New movie asks why ’90s smartphone pioneer General Magic failed

In 1993 Sarah Kerruish was part of a filmmaking crew commissioned by tech start-up General Magic to visually capture the creation of their handheld wireless communications device, which enabled the user to download information and receive messages. Or as is it’s called today, a smartphone.

“They were totally evangelized and passionate in the belief that this was going to be a huge success and change the world,” Kerruish told MarketWatch. Ultimately, that didn’t happen, and General Magic filed for bankruptcy in 2002.

But together with her co-director Matt Maude, Kerruish has repurposed the footage for the new documentary “General Magic,” which has just premiered at the Tribeca Film Festival and is currently seeking distribution.

“It will be a good historical or hysterical document,” Andy Hertzfeld, Apple’s original “software wizard” and a co-founder of General Magic, says on camera in 1993.

History was made...with Apple’s iPhone. But the documentary chronicles how history isn’t always written by the winners.

A glance at those who worked at General Magic — then known as “magicians” — amounts to a who’s who of tech pioneers. In addition to Hertzfeld, other General Magic Apple alums included the company’s CEO and co-founder, Marc Porat, marketing chief Joanna Hoffman (who was played by Kate Winslet in Danny Boyle’s 2015 movie “Steve Jobs”) and design guru Susan Kare.

Also at General Magic: Tony Fadell (founder of Nest and co-inventor of the iPod and iPhone); Megan Smith, the third CTO of the U.S. under President Obama; and Pierre Omidyar, who went on to found eBay

“General Magic” documents the failure and the aftermath of a bold idea that doesn’t catch on in the marketplace. But the tone is reflective and civil. “General Magic” isn’t the “The Fire and the Fury” of the tech world.

“We [General Magic] had not only brilliant, genius people who obviously proved their mettle by revolutionizing any number of industries,” Hoffman told MarketWatch. “But we also had profoundly decent human beings working together and I think that’s what you see in the film. After a while in Silicon Valley, you realize failure is a key ingredient to success.”

Keruish told MarketWatch the failure of her own start-up inspired her to revisit her time filming General Magic. “I thought I really wanted to understand the role of failure and bringing big ideas to life,” she said.

“So we resurrected the footage and found a lot more including 600 tapes in Hawaii that someone had basically rescued out of a bin. We were able to tell the story as if we were there, as opposed to just looking back at it,” she said.

FAILURE IS AN OPTION:

In addition to some fine minds, General Magic pioneered several concepts that are commonplace today: Electronic messaging, software modems, voice recognition, small touch screens, network games, even an emotion-driven ideogram that serves as a precursor to the emoji.

General Magic partnered with electronic giants in its mission to develop groundbreaking computer interfaces and innovative operating systems. Their Magic Link device was made by Sony while they also collaborated with AT&T Motorola and Philips

Fueled by hugely positive press, General Magic’s concept IPO in 1995, the first of its kind, raised $96 million before the product had been launched. The stock nearly doubled on the first day, closing at over $26 per share. By 1999, the stock had plunged to $1.38.

The company was undone by technical glitches, strategic drift and consumer apathy. Former General Magic counsel Michael Stern says in the documentary, “We had sold fewer than 3,000 devices [by the end of the first quarter in business] and almost all of those had been sold to friends and family of the company and our partners and virtually none to ordinary consumers.”

The losses racked up. From 1990 to 1996, General Magic lost $74 million and could never get in the black. (In the second quarter of 2002, its final quarter of operation, the company reported revenue of $2.1 million and net losses of $5.4 million.)

So what went wrong? “We were caught between the 1980s and the 1990s,” Megan Smith, then vice president of General Magic, said. “There was no open internet, no transparency and no standard on which to build so we had to do it by convincing everyone to play.”

Another issue was price. Magic Link, Sony’s handheld device that was based on the company’s Magic Cap Operating System, retailed for a consumer-unfriendly $800. “We were licensing our technologies, both the software and the hardware, but we didn’t have control over the final pricing,” Hoffman said.

“This was the ecosystem of the digital age — the first prototype of the smartphone and the cloud and the app system,” Smith said. “But while the board for my smartphone now costs $35, at the time the boards were more expensive. We were always driving to get the bill of materials down but it was a question of scale. Even though the concept and idea was right, it just wasn’t the time yet.”

BIG APPLE:

General Magic had its origins in Marc Porat convincing Apple CEO John Sculley in the late eighties to spin off a new division to invent an early prototype of the smart phone. Under Sculley’s leadership, Apple developed General Magic’s operations.

“I came to Apple in 1988 and remember one of the first things I said to Sculley was that Apple had no future unless they did something beyond the computer,” Porat recalled. “They were so insecure and chaotic and dysfunctional that we [General Magic] were able to work our way through and recruit amazing people.”

“General Magic wouldn’t have existed without Apple’s support,” Herztfeld said. “Mark was especially skillful at talking John Sculley into letting us loose.” But the documentary conveys the shock felt by General Magic employees in 1993 when Sculley publicly unveiled Apple’s ill-fated Newton tablet, similar in concept to the Magic. “Apple was our parent and benefactor but Apple became our enemy when John Sculley decided he wanted Apple to do what General Magic was doing,” Hertzfeld said.

Upon his return to Apple, Steve Jobs took notice of General Magic, particularly the company’s projected keyboard. “Jobs actually came to Magic and tested the device and said this works and this doesn’t,” the film’s co-director Matt Maude said.

The fact that Sculley concludes in the documentary that, “so much of what came out of General Magic is the foundation of everything we take for granted today,” will likely be scant consolation to the “magicians.”

REGRETS:

One of the questions the documentary asks is whether General Magic could ever have succeeded if a different strategic direction had been taken or if it was always doomed as a business.

“Of course if different decisions had been taken, things would have happened differently,” Hertzfeld said. “But the vision was ahead of where the technology could be. We knew it would eventually end up in your pocket but we couldn’t build something for your pocket in the early 1990s.”

It wasn’t for lack of trying. “There were several attempts to change direction,” Kerruish said. “There was an attempt to course correct towards the internet. There was an attempt to redevelop the product. But the fundamental limitations to do with the technology available always meant they were way ahead of their time.”

“General Magic suffered a bit being too big a leap for people,” said Matt Maude. “If you were carrying around that smartphone 20 years ago, you wouldn’t have known what to do with it.”

A quarter of a century on, Porat ascribes the failure of General Magic to “us overestimating the capacity of the device manufacturers and the capacity of AT&T to bring long-distance customers into the fold. But it was also us not fighting the battle to actually make a phone out of the box.”

He wishes he had done more to compete with the world wide web. “When we saw the internet was there, we pivoted,” he said. “Even though the team was exhausted, the aim was to get a browser in there and get aligned with what was coming but by then it was too late.”

He recalls a meeting with then-Motorola CEO George Fisher. “I said we want to make a phone and I walked in with my model which was a Motorola brick and showed it to him saying that we wanted to make the Motorola phone as beautiful and lovely as a Mac.” He said, ‘No, I can’t do that right now because it’s analog’... I lost that argument because at that time cellular service was analog.”

Yet Keurrish believes that while General Magic lost the battle, it didn’t lose the war. “It did win in so many ways,” she says. “It just didn’t follow the path that you would expect it to follow.”