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Project Xanadu was the first hypertext project, founded in 1960 by Ted Nelson. Administrators of Project Xanadu have declared it an improvement over the World Wide Web, with mission statement: "Today's popular software simulates paper. The World Wide Web (another imitation of paper) trivialises our original hypertext model with one-way ever-breaking links and no management of version or contents." Wired magazine called it the "longest-running vaporware story in the history of the computer industry". The first attempt at implementation began in 1960, but it was not until 1998 that an implementation was released, and this was incomplete.
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During his first year as a graduate student at Harvard, Ted Nelson began implementing the system which contained the basic outline of what would become Project Xanadu: a word processor capable of storing multiple versions, and displaying the differences between these versions. Though he did not complete this implementation, a mockup of the system proved sufficient to inspire interest in others.
On top of this basic idea, Nelson wanted to facilitate nonsequential writing, in which the reader could choose his or her own path through an electronic document. He built upon this idea in a paper to the ACM in 1965, calling the new idea "zippered lists". These zippered lists would allow compound documents to be formed from pieces of other documents, a concept named transclusion. In 1967, while working for Harcourt, Brace, he named his project Xanadu, in honour of the poem "Kubla Khan" by Samuel Taylor Coleridge.
Computer Lib/Dream Machines is written in a non-sequential fashion: it is a compilation of Nelson's thoughts about computing, among other topics, in no particular order. It contains two books, printed back to back, to be flipped between. Computer Lib contains Nelson's thoughts on topics which angered him, while Dream Machines discusses his hopes for the potential of computers to assist the arts.
In 1972, Cal Daniels completed the first demonstration version of the Xanadu software on a computer Nelson had rented for the purpose, though Nelson soon ran out of money. In 1974, with the advent of computer networking, Nelson refined his thoughts about Xanadu into a centralised source of information, calling it a "docuverse".
In the summer of 1979, Nelson led the latest group of his followers, Roger Gregory, Mark S. Miller and Stuart Greene, to Swarthmore, Pennsylvania. In a house rented by Greene, they hashed out their ideas for Xanadu; but at the end of the summer the group went their separate ways. Miller and Gregory created an addressing system based on transfinite numbers which they called tumblers, which allowed any part of a file to be referenced.
The group continued their work, almost to the point of bankruptcy. In 1983, however, Nelson met John Walker, founder of Autodesk, at The Hackers Conference a conference originally for the people mentioned in Steven Levy's Hackers, and the group started working on Xanadu with Autodesk's financial backing.
According to economist Robin Hanson, in 1990 the first known corporate prediction market was used at Xanadu. Employees and consultants used it for example to bet on the cold fusion controversy at the time.
While at Autodesk, the group, led by Gregory, completed a version of the software, written in the C programming language, though the software did not work the way they wanted. However, this version of Xanadu was successfully demonstrated at The Hackers Conference and generated considerable interest. Then a newer group of programmers, hired from Xerox PARC, used the problems with this software as justification to rewrite the software in Smalltalk. This effectively split the group into two factions, and the decision to rewrite put a deadline imposed by Autodesk out of the team's reach. In August 1992, Autodesk divested the Xanadu group, which became the Xanadu Operating Company, which struggled due to internal conflicts and lack of investment.
Charles S. Smith, the founder of a company called Memex (named after a hypertext system proposed by Vannevar Bush), hired many of the Xanadu programmers and licensed the Xanadu technology, though Memex soon faced financial difficulties, and the then-unpaid programmers left, taking the computers with them (the programmers were eventually paid). At around this time, Tim Berners-Lee was developing the World Wide Web. When the Web began to see large growth that Xanadu did not, Nelson's team grew defensive in the supposed rivalry that was emerging, but that they were losing. The 1995 Wired Magazine article "The Curse of Xanadu," provoked a harsh rebuttal from Nelson, but contention largely faded as the Web dominated Xanadu. 
In 1998, Nelson released the source code to Xanadu as Project Udanax, in the hope that the techniques and algorithms used could help to overturn some software patents.
In 2007, Project Xanadu released XanaduSpace 1.0.
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