Microcomputers catch on fast

Business Week

July 12, 1976

A funny thing happened when manufacturers representative Paul J. Terrell took on a microcomputer account last year. "Engineers were interested in the product not for their company but for themselves," Terrell recalls. "That made us curious to see what would happen if we put up a sign."

The effect was spectacular. No sooner had Terrell started selling microcomputers in his "Byte Shop," a modest cinder block storefront in Mountain View, Calif., than customers swarmed in from all over the San Francisco peninsula. Sales shot up from $7,000 in January to $45,000 in June. Now there are nine Byte Shops on the West Coast with five more scheduled to open by the end of July. And Terrell, 32, is planning a nationwide franchising program. "It's been fantastic," he says.

What seems most fantastic about the Byte Shops, The Computer Store in Burlington, Mass., and similar retail operations is the product they sell: Computing power that might have sold for hundreds of thousands of dollars a decade ago and tens of thousands just a few years ago is now available for less than $1,000, thanks to the power and low cost of the complex integrated circuits called microprocessors or computers-on-a-chip. Retail customers are snapping up typewriter-sized microcomputers that sell for as little as $500, and they are jury-rigging sophisticated systems by linking them to television sets, cassette tape recorders, and surplus teletype keyboards.

At first, the buyers were mainly scientists and engineers with an urge to tinker at home. But the market is rapidly growing as students, businessmen, doctors, and housewives become avid computer hobbyists. Clubs are forming, periodicals are multiplying, and the first computer hobbyist conventions have been held.

Computer fans

The retail market for computers has barely been scratched. Sidney J. Halligan, a co-founder of The Computer Store, estimates that less than 10,000 systems have been sold to date. "There are a few hundred thousand 'bit-bangers' out there -- people who like to play with computers," Terrell says. But he believes that there is a far broader home entertainment market and a lot of small businessmen who want to keep their own records.

Retailers report that stock brokers are buying microcomputer systems to pursue their own market theories, real estate salesmen are using them to store property listings, and dry cleaners are trying out accounts-receivable programs on them. "As the equipment gets less formidable and the population gets educated, the market will be in the millions," predicts Douglas S. Hancey executive vice-president of Utah-based Sphere Corp., a microcomputer maker.

Semiconductor companies, predictably, also are showing an interest in the hobby market. Intersil Inc., of Cupertino, Calif., maker of a microprocessor that emulates a Digital Equipment Corp. minicomputer, is about to introduce a computer-on-a-card for only $280.

Altair's dominance

Already, the home computer industry is beginning to look like a miniature version of the main-frame computer business -- down to the dominance of one competitor. The IBM of home computers is MITS Inc., founded seven years ago by engineer H. Edward Roberts in the garage of his Albuquerque (N.M.) home. In January, 1975, MITS brought out its Altair computer, built around an Intel Corp. microprocessor, expecting to sell no more than a few hundred. "The response was phenomenal," says Vice-President David H. Bunnell. "On one Friday afternoon we sold 295 computers."

MITS more than tripled its sales last year to $3.5 million and expects to double them this year. To date it has sold about 8,000 computer systems, and perhaps 80% of these have gone to the home market. Others are in the market now, including Sphere and IMS Associates Inc., but Altair's early lead has made its design a de facto standard for the industry. "There are a dozen or so companies making things that plug into the Altair," says one hobbyist.

Selling to industry

Computer clubs have been growing fast, too, with 10,000 hobbyists now enrolled in 20-odd organizations around the country. Louis G. Fields, a scientist who helped start the Southern California Computer Society about a year ago, says the group now has 4,000 members and expects to have 40,000 by next year. "We've doubled every 60 days mainly by word of mouth," Fields says. And when MITS convened a "World Altair Convention" this spring, 700 hobbyists descended on Albuquerque to socialize, learn new techniques, and show off projects.

While hobbyists were the initial sales target, the manufacturers expect new markets to become more important for their low-cost microcomputer systems. Says Hancey of Sphere: "We now are spreading out to system houses that are selling applications to small business." William H. Millard, president of IMS Associates, says he is also selling systems to Bell Labs, Honeywell, and Lockheed. "The only thing small about our computer," Millard says, "is its size and its price."

But the hobbyists may yet provide the electronics industry with an unexpected payoff -- ideas for new machines and for applications that increase the usage of computers. "A lot of hobbyists think they've got the world's greatest solution to a problem," says Halligan of The Computer Store. "And a certain percentage of them will be right."

GRAPHIC: Picture, Terrell: Planning to sell Byte Shop franchises following their success in California. Stephen Frisch