Shakeout in Camelot
T. Lee Kidwell
In the Year of our Lord, Nineteen Hundred and Eighty-Three, the stage was set for a jousting contest of grand scale. As the home computer established itself as a viable product for the mass market, many noble players had their sights set on the championship.
Word spread of the royal competition, and many optimistic jousters mounted their steady steeds preparing to enter the arena of the mass market. Even the Great Blue One (IBM) was rumored to be a possible competitor for the low-end home market. The worthy opponents included the likes of Timex, Sharp Electronics, Radio Shack, Heath Co., Panasonic, Texas Instruments, Sinclair Research Ltd., Apple Computer, Coleco, Atari, Commodore Business Machine's and many others.
These competitors all proposed to bring products to the market that would revolutionize the lives of the masses at affordable prices.
Early in the competition it became apparent some of the less-known competitors' steeds were not steady enough, nor their lances sharp enough, for the level of competition about to ensue.
These weaker contestants were defeated early and the real battle of champions began. The survivors included Timex/Sinclair, Coleco, Atari, Commodore and, of course, IBM. The masses viewed the battle with great interest and anticipation -- on their television sets.
From January 1983 to September 1983, the competitors spent $101.6 million advertising on television trying to convince potential consumers they were the best bet to win the joust. IBM and Commodore rode in force. In 1983, IBM increased its television advertising purchases by 147 percent over its 1982 expenditures, while Commodore increased its purchases by 83 percent.
In the early championship rounds the jousting became ferocious, lances meeting in fury as the jousters went head-to-head. It was questionable whether the Great Blue One would remain part of such a barbaric battle. Rumors hinted the Great Blue One would wait for the others to wear each other down and then arrogantly enter the arena to capture the final victory.
The defending champion, Atari, had established its place in the low-end home market with the 2600 game system and well-known 400 and 800 computers. Atari was confident and felt well-prepared to deal with whatever the competition might produce. It seemed unconcerned about the rumors and rode proudly into the arena.
Upstart Coleco boisterously announced the coming of its mysterious, but incredibly capable, jouster -- the Adam. Adam was touted to possess capabilities far beyond those of any of the competitors', at an unmatched price. Adam also was said to be fully compatible with Coleco's game system -- which was enjoying great success.
Timex, in cooperation with Sinclair Research Ltd., produced a product of adequate capability at an affordable price the ZX-80. However, its abilities and configuration matched its price. This isn't to say it was not a good buy at less than $100, at the time it was a very good buy.
Texas Instruments entered the arena with a 16-bit wonder at a price more restrictive than the Timex, but TI rationalized the higher price by proclaiming its power to be unbeatable.
The TI99/4A was totally the creation of Texas Instruments, which refused to reveal any of its inner workings for fear of piracy.
Commodore took action to prove it meant business: putting a 5K computer in the mass market for, as William Shatner told us so many times, "less than $300."
The VIC-20 quickly proved to be the one to beat in 1983 as it began to out-joust all others in the low-end market.
In some respects, it resembled many of the other home computers on the market. However, with a little investigation, it was clear the VIC-20 offered a superior keyboard for word processing and applications requiring extensive text entry. The VIC-20 also sold for $299 retail, as much as $100 less than its nearest competitor.
Commodore had proven itself to be a formidable foe.
With the jousters' strategies in the open, they began preparation for the final round, shining their armor to a blinding sheen and sharpening their lances to lethal, piercing points.
Commodore, which previously had been involved in a joust with Texas Instruments in the calculator market and lost miserably, paired off with its archrival with revenge in its eyes.
Commodore dropped the price of the VIC-20 to a low that caused its competitor's head to spin. To further gain the upper hand on its archrival, Commodore introduced the very powerful 64K Commodore 64 through authorized dealers, promising the new computer soon would be released to the mass market. The masses anticipated more price cuts on this new machine and waited anxiously for its appearance at local department stores.
To match Commodore's aggressiveness, TI responded by dropping its price on the TI99/4A, but it made critical mistakes in strategy and evaluation of the foe.
As the TI99/4A began to sell, the company still refused to release the secrets of how it worked, making it impossible for third-party vendors to support the machine with software and peripherals. Instead, TI chose to protect its secrets and gluttonously kept the software and peripheral business to itself. But the Peripheral Expansion System TI offered was not priced in line with its reduced-price TI99/4A. The expansion system was difficult to understand and confused many retailers and consumers.
In a hard-fought and grievous battle, TI suffered serious damage.
Meanwhile, Atari confidently defended itself, introducing a new game system (5200) and line of computers (the XL series) while avoiding the price-cutting for as long as possible. Cries from the masses for lower prices, however, eventually won out and the defending champion conceded to lower prices.
Rumors became prevalent IBM would return to enter the late rounds of jousting for the low-end market -- a cause for concern by many of the weaker players.
Coleco continued to promise a system that would knock the competition off of their steeds, estimating shipment of 500,000 Adams by the end of 1983.
The Timex/Sinclair team faded into the background as the price cutting brought more elegant computers into the same price range as the ZX-80.
Then, an event occurred catching some competitors off guard -- something few expected would have such a devastating impact on the jousting competition. Commodore followed through on its promise to put the C64 into the mass market. This computer upstart sported a 6502 CPU (the same used in the Apple, Atari and VIC-20, and manufactured by a Commodore subsidiary), 64K random access memory, 16 colors, a Sound synthesizer, sprite graphics and a full-stroke keyboard. Riding this steed, Commodore began to become the favorite of the crowd to win the 1983 jousting championship.
Commodore had a definite advantage over the competition in the low-end market -- it manufactured its own chips. "Commodore's manufacturing abilities and vertical integration allowed us to make money even at the low prices," said Neil Harris, a communications executive at Commodore. This allowed Commodore to slash away at the competition with price decreases. By the Christmas of 1983, the retail price of the C64 had been slashed to as low as $188.00 and its forerunner, the VIC-20, was selling for $84. At these prices the Commodore computers could not be ignored.
Texas Instruments was devastated and decided to drop out of the competition. In late November, Atari announced the price of its XL series machines would increase in early 1984 and production of the new machines would be limited until that time. Commodore took the reins of the 1983 Christmas selling season.
Atari suffered large losses for the year and the Great Blue One's rumored appearance into the low-end proved not to be so low-end in price. The PCjr actually was at the high-end of the home market, selling for approximately $1,300 including printer and disk drive. Coleco only was able to ship 93,000 of the promised 500,000 Adams and rumors of poor quality in the system were flowing freely.
Commodore clearly was the champion for 1983, and by early 1984 had sold 2 million VIC-20s and 1 million Commodore 64s.
The last six months of the '83 joust were extremely damaging for home computer manufacturers and retailers. Battered Texas Instruments showed a year-end loss of more than $660 million.
Atari, although a survivor due to its previous -- and continuing -- success with its game machines (selling 1.3 million in December 1983 alone), suffered losses of more than $500 million for the year.
J.C. Penney Co. announced it would stop selling home computers because it was unable to get systems and could not make an adequate profit margin on what it did receive. The company announced cancellation of remaining orders for the Adam because the system "repeatedly" failed to meet quality tests performed by its Merchandise Test Center.
Amid the devastation of 1983 Commodore showed a year-end profit of $74.5 million.
Market analysts and manufacturers alike predict 1984 will be a more stable year in the low-end home computer market. Bill Heintzman, an account executive with Thomson McKinnon Securities, Inc., Orlando, Fla., contemplated the 1984 home computer stocks: "They will gain, but in moderation as compared to last year."
With the 1983 price war at an end, indications seem bent toward more conventional competition, concentrating on improving system user-friendliness and developing uses for the hardware already on the market. Industry leaders at the January 1984 Consumer Electronics Show said IBM's entry into the market with its higher-priced PCjr will help bring an end to the price wars that resulted in more than $1 billion in losses for home computer manufacturers in 1983.
Commodore's Harris agreed: "I think the price slashing is over. Atari and Coleco signaled that when they raised the prices on their products and Commodore signaled that when we did not announce any further price decreases at the January Consumer Electronics Show.
"I think the price-slashing was very destructive to this industry and as you can see by reading the quarterly reports from Atari and Texas Instruments, they show huge, huge losses . . . We're happy it's over."
This may sound odd coming from an executive at the company that used price-slashing to capture the glory in 1983. However, recent changes at Commodore -- i.e., the resignation of founder Jack Tramiel and four other top executives on Jan. 13, 1984 -- could be an indication of a turnaround in Commodore's philosophy. One former Commodore executive is reported to have said: "There will definitely be a shift to a new school of thinking."
Tramiel's method of operation was a one-man, reckless style, many feel. Irving Gould, Commodore chairman, reportably is installing his own more conventional strategy. But Jim Gracely, Technical Editor of Commodore Magazine, doesn't express the same feelings. "I wouldn't say things are in turmoil. We haven't seen much of a change. He's (Tramiel's newly installed replacement, president Marshall Smith) not making big changes," Gracely said.
What's in Store
With IBM choosing to stay out of the low-end market, it would seem the only competitors remaining for the '83 champ are a quickly-recovering Atari, a questionable Coleco and a long-shot Timex/Sinclair. Some tension among the survivors and a cautious optimism still fills the air.
"Basically what's happening in the whole (low-end computer) market where we are is that we have done such a good job killing everybody that we are running out of competitors," Harris said. "We would like to see some other people in the market. We think it will help everybody be strong if there are some other strong companies in the low-end.
"Atari has been rumored to be paring down their product line, from the large number of separate computer products that they've had, to just concentrating on a couple, but we don't really know for sure. We're just waiting to see what they are going to do," Harris said.
"Where we see the competition on the low-end is really not too clear right now. Atari is the only one in there with us, and their sales are so much below our's, it's really pretty pitiful.
"We see IBM and Coleco as certainly being a force, although Coleco seems to be fading because of their own internal problems. Coleco seems to have really dropped the ball altogether with the Adam due to technical problems. The people who are targeted to buy that product are not the kind of people who can fix it if it breaks, which it tends to do fairly often.
"I think the IBM PCJr is going to do fairly well, but it is mainly a competitor to the Apple, which is at a higher end. The SX-64 (a portable version of the C64) is going to give even the Peanut a run for its money."
Scott Badler, an Atari media specialist, said of the alleged turmoil at Commodore and its effect on Atari: "We've had our share of turmoil. We can't spend too much time worrying about the other guy. We've slowed down for a while, but we will continue with our plans."
Atari also has a newly-installed president in former Phillip Morris executive James J. Morgan.
"Overall, he tells us we must be much more productive. The main thing he wants to establish is more of a corporate culture," said Badler.
Hardware may take a back seat this year to what many consider to be much more important at this point in the home computer's continuing growth -- user friendliness.
"No, I don't believe there is a need for more sophisticated machines," said Bruce Entin, vice-president of Atari corporate communications. "Consumers need to understand what they have now . . . . The need is for more sophisticated software and for the industry to explain what the machines now available can do for the consumer.
Entin continued: "We think the market is virtually untapped. Proper use of microprocessor technology is the key."
Entin emphasized Atari's commitment to the hardware market and the development of the 600XL, 800XL and 1450XLD. This is a point of optimism for Atari. Said Steven Ross, chairman of parent-company Warner Communications: Atari has solved most of its inventory problems and its video games and 600XL and 800XL computers are "selling well."
Entin also talked of Atari's thoughts for the future.
"We're committed to the home computer business, but nowhere is it written in stone that the computer has to be in a box with a keyboard," Entin said. "That is not to say we are not committed to the home computer business as it is today. We are. We're looking at future applications as far out as 1990."
As for Atari's predictions for '84, Entin added: "We don't make sales or production estimates. Anyone who does should look back at '83. The predictions in '83 were worthless by the Spring of '83. It was a very volatile market.
"We're looking for more stability in '84. There are fewer players, the price wars are over and we are looking forward to a very challenging year for the industry.
"We've got to show consumers how to use rather than why to buy. Morgan believes the consumer is king."
C64 a Winner
The defending champion of the 1983 joust is looking for another good year with the steady steed that brought it the victory.
"The Commodore 64 is by far the strongest selling home computer in the marketplace. It is selling like gangbusters," Harris said. "Even though the Commodore 64 is selling for $200 and the VIC-20 has been selling on the market for $80 or so, the 64 has been outselling the VIC by two or three to one. The Commodore 64 is going to be the product for this year regardless of what other products are around."
The other products that could be around include the Commodore 116, 264 and 364.
Year of User
All in ail, the 1983 joust, though destructive to some, brought the price of home computing within the reach of many. With sales continuing at a steady pace in '84, the installed base of home computers is growing rapidly to very significant numbers.
Many first-time computer users are looking to companies like Atari and Commodore for help in understanding how to use these machines. Unfortunately, the slim profits and lack of educated sales people made it difficult for both retailers and manufacturers to provide the user support in '83.
The more stable '84 market should allow the companies to concentrate on these users. Look for '84 to be the year the home computer makes a giant leap toward being an everyday influence on our lives and a useful tool in our homes.