The Coming Year The Predictions Of Industry Leaders
John Blackford, Assistant Features Editor
Portia Isaacson is the president of Future Computing, Inc., a firm that analyzes trends in the personal computer industry. We talked to her on the busy floor of the Summer Consumer Electronics Show (CES) among the nearly 100,000 people who flocked in to view the latest electronics wares.
The clearest trend in the computer industry over the last few years has been its unpredictability and explosive growth. More than one company has been caught off base by falling prices, rapidly growing demand, or powerful new products — and the sight of electronics pundits eating their words has become a common one. Industry analyst Adam Osborne recently stated that a certain kind of powerful microprocessor might never be produced — on the same day that Hewlett Packard announced one. Still, thinking about the future is essential in a field where keeping ahead is practically the key to survival, so we've asked some industry leaders about the changes they see coming this year.
Like many industry observers, Isaacson believes that this year will see a sharp increase in unit sales of home computers. But competition among hardware manufacturers has intensified. "The home computer business is in its infancy," says Isaacson, "and very violent shifts could take place." Because of the uncertainty of the hardware market, she believes software will play an increasing role. Consumer choice among contending brands will likely hinge on the quality of the software available for a given machine.
Not only games, but also more specialized software will begin to appear. "We think this is the year that educational software will take off," says Isaacson.
As software becomes more central to computer sales, companies will have to scramble to capitalize on their available programs. Major manufacturers are approaching this issue from different perspectives: Atari by selling translations of its popular games for such machines as VIC, Apple, and 64; Commodore by developing its own low-cost software; and Texas Instruments by trying to be the sole distributor of cartridge software made for its computers.
"I think Atari's decision to sell software for other machines is one of the most important strategic moves in the market this year," says Isaacson. "Atari's new computer line is also spectacular — and evolutionary." The reason, she says, is that it incorporates new features while remaining compatible with previous models, and it's designed to permit other manufacturers to develop compatible products.
Atari's willingness to support third-party development may indicate a trend that Isaacson thinks could become more pronounced in coming years – standardization of the home computer. "We think a de facto standard for home computers will be the model ultimately," she says. "IBM will enter the personal computer business with an open standard." That means other companies would be invited to follow that standard in developing their own compatible products.
The question, of course, is whose computer will become the standard. There are several strong contenders. IBM, which made an impressive showing with its personal business computer (the PC), is readying a smaller version for the home market. Atari has a strong new line, and says Isaacson, "the C-64 is absolutely compelling. I would give that every chance of surviving."
Texas Instruments has taken a somewhat different approach by discouraging others from developing cartridges compatible with its computer, even to the point of taking out advertisements in trade papers threatening legal action against those who do. Isaacson feels this could undermine support for the computer, although with profit margins on hardware so narrow, software may be the only way to stay in the game. "Manufacturers aren't making money on the product," explains Isaacson, "so they must sell software."
As home computer prices drop, more will be purchased by consumers who a year or so earlier would have bought a videogame machine. Still, because it takes time for any trend to develop, videogames are likely to remain popular in the near future. But eventually, "the merging of video-games and computers in the marketplace is now certain," says Isaacson. "You could not disagree with that after this show."
The show saw the introduction of new computer products by several companies with strong videogame lines. (For more details, see "The Fall Computer Collection: The Summer Consumer Electronics Show" in this issue.) For example, Coleco – manufacturer of the ColecoVision game machine – introduced a very inexpensive system which includes the computer, joysticks, mass storage, and printer. The game machines can be upgraded into the computer (dubbed Adam), and all Coleco game cartridges will run on the new machine.
"The Adam – Coleco's entry – is about the most unique thing in the show," adds Isaacson. "Coleco is emphasizing the utility of computers. They are saying that they have a nice little word processing package – and the videogames are an extra benefit." This approach makes the product's features easily understood by buyers. "Consumers and mass merchandisers need that simplification," she says.
"This will be the takeoff year for the computer," according to Cavalier. "Our statistics indicate that by the end of 1982, a total of two and a half million computers had been sold. In 1983 alone, seven to nine million new computers will be purchased."
Cavalier believes the computer revolution really began around 1981 and that by 1986, only five years later, at least 29 million computers will be in homes and offices throughout the United States. With roughly 60 million families now in the United States, that's getting close to one computer for half the families in the country.
In spite of the surge in computer sales, Cavalier thinks the home computer will not begin outselling game machines this year, though it maybe close.
What is the significance of this explosion in computer sales? For one thing, Cavalier, like Isaacson, believes that because the competition in hardware is so fierce, manufacturers cannot depend on the computers themselves for profit. Instead, software will grow in importance as a source of revenue to computer manufacturers. "The software is where the profit is – not really hardware," he says.
Consequently, this year Atari will increase its emphasis on software sales for both the home and educational markets. In fact, notes Cavalier, Atari's recent introduction of its games for other popular computer brands – Commodore, Apple, Texas Instruments, and the IBM PC – should not undercut sales of his company's computers, but will take advantage of the popularity of some of Atari's games.
In the educational field, Atari signed an agreement with MECC, the Minnesota Educational Computer Consortium – an important source of educational programs – to offer MECC's entire line of software in an Atari-compatible form. This should make Atari computers more attractive to schools, some of which have favored the Apple computer because of the many educational programs available for it, including MECC's.
Although Atari is broadening its software offerings, a strong line of hardware may still be the key to attracting enough users to support the software. Atari's new computer line underscores the company's effort to move away from its image as a producer of game machines. "Until now," notes Cavalier, "I'm not sure people considered us a serious computer company."
Myrddin L. Jones is vice president of marketing for the Computer Systems Division of Commodore Business Machines, Inc. Formerly a senior vice president of marketing for North American Phillips, Jones is overseeing the sales efforts at Commodore at a time when optimism is high there.
"Systems and software is the name of the game right now," according to Jones. "Less emphasis on kilobytes and more emphasis on software is what we'll see in the coming year." Whether the applications are I.Q. development programs or home financial packages, Jones feels consumers will be increasingly aware of its possible uses when they buy a computer.
To satisfy this new consumer awareness, Commodore has recently increased development of software for its computers and released over 70 new programs. In addition, the software itself will be dropping in price. "Some of our software prices are being cut by half," notes Jones.
The programs that Commodore does develop will include more educational and applications software. The company has also released more than 600 educational and general-interest programs to the public domain and is offering these through retail outlets and dealers at $6.95 per disk.
"The other trend is going to be mass merchandising," says Jones. In the past, computer manufacturers haven't always been aware of the special needs of the large distributors. But in the months ahead, they are going to have to work closely with merchandisers. "Each organization can develop its package to suit its particular customer," says Jones. There will be more long-range planning, better awareness of the particulars of the mass market, and more contact between manufacturers and large distributors.
Because Commodore is vertically integrated — designing and producing many of its own chips while also doing most of its own manufacturing — Jones feels it can afford to sell its products for less than its competitors can. "I think it will be the vertically integrated companies that succeed," he says.
With this edge, Jones feels Commodore can gain 30 to 55 percent of the world market for home computers by the end of the decade. "It's warfare out there," he says, "economic warfare."
But to some extent, all manufacturers are facing low profits on hardware as the result of severe price cutting that took many companies by surprise. "People just can't afford to maintain the low profit margins," adds Jones, "so it will be a year of systems and consolidation. It has to be, because high volume alone isn't enough."
John Victor is president of Program Design, Inc. (PDI), a manufacturer of educational software and games such as Clipper: Around the Horn in 1850.
"This will be more a year of consolidation," says John Victor. "Most of the original trends were set back in 1981, and now we're seeing growth and shake-out. I don't think we will see any radical departures, but you will see intense competition and better execution on software packages."
One trend that Victor believes may accelerate this year is a move into the home market by educational software producers. "The home educational market is coming to the fore," says Victor. "The trend is to go out for the home market because schools don't have the money."
Victor's company will be introducing a series of multimedia programs with clearly defined educational goals, supported by books, activity work-books (for the user to fill in), and a cassette-based soundtrack under program control.
However, the market is hard to predict, and Victor is well aware that common sense cannot always be trusted in a field that has seen people succeed seemingly by doing the opposite of what appears reasonable. "If the conventional wisdom says that you shouldn't do a certain type of software, you should probably go for it."
The software market right now is maturing a little more gracefully than the hardware market, because software hasn't suffered from the severe price cutting that has affected hardware manufacturers, according to Carlston. Brøderbund, which started building its reputation with computer games, has since introduced games such as Choplifter that don't depend on shoot-em-up violence. Now, Brøderbund is trying to become a full-line software supplier, conforming to what Carlston sees as the trend of the marketplace.
Recently the company introduced Bank Street Writer, a word-processing program for children that is starting to look like a hot seller. By the end of the year, Carlston hopes to increase salses of nongame software from the current 42 percent to around 60 percent. He would also like to support a broad range of computer types, rather than provide software for only one or two brands.
People don't understand that it's becoming a software-driven market," he says. The hardware producers are cutting prices so sharply that he sees hardly any profit left for them. Instead, Carlston thinks many of these companies will make money by selling software. Even so, he says, "lots of hardware companies will get weeded out."
Conclueds Carlson, "There are a lot of major players trying to get into this game who don't realize that capital isn't enough. There's still a lot of room in this business for the individual entrepreneur."
Russ Walter, an analyst of the computer industry, authored the eight-volume Secret Guide to Computers, now in its eleventh edition. Walter gives computer workshops in the summer at Wesleyan University in Connecticut.
Like PDI's Victor, Walter sees a growing effort in the coming year in educational software, especially for the very young child. "There are some nice programs now for seven-year-olds. When the younger kids see them, they want something, too," says Walter.
Overall, he anticipates boom times this year, but with some manufacturers having problems because of the intense competition. "Computers are a fad this year — that means it's going to be a very good year, though the fad will wear off eventually. At the low end of the market, I'm glad that the price is really dropping — now it's under $100 for some models."
At that price, nearly anyone can afford a computer, and impulse buying becomes a factor. "The magic number was 600,000," he says. A lot of companies have sold more than that in 1983, and the year ahead promises even greater sales.
Some of the companies that Walter believes may feel the pinch in the coming months are Apple, Commodore, and Timex. Although Apple got a jump on the personal computer market, the company is now caught between lower-priced computers with similar features and the IBM Personal Computer, which has proved popular. Walter also thinks that despite its impressive price — performance features, Commodore could have trouble with the 64 if there isn't plenty of software for it by Christmas. "It remains to be seen whether the software will get generated," he adds.
Walter also believes the Timex/Sinclair 1000 — which led the way at the low end — could face a tough battle now that both the VIC-20 and TI-99/4A are selling for under $100. But the Timex/Sinclair does have some specialized applications because of its small size and sealed keyboard. "People on boats like to use it, for example," he notes.
Despite the difficulty of predicting trends in the computer market, the people we talked to were notably consistent in their observations. Most felt that price cutting on hardware had nearly eliminated computer equipment as a source of profit. Continued growth in sales coupled with tough competition and possibly a shake-out among manufacturers was a common theme. And both manufacturers and software producers agreed that software would soon be a key area for profit, with educational programs growing in importance.