Bargain Buys on the Way

Business on Computers

Bob Schwabach
The San Francisco Chronicle

August 26, 1985

Several things have come together in the past few weeks that portend good news for those of us who are interested in computers.

One is that the market for hardware (the machines) and software (the programs) has been slow for some time now. That may not seem like good news, but a moment's reflection will make you realize that the way a company has to react to this kind of situation is to either go out of business or lower its prices and try to hang on.

It's the second part that's good for those of us on the buying end. But there is much more pressure than this. The explanation may be long, but the conclusion will be that prices are going to go into free-fall. I think the trip will be kind of interesting.

To start with, the big buzz in the computer business recently was the announcement from IBM that it was not about to introduce a ``PC-II,'' the much-rumored successor to the IBM PC itself. And that, furthermore, there was no PC-II. This was an unprecedented statement from IBM. Near as anyone could recall, IBM had never gone before the public to deny or confirm rumors of an impending product. The whole strange scene had interesting implications.

One is that IBM took this highly unusual step because sales of the IBM PC were being hurt by buyers hanging back, waiting for the new machine. The poor sales, however, were not mentioned in the announcement.

The other implication of the announcement of no PC-II is that IBM finds itself in something of a dilemma: Its computer is very reproducible. And, in fact, the sales of IBM clones are considerable and growing faster than IBM's own. For example, the version of the IBM portable computer made by competitor Compaq outsells the IBM itself 6-to-1.

This kind of action is just a piece of an even larger problem for Big Blue: One of the more obvious, and for IBM, traditional, ways of cutting out competitors is to introduce a machine that is not compatible with earlier models, thereby forcing all the piggyback riders to get off and walk, and, in addition, making the customers shell out for a whole new system.

This option is probably no longer open. I don't mean forever, but I'll stick my neck out and say at least for the next few years.

Why not? Well, millions of IBM personal computers have been sold, mostly to big corporations and influential professionals. They have been integrated into the very fabric of many businesses and are being added on to, networked and enhanced to such an extent that the total investment far exceeds the initial cost of the machine itself. To pull the rug out would antagonize an awful lot of people - the very same people who would be the customers next time around and might hold deep enough grudges about the whole situation to go buy somewhere else.

This means continued price pressure on IBM personal computers, and it also means waves spreading out in all directions. If IBM PC prices are forced down, so, inevitably, must Apple prices be. So, in turn, must be the prices of every other personal computer manufacturer as well. The manufacturers must follow suit, or face certain diminishing sales and ultimate doom.

The ``street price'' for an IBM PC - meaning what the discount houses are charging - is already below $1600.

Radio Shack has been selling its IBM compatible with one drive for $995 for a couple of months now. And now a mail-order house in Austin, Texas, has put together its own one-drive compatible (with 640K of memory!) for $795 from pieces that were literally pulled right off the shelf. You can buy second drives from half a dozen companies for $60 to $70. The Austin mail-order house, PCs Limited, has even put together a compatible with 640K and a 20-megabyte hard-disk drive for $1500. This is essentially the equivalent of a $4000 IBM PC-XT, only more powerful.

On the software front Adam Osborne (of Osborne Computer song and story) says he is about to offer an under-$100 Lotus 1-2-3 ``work-alike.'' At least two other companies have similar programs in the works. You can already get full-featured IBM word processing programs, such as PC-Write and Textra, for $10.

What does it all mean? It means that fast and powerful computers are going to be selling for the price of a good color TV set, probably within a year. And powerful programs will sell for the price of a videotape movie. And then everybody can have one. Which is just fine, and as it should be.

Bob Schwabach is a syndicated computer columnist based in Philadelphia.