Three important movies have portrayed the character of John Sculley, former CEO of Apple and former president of PepsiCo. He has been played by Jeff Daniels in "Steve Jobs", by Matthew Modine in "Jobs ", and by Allan Royal - in "Pirates of the Silicon Valley". For his part, Sculley is baffled at the way he’s been depicted.
"They always showed me as if I was 60 years old, when I was actually 40 years old," he recalls. "And in all these movies, I wear a suit, although I never wore a suit to the Apple offices. Sometimes they have me drinking expensive wines, even though I don't drink at all. When I mentioned these to Aaron Sorkin [who wrote "Steve Jobs"], he told me, "I'm not a documentary filmmaker. I have to tell a story."
The story about Sculley that the film world insists upon telling is a story of the corporate business man, the responsible adult who came from buttoned-up PepsiCo to lively young Apple, and banished its brilliant inventor, Steve Jobs. From that moment on, the story goes, the company began to deteriorate until Jobs the genius returned to save it. Sculley has a different version but to understand it, we must go back a bit.
"The Pepsi Challenge drove Coca-Cola crazy "
At the age of 30, after graduating from design and architecture studies and a degree in business administration, Sculley arrived at PepsiCo. At the time, its market share was one-tenth that of Coca-Cola. "In 1970, I was appointed vice president of marketing for PepsiCo, a small company that had to compete with Coca-Cola, then the strongest brand in the world. I conducted the company’s first market research: we went to 550 consumers' homes once a week, and brought them a few bottles of whatever beverage they wanted from our selection. What was amazing was that no matter how much they ordered, when we got there, all the bottles were empty. For nine weeks, they drank whatever we provided. So, we realized that in order to sell more cola, we simply needed our consumer to have more cola at home."
Then he had the idea that to some extent determined Pepsi’s success. "I said: you can't compete with Coca-Cola on their playing field. But their bottles are very small."
At the time, Coke was only sold in glass bottles. Sculley instructed Pepsi to produce one-and-a-half-liter plastic bottles. (If you’ve been looking for who’s to blame - here’s your man.) "It's not easy. The bottle has to be safe to use while containing CO2 under pressure, so that there is no aftertaste in the beverage, and also be convenient for production in the existing factories." The solution developed by manufacturer DuPont, was a small bottle that could be produced with the existing machinery, and then inflated to the desired size.
When the change was implemented, Coca-Cola didn't really understand what was going on, Sculley says. "Three and a half years after we launched the plastic bottle, we received an award for the largest increase in market share ever [measured for the first time by volume and not in number of bottles sold], and Coca-Cola said, What are you talking about? We don't see it."
The defining moment was the Pepsi Challenge campaign. "It drove Coca-Cola crazy," Sculley takes pleasure in recounting. As part of the challenge, Pepsi actually conducted and recorded blind taste tests, revealing to the world that the public could not actually tell the difference between the two companies’ beverages. "We started in Texas, where Coca-Cola unquestionably ruled and most of the public had never tasted Pepsi in their lives. The video camera launched in 1975, and it became much easier and more convenient to create a testimonial ad. Up until then, all advertisements said ‘Look how big I am'. We were the first to focus on consumers".
The verdict Steve Jobs wouldn’t accept
Pepsi’s success was apparent to Jobs. Already in the early 80s, Jobs wanted to be Apple CEO, after the departure of its first CEO Michael Scott. "Steve founded Apple and was the largest shareholder, but the board of directors thought he wasn't ready yet. To appease him, they said: You pick the CEO. When he didn't like any of the candidates, they suggested he choose someone from a completely different industry."
So began Jobs' courtship of Sculley, which lasted five months. "We formed a bond. We would meet every weekend; I would fly to California or he would meet me on the East Coast. There was one day, in late March 1983 when I took him to the Metropolitan Museum of Art in New York City, where I knew, for a change, he wouldn’t be an expert. He took me to Tower Records, to introduce me to new music that he liked. Then we got to his apartment, which today belongs to Bono, the U2 singer. As we were looking at sunset over the Hudson River, I told him: I won’t come on board. I really like our relationship. We have fun together. I'll advise you for free. But I'm staying here.
"Steve at that time had these deep black eyes and black hair, and he comes up to me with that black turtleneck sweater of his, looks me in the eye and says: ‘Do you want to sell sugar water for the rest of your life or come with me and change the world?".
It was this sentence that changed Sculley's mind. "He had this way of telling each person things in a way that would convince them."
How did you get from that place, where he recruited you with such enthusiasm, to a place where he goes, you stay and you never speak again? The story goes that you fired him.
"I want to make something clear: I didn't fire him. He wasn't fired at all. Around 1984, he was depressed. He wanted to launch the Macintosh Office, a Mac computer with a laser printer, but the processors in those days weren't good enough. The graphics weren’t operating, printing took a whole minute. The market related to the product as a toy and not as a work tool.
"I told him: You’re up against a technological brick wall. It's not so bad. In a few years, processors will improve, their prices will drop, and this product will be everything you dreamed of." But nonetheless, Jobs launched Macintosh with great fanfare, and the launch was a failure. "He told me, ‘It's your fault. The pricing is too high.’"
Jobs did not want to accept the verdict. Macintosh was his baby. He no longer believed in the Apple 2 with its text-based interface, even though it generated most of Apple's revenue. He already envisioned a future where all computers had only a graphical interface.
"He wanted to transfer the entire marketing budget to the Mac. I told him: I’m afraid this will cause the company to go bankrupt. A situation arose in which we were seen as two camps, the Apple 2 camp and the Mac camp. After all, when he recruited me, he mainly wanted me to market the Apple 2 against Microsoft, and even Commodore and Atari who were competitors, and I succeeded. In the meantime, he built the Macintosh in another building."
Sculley asked the company's board of directors to decide on the matter, and after conducting market research, it was decided to continue investing advertising money in Apple 2. Legend has it that, at this stage, Sculley acted to distance Jobs and diminish his role, and some argue the opposite. But Sculley claims neither is true. "Steve was so hurt by the decision to allocate most of the advertising budget to Apple 2, that he himself announced a sabbatical, and then a resignation." Be that as it may, it was Jobs who found himself on the outside, and soon after founded NeXT, which dealt in both computer hardware and software.
He later said it was the best thing that ever happened to him.
"Not for Apple. Maybe the decision about Apple 2 was the right one, but the price of losing someone like Steve was too high."
"Steve had a Version 1.0 and Version 2.0 of himself "
As we know, in the end the same Mac that Jobs conceived and designed enabled Apple's golden age. But in those days, the company launched other products for uses such as desktop publishing, designed for printing advertising materials at home, desktop presentation (the early version of Power Point), and the PowerBook -- "A computer designed just like today's laptops," says Sculley, "which were considered innovative and high-quality, and managed to command amazing premium prices and very high profit margins."
But it was also important for Sculley to show that Apple had not lost its creative edge along with Jobs' departure, and launched products like the Knowledge Navigator, a kind of tablet. Knowledge Navigator came with a simulation video that today, "When people see it, they immediately say - that's the iPad!". Apple also launched the first handheld computer.
But it was precisely then, in 1993, after a ten-year tenure, that Sculley decided to leave.
It sounds like everything was going well. So, why did you leave?
"The significant change occurred when Microsoft joined forces with Intel, and they developed an operating system that could run on very inexpensive computers that emulated Apple's graphical interface. Steve told Bill [Gates] that he stole the interface from him. Bill said: ‘You know we both saw it at Xerox PARC.’" [Xerox’s Palo Alto Research Center is the campus where legendary technologies were developed, some of which are still used by Apple and Microsoft today].
Apple's board of directors began to examine the possibility of imitating Microsoft and making the operating system available for use on other computers as well. "I said, ‘Sorry, but this is a stupid idea. Apple is known for our beautiful products.’ On this basic principle, Steve was right. I wouldn’t agree to be a part of it - and I left."
After Sculley left, Jobs returned when Apple bought NeXT in 1996, "And that's what started the next generation of Apple."
Like Apple as a whole, he says, Jobs also had a Version 1.0 and a Version 2.0. "I knew the first version, when he was the genius we all know, but didn't know marketing or management. In the second version, he was the best marketing person imaginable."
At this point there was no longer any contact between you.
"No. When he left the company, he didn't want to exchange a word with me. Not even afterwards. Looking back, I wonder how it is that I never said to him, both when he was at the company and after he left: let's plan together the way you’ll eventually replace me as CEO. We never had that conversation and I'm sorry about that."
According to the owner of a sushi restaurant in Japan, which was a favorite of Jobs, Sculley entered the restaurant one day, and upon seeing Jobs' autograph on the wall, shed a tear and said, "Today, as older people, we could take a break and go spend some time together. But he died [from cancer in 2011], and that won't happen."
"Looking back, I'm ashamed that we marketed so much sugar"
Besides PepsiCo and Apple, Sculley has been involved over the years in founding and managing IT communications companies, as well as being a partner in companies in online commerce, cyber, a company for training entrepreneurs, and even a company that improves the taste of wine using magnets.
In recent years, his great passion has been healthcare. One of the main companies in which he is involved and serves as chairman is India-based Nirvana Health, which has developed a cloud platform for the health sector. "They’ve created something that did not exist in the health system - a cloud that connects all the way from the pharmacy to the hospital, and stores patient data so that all aspects are synchronized. There is no other cloud like it. Over the last decade, what’s made Apple, Alphabet, and Amazon so big is the cloud. Steve Jobs took Apple up a level with the iPhone, Tim Cook raised the value ten levels with the App Store, and today these companies are buying more and more clouds. But they haven’t managed to make a health cloud."
How is it that Nirvana has succeeded where the giants have failed?
"There is a unique challenge in connecting all of the elements along the chain, and we solved it using a technology called RPA, where different cloud units connect to each other like Lego. But the technology is the easy part. The hard parts are the regulations for every illness, which are different for each country, even within the US, and also understanding who should be receiving payment at any given moment. These problems can be solved by companies that are already rooted in the health world, like Nirvana."
As part of Nirvana Health, Sculley also has a business partnership with Carelon Digital Platforms, a unit of leading US health insurance company Elevance Health. In recent years, Elevance recognized it had the opportunity to expand far beyond just providing insurance, and could take ownership of patient healthcare management through the data. Collecting information makes it possible to prevent diseases proactively, monitor and treat patients at home or in clinics, rather than in hospitals, all of which should save insurance companies costs on each patient.
"Elevance is not originally a technology company, but it may become the largest technology company in the health field. It has 119 million policyholders. One day, it will make the biggest change of the decade. CEO Gail Boudreaux understood that as a health insurance company she needed to take healthcare a step back to holistic, preventive medicine that will actually make people healthier."
Both of these examples, Sculley says, are part of a larger trend of taking healthcare out of hospitals; as treatments become more preventative and less invasive, they can be performed in clinics or even at home. "Look at what's happening in the health market. In all sectors, company valuations are declining, and there are no mergers and acquisitions. Healthcare is the only sector where values are rising and mergers are continuing. Everyone knows that medicine is coming out of the hospital and everyone wants a piece.
"25% of the healthcare system costs are fraudulent, wasteful, unnecessary costs. If we solve these problems, we will really change the world. That's why I'm involved in a company like Nirvana, which deals with the behind-the-scenes of paying for medicine. That's where the money is."
Where do technology companies like Apple and Google fit in this story?
"To date, the tech companies have only entered the sidelines. They haven’t been able to reach the core areas - the medical treatment itself, payment for it - because everything there is so complex in terms of regulation, and companies must manage relationships with the consumer in order to win there. But they’ll have to safeguard against losing talents to healthcare technologies. Some of the companies that will win in this area are yet to be founded."
One thing Sculley foresees for this market is interfacing with blockchain. "If you’re referring to payment management in healthcare, I believe that blockchain will be involved. This way, we can track consumers when they switch between insurances, and continue compensating the insurance company that kept them healthy, at the next company as well."
Sculley definitely views health technologies as the future of high-tech. "For those in search of a direction, I suggest studying molecular biology, not mathematics or programming, because those are subjects that artificial intelligence will soon replace. The future lies in synthetic biology, the production of living substances artificially.
"I founded a cord blood stem cells company [Celularity) and we are developing solutions for replacing cartilage and treating cancer using stem cells. We built a factory with an investment of $75 million. I’m happy that I am in this sector and not trying to build the metaverse."
In the past you sold sugary drinks, not a very healthy product. How did you make the move to the opposite side?
"They don't let me forget that, and rightly so. Pepsi marketed soft drinks and snacks, and led to increased consumption of these products. And when I look back, I'm embarrassed and ashamed. But in the 70s, we really didn't know the impact of sugar and snacks. Today, Pepsi and Coke are trying to do things differently ".
Shaping future health with Israeli startups
When Sculley is asked how he views current US technological development relationships, he answers with a triangle: "If in the past, the special relationship was the one between the US and Great Britain, today the special relationship is, at least in the technological world, US-Israel-India. Indians have taken lead in our tech sector. They understand how to scale-up quickly, they get it to work on the first try. They’re not smarter than Israelis, but they understand size."
In Sculley’s opinion, Indians also understand complexity - which is especially important in health technologies. "This is a far more complex sector than a classic technology field. If health were as simple as technology, Amazon and Alphabet would be leading the sector. But the regulations, protocols, lobbying, it's really very complex, and Indians love complex processes. They know how to simplify them and lead them."
According to Sculley, one person who best exemplifies this is Rajeev Ronanki, Senior Vice President of Elevance Health and President of Carelon Digital Platforms. Ronanki is responsible for solving many of the company's challenges. This week, the two came to visit the company's development center in Israel. "Our goal is to connect all the components of the digital health world on one platform," Ronanki explains, "Including monitoring, decision support systems, disease prediction and prevention systems, and more. According to this plan, Elevance will own the brand as well as the data. If this plan is successful, it will contain both the relationship with the consumer and the information, and will have enormous power in the future digital health world."
Elevance also collaborates with Israeli start-ups in the health sector, that, following guidance, integrate the technology into their systems. The most advanced is K Health. "It is already integrated with us at scale with 7 million insured clients," says Ronanki. " When Elevance clients open the app, they can choose to have a K Health virtual doctor as their family doctor. Alternatively, if they already have a family doctor, they can get a solution to a specific problem or urgent care from a virtual doctor, and the next day their regular doctor will receive an update about what happened.
"K is our main partner in this model, but there are others such as AmWell (American Well, a US-based telemedicine company founded by Israelis Ido and Roy Sheinberg). The goal is to create a network of companies like these, who will share information with one another through us. From the customer's point of view, it will be a seamless experience. They will be able to receive specialist treatment from AmWell and emergency response from K in addition to their physical family doctor. Already today, the system is improving the treatment experience of our clients."
Another Israeli partner is TytoCare, which has developed a system that allows routine family medicine tests, such as ear or throat examinations, to be performed remotely. In Israel, HMO Clalit Health Services offers TytoCare to its members. In the future, more complex tests will be able to be performed at home, saving on visits to the clinic. "We’ve distributed 20,000 Tyto products in the US," says Ronanki.
Also on the list: Diagnostics Robotics, led by founder and CEO Dr. Kira Radinsky, which analyzes medical files, identifies patients who are on the verge of chronic illness, and intervenes to prevent their conditions from worsening; and MDI Health, which helps patients manage complex or multi-drug therapy, and issues warning about drug counter-indications.
Is there any tension between you and these companies regarding the question of who owns the patient data collected?
"The patient is the owner of the information and must grant permission for us to use it. Our agreements with partner companies gives us access to all data collected, and after we connect it from all sources, we share those elements that will enable the companies to improve their algorithm. We have a 'sandbox' that contains a lot of data that all our partners can practice on."
Udi Goori - Country Manager, Israel, Carelon Digital Platforms notes: "Up until about two years ago, we operated each system separately, as a pilot. Now we’re starting to operate them all together. If we didn’t, it wouldn’t be the new world of health."
What pieces are still missing from the puzzle?
"More predictive capabilities, technologies that allow more home tests and diagnoses, optimizing doctors and health teams time, and handling customer churn," says Ronanki.
In recent years, insurance companies have been labeled the "bad guy" of the US health care system. Policy prices have increased and so have deductibles, in a way that sometimes prevents policy-holders from receiving coverage. "We’re among the cheapest companies per use because of our size," says Ronanki, "and we hope that the solutions we’ve discussed will further reduce costs, thanks to holistic care."
Published by Globes, Israel business news - en.globes.co.il - on January 3, 2023.
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