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).