IBM v. the Others

Seventeen years ago, when two University of Pennsylvania professors developed the first electronic computer, International Business Machines sniffed that it had no commercial future. But in the early '50s, when computers made by Remington-Rand began replacing IBM punch-card machines. IBM rushed into building computers and quickly took over most of the market. Lured by IBM's success, other office-equipment makers and electronics companies rushed into computers and waited for the profits to roll in. With the exception of a lone company, they are still waiting.

Rat Race. IBM is so big and efficient that it has cornered 80% of the $1.5 billion-a-year computer market. Among the rest, the scramble for sales is so rough that two of the top ten companies that originally began building full-scale computers dropped out, and the eight survivors carry on chiefly by offsetting huge losses on computers with profits from other divisions. Says RCA's Vice President for Computer Marketing Edwin McCollister: "In such a rat race, you have to be terribly lucky and terribly smart, or you have got to have a lot of money. This is a battle of the giants."

Even such giants as General Electric and RCA have found themselves outmatched. For one thing, IBM has set the pattern of leasing computers rather than selling them. This worked fine for IBM, which had a steady income from its other leased office machines. But newcomers to the computer field were handicapped, since leasing delayed for four or five years their recovering the cost of the computers. Though their computer sales were better than ever, both Burroughs and National Cash Register last year suffered setbacks in earnings because they leased so many more computers than they sold.

So complete is IBM's line of 14 computers, ranging from the compact 1440 (average monthly rent: $2,600) to the huge 7090 ($63,000 monthly), that competitors can find no chinks in its armor. IBM's army of salesmen is the industry's best paid--incomes average $16,000 to $20.000 a year--and most numerous. Complains Dr. Louis T. Rader, president of Sperry-Rand's Univac division: "It doesn't do much good to build a better mousetrap if the other guy selling mousetraps has five times as many salesmen."

Some Went Running. Rather than face further losses, Royal McBee, Underwood and General Mills quit making computers. Former RCA President John Burns lost his job largely because of RCA's huge computer-development costs. Pioneer Remington-Rand, which was merged in 1955 into Sperry-Rand, failed to capitalize on its headstart, and its Univac division is still deeply in the red. In fact, besides IBM, the only company making money on computers is the smallest one--Minneapolis' Control Data (TIME. Nov. 24, 1961). Its formula: concentrating on only a few computers and aiming specifically for the scientific market. It has also been able to sell rather than lease many of its machines, thus has avoided tying up too much of its working capital.

Minneapolis-Honeywell's Walter W. Finke, who heads his company's computer division, believes that the only way to compete effectively with IBM is to match its breadth. Minneapolis-Honeywell is preparing two new systems to compete with IBM's 7070 and 7080 systems, may also bring out a compact computer. But few companies can--or want to--risk so much. After all, as its competitors scheme to upset its dominance, IBM is quietly spending $115 million a year on research and development that could lead to even better computers in a business noted for rapid obsolescence.

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