As part of my research for Chapter 12, I’ve recently finished reading the book Fumbling the Future: How Xerox Invented, then Ignored, the First Personal Computer. The book was written in 1999 by Douglas K Smith and Robert C Alexander, two Harvard educated management consultants. It chronicles the establishment of Xerox PARC, a corporate research facility set up by the US photocopier giant in 1970 to support the company’s diversification into computers, and the subsequent creation of a groundbreaking personal computer system by one of the most inventive research groups in the history of the computer.
Fumbling the Future does a good job of explaining why Xerox needed to diversify in the first place and describing the corporate politics which prevented the company from taking full advantage of the amazing computer technology developed at PARC. Where the book isn’t quite so authoritative, however, is when it comes to the technology itself.
One of the reasons for the commercial failure of the personal interactive computer systems developed at PARC was that Xerox did not recognise the changes taking place elsewhere in the computer industry. The Xerox Alto and its commercial offspring the Xerox 8010 Star were based on a minicomputer architecture but while they were being developed the industry was moving away from minicomputer-based systems to low-cost microcomputers. By the time that the Star was introduced in April 1981, the market was already awash with inexpensive microcomputers from companies such as Apple, Commodore and Radio Shack. The Star was clearly a superior product with a revolutionary graphical user interface which made it much easier to use than other personal computers but it was also much more expensive, costing more than 10 times as much as an Apple II. When IBM introduced the 5150 PC a few months later in August 1981, the struggling Xerox Star was dead in the water.
Fortunately for Xerox, other technologies developed at PARC were successfully commercialised, such as Ethernet, which became the industry standard for connecting computers over a network, and the laser printer which generated many millions of dollars in product sales and licensing income for the company. PARC also spawned numerous spin-outs, at least two of which (3Com and Adobe Systems) became household names. Although Xerox failed to make money from it, PARC’s graphical user interface technology was the inspiration for both the Apple Macintosh and Microsoft Windows, and no modern personal computing device is complete without a user interface that owes its existence to the work of Xerox PARC.
The Story of the Computer 
This oversimplifies, there was a delay of about half a dozen years before microprocessor powered machines could realistically offer a comparable performance to workstations. The success of Sun during the late 80s is evidence of this.
Paul,
I take your point, but Sun was targeting the scientific and engineering market with their products whereas Xerox was attempting to enter the office automation market, a market which was already dominated by low-cost, microprocessor-based machines. Within a few years Apple had released the Macintosh which provided most of the power of a high-end graphics workstation for the same price as an IBM PC, thereby allowing Apple to tap into both markets. Xerox could have done something similar much earlier if they had embraced microprocessors, as the Motorola MC68000 processor used in most first generation graphics workstations was available in 1980.