Industry giants enter personal-computer market
Since they hit the market in 1975, personal computers have been treated more as a cult than as a business. But this one month, it's been all business for a new industry that may see its sales nearly triple by 1985.
In May three giants of electronics -- Sony, Digital Equipment, and Burroughs -- all jumped into the personal computer fray. And International Business Machines attacked the market last fall.
Still, the faddishness remains. When Steve Jobs, the chairman of Apple Computer Inc., recently appeared before computer buffs in Boston, he was mobbed for advice and autographs. Fans followed him as if he were the Pied Piper of personal computers.
But now the industry is undergoing a series of major changes, as the use of personal computers, or small, relatively affordable data-processing machines, spreads beyond technology lovers. Major American computer companies are entering the business, Japanese firms are targeting the market, and prices are expected to fall as competition heats up.
''Until now, we sold to people who wanted computers,'' Jobs told a computer conference here May 15. ''From now on, we have got to sell to people who need computers to solve problems.''
Apple now will have plenty of competition, as the market shifts from selling the devices as toys to selling computers for use as tools. Large companies are zeroing in on a business that has turned Jobs from a college dropout into a 27 -year-old industry leader with stock worth an estimated $200 million.
This year personal-computer sales are expected to hit $2.7 billion, soaring to $7.5 billion by 1985, according to estimates from G. S . Grumman-Cowen Institutional Services.
Lured by the exploding market, last week Digital Equipment Company, a major producer of large business computers, entered the personal-computer market on the heels of a similar announcement May 5 by Burroughs Corporation. Giant International Business Machines (IBM) brought out its personal-computer line in 1981.
And the scramble for business is becoming international. Sony Corporation announced May 17 that it will start selling personal computers this fall. Other Japanese entries are expected later this year. ''They'll be out with 14 (models) this spring,'' quips Jobs. And while Japan's success is by no means assured, industry participants are eyeing the Japanese warily.
'' What could happen is a major (Japanese) group could come in with a long-term strategy and (sell at a loss) for a couple of years,'' to build market share, says Osborne Computer Corp. marketing vice-president Georgette Psaris.
As a result of increasing competition, it is becoming harder to find market niches that are not already crowded. ''It is becoming tougher to enter the market, although products with special appeal can still do so,'' says Hambrecht & Quist analyst Gregory L. Kelsey.
Competitors will require more backup resources to keep up with the competition. For example, Apple alone will spend $40 million on research and development in 1982. ''I worry about anyone other than Apple in traditional personal-computer companies when Burroughs and Digital come in,'' says Richard Inatome, president of Detroit-based Computer Mart, a retail store for personal computers.
One problem facing computer companies is display space in stores. ''The fight for shelf space is one of the (industry's) big problems right now,'' says Mark Rosenblatt, an analyst with Kidder, Peabody & Co. While the cast of competitors is expanding, close to half of the nation's 1,500 computer stores carry three or fewer makes, according to data from Lehman Brothers Kuhn Loeb.
As a result computer companies that have their own retail stores -- IBM, Xerox, Digital Equipment, and Tandy for example -- have a major advantage.''IBM seems to have the biggest leg up,'' says Kidder, Peabody analyst Rosenblatt. ''They can go through IBM stores, Computer Land stores, and Sears business stores.''
Large computer firms also have an edge since they can afford a significant national sales force to call on large corporate customers. ''I wouldn't be surprised to see Apple, Tandy, Digital, and IBM end up with the preponderant share,'' of the national accounts market, says Hambrecht & Quist analyst Kelsey. Overall, businesses are expected to account for 59 percent of the personal-computer market by 1984, up from 49 percent in 1979, according to Lehman Brothers estimates.
Meanwhile, retailers are looking for new ways to broaden their sales reach. For example, Computer Mart in Detroit is running a home-party plan. ''People give Tupperware-like parties,'' where personal computers are displayed, Computer Mart president Inatome says.
Computers will fit more easily into an average home as a result of efforts now underway to make the machines more ''user friendly,'' or simple to operate. Personal computers are beginning to be built around so called 16-bit microprocessors, which have more computing power than the 8-bit chips used in earlier machines. A microprocessor is a computer built onto a silicon chip. Some of the greater computing power will go to increase operating ease. For example, Apple Chairman Jobs says his next generation of computers ''will be based on a very aggressive use of user-friendly technology -- so you can learn to use them in 10 minutes,'' he says.
The competitive scramble in the industry is likely to result in lower prices as well as increased performance. As a result the industry '' may see a 10-fold increase in unit (sales) by 1985, versus a four-fold increase in revenue,'' says Osborne vice-president Psaris.
The price pressure will also be felt on software, the instructions which tell a computer how to perform a certain task, such as word processing or financial modeling. While popular software packages now cost $100 or more, ''the price of software will drop due to economic pressure. We will see $9.95 software,'' predicts Apple Chairman Jobs.
Some small makers of personal computers may be knocked out of the market, but a major shakeout is not likely for several years, Osborne vice-president Psaris says. ''In the business community alone we have saturated only 5-7 percent of the total market,'' she says.