Small-Computer Shootout

By Alexander Taylor

The Japanese and IBM are poised to jump into a fast-growing new market

Ater the tragic MGM Grand Hotel fire in Las Vegas last November, rescue workers were faced with a daunting task: how to keep track of the 4,500 guests and employees at the disaster scene. Nervous relatives and friends quickly overwhelmed the police department with calls seeking information about missing people. Executives of Commodore International Ltd., who were attending a convention in the city, moved seven of their small PET machines into disaster headquarters at the Las Vegas Convention Center. Commodore personnel programmed the computers to list names and rooms of the people staying at the hotel and drew up injury and death lists, helping police to end the confusion.

Introduced in 1974, personal computers, which look like portable TV sets with keyboards, have advanced from being toys for electronic tinkerers to important tools in small businesses, schools and an increasing number of homes. Sales are growing so rapidly that personal computers are the leading product in the explosive field of electronic calculating and information equipment. Says Benjamin Rosen, the editor of a computer industry newsletter: "The under $10,000 sector of the market is going to be one of the great growth industries of the 1980s."

Sales of small computers are increasing at a rate of 50% to 60% a year. More than 1 million have already been bought, at prices ranging from $500 to $10,000. By 1985 small computers are expected to be a $9 billion-a-year business, according to California-based Vantage Research Inc.

Users of small computers have found that the machines can perform nearly all the functions of their bigger brothers, the refrigerator-size minicomputers and the mainframe models that occupy whole rooms. In San Francisco, President Fritz Maytag of Anchor Brewing Co. uses the Apple II machine on his desk to plot his company's financial future. The United American Bank of Knoxville, Tenn., has sold Tandy computers to 115 customers, who pay bills and check statements and balances at home on the machines. Bruce Kemp, an executive with Merrill Lynch in New York City, does stock analysis on his Apple II in his den. When he is not at the keyboard, his son Michael, 10, and daughter Nell, 6, use the machine to play computer games like Space Invaders.

Experts have long predicted that personal computers would be a great new market, but sales were hindered because the equipment was too complicated for most people. Now manufacturers have started marketing products that are both cheaper and less technically complex. In the jargon of the business, computers have become "user friendly."

Although computer buffs dream of the day when home computers will print movie tickets or order the groceries, such applications are still uncommon. The vast majority of personal computers are being bought by small businessmen, doctors and lawyers, who use them for prosaic things like record keeping, billing and checking inventories.

In 1981 about 75% of the personal computer industry's estimated $1 billion in sales will be controlled by just three companies. They are:

TANDY. The Fort Worth-based Tandy Corp. has the broadest reach of any computer manufacturer through its 8,012 Radio Shack stores. The firm introduced its first small computer, the TRS-80, in 1977. A newer version of the TRS-80 (popular models now cost $999) has become the largest-selling computer of all time, and Tandy now commands 40% of the small-computer market. Tandy recently introduced the first pocket computer, which shows only one line of information and sells for $249.

APPLE. The story of Apple Computer has by now become part of American folklore. The business was officially founded in 1977 by Steven Jobs and Stephen Wozniak, two college dropouts who scraped together $1,300 from the sale of a Volkswagen to build their first prototype. In 1980 Apple's revenues topped $184 million, and the public offering of its stock in December was one of the biggest and most successful stock launchings in the history of Wall Street. The company is now aiming its sales effort primarily at the educational market, under the assumption that children who are raised on Apples are likely to buy Apples for themselves when they get older. A basic version of its hot-selling Apple II costs about $1,435. The firm recently introduced the larger Apple III model, which is expected to help push sales this year to $250 million.

COMMODORE. The PET computer (cost: $995), which is manufactured by Commodore International, based in Norristown, Pa., is the bestselling personal computer in Europe. The company has not been a major factor in the U.S. market, but Commodore President James Finke says: "We've got 60% of the market in Europe, and we're now ready to compete head on with anyone." This month it started running full-page ads in leading U.S. newspapers that read: COMMODORE ATE THE APPLE. This spring the company will introduce the VIC 20 computer, aimed at the home market and selling for $299.95. Commodore sales this year are expected to grow by 40% to $185 million.

Beneath computerdom's Big Three, a host of other companies, including Hewlett-Packard, Texas Instruments, Zenith and Atari, are scrambling for a share of the growing market. Such large, well-established computer firms as Digital Equipment, Data General and Xerox are reportedly about to introduce home-size machines.

Moreover, the industry is anxiously awaiting the entry of International Business Machines. Thus far, the Armonk, N.Y., behemoth (1980 sales: $26 billion) has shunned the personal computer market; its smallest model costs about $10,000. But sales of big mainframe computers are not growing as fast as those of the small machines, and experts believe that IBM will not ignore the potential profits in the new market. Says William D. Barton, president of the Datel computer store in Manhattan: "IBM's entry into the field is imminent." IBM has not yet announced any plans to market small machines, but late last year it opened its first retail stores in Baltimore and Philadelphia. These may be the beginning of a network that will eventually provide outlets for the new smaller models.

The pioneers of the small computer business will also soon face stiff competition from the Japanese, who will begin landing their first machines in the U.S. this spring. Commodore Founder Jack Tramiel warned a group of executives recently: "Gentlemen, the Japanese are coming." Representatives of Hitachi, Toshiba, Mitsubishi and NEC (Nippon Electric) have all paid calls on U.S. retailers to find out what products Americans want and how much they are prepared to pay. The Japanese are expected to enter the market with state-of-the-art machines that will be cheaper than competing American products. The first arrival is likely to be NEC, one of the world's largest telecommunications and electronics firms. Shortly thereafter Matsushita is expected to start selling a handheld computer under its brand names Quasar and Panasonic. An informal poll of American computer executives revealed that they expect the Japanese to capture a third of the market by 1985. Says Radio Shack Vice President Jon Shirley: "The Japanese are bound to be competitive, and I worry about the Japanese much more than IBM."

The rush of new firms into this flourishing market will result in a tumultuous battle for profits, and possibly some company failures. Says William Neal, group vice president of Automatic Data Processing Inc. in Clifton, N.J.: "There is going to be a tremendous shakedown and consolidation in this industry."

Growing as fast as the microcomputer manufacturers are the companies that design the programs that go into them. An Apple or a Tandy computer is a winking mute until detailed instructions or computer programs are fed into it. Producing these programs, which are recorded on cassettes or discs, is already a $265 million-a-year business that is expected to rise to $1 billion in sales by 1985 (see box).

Another expanding computer service field is data banks that provide information for personal computers. After an initial hookup fee of $100, for example, a home computer can be connected through telephone lines to a machine in Alexandria, Va., that houses an immense information service called The Source. Customers can tap into 2,000 sources of data, ranging from a nationwide listing of job openings and up-to-the-minute financial news to world airline schedules and the entire catalogue for the wine library of Les Amis du Vin. During evening hours and weekends, the cost of bringing this information into the home is $2.75 an hour.

Industry watchers predict that by the end of the decade a family's three largest investments will be its home, car and computer. With costs for the machines dropping quickly, some visionaries even foresee three computers in every home: one in the den for financial use, one in the living room for education and entertainment, and one in the kitchen for information. The current Shootout in the industry will determine whether brand names like Panasonic and IBM will soon become as common on small computers as Radio Shack and Apple.

--By Alexander Taylor. Reported by Michael Moritz/Los Angeles

With reporting by Michael Moritz

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