What does it take to be successful or how to tell the winners from the losers. David H. Ahl.

What Does It Take To Be Successful or How To Tell The Winners From The Losers

By reading the articles in computer magazines about trade shows, you can get a good idea about the new companies and products. And by reading The Wall Street Journal and Electronic News, you can see which company filed under Chapter 11 this week and which one posted record earnings. But in between these two points, how can you tell the winners from the losers? In other words, what does it take to be successful in the small computer marketplace?

Listed below are some of the factors necessary for success. It is not an allinclusive list, but it hits the major ones. As you read the list, it is important to keep in mind that these factors form a chain and a weakness in one or two links can cause the chain to break. A company may have eight of these factors in place, but if the ninth is weak or missing, chances are the whole thing will go down the drain.

Financing

Someone once said, "Money may not be everything, but it is a way ahead of whatever is in second place.' This is doubly true for a computer manufacturer. Designing a computer, making prototypes, developing software, lining up dealers, placing advertising--all of these things must be done before a dime comes back. So big money is needed to get started.

Moreover, continuing development is necessary. One product will not last forever, and even though the firm may be making a profit, it probably will not be enough to support the company through a new product development cycle and certainly not through an economic slowdown. Consequently, when entering the small computer market it helps to be in healthy financial shape (IBM), have a wealthy parent company (Atari owned by Warner), or have gobs of venture capital (Osborne).

Product/Price

We lump product and price together for the simple reason that you can't consider one without the other. For example, you may think that the Timex 1000 is a terrible computer, but at $39 it sells. Thus, the price is right for the product. On the other hand, when the TI 99/4 was first introduced at $700, it was vastly overpriced; at $350 it would have been fairly priced for the product.

There are times when the price charged is higher than the product merits (say, the IBM PC), however, it is justified by other factors (the three letters, IBM). But for the most part, the price must be consistent with the value the product offers to the customer and consistent with the other entries in the market.

Evolving Product

There is no product in the world that is evolving as fast as the computer. Last year's marvel is next year's relic. The average product life cycle in the computer market tends to be about we to three years. Certain exceptional products have stretched further (Apple) while some others have had lives of a year or less.

The point is that the minute a computer is in the market, the R&D department ought to be well along on its successor. Moreover, in most cases, the successor ought to be an evolving product, not a completely new one. An evolutionary product will be able to run existing software and will be attractive to existing customers who want to upgrade.

Thus, the Apple IIe was a logical successor to the Apple II and the IBM PCXT, 3270, and PCjr are logical extensions of the PC family. On the other hand, Processor Technology had no successor to the very successful Sol-20, Bally had none for the Arcade, and Atari's XL series doesn't directly run software designed for the earlier units.

Peripherals

One of the reasons that the computer market seems to be expanding without bound is that the computers themselves can be used for so many different things. While there are a few applications that are common to all users, there are thousands of other applications that appeal to small market segments. However, many of these unusual applications require unusual peripherals that are supplied by smaller specialty companies.

Thus, if a computer manufacturer designs the computer so that other boards can be plugged in (Apple, IBM, S-100 systems) or with an accessible bus (Commodore), it is more likely that third party manufacturers will make peripherals for it. And in the long run, this means staying power in the marketplace, although the next factor, software, is even more important.

Software

Around here it is known as Ahl's Axiom: "Without software a computer is just an expensive boat anchor.' Equally true is the fact that no computer manufacturer can possibly make all the software that their customers will want. TI, a giant of a company, tried, and proved that it couldn't be done.

Hence, to be successful, a computer manufacturer must attract outside software vendors to make and market software for their machine. While strengths in some areas will overcome weaknesses in others, this is one factor for which a machine cannot compensate with strength elsewhere. Without software, a computer is dead. Period.

Reliability and Service

Like product and price, reliability and service go hand in hand. If you have good reliability, you won't have much call for service. Nevertheless, for the few (or many) customers who will need service, there must be provision for obtaining it. It doesn't matter if this is provided by computer stores, by exchanging units, or by a contract service organization. What matters is that broken units be serviced promptly and with a minimum of fuss.

Service may not affect many customers --7% is considered an acceptable initial defect rate by one of the industry giants--but almost by definition that small group of customers will be the most vocal. Vocal to the people where the computer was purchased, vocal to friends, and vocal to the media. No computer company can afford the reputation of having defective products. Coleco, for example, has its hands full trying to counteract the media reports of an initial defect rate of 30% and higher on the Adam.

Advertising and Promotion

There are two aspects to advertising and promotion, neither one of which can stand alone. First, a computer must be accepted by the influences. These are the people who are the first ones on the block to get a new product or the first company in the city to try a new technology. These influencers are crucial to the success of a new computer because they are the people to whom the masses turn for advice.

The influencers are knowledgeable and must be reached through advertising in leading edge, in-depth magazines such as Byte and Creative Computing. They are not reached through general interest magazines (Smithsonian, Playboy), business magazines (Fortune, Forbes), or even the "mass market' computer magazines aimed at technologically unsophisticated readers (Personal Computing, Popular Computing).

The second step of advertising and promotion is to reach the wider, mass market. But the manufacturer who advertises only to that market has an enormous hurdle to overcome--the lack of word-of-mouth advice from market trendsetters. Mattel ignored the influencers and blew it. So did Panasonic. And more than a few companies are headed down this same path to oblivion today.

Reviews

One of the best types of "free' publicity for a new computer is a product review. A three-page product review is probably worth as much as ten paid pages of advertising. Yet, frequently manufacturers don't allocate machines for this purpose. Indeed, we recently got a letter from Xerox telling us that all their new 1810 computers were going to customers, so none were available for review. One can only hope that customer demand will stay high, although with this approach to marketing, it does not appear likely.

Distribution and Delivery

Once the demand has been created, there better be product available to satisfy it. This means widespread distribution and adequate stocks of product. Nothing is worse than telling a customer whose pen is poised above his checkbook that machines aren't expected in until next quarter. That's what happened to SpectraVideo--they did everything right except get product on dealer shelves.

One reason that Radio Shack has been so successful--even with less than state-of-the-art, less than competitively-priced products--is that product is on the shelves to some 6000 stores. That's hard to beat.

Knowledgeable Sales People

Four years ago, we did several "Mystery Shopper' articles and were appalled at the lack of knowledge of sales people at the retail level. Since then, we have heard of several training programs sponsored by both manufacturers and stores, yet our general sense is that the situation is as bleak as ever.

Surveys repeatedly have shown that after friends (the influencers mentioned above), sales people have the greatest influence on the product purchased. Yet when is the last time that you were in K-Mart or Macy's or even Computerland and felt that the salesman knew more than you did?

Out On a Limb

We have put together a small chart of the factors above and ranked some existing and defunct manufacturers. On some of the new entries such as Coleco we have had to make some best guesses. As new manufacturers emerge at Comdex, CES, and NCC why not try to see where they fit? It may give you a leg up on the stock market--and on selecting your next computer.

Table: How They Stack Up