Last week Microsoft had some big announcement of the sort that is not really much of our concern around here, but it yielded a headline over on another website that popped up on my Goggle News and had me scratching my head–‘With Windows Phone 8, Microsoft Just Osborned Itself‘. Ozzy has a new show where he tries to turn on a computer? Bill Gates bit the head off a bat to stick it to Apple? What could it all mean?
As it turns out, it was a reference to a technological miscalculation of historical proportions, that after reading about I had a vague recollection that perhaps once I had heard tell of such, and so I set off to the googles and the wikis to find the whole truth and nothing but to share with you all. Click the jump to take a look back to 1983, and the foundation of the ‘Osborne Effect‘!
What happened was this: Osborne Computers, created by Adam Osborne, burst in the scene in 1981 with a portable computer that was sold already bundled with software at a highly competitive price. The computer itself was designed by Lee Felsenstein and called the Osborne 1. The Osborne 1 featured a 5 inch, 52-column display, two floppy-disk drives, a Z80 microprocessor, and 64k of RAM. It was hardy enough to survive being accidentally dropped and the included software consisted of the CP/M operating system, BASIC programming language, WordStar word processing package, and SuperCalc spreadsheets.
The Osborne 1 greatly outsold initial estimates, so much so that the company grew to 3,000 people and $73 million in revenue in 12 months, from its start with just Osborne and Felsenstein. But then came the big slip up that caused the effect–Osborne announced their next big thing, the Osborne Executive.
It was better, newer, faster, so much so that no one wanted the lousy old Osborne 1 anymore. This would have been great for the company, except that the Executive was announced early in 1983, before it was ready to sell. Dealers rapidly started cancelling orders for the Osborne 1, and unsold inventory piled up. Even with large price reductions, with the the Osborne 1 going from $1295 in July 1983 to $995 by August, the sales did not recover. The mounting losses resulted in the company declaring bankruptcy in September of 1983.
The Osborne Effect–
The Osborne effect is a term referring to the unintended consequence of the announcement of a future product ahead of its availability and its impact upon the sales of the current product.
Pre-announcement is done for several reasons: to reassure current customers that there is improvement or lower cost coming, to increase the interest of the media and investors in the company’s future prospects, and to intimidate or confuse competitors. When done correctly the sales or cash flow impact to the company is minimal as the revenue drop for the current product is replaced by orders or completed sales of the new product as it becomes available.
The Osborne effect occurs when this pre-announcement is made either unaware of the risks involved or when the timing is misjudged. Customers react immediately by canceling or deferring orders for the current product, knowing that it will soon be obsolete. Inventories increase and the company must react by either discounting or lowering production of the current product. Either of these choices depresses cash flow. In the actual case of Osborne Computer Corporation, the company took more than a year to make its next product available. It ran out of cash and went bankrupt.
Pre-announcing products in a way that incurs the Osborne effect is an example of a self-defeating prophecy, as the announcement of the new product is ultimately responsible for its own abandonment. At the very least, any unexpected delays may mean the new product comes to be perceived as vaporware, further damaging the company’s credibility and thus profitability. (Wikipedia)
There is some dispute as to what actually caused the demise of Osborne Computer, namely competition from Kaypro, but the term has stuck, being used as shown above discussing Microsoft’s new mobile software, and additionally with RIM’s Blackberry operating system upgrades (both of which are intentionally causing the obsolescence of products they still need to keep selling), and previously with the Sega Saturn game system.
Images from computermuseum.li (Osborne 1 and Executive), ancestry.com (Osborne 1 ad), geekrant.org (Osborne Executive ad), bluefaqs.com (Osborne Executive Series ad), mcinfo.wordpress.com (Osborne 1), and vintage-computer.com (Osborne Executive).
This is one of those times that PC Magazine really shows its age. Although the writer of this article really doesn't look that old it shows his age by using that as a reference. I remember the early days of IBM PC compatibles and I had to look this one up when you mentioned it. I honestly didn't remember this company.
It does show that vaporware happens in hardware as much as it does software. Which, for the record, is funny that Microsoft would call the case "Vapor MG" showing that someone at the corporation really isnt paying attention to names.
A more recent announcement this could be seen in the last WebOS devices. Once the Palm Pre 3 was announced there was no reason to get a Pre or Pre 2. In fact HP even went so far as to say the earlier devices wouldn't get the new OS. The same as Microsoft is now telling its current customers.
Those who don't learn from history are destined to repeat it.
I'm not sure I agree with PCMag on this one. They may have Osborned WP7, but not the company itself. And seriously, was Windows Phone 7 much or a star performer for them anyway?
Just to be clear, there is no denying that the industry analysts focus on the race between Android and iOS. Sometimes they like to sneer at Blackberry. They almost never talk about Windows Phone. I hear that people who have and use Windows Phone 7 quite like it, but saying the WP8 announcement "Osborned" Microsoft would be like Ford pre-announcing superhydrophobic floormats then accusing it of "Osborning" itself because of the sudden drop in demand for the current line of after-market floor mats.
I am with you, I am not really sure that what is happening at Microsoft really qualifies as 'Jumping the Osborne', since the success or failure or their mobile phone unit seems unlikely to drive the company into bankruptcy. I will say that it seems like a poor business decision, and it looks like they would have been better off to just wait until the new system was ready, then just drop the no upgrades bomb, along with some sort of, 'But you can get $20 off a new phone and this local business discount card free!' as an enticement carrot.
However, I also speak from the semi-jaded position of being an Android owner of a phone that has been upgrade restricted due to hardware limitation since about a month after I got it, and grows only more so as time wreaks her havok upon its gentle form. Weep you not for me, PCMag?
You don't suppose they deliberately hoped to invoke the Osborne effect do you? Sales of the current Windows Phone were already low by comparison, so they hope against hope that they can hype the next version enough that potential Android or iOS customers hold off for WP8 instead? Go look up 'hubris' in the dictionary and tell me if they mention Microsoft.