Click on a manila folder to see your files, or a floppy disk to save your work. That idea existed, but General Magic took it in new directions. Click on the phone to make a call, on the inbox to check messages, or the calendar, the notepad, the Rolodex. You get the idea. Click on the door icon to go out on the virtual street. That's where the e-book library is. There's also a store where you can buy apps. They didn't call it an app store, but I'll say it again. A store where you can buy apps. General Magic really was inventing the future. So why did General Magic fail? There was, I think... a deep and tragic flaw in the way General Magic operated. Before we get to it, we need to describe the symptom. General Magic, for all the money and talent and influence it had, made products that were late, expensive, and didn't deliver on those early promises. The first device to appear running General Magic's revolutionary operating system was Sony's Magic Link in 1994. Behind all those fancy skeuomorphic graphics, it was complicated to use, with a 200-page manual. It was about the size of a hardback book, with a greyscale monochrome touchscreen about the size of a postcard. It ran on old-fashioned AA batteries, and it drained them mercilessly. In a world before Wi-Fi and Bluetooth, the device instead had an old-fashioned telephone jack. To send a message, you needed to sit at your office desk and plug the device into a telephone cable. Oh, and you had to do that to make calls, too. It didn't even have a built-in cell phone. It would be unfair to say that the Magic Link was a terrible product. The graphics were charming, the sound effects pleasing, the touchscreen interface was ahead of its time. But fundamentally, it was a lot of money. About $ 1, 600 in today's money for not a lot of functionality. The only people who bought it were the friends and family of general magicians. Sony sold 3,000 units in the first six months. Years later, Apple would sell about 300,000 iPhones on the first day. The next year, 1995, another alliance member, Motorola, released a better General Magic product. The Envoy did have wireless communication. Unfortunately, it was also almost twice the price of the Magic Link. With flagship products like that, It's no surprise that General Magic started to struggle. But then, why was the product so underwhelming? There are a few explanations, so let's explore them. I think the truth is surprising. General Magic were so focused on building their new cloud network that they failed to adapt to the rise of the World Wide Web. One of General Magic's developers remembers, we had an intern who's like, hey everybody, it's all about the web, you guys are totally missing it. There was a tech support engineer at General Magic called Pierre, who'd set up a web page as a side hustle. It was a sort of online garage sale. You'd list stuff that you had lying around that you didn't want anymore, and other people would see that stuff and bid for it. Pierre called his website AuctionWeb, He'd show it to his colleagues. He asked them for help. Maybe he could set up a company, spin it out from General Magic. Maybe General Magic would like to invest in it. One colleague's response was pretty typical. This is the dumbest idea I've ever heard. You're going to get strangers to trust each other on the internet? Lots of luck. We're not interested. Have fun. Pierre was a very quiet guy with a very silly seeming idea. But the idea wasn't silly. It was eBay. And it made Pierre Omidyar a multi-billionaire. Of course, General Magic knew about the World Wide Web, but they could easily come up with excuses to ignore it. they were in partnership with the phone company AT & T, which was developing its own private network. This was the place where you could surf to on your Magic Link and buy theatre tickets, for example. General Magic's graphical interface was a rich, interactive multimedia environment, whereas the web in the mid-1990s was mostly just pages of text linking to other pages of text. Oh! General Magic's boss, Mark Peratt, declared, The web is passive. They could do without it. The irony is painful. Mark Peratt. the visionary who coined the phrase information economy, the man who told PBS viewers in 1980 that they were living in an information economy that would change their relationship to each other and change the very way they perceived reality, this was the man who dismissed the World Wide Web. Speaking on the documentary General Magic, a procession of former employers talk about their inability to engage with the World Wide Web, chuckling or sighing at their own foolishness. I understand why the men and women who lived through General Magic's rise and fall are so obsessed with missing the Web, but I think that failure is a distraction from what really went wrong. The Web's huge today, and it's been huge for a generation, But in 1994, when the Magic Link was released, it was just a curiosity. If the Magic Link had been configured to play nicely with the web, what difference would it have made? Not enough difference to make anyone want to spend the equivalent of $ 3, 000 on a Motorola Envoy. Missing the web? Embarrassing. But not the reason General Magic failed. So let's consider hypothesis two. which is that general magic was always doomed because it was just too far ahead of its time. In our Cautionary Tales episode, The False Dawn of the Electric Car, we met the Sinclair C5, an attempt to imagine a sustainable electric vehicle that flopped so badly it became a national joke in the UK in the mid-1980s. That was partly because Clive Sinclair made some bad choices in the way he designed and marketed his invention. But it was also because electric cars need affordable, high-capacity batteries. And they just didn't exist at the time. Similarly for General Magic. By the time Apple launched the iPhone in 2007, the price of memory had fallen a thousandfold since 1994. And there was 500 times the processing power on a typical microprocessor. There was Wi-Fi. There were 3G phone networks. The web had things on it. Google, Amazon, news websites. It wasn't General Magic's fault that the world had yet to catch up with Mark Peratt's imagination. Just as it wasn't Clive Sinclair's fault that that when he launched his aerodynamic bathtub in 1985, it didn't perform like an electric sports car does today. Just because you can imagine the idea, it doesn't mean that you or anyone else can build it. That's as true for the Pocket Crystal as it was for the C5. Some ideas have to wait for their time. One technology commentator explained on the documentary General Magic that I think there's actually nothing General Magic could have done to succeed because they were at the wrong time. That sounds plausible, but he's wrong. General Magic could still have triumphed if it hadn't been for one surprising problem. We'll find out what that problem was after the break. In his book, Inside the Box, David Epstein argues that general magic was operating under a surprising disadvantage. They simply had no constraints. Some of the best hardware and software engineers in the world were working there, along with superb designers and marketing experts, all led by the charismatic prophet, Mark Peratt. They had money, lots of money, Apple had invested from the start. Then each alliance member contributed millions of dollars just to join the club. Then money from retail investors poured in. We had too much money, one of the company's vice presidents told David Epstein. We never had to worry about payroll. What startup in the world never has to worry about payroll? So if you have apparently infinite money and a compelling vision of the pocket crystal, What are you going to do? Try to build the pocket crystal, of course. And if the pocket crystal simply couldn't be built with the technology of the early 1990s, try to build it anyway. You've got talent. You've got time. Why compromise? But the trouble with that approach is that it meant General Magic's engineers never had to be disciplined about what they were trying to do. With less money... what would General Magic have done? They might have reasoned, we have good partners and great engineers, but we only have so much cash. We need a product that will sell. What can we make with today's technology that someone will want to buy? Instead, they never even got as far as defining someone. The General Magicians would talk about their target market as being Joe Sixpack. You know, the ordinary person, the man on the street. Everyone, really. And as Mark Peratt had explained back in the 1970s, eventually, everyone would have a portable communications device. But not when it has a 200-page manual, is the size of a hardback book, and costs thousands of dollars. Imagine that General Magic hadn't been trying to invent the future all at once and had instead decided to produce a useful tool for a clearly defined market. Say, corporate executives who are often on the road. Would the product have been different? Well, let's see. Would the product have had a portable panel of musical instruments as the Magic Link did? Here's the Retro Roadshow YouTube channel demonstrating them. Oh, how nice.
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We can even see or sample the different sounds here.
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That's cool. I don't know what you do with that, but it's neat.
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I don't know what the purpose of it is.
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No, I don't know what the purpose of it is either. Scratch the musical instruments. Would the product have had the Magic Link's cute animations of animals, where you could, say, pick up a cartoon cat and release it, and watch it tumble and then land on its feet? So cute. But no, you wouldn't. Would the product have had massive animated emojis? I mean, it's great to be able to attach a big walking lemon emoji to your messages, isn't it? We don't really have a lot of processing power here, do we? Or memory? Or battery life? So maybe we could just focus on some simpler personal productivity apps? Would the product have had an animated toss a coin function? This was available in the Magic Links game room. Anytime you wanted to toss a coin, you'd just click over to the game room on the touchscreen. It might take a second to render all the graphics on this 1994 microprocessor. There we are. Now just click on the coin. Wait a second. Second more. There we are. Tails. Wasn't that fun? Wasn't that whimsical? The coin flip, by the way, was programmed by General Magic's co-founder Andy Hertzfeld, one of the greatest software engineers ever born... and a man who at that moment clearly felt that he had all the time in the world. Speaking of all the time in the world, the calendar function is a story in itself. It originally ran from 1904 to 2096. It was just a few lines of code. But what if someone writes a historical app that needs to go further back in time? So the calendar was reprogrammed to go all the way back to year one, and much further forward too. Then it was realised that human history is longer than that, the calendar was reprogrammed again to go back to the beginning of astronomical time. That sort of time-wasting, gold-plated feature creep is how to make a product that's late and expensive and somehow, despite being full of delightful little Easter eggs, doesn't really deliver on the basic promise of being useful. General magic. One part vague, One part impossible. In hindsight, it was the perfect name. David Epstein argues that general magic's ultimate problem was that they had too much freedom. It's so much harder to create something good, argues Epstein, if you have no constraints at all. I think he's right, although I'd add something. General Magic's problem wasn't that they actually had no constraints. They did have constraints. Every person and every organisation does. Their problem was subtly different. They didn't think they had any constraints. In his book, 4,000 Weeks, the writer Oliver Berkman urges us all to face up to the fact that none of us really have much time. With luck, we can expect about 4,000 weeks on this Earth. For Berkman, this isn't depressing. It's liberating. We can stop making impossible lists of the novels we're going to write, skills we're going to master, countries we're going to visit, languages we're going to learn. There's an infinite number of things we might want to do, and there's only a finite life in which to do them. we might as well face up to that and make some deliberate choices. The alternative is to fritter away our time pretending we'll live forever and eventually smacking into the painful realisation that we won't. For General Magic, that painful realisation dawned when their alliance partners lost patience and started demanding a product urgently. Belatedly, general magic started to scramble. Engineers built bunk beds in the office so they could work around the clock. Everyone was exhausted. It didn't make any difference. The product was still late, and still had too many coin flips and walking lemons, and not enough streamlined, responsive, useful apps. Mark Peratt left the company. General Magic limped on for a few more years, then collapsed. Mark Peratt's marriage collapsed too. He might have felt that he had unlimited time and unlimited energy, but the truth was that he only had so much to give. And instead of giving it to his wife and children, he gave it all to perfect strangers. We all have limits in the end. The question is when we face up to them. People did learn lessons from what happened at General Magic. One of the young magicians was Tony Fidel. When General Magic had started up, he'd phone them every day, begging for a job, until finally they let him in. When it fell apart, he was devastated. But he learned. Andy eventually moved to another tech company and paid close attention to two things that General Magic had neglected. Number one, what's new and exciting and possible given current technology? Number two, what deadline can we set ourselves to keep us on track? The answer to the first question was that there was a new way to compress digital music, the MP3, and ever-cheaper hard drives. The combination of the two might allow a digital music player that could make portable cassette and CD players obsolete. The answer to the second question? It's January 2001, and we're going to ship something by Christmas. The company that Tony Fadell had joined was Apple. And the product that he shepherded to market on time just a few weeks before Christmas was the iPod. It was a device that did one thing beautifully and a huge success. And that restraint paved the way for Tony Fadell's next project, something much more ambitious. It was the pocket crystal itself made real. The iPhone. Tony's colleague at General Magic, Andy Rubin, founded Android. Other General Magicians went on to co-found LinkedIn, to take charge of search at Google, to run Apple projects such as AI, Safari and the Apple Watch, and to become Chief Technology Officer of the United States. But not Mark Peratt. the evangelical prophet of the information age, really did envision the technology that's in everyone's pockets today. But there was no second act for him in the tech industry. He moved into sustainable building materials and capturing energy from recycling. Nothing wrong with that, of course. But from a man who dreamed of the information society and wanted to share that dream with all of us It's surprisingly rooted in the Industrial Age. When Peratt told you that you could fly, you believed it. And he believed it too. But gravity is real. If you persuade yourself that it isn't, you're going to hit the ground hard. No wonder Mark Peratt didn't find it so easy to get back on his feet. This episode was inspired by David Epstein's book Inside the Box How Constraints Make Us Better and also by the fascinating fly-on-the-wall documentary General Magic. For a full list of sources, see the show notes at timharford.com. Cautionary Tales is written by me, Tim Harford, with Andrew Wright, Alice Fiennes and Ryan Dilley. It's produced by Georgia Mills and Marilyn Rust. The sound design and original music are the work of Pascal Wise. Ben-Nadaf Hafri edited the scripts. The show also wouldn't have been possible without the work of Jacob Weisberg, Greta Cohn, Corinne Gileard-Fisher, Eric Sandler, Christina Sullivan, Keira Posey and Owen Miller. Cautionary Tales is a production of Pushkin Industries. If you like the show, please remember to share, rate and review. It really does make a difference to us. And if you want to hear it ad-free... and receive a bonus audio episode, video episode, and members-only newsletter every month, why not join the Cautionary Club? To sign up, head to patreon.com slash cautionary club. That's patreon, p-a-t-r-e-o-n dot com slash cautionary club.
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