3iconAfter the War
The Silicon Valley gossips in late 1983 said Adam Osborne was trying science-fiction writing. Then, the next spring, stories suddenly blossomed about his new software company; he bragged that it would be the paperback publisher of the micro world, a mass-market operation that would undercut rivals just as his computer firm had. The name of the new company, in Berkeley, California, was Paperback Software International. And his quotes against competitors were just as colorful as in the old days.
“There’s a helluva lot of software out there,” Osborne toldUSA Today, “and a lot of it’s overpriced garbage.”
He planned to sell his programs at book chains and book racks at less than one-fourth the prices of the Brand Xs. The idea seemed apple-pie admirable, but most people would rather not buy more software than they had time to learn and use; how many hardcore buffs were out there itching to spend hours mastering cheap new programs? Circumstances might change as software becomes easier to use. But could you imagine a Word-Processor-of-the-Month Club or a spreadsheet rack to the right of the gothic romances? No, except for games programs and very cheap enhancements of existing business programs like Lotus 1-2-3, the paperback concept seemed dicey. Even Osborne wasn’t infallible as a seer and market analyst. Once he’d predicted that IBM would fail in the micro market, and hadn’t he been too slow to grasp the importance of IBM compatibility for his own products? Still, although Osborne Computer Corp. itself had floundered, it had not been for want of the right vision at the company’s inception. His new software enterprise might indeed survive in the proper niche. First, however, he would need capital. In fall 1984InfoWorldreported that Osborne had paid for a booth at a software show but had not set it up because, for want of funding, his first products weren’t ready. Investors may have shied away due to Osborne’s earlier failure to overcome the classic entrepreneur’s challenge: not just to start a company but keep it prospering.
In shrunken form, with Osborne having resigned as presidentin September 1983, his old company lingered on in early 1984, selling old machines and still promising a new IBM-compatible portable. Andy Kay at the time had no need to fear this corporate husk. For a while, in fact, Kaypro may even have been the fourth largest maker of personal computersshipped to stores specializing in them. And his hard-disk gamble was paying off for the moment—the same risk that Osborne himself had avoided as too perilous for a portable manufacturer.
Orders had kept piling up for Kaypro 10s. Then again, so had the problems with Tandon, Kaypro’s major hard-disk supplier.
David Kay even claimed that Kaypro was receiving Tandon drives “with ‘IBM’ stamped on them that also have ‘reject’ stamped on them.” Delivery delays allegedly had cost perhaps $30 million in sales of the Kaypro 10s over eight months. Tandon, while conceding that some rejected drives may have accidentally reached Kaypro, claimed that such problems were rare.[12]
The Kays’ 1984 sales would exceed $100 million. But some rivals were growing faster, and IBM, Panasonic, and other household names were now muscling in on the portable market. “Kaypro’s immediate prospects are good,” said one analyst of the industry. “I don’t know about the long-term ones.” He told of a big white tent that the Kays had put up on a hillside to store badly overstocked computer parts. The Kays might argue that they wanted to keep expenses down. To the analyst, however, the white tent symbolized amateurish management. In September, Kaypro acknowledged that millions of dollars in computer parts might be missing from the tent and some large trucks; and whatever the cause, theft or bad accounting, the crisis hardly endeared Kaypro to investors. They now could recover only $4 per share—a fraction of the $10 offering price. Around the same time, some angry investors filed lawsuits charging Kaypro with falsely reporting its finances. Kaypro denied this. I hadn’t any idea of the validity of the suits. An official with Osborne Computers, however, discussing the tent and the general management problems it symbolized, appropriately observed: “It was déjà vu to hear about Kaypro’s inventory situation.”
Six regional sales managers had left earlier that year for a competitor. Former Kaypro executives griped that the Kays paid too much attention to trivia. Andy Kay even interviewed prospective security guards. Some employees relished this personal touch, but Blair G. Newman, ex-director of marketing and strategic planning, complained toBusiness Week, “There are too many Kays and not enough pros.” Unconvincingly, a Kaypro spokeswomanshrugged off the resignations, saying a small clique of friends had left and plenty of people had lined up to replace them.
Andy Kay’s antipathy toward professional managers was coming back to spook him. All along his attitude hadn’t been so different from that of Adam Osborne, who, stubbornly, told a reporter after the Chapter XI filing, “The major lesson I learned from this thing is that I’m as good a manager as any of those guys.” An ex-Kaypro employee complained to me: “The Kays are worried that professional managers will take away their power. Andy Kay wants to run the company himself. It’s a feudal society there. A lot of employees call it the Kay fiefdom. It’s like a training ground for young knights. You can learn a lot, but it locks you into a rigid structure. There are no changes from the bottom up. That’s the big problem. I don’t know how they get away with calling it ‘participative management.’ Ordinary employees never have any meetings with Kays to discuss major decisions. There’s no checks and balances. If the guy at the top makes a mistake, there’s no way to correct it. No one can call the king’s bluff and stay.”
The Kays fired someone close to the outspoken Newman. It was Clifford Odendhal, the bearded musician who a year earlier had told me, “This is the first job outside of entertainment that I ever cared about beyond my paycheck.”
“Part of it had to do with salary,” he said: his request for a raise.
“They’d been paying me no more than what an assistant manager makes in a K-mart. And I’d handled user groups, done publicity, and edited their in-house newspaper.”
The users groups were mostly local organizations of Kaypro owners who traded technical tips and gossip and bargained with stores for discounts on equipment; they kept Kaypro in touch with the best-informed customers, the trendsetters. They also relieved the strain on Kaypro’s own technicians and stores. But Kaypro had cut back the money budgeted for sending people out of town to meet with the users groups; skeptically, Odendhal said the company had hoped to do this work almost entirely via a computer network.
Then there was the question of whether Kaypro had a true marketing department.
“They don’t,” Odendhal said. He and others around Newman had hoped that the Kays would sound out the need for products scientifically before turning the engineers loose. Odendhal may or may not have been right. If marketing men at the large computer companies were so smart, how come Kaypro and Osborne had been the first firms to make portables usable in business? Andwhat about all the IBM clones? Couldn’t the marketing men’s me-too-ism have stifled innovation? Then again, another company dominated by engineers—Texas Instruments—had flopped in the home-computer market because it didn’t payenoughheed to marketing.
The Kaypro Corporation, at least, still boasted a dealer network of more than a thousand stores in mid-1984. But some stores in my area had dropped or downplayed the Kaypro line in the earlier part of the year. One reason was that just about all the Kaypro machines were still 8-bit and didn’t run the new IBM-style software. Also, ComputerLand and other big-name chains, a growing part of the business, complained that margins on Kaypros were ten percentage points under competitors and that the machines' software hurt sales of off-the-shelf programs. So ComputerLand shunned Kaypro.
It was a clear case of the interests of the consumers being at odds with those of the computer dealers. For the Kaypro II at the time was a remarkable bargain; Andy Kay had lowered hisretailprice in March to $1,295.
What a contrast to the overpriced PCjrfrom IBM. Just rumors of the machine—nicknamed the Peanut—had kept the entire industry on edge. It bore the three magic initials. And as the pros said, IBM was compatible with IBM. Only it didn’t work out that way. The PCjr, at least the first version, couldn’t run some electronic spreadsheet software and other important programs written for the IBM. The introduction in November 1983 had been anti-climactic in other ways.Jr'slittle keys were like chiclets, horrors for the touch-typist, and by the time you bought your software and added a second disk drive, you’d be paying hundreds of dollars more. Even after IBM upgraded the PCjr'skeyboard in summer 1984 and lowered the price to $999 with one drive, the Kaypro II was still superior for word processing. So were other machines. With two disk drives and WordStar, the Sanyo MBC550—a somewhat IBM-compatible desktop from Japan—listed for just $1,400. Not that the Sanyo lacked limitations of its own. Its keyboard, too, was no match for the Kaypro’s.
In 1984 the Kays introduced the New Kaypro II, which offered only one disk drive but sold for just $995 and allowed for another to be added for a few hundred dollars more. Anyone using the New Kaypro II for business would be foolhardy to depend on just one drive. Not surprisingly, the $995 machine inspired jibes that Kaypro was guilty of using the same gimmickry as IBM and Apple had been with their single-disk computers.
Moreover, all the Kaypro models, despite their low prices, madesomecustomers pay for their bargains with headaches.
Take Chris Jensen, a writer in Cleveland. He futilely tried for months before he could send his stories to his newspaper from home via the phone lines. His dealer had sold the Kaypro IV, promising that Jensen could. “It’s really scummy to put this out,” thePlain Dealerreporter said of his machine, “and know that the communications software has serious bugs in it. It’s the kind of thing that the government would kick the shit out of the automobile companies for doing.” A Kaypro employee admitted that the communications software for the Kaypro IV had come out with bugs, but not those of the kind that were plaguing Chris Jensen. He confirmed another of Jensen’s complaints: that the Kaypro IV model with the modem couldn’t use the most popular communications software at the time. Coincidentally or not—shortly after Jensen griped to me, theNew York Times, and computer writer Peter McWilliams—Kaypro released SuprTerm version 5.3. And that did the trick for him. The machine delighted Jensen in other ways, but he still wondered about all the ordinary customers out there who were unwilling or unable to wage a media campaign to get their software up to snuff.
Jensen’s story was atypical—many Kaypro owners still spoke as if their computers were micro manna.
Still, the new Robie, introduced in early 1984, might be a sign of troubles to come. It was unique, a desktop selling for $2,300 with two 2.5-megabytefloppydisks. But disks didn’t run as quickly as a hard disk, and as of late 1984, the Robie just hadn’t caught on. The Robie looked so ugly—ungainly, plastic cheap, fit for a discount store—that even some value-minded buyers might have thought twice about bringing it into their offices. It was a computer that only a designer could love. And it was just an 8-bit machine.
In the 8- versus 16-bit battle, people were accusing Kay of living in the past. It was Osborne all over again, some might have said—just like Kay’s old rival babbling on and on about the virtues of a machine with a tiny screen. This may have been unfair. For simple word processing, for instance, an 8-bit machine could be a terrific bargain. But many buyers still gravitated to the 16-bitters, worrying that future software might not appear in the Kaypro CP/M format.
Kay’s attitude didn’t help. He was showing less of the adventurousness that had led to his hard-disk portable.
And he now felt that the Kaypro II was just like the old Volkswagen bug and would always be around—an ominous parallel considering VW’s recent fiascos in the auto market.[13]
Some software programs endured because enough people learned and liked them; and the Apple II in one form or another would last; but the Kaypro II? Even with hundreds of thousands of users? What about the ill-fated Osborne? No, computer buyers normally spurned antiques. Within a year or two Andy Kay might change his mind and ponder whether to update the Kaypro II drastically or kill it.
In November 1984, well over six months later than Kaypro had promised investors, a 16-bit IBM-compatible machine appeared.
“He’d rather not call it an IBM clone,” said an industry observer. “He’d rather call it just a 16-bit computer. It’s a matter of pride.”
The 16-bit model, a portable with a 10-megabyte hard disk and 256K RAM, looked somewhat like the Kaypro II and IV. It had anexpansion slotinto which you could plug a device to hype up the performance of the machine or expand its versatility; and it offered free WordStar along with other software. At $3,295 it sold for $1,700 less than a hard disk portable from Compaq. But it faced stiff competition from machines such as the hard disk desktop from Leading Edge, which was discounted to as low as $2,000. The 16 just wouldn’t wallop rivals the way the original Kaypro II had.
And it shared some of the drawbacks of the Compaq and many other IBM clones—especially the keyboard. The left shift key was in an awkward position like the IBM PC’s, with a weird, nonalphabetical character separating it and the “Z”; imagine the reaction of touch typists who had enjoyed the Kaypro II’s close resemblance to the traditional Selectric keyboard. Many makers of 16-bit machines had aped the horrid PC keyboard, causing one reviewer to liken them to idiot savante piano players who imitated the mistakes of true geniuses.
The 16, moreover, showed Kaypro’s internal weaknesses. Dan Berger of the San Diego recalled how Kaypro had futilely struggled for more than eight months to design the computer in-house. The project had flopped. Kaypro farmed the design out to a San Diego firm, which did the job in a fraction of the time. Earlier in 1984 Andy Kay had told Berger that Kaypro was spending only 1 percent of revenues on research and development, compared to the industry average of about 10 percent. How frustrated he must have felt paying an outside firm. Osborne had had to do that, but technically Kay had placed himself and his company in a different league.
Kaypro was heavily depending on the 16. The company hoped it would provide 40 percent of income for the year ending August 31, 1985.
Early signs were good. A small dealer in Virginia, for instance, The Disk Connection, sold six Kaypro 16s in one week—half to existing Kaypro owners and half to new customers. Some people had demanded an IBM clone, bungled keyboard and all; now Kaypro had given it to them with a vengeance. Appearing late, however, the 16 had lost much of its price advantage. In another six months IBM might well sell its XT hard disk model for as little as the new Kaypro portable.[14]
The 16, if successful, would triumph at a helpful time. In the 1983 budget year, the company had earned $12.9 million on $75 million in sales; the next budget year it hadlost$267,683 on sales of about $120 million—blaming everything from advertising costs to price-cutting and inventory problems. No longer was Kaypro a success story. It remained strong in some stores specializing in computers; but the share of the whole domestic market for personal micros would be 2.5 percent in 1984—a drop from 1983.[15]
In the long run, moreover, unless Andy Kay made major production changes, his computers might lose what price advantage they did have.
Automation was improving rivals’ quality control and whittling down their labor expenses. Eventually, they’d be just a tiny fraction of the cost of a computer. Apple already had built a $20 million plant to crank out the Macintosh computer, using Japanese-style manufacturing savvy; Macs even helped oversee the manufacturing of Macs. “I don’t even know if the Kays could automate their plant,” said the ex-employee who’d accused the family of running a feudal society. “You’ve got these four buildings no wider than a single room. They have a lot of windows, and that’s great for the people—but hard on computer parts. Often people placed piles of parts on the lawn overnight when they didn’t have space elsewhere.” The Kays, to be sure, had put up a semiautomated warehouse designed by Andy’s daughter Janice and built by his son-in-law’s construction firm. “But,” said the ex-Kaypro employee, “that’s not the same as automating the whole plant.” And Andy’s selection of the architect and construction firm was further evidence of the Kays’ tight-grip management style.
This lack of flexibility could especially hurt them in responding to the threat from lap-sized machines with flat screens. Sooner or later they would menace the Kaypro-sized “luggables” in the business market.
About 120,000 flat screens sold in 1983, and although they weren’t moving off the shelves as rapidly as expected in 1984, sales still might exceed several hundred thousand.
Some showed 16 lines at one time. That wasn’t as many as the 24 on the Kaypro II screen, but enough for light-duty word processing. And soon others would do for the heavy-duty kind and a slew of additional uses. Thousands of traveling reporters and executives were already using the Radio Shack Model 100 introduced in 1983—despite its tiny built-in memory (no more than 24K in a typical configuration) and small screen (8 lines only 40 characters wide).
But where had Andy Kay hoped to get his first flat-screen model? From Mitsui & Co. in Japan, which would offer it to other U.S. companies, including perhaps some with marketing clout far greater than his. The Kays had thought they’d be the only people selling the note-book-sized computer. By late summer 1984, half a year after the original hoopla, Kaypro should have been shipping this miracle machine, but a spokesman in September could not even tell me if the Mitsui deal was still alive. Then word came out that the deal had fallen through and a flat screen Kaypro wouldn’t appear until 1985.
A rival company, Morrow, Inc.—headed by George Morrow, a witty, balding ex-grad student in math, one of Silicon Valley’s better hardware gurus—had meanwhile acted more successfully. In late 1984 it began marketing the Pivot, a ten-pound, $2,495 MS-DOS portable with one disk drive and a well-reviewed clone of WordStar called NewWord. And a revitalized Osborne—on the verge of escaping the Chapter XI bankruptcy proceedings—would soon sell its own version of the machine.
Data General, the mini-maker written up in the best-sellerSoul of a New Machine, was another threat to Kaypro. In September 1984 it unveiled the Data General/One, which offered IBM compatibility, a built-in 737K floppy disk drive, and a 25-line flat screen. A software developer joked that the letters on the screen were so faint that the machine should be sold with a coal miner’s hat to read it. But eventually the flat screen would be just as readable as the Kaypro’s cathode ray tube. With the inevitable price drops and refinements, machines like the Pivot and the Data General/One would wreak havoc on Kaypro sales unless Kay retaliated with the right flat-screen portable of his own. IBM, AT&T, and Compaq, too, were designing their own flat-screen machines. And already Hewlett-Packard had been selling a $2,995 flat-screen computer with the popular Lotus 1-2-3 spreadsheet program in Read Only Memory—permanent memory.
Another firm—Epson, a branch of Seiko, the giant Japaneseconglomerate known for watches—was shipping a $995 computer with a compressed version of WordStar in ROM. The screen displayed only 8 lines of information at a time. But within months a 16-liner from NEC (formerly called the Nippon Electric Company) hit the market at the same price, complete with WordStar and built-in gadgetry for talking to other machines on the phone.
WordStar was now the only word-processing program offered free with the “luggable” Kaypros. If Andy Kay’s lap-sized micro couldn’t run it or a clone like New Word, he might be paving the way for some of his customers to buy rivals’ flat screens that did.
Most buyers used Kaypros to write or type. And how many would relish a switch to a new word-processing program?
And what about piping WordStar-composed letters and other documents from the luggables to the lap-size Kaypros? Customers could do so, but then they might have to insert new commands to tell their printers to underline or produce other special effects.
Beyond everything else, Andy Kay had better offer good software to fight rivals selling flat-screen machines similar to his. And WordStar over the years had generally been the most popular word processor for micros.