IBM Is Offering Workers Prizes to Hawk OS/2

IBM Is Offering Workers Prizes to Hawk OS/2

Paul B. Carroll, Staff Reporter
The Wall Street Journal

March 27, 1992

International Business Machines Corp.'s sales force is already bigger than many armies, but as IBM prepares to start shipping its much-maligned OS/2 operating system, it has decided it needs reinforcements.

So IBM is about to launch a program that will attempt to turn all its 344,000 employees into salesmen for the personal-computer software, which is in a fight for its life against Microsoft Corp.'s Windows juggernaut.

IBM will offer employees incentives ranging from medals to IBM software or hardware to cash, depending on how much effort they put into OS/2. In return, says Lucy Baney, an IBM marketing executive, the company will ask employees to approach their neighbors, their dentists, their schoolboards. Armed with brochures and talking points, the IBMers will sing the praises of OS/2 as the solution to people's personal-computing needs.

IBM is pulling out most of the stops in advertising and pricing, too, as it prepares for one of the stiffest marketing battles the personal-computer industry has seen. IBM must not only overcome Microsoft's considerable momentum but must also face a Microsoft marketing effort that, while very different and more low-key, is just as intense in support of Microsoft's latest version of Windows. In fact, the situation here is the reverse of the one IBM normally sees; Microsoft is the entrenched power and IBM the struggling competitor attempting to dislodge it.

"There's a very serious commitment to energize the whole company behind the product," says Fernand Sarrat, the top OS/2 marketing executive.

Although he declines to be specific on IBM's advertising plans, he says that "there isn't an IBM U.S. ad campaign that will receive anywhere near the dollars that OS/2 does" this year. That easily puts OS/2 advertising spending into the tens of millions of dollars, not counting the money IBM will spend on extensive international ads.

Mr. Sarrat says the campaign will be informational rather than the sort of macho advertising that has been rumored in the trade press; one slogan that was reportedly considered was "Curtains for Windows." But Mr. Sarrat adds: "It's not that we'll be namby-pamby. That's for damn sure."

The campaign will really start rolling next month. IBM's new version of OS/2 will be available to corporate customers next week, meeting IBM's commitment to deliver it by the end of March, but it won't be widely available in retail outlets until the second half of April. So even though Microsoft has already begun its campaign, in advance of its April 6 introduction of Windows 3.1, Mr. Sarrat says IBM has decided to wait a bit.

On pricing, he says that people who have the latest version of OS/2 will get the new version free. Many users of Microsoft's Windows and DOS will also get huge discounts off the list price of $195, but Mr. Sarrat declines to be specific, lest he tip his hand to Microsoft. (Windows 3.1 will have a list price of $150.)

IBM's pricing plan means it will be taking losses on many of its initial OS/2 sales. Software securities analysts have estimated that IBM must pay Microsoft a royalty of about $20 on each copy of OS/2, because it contains Windows software. They have said it also costs $30 or more to produce each copy of OS/2. And those figures don't include any of IBM's marketing expenses, any of the corporate overhead that eats up more than 30% of IBM's revenue or any of the OS/2 development expenses that have totaled hundreds of millions of dollars.

"This is a long-term war," Mr. Sarrat says.

He predicts that IBM will sell millions of copies of OS/2 this year, even though it has sold something less than one million copies in the five years since OS/2's introduction. Mr. Sarrat even goes so far as to predict that within a few years OS/2 will be outselling Windows, which Rick Sherlund, a securities analyst at Goldman Sachs, predicts will sell 11 million to 12 million copies in the fiscal year ending June 30 and 17 million copies the following year.

"It won't happen this year or next year," Mr. Sarrat says, "but after next year it's fair game."

In contrast to IBM, Microsoft will spend most of its effort "making sure people have a good experience" with its new version of Windows, says Steve Ballmer, a Microsoft executive vice president.

Microsoft will spend plenty of money on advertising, including its first television campaign. Mr. Ballmer says a published estimate of a $31 million marketing effort "is probably low even as a U.S. number." Microsoft will also be aggressive on pricing, offering upgrades to the new version for $50 initially.

But Mr. Ballmer says most of Microsoft's effort will go into a huge program to train computer dealers, to offer workshops to heavy Windows users and to help people get information on how to use the product. Patty Stonesifer, a Microsoft vice president in charge of customer support, says that Microsoft has 500 people available to answer telephone callers' questions on Windows, up from 70 when the prior version of Windows came out in May 1990. She says Microsoft has also invested heavily in an electronic bulletin board to keep users up to date on problems that surface with the software and to provide the latest tips on how to use Windows better.

"Making Windows easier to use will be a demand generator in itself," she says.

Microsoft has also mounted an aggressive public-relations campaign in recent weeks, having executives do waves of interviews to address OS/2. The executives have argued, in particular, that while OS/2 may make sense for IBM's traditional corporate users, it is too complex and requires too much memory to attract the broad mass of users who have been drawn to Windows.

Still, Mr. Ballmer acknowledges that many people in the computer industry and many users "are rooting for some healthy competition. People want a healthy, knockdown, drag-out fight. But we haven't shipped, and IBM hasn't shipped. In the next few weeks, we'll see what happens."