Discovering a vast potential market

Information Processing

Computers

Business Week

December 1, 1980

For the past five years, makers of personal computers have watched their industry grow from nothing to nearly $1 billion annually in sales to the hobbyist, the consumer at home, and the small business. But one of the driving forces behind this explosive growth is just beginning to surface: the middle manager or technical professional in the larger corporations who wants his own small computer to automate the daily work routine.

Most of the manufacturers, however, have not been prepared to serve this market segment. Only now are they beginning to jockey for position -adding appropriate software and opening up new distribution channels--to capture a share of what they figure could eventually account for more than half of all personal computer sales.

"This is fast emerging as the biggest personal computer market," says Robert F. Wickham, president of Vantage Research Inc., a Mountain View (Calif.) market research firm. "We're beginning to see the computer on the professional's desk serving the same utilitarian function as the typewriter on the secretary's desk," he says. Wickham estimates that of the 750,000 personal computer systems shipped to date, fully one-third have landed in private offices.

The potential market is enormous. There are 2.5 million self-employed professionals and 15 million managers at work in larger companies, estimates Daniel H. Fylstra, chairman of Personal Software lnc., a leading independent software supplier in Sunnyvale, Calif. That is far larger than the 2.3 million very small businesses (those with fewer than 10 employees) that are often thought to be the prime candidates for microcomputer systems.

Once home

Manufacturers were unaware of the strength of this market of professionals and managers until earlier this year. Their lack of market knowledge was brought about primarily by the way in which professionals purchased these desktop machines. Such buyers rationalized their purchase as a home or hobby computer. "But once [the manager] got it home, he found the awesome power could best be applied to his job," Wickham says, "so he took it to work."

Now that they recognize this trend, some personal computer makers are rethinking their marketing strategies with an eye toward professional users. Most vendors, however, have yet to announce formal plans to target individual managers. Indeed, many companies are simply hoping to ensnare such users in a wide net cast out to all potential customers. "We want all of the low end of the computer market that we can possibly achieve," professes John V. Roach, president of Tandy Corp. The Fort Worth company's Radio Shack personal computers are the industry's best-selling line. "We will have as many products as we can afford to develop to maintain the largest possible market share," he says.

Similarly, Apple Computer Inc., the Cupertino (Calif.) company that has built the largest base of professional customers, claims to have stopped segmenting the market into categories of users. "We subscribe to the model that everyone wants to have his own computer," says co-founder Steven P. Jobs.

But other entrants, such as HewlettPackard Co., are pinpointing professionals to the exclusion of other personal computer markets. Early this year, the company's Corvallis (Ore.) personal computer division aimed its $3,250 computer directly at technical professionals--equipping it for such applications as waveform and circuit analysis. Yet market research at HP indicated that business professionals could account for 50% of future sales of business computers.

Now, HP is gearing up to cash in on this discovery, with plans to release graphics, forecasting, and information-management software early next year. At the same time, it may modify its personal computer for business applications. In three years, HP will be selling five times as many personal computers to business professionals as to technical professionals, predicts Deme M. Clainos, an HP marketing manager.

Zenith Radio Corp. is taking a similar tack. Its Zenith Systems Div. is now readying software for professionals on the theory that the revenues from managers in medium-size and large businesses will be larger than from the small business market. Zenith also sees a demand for more capable personal computers than the $5,000 models that professionals are now buying. To fill this need, it is working with the Massachusetts Institute of Technology to build a personal computer to sell for $20,000 and up.

Greater potential

As personal computer vendors actively start to court big business, they are finding that such sales are often easier to make than selling to "mom and pop" businesses. For one thing, the larger companies often buy more than one computer per sales call, and they offer greater potential for additional hardware and software sales. Equally important, big corporations already are comfortable with data processing gear, so their users require less "handholding" than do the small business neophytes. In fact, large companies often provide software support and training themselves.

Despite the soaring sales to large companies, the personal computer makers say that they need to open up new distribution channels to reach more of these customers. "Some professional people, the self-employed such as stockbrokers, headhunters, and consultants, will go into retail stores," says Vantage's Wickham, "but the larger number is employed by [the top] 1,000 companies and, by and large, they aren't going to go out and buy a computer on their own."

To get the best price, big corporations will probably want to deal directly with the personal computer manufacturers. So Apple and Radio Shack, for example, already have started to approach the big manufacturers, banks, and insurance companies. "I think we'll start seeing annual corporate buying agreements--a mechanism already established for copiers, calculators, typewriters, and office furniture," says one manufacturer.

Infiltration

If the personal computer makers were late in spotting the penetration of their products into large corporations, then big business has been slow to recognize the infiltration of personal computers into their managerial ranks. One reason for this is that, unlike mainframe and minicomputers, the low-priced personal computers do not require executive-level approval to purchase. Instead, they can be buried in departmental budgets. To avoid a showdown with their data processing department managers, who want to control all corporate computing activity, many' managers disguise personal computers on their purchase orders as "electronic typewriters" or merely as "office equipment."

To a large extent, professionals are turning to personal computers out of frustration with the company's data processing department, which they feel is unresponsive to their needs. One middle manager at a West Coast motion picture studio, for example, waited six months for his company's data processing staff to develop a program to monitor and expedite work-in-progress for his department, which had suddenly doubled in size. Four months ago, the executive gave up and paid $2,500 out of his own pocket for an Apple computer and the necessary software. "The solution I got wasn't nearly as sophisticated as what I'd have gotten from data processing," he admits "but it works." Since then, he has purchased two more Apples with company money.

Software will be the pacing factor in the growth of personal computers as it will be with any size computer. Until now, though, the lack of software has not noticeably slowed the use of computers by professionals. As the first users lugged their machines from the home to the office, they also brought along homegrown software to run them. Once in the office, managers copied each other's programs.

Now, some personal computer users are trying to tap this "free" software bank. Texas Instruments Inc., for example, is setting up an internal exchange that will allow its managers to swap their programs by telephone. In fact, TI has hired a staff of programmers to write business planning programs for its managers. This is no small task, however. "Each [program] must be configurable by the user to his problem and must be configurable by someone who is not a computer professional," says James W. Bandy, a TI manager.

Popular programs

For most professional users, though, the lack of software is slowing the spread of personal computers. For proof, the industry points with envy at a program called VisiCalc developed last year by Personal Software. Little more than the classic accountant's spreadsheet translated to a television screen, VisiCalc has sold well over 25,000 copies--and analysts estimate that it is directly responsible for the sale of perhaps 20,000 Apple computers. Other popular programs for professionals include data-base managers for electronic file cabinet applications, graphics packages to plot business trends, and wordprocessing software.

Ultimately, the professional market may even be the key that unlocks the long-heralded market for home computers as the heads of households get acquainted with personal computers in their jobs. Even more than with professional users, the lack of utilitarian software has stymied the march of computers into the home. Analysts now figure that the mass market will not open up until 1985 at the earliest. Until that happens, most personal computer makers are beginning to count on the professional market to provide them with a continued fast rate of growth. "Manufacturers need to cultivate the professional to maintain their growth," says Vantage's Wickham, "and big companies are beginning to acknowledge that personal computers are valuable. lt's a natural convergence. "

GRAPHIC: Illustration, Managers and technicians are bringing their personal computers from home to the office. Michael Okamoto; Picture, President Roach: Offering as many Tandy personal computers as possible. Michael P. Smith/Black Star