couldn’t just walk out the door of their computer dealer and wave an
eternal good-bye. Chances are that they’d be back for advice or repairs.
So Kaypro wanted local dealers not to face competition from cutthroat
mail-order houses that left the customer on his own.
Without a strong network of local stores, Kaypro might perish. Andy Kay
appreciated this. “If a fellow does mail order and the contract says he
can’t,” Kay said, “David cuts him off without a qualm. Maybe the dealer
says we need him or he won’t be able to support his family and kids.
Well, forget it. This is a business, but it’s also our livelihood, too.”
Of course, not all mail-order establishments in the computer trade were
unethical: I knew of some good ones. But from a manufacturer’s viewpoint
the policy made sense. The Kays at the time wanted to befriend the
independent dealers, who were less likely to flood the market with
heavily discounted computers than the chains were.
However sympathetic to the independents, Kaypro didn’t follow the lead
of some expansion-minded computer companies and grant extended credit—a
sensible policy in this volatile business. A California chain folded,
owing hundreds of thousands to Apple as well as customers. As to how he
originally picked up many dealers, Andy Kay said, “The orders just
started rolling in. Now we’re sort of clearing out dealers which are
operating out of backs of cars or whatever.”
Kay was also benefiting by selling through his own network rather than
being at the mercy of distributors—and supporting their profit margins.
By the summer of 1983, Kaypros were selling at some thousand
dealerships. Christiansen observed that Kaypro gave dealers “30 or 40
percent margins. So does Osborne. That’s how they get the dealers to
carry the damned things. You know, when you have fifty guys a week
knocking on your door, you pick the one who’s going to put the most
money in your pocket, and Osborne and Kaypro both know how to play this
game as well as or better than anyone else. How do you think Kaypro went
from nothing in 1982 to 100,000 units in 1983?” Kay disputed this. He
said that the Kaypro’s quality sold the computers, that he hadn’t
offered more than 25 percent dealer discounts, and never would; and his
claim seemed creditable enough when some stores dropped the Kaypro
because the markup wasn’t big enough. Whatever the facts, Kaypro in 1983
boasted sales offices in some fifteen U.S. cities and one in the
Netherlands. One-third of the computer-store ads in the _Washington
Post_ business supplement of August 8, 1983, mentioned the Kaypro.
The limited _national_ advertising was equally wise. Why not depend at
first on local ads telling where people could buy the product? And what
was the use of creating a demand for more computers than Kaypro could
make? Andy Kay had learned from Osborne’s example. Adam Osborne’s
splashy ads had helped create the market that the Kaypro was now
enjoying.
Besides, Kay was benefiting from something better than advertising: the
articles of friendly writers. And why not? Writing was just another form
of word processing—a category for which most Kaypro owners had bought
their machines. Certainly the Selectric-style keyboard and 80-column
screen had impressed _me_. Peter McWilliams, the very same writer who
had led the cheering in the micro magazines for the Osborne, was a
Kaypro convert. “Put simply, as a personal computer, the Kaypro II is
superior to the Osborne 1 in almost every detail,” he wrote—“yet it
retails for the same $1,795. As David Letterman might say,
‘Unbelievable!’” James Fallows, the Washington editor of the _Atlantic
Monthly_, free-lancing for _TV Guide_, called the Kaypro “the best
value” for “complicated accounting” or “heavy-duty word processing.” I
was used to seeing hype in and out of computer magazines for inferior
products. The Kaypro, however, deserved the paeans. Granted, I didn’t
like Perfect Writer, a word processor included between 1982 and early
1984; and the sharpness of the monitor was no match for some more
expensive machines. The Kaypro wasn’t the best computer, period. But at
the time Fallows praised the Kaypro to the millions of _TV Guide_
readers, it may well have been the best dollar-for-dollar value. Fallows
himself didn’t own a Kaypro. He honestly reached his conclusion
unassisted by a special offer from Kaypro: 40 percent discounts for
writers; the company said—convincingly or not—that it didn’t attach any
strings.
As production increased, Kaypro finally did trot out national
advertisements. One, in _Esquire_, showed a young Kaypro user in an
office swept by a fierce wind, blowing coworkers’ papers away and
tousling his hair, while he was typing happily away with his chair and
desk raised a foot off the floor, “KAYPRO RISES TO THE OCCASION,” said
the advertisement. I didn’t really see the point. The technical specs
were buried in small print at the bottom of the page; why couldn’t the
ad tell me in large print and simple language what the Kaypro could
_do_? A Kaypro staffer said the ad was to build name recognition. Then
the company might unleash a campaign portraying its steel ugly duckling
as the Volkswagen of small computers. It seemed a sensible-enough idea.
Then, again, it was another indication that the computer business was
becoming more like Detroit—selling not only economy but the _image_ of
economy.
Finally, the new ads came out. In simple, helpful language they told
novices what to look for in a small business computer. And yet you could
hardly confuse the ads’ goals with _Consumer Reports_'. The ads for
beginners recommended consulting with an expert before choosing a
machine; at the same time ads in sophisticated magazines like _Byte_
asked computer pros to suggest the Kaypro to beginners. (“Once you tell
people about the complete business computer for $1,595,” said an ad
appearing after the Kays lowered the price $200, “they’ll probably stop
bugging you with a lot of questions.”)
The public relations campaign was just as slick. No one lied. But Hill &
Knowlton, the fast-track public relations agency, laced its Kaypro
releases with quotes skillfully reflecting the computer makers’
self-interest. In one, David Kay said, “If it isn’t portable, it doesn’t
pay to buy it.” That was hyperbole, pure and simple.
The nine-inch screen, for instance, was a major improvement over the
Osborne, and it was entirely right for an economy portable from which
many buyers would eventually trade up, anyway; but writers and other
heavy-duty users might prefer a twelve-incher from the very start. For
not much more than the Kaypro at the time of the release, you could buy
a desktop computer called the Morrow Micro Decision with good software
and a twelve-inch screen. Milton Viorst, a Washington journalist,
couldn’t stomach the Kaypro monitor. He considered the Kaypro the kind
of machine you might tote back and forth between home and the beach but
not the best for heavy-duty viewing. He bought the Morrow, or two,
actually: one for himself and one for his wife, Judith, a well-known
poet and magazine writer. However pro-Kaypro, I could see why. The
Kaypro, strictly speaking, wasn’t even portable; instead, it was
_transportable_. Unless you were a 300-pound tackle playing for the
Pittsburgh Steelers, you weren’t about to tote a sharp-edged, 26-pound
computer and battery pack as casually as you would an attaché case.
Other “feature information” from Hill & Knowlton in spring 1983 offered
more tips for computer shoppers in a way cunningly designed to steer
them to the Kaypro without the customers’ quite knowing what was going
on.
“KAYPRO Division of Non-Linear Systems” appeared on the first page in
big blue letters above the text. But the seven-page “feature
information”—the part intended for publication—mentioned the computer by
name just once and in an inconspicuous location. It laid out the specs
for a good portable. Then, several hundred words after the Kaypro
mention, it triumphantly concluded, “For as little as $1,795, you can
already buy the only fully portable personal computer with a full-sized
screen, one that offers large enough memory capacity to handle business,
entertainment and educational programming and a service network that’s
available anytime or anyplace—just like the optimal portable personal
computer itself.” I recalled the canned releases from food companies
that women’s pages ran verbatim. How many newspapers and magazines would
do the same with “feature information” from Kaypro? David and his father
had made a good machine. And yet I wondered how many manufacturers of
bad computers might start using similar tactics. Joel Strasser, at the
time the Hill & Knowlton man handling Kaypro, later protested that he
was engaging in standard public relations practice, but his remarks
simply dramatized how the welfare of shoppers might clash with that of
the manufacturers. Disguised puffery was hardly in keeping with David
Kay’s portrayal of himself as a consumer advocate.
Around the time the Kays were calling in high-powered public relations
people, Adam Osborne himself went a step further. In January 1983 he
hired a professional manager to be Osborne Computer’s president, Robert
Jaunich II, formerly president of Consolidated Foods. Osborne would
later blame Jaunich for many of the computer firm’s problems, telling a
reporter that Jaunich wasn’t fleet-footed enough for a young company in
an industry with a fast-changing market.
Jaunich’s recollections would differ. Recalling the discoveries he made
during the audit before the never-to-take-place public offering of
Osborne stock, he told the _Wall Street Journal_, “Every day you came
in, the numbers got worse. Every number you touched went soft.” He
blamed the corporate chaos on Adam Osborne. “The real message,” said
Jaunich, who resigned as Osborne president in December 1983, “is the
professional people got here too late to help.”
Osborne was also critical of another executive; he accused him of
cutting a deal with a supplier—while still working at Osborne
Computer—to make a rival machine. Whatever happened, the internal
squabbles at Osborne may have wasted time and energy that he and
colleagues could better have devoted to their battle against the Kaypro.
He himself would later admit in his book _Hypergrowth_ that “new product
development moved slowly” until the second half of 1982. A smaller,
cheaper Osborne 1, the Vixen, never reached the market while he was
running the company. His $2,495 Executive computer—with a seven- rather
than five-inch screen—did make it out the door. “Wayne” didn’t.
Introduced early enough, Wayne could have given the Kays fits. This
$1,995 model was to offer a nine-inch screen and include a built-in
printer and a pile of free programs for word processing, communications
with other computers, and other tasks. But technical problems bedeviled
Osborne. When Osborne finally caught on that IBM had established a new
industry standard, he sought to make his Executive compatible, but he
was aware of his own company’s “dismal record in engineering
development.”
Osborne entrusted the task to a San Diego firm. By May 1983, however,
Osborne realized that the firm’s IBM-compatible prototypes were
“expensive, late, and included wholly unacceptable features such as
circles that would be displayed as ovals when an Executive user switched
from CP/M to IBM compatibility.”
Adam Osborne was clearly losing his sales war with Andy Kay. He had
talked to reporters about the Executive in early 1983, and in July
newspapers said this had discouraged some dealers from ordering too many
Osborne 1s. The story was that Osborne’s cash reserves had fallen as
orders for the older machines dropped from 10,000 a month to almost
nothing. Apparently he’d forgotten one of the precepts of any business
with changing products: you're always competing against yourself. If you
make too many old models or brag too soon about the new ones, then you
may imperil your cash flow and see surplus product inventory pile up.
Your customers will keep their wallets shut as they await your coming
attraction. It was a most plausible explanation for Osborne Computer’s
cash-flow problems but perhaps not the main one. In _Hypergrowth_
Osborne revealed that his sales levels for his Osborne 1 had been
dwindling even without all the puffery about the forthcoming Executive
model; he confessed that he had lied to the press to throw it “off the
scent of the real story.” His bankers were threatening to call in loans;
he was laying off workers, yet he still hoped to woo private investors.
As the end neared, Osborne dealers were fighting Kaypro ones with price
reductions. An Osborne 1, discounted, sold for as low as $1,000 by late
August 1983. Stores also were dropping the Executive’s price, and with
good reason: why so expensive a machine without IBM compatibility right
off the bat?
The first prototypes of the new IBM-compatible Executive weren’t being
built until September 1983, or as Osborne later observed, “precisely at
the time the company was filing for bankruptcy.”
The bankruptcy papers showed next to no income and $45 million owed
creditors. _Newsweek_ ran a photograph of Osborne leaving his office
without a portable computer in sight. Instead, a briefcase was shielding
his face, and the caption read: “Founder Osborne exits: IBM was too
big.”
That was somewhat wrong. The IBM-compatibility issue notwithstanding,
_Kaypro_ had been Osborne’s main competition.
“I’ve always had a great deal of respect for Kaypro,” he would later
confess to _Popular Computing_. “You’ve got to make those statements
[knocking the Kaypro]. It makes good copy, damn it.”
It didn’t make for the best-informed computer buyers, however. Bowled
over by Osborne’s marketing campaign and well-publicized disparagement
of the competition, some consumers had ignored the information that
mattered in the end: the numbers. The screen measurements, disk-drive
capacity, almost everything, said the Kaypro was a better computer for
common applications. Osborne had faced a moral dilemma. Should he
badmouth the competition and help his company survive? Or should he tell
the truth—that Brand X was better than his own product? Not
surprisingly, Osborne, like any other computer manufacturer, had made
the former choice.
In fighting Osborne, Kay had dropped his suggested retail price $200 in
May 1983 to $1,595, an indication that small business computers were
becoming no more impervious to price wars than the home ones were. He
also offered a souped-up version of his II and beefed up his software.
His Kaypro IV—the jump from II to IV reflected the substitution of two
400K floppy disk drives for the II’s 200K ones—sold for $1,995.
Yet another weapon against Osborne was the Kaypro 10, a deluxe model
with a 10-megabyte =hard disk=. It sold for $2,795, an amazing deal at
the time. A hard disk is an aluminum platter coated with magnetic film,
and 10 megabytes is the equivalent of 5,000 double-spaced typewritten
pages; yet Kay was selling the computer and software for less than the
prices of many hard-disk add-ons.
“Adam Osborne,” said Kay, “has said he couldn’t make a portable hard
disk because the hard disks are so sensitive to shock. Well, engineering
advances are such that hard disks now are capable of being moved. Our
very first one was shipped to a show in Germany.”
An _InfoWorld_ headline was less sanguine: “Hard disk, portable
‘newlyweds’ face some problems.”
Could Kay succeed with his hard disk? Another company made the disk
itself, and Kaypro had to replace some drives on the early Kaypro 10s.
But _some_ glitches were hardly a surprise in any new micro, hard-disk
style or floppy. Meanwhile, no less than Control Data, the computer
giant, was planning to offer a 5-megabyte hard disk for portables.
Already some smaller companies had put out portables with hard disks.
And yet Kay, turning out thousands of the machines, was gambling more
heavily on their reliability than the others. It could pay, however. New
technology might or might not succeed; but in his fast-moving industry,
old technology sooner or later would surely fail. To stay alive, he must
be among the leaders. More than 150 companies were clawing their way
through the micro business in late 1983, and some analysts believed that
fewer than 20 could survive five more years. Many of the 150 had only
what one expert called “press release products.” But others were real
threats; and without the resources of an IBM or Apple, Kay ideally would
fight back through innovation as well as good marketing. He needn’t
invent any new micro technology. Yet as a survival-minded “solver of
problems,” he had better be prepared to make prompt use of the
breakthroughs of others.
So major risks were ahead—inevitable—as Kay girded for his next fights
with the valley.
Backups:
◼ I, Twenty-Six Questions to Ask at (and About) the Computer Store, page
281.
◼ II, A Few Grouchy Words on Printers, page 294.
3 ❑ After 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 told _USA 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 1984 _InfoWorld_ reported 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 president in 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 computers
_shipped 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]
Footnote 12:
_Business Week_ is the source of the facts on Kaypro’s disk-drive
problems.
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 to _Business Week_,
“There are too many Kays and not enough pros.” Unconvincingly, a Kaypro
spokeswoman shrugged 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.