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The untold story behind Apple\'s $13,000 operating system
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The April 10, 1978, contract that laid out the terms of the creation of Apple's first disk operating system.
(Credit: James Martin/CNET)

SANTA CRUZ MOUNTAINS, Calif. -- In the common retelling of Apple's history, it was Steve Jobs' and Steve Wozniak's second computer, the Apple II, that launched their fledgling company toward stratospheric growth and financial success. The machine's triumph as a single platform for business software, games, artistic tools -- and more -- set the stage for the later debut of the first Mac, and later OS X and iDevices.

What many forget -- or may not even know -- is that when the Apple II was introduced at the inaugural West Coast Computer Faire in April, 1977, it suffered from what, in retrospect, was a glaring shortcoming: It had no disk drive.

Thanks to 35-year-old documents that have recently surfaced after three-plus decades in storage, we now know exactly how Apple navigated around that obstacle to create the company's first disk operating system. In more than a literal sense, it is also the untold story of how Apple booted up. From contracts -- signed by both Wozniak and Jobs -- to design specs to page after page of schematics and code, CNET had a chance to examine this document trove, housed at the DigiBarn computer museum in California's Santa Cruz Mountains, which shed important new light on those formative years at Apple.

What they show is the process, driven by Jobs' urgency and inspired by Wozniak's technical vision, yet emblematic of their reliance on outside help, behind one of the most vital software projects in Apple's history. Without the project, we now know, Apple's ambitions of selling a serious computer for a wide audience might very well have collapsed just as the company was on the verge of making the big time.

'They were in trouble'
With its professional-looking (for 1977) injection-molded case and a design aesthetic to match Jobs' perfectionism, the Apple II was a breakthrough product for the time. But though it was years ahead of the kit-like Apple I that it was meant to replace, the Apple II still only offered a cassette drive.

"They were in trouble," recalled Bruce Damer, founder of the DigiBarn. "With a cassette, you had to wait and wait and wait [to load anything] and it was unreliable. It was a hit or miss process. Can you imagine trying to build a company on this?"

Wozniak and Jobs weren't blind to the need for a functional, and powerful, disk drive and a disk operating system to run the system. But despite its deep bench of in-house talent -- a roster of eventual Silicon Valley legends including the likes of Woz himself, Jef Raskin (the "father of the Mac"), John "Captain Crunch" Draper, to name a few -- building its own DOS was beyond Apple's ability at the time. The company needed to look elsewhere.

Taking Apple seriously
Though the Apple I brought Wozniak and Jobs fame in the largely insular world of enthusiasts, the computer had no case, no power supply, and no keyboard -- and failed to generate much interest among business buyers. With the Apple II, however, which Wozniak designed in the fall of 1976, Apple set out to attract a wider audience. It was a decision that laid the groundwork for a more expansive sales and marketing strategy. First item on the agenda: Get a disk drive into the system to force the market to take Apple seriously.

"The difference between cassette and disk systems was the difference between hobbyist devices and a computer," said Lee Felsenstein, the creator of the Osborne I, the world's first portable computer. "You couldn't have expected, say, VisiCalc, to run on a cassette system."

VisiCalc, the first spreadsheet program, was one of -- if not the -- single-most important pieces of software in PC history. As Paul Laughton, who wrote Apple's DOS, put it, VisiCalc was "the thing that [made] microcomputers take off."

That's because it gave businesspeople a reason to spend a lot of money on a new microcomputer. "If you knew VisiCalc, and what it did, and you were a skilled salesperson, and the right person came in the door," said Dan Bricklin, the co-creator of VisiCalc (along with Bob Frankston). "You could probably sell them a fully-loaded machine."

Bricklin explained that he and his publisher released VisiCalc for the Apple II first, in part because his publisher, Dan Fylstra, was an Apple fan, and in part because they had an assembler for the 6502 chip that the Apple II was based on. But the decision to go first with the Apple, Bricklin said, was partially based on the fact that the Apple II was more likely than its competitors to have the floppy drive.


Apple co-founder Steve Wozniak.Apple co-founder Steve Wozniak.
(Credit: James Martin/CNET)

For a year, VisiCalc was an Apple exclusive, and during that time, about a thousand copies of the software were sold a month. That number may seem small today, but at the time, it was significant. Plus, Bricklin said, "it corresponded to a lot of Apples being sold -- more than a million dollars in Apple computers being sold every month."

Can you draw a line from Apple's DOS to the company's eventual success through VisiCalc? Felsenstein certainly thinks so. VisiCalc, he said, "was the killer app, the one that made everybody pay attention and realize that you could do real stuff with these devices. They were not toys."

Woz recalls
Talk to just about anyone intimately familiar with the Apple II, and one thing you'll hear often is that the disk controller Wozniak designed over the 1977 Christmas holidays for the computer was a proverbial game changer.

The chief innovation was making the controller compact by using software while competitors relied on hardware. As Bill Fernandez, then an electronic technician at Apple, remembers it, "the key advantage of [Wozniak's] design [was] that it used only six chips instead of the usual 60 to 70 -- a huge reduction in size and cost."
Wozniak's design for the disk drive controller is said to have been groundbreaking for using just a handful of chips while most others needed dozens.
(Credit: James Martin/CNET)

Bricklin said Woz's controller was "wonderful," while Felsenstein marveled at its "elegance." Damer called it "masterful." And surely Apple's financial people were happy, because the simple design meant profit margins would be much higher than those on competitors' drives.

But no matter how great its disk controller was, Apple had no DOS. Or any way to build one of its own. "They looked around Apple," Damer said, "and no one could write a DOS."

Wozniak's options were few. On the one hand, he told CNET, there were no existing disk operating systems for the 6502 chip. And though the Apple II did have a mini-DOS built into its ROM that could redirect input and output streams to any slot by manual or program command, Wozniak wanted more.

One option was CP/M, a popular OS at the time. But it was known to be clunky, and though Wozniak said he talked to CP/M's creator, Gary Kildall, about operating systems, "I was looking for something easier to use."

Although he knew little about operating systems, Wozniak is confident he could have built a good one. But his co-founder couldn't wait. "Steve Jobs, who didn't have patience for a project that took more than a week, found [Shepardson Microsystems] and...they sounded eager and knowledgeable...so we hired them."

As then-Shepardson employee Paul Laughton remembers it, Wozniak came by one day saying Apple had a disk drive, but no DOS, and was wondering what to do. "I said, 'I know about operating systems.' And so he said, 'Cool, let's have you do it.'"

'Possibly the most important Apple documents in history'
On April 10, 1978, the contract was signed. For $13,000 -- $5,200 up front, and $7,800 on delivery, and no additional royalties -- Shepardson Microsystems would build Apple's first DOS -- and hand it over just 35 days later. "Amazing," said Damer, speaking about that deadline. "Can you imagine delivering an operating system in just 35 days today, with no tools and partially functional hardware? That truly was the greatest generation of programmers."

For its money, Apple would get a file manager, an interface for integer BASIC and Applesoft BASIC, and utilities that would allow disk backup, disk recovery, and file copying.

"I sat down and started writing," Laughton recalled. It "was written on punch cards. It was put into a minicomputer and assembled, and the output was paper-taped. Then we proceeded to debug it."

In the recently surfaced documents, which Laughton donated to the DigiBarn, is a wealth of information about the Apple DOS project. From contracts -- signed by both Wozniak and Jobs -- to design specs to page after page of schematics and code, this is a treasure trove of Silicon Valley and Apple history. Or, as Damer said he thought upon looking through the papers, "Oh my God, these are possibly the most important Apple documents in history."

"The difference between cassette and disk systems was the difference between hobbyist devices and a computer. You couldn't have expected, say, VisiCalc, to run on a cassette system."
--Lee Felsenstein, the creator of the Osborne I

One of the fun parts about reading through the documents is seeing pages filled with Wozniak's own writing. The project, after all, was based on specs Apple's legendary co-founder gave Laughton for how to create a boot disk. Among the treats -- for those who can appreciate such things -- is Wozniak's hand-drawn diagram for his highly regarded floppy disk controller.

The margins of the source code also have a series of notes explaining what's going on that are like catnip for true Apple geeks. Looking over the documents, and seeing a comment about "Must not cross page boundary," Apple's sixth employee, Randy Wigginton, who worked closely with Shepardson Microsystems on the project, said, "I forgot how crossing a page boundary added an extra cycle on the 6502."

"The 6502 liked everything to be in neat 256-byte 'page boundaries,' Wigginton explained to CNET by e-mail. "When writing code that had to be rigorous about timing, you had to be careful about crossing a page boundary....[Otherwise] an extra cycle was consumed by the processor. That's why Woz has a note 'Must not cross page boundary' on his code."

For Laughton, who turns 69 this month, his essential role in one of Apple's most important projects was a career highlight. Even in 1978, he could tell Apple was a special company, particularly because he recognized the "genius of Wozniak in the design of the Apple II and the design of the disk drive interface card."

He's also had plenty of opportunities to revisit his contribution to Apple. "From time to time, it would come up in conversation and someone would say they had an Apple II, and I'd say I wrote the DOS," Laughton said. "They were like, 'Wow, did you make a lot of money," thinking I probably worked for Apple.

In fact, though, Laughton made about $35,000 a year working for Shepardson at the time. He knows how much he could have made on Apple stock if he'd worked directly for Wozniak and Jobs, but in 1978, Apple was just another startup, and Laughton enjoyed the steady work writing software for Shepardson's many clients.

Besides, he recalled, "I remember talking to Wozniak, and his salary was lower than mine."


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