Osborne effect
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The Osborne effect is exhibited when a company's revelation of information about future products results in customers delaying purchases of the current offering. Its origin is a purported suicidal marketing mistake made by the Osborne Computer Corporation in the 1980s when its announcement of a successor to its Osborne 1 system led to a sharp reduction in sales and the delay of the successor system created a revenue vacuum from which the company did not recover.
The Osborne Myth
In 1983, the inventor Adam Osborne pre-announced several next-generation computer models (the "Executive" and "Vixen" models) which had not yet been built, highlighting the fact that they would outperform the existing model. According to the myth, sales of the Osborne immediately plummeted as customers opted to wait for these improved systems; this caused an attendant drop in cash flow and thus profits, and a few months later the company became bankrupt.Pre-announcing products in a way which incurs the Osborne effect is an example of a self-defeating prophecy (as opposed to a self-fulfilling 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.
After renewed discussion of the effect in 2005 (see below), columnist Robert Cringely interviewed ex-Osborne employee Mike McCarthy and clarified the story behind the "Osborne effect". Purportedly, the new Executive model from Osborne Computer was priced at $2,195 and came with a 7-inch (179 mm) screen, while competitor Kaypro produced a computer with a 9-inch (229 mm) screen for $400 less. The Kaypro computer had already begun to cut into sales of the Osborne 1 (a computer with a 5-inch (127 mm) screen for $1,995) but inventories of the Osborne 1 cleared out, and customers switched almost entirely to the Kaypro.
On 17 June 2005, Daniel Eran of RoughlyDrafted observed that in 1983, Osborne Computer "had more problems than simply an early announcement of a future product," and noted that Osborne Computer "was a small, three year old company with scant customer loyalty or developer base, facing strong competition while struggling with quality control problems in their existing product." The company's competition included a more competitive portable product from Kaypro; the Apple II, which ran Digital Research's CP/M software used in the Osborne, in addition to its own; IBM's emerging standard PC; and Compaq's Osborne-like PC compatible portable.
The article stated that the "much ballyhooed Osborne Effect" would not have a significant affect on Apple Computer's move to Intel because their circumstances were so different, and gave examples of computers Apple continued to sell after announcing plans that effectively rendered them obsolete: The Apple IIGS, which sold for seven years after being obsolesced by the Macintosh line; the Quadra 630 and similar 040 based Macs which sold long after the announcement to move to PowerPC, the demand for PowerMac G4s which continued after the introduction of the PowerMac G5 and - according to the article - even prompted Apple to reintroduce the older G4 machine (in fact they never stopped selling it), and the demand for Mac OS 9 that continued after the release of Mac OS X. [link]
On 20 June 2005, The Register quoted Osborne's memoirs and interviewed Osborne repairman Charles Eicher to tell a tale of bad corporate decisions that led to the company's demise. [link] Apparently, while sales dipped after the initial announcement, they eventually began to pick up, and cash started flowing into the company. Then a vice president discovered some fully equipped motherboards (worth $150,000) but no other parts to remake the older models. Some time and a few bad decisions later, $2 million - far more than anybody expected - were spent for the CRTs, RAM, floppy disks, and remolded cases. It was then that the company folded due to debt.
It seems, therefore, that while the pre-announcement myth has been prevalent in the computer industry for years, its manifestation in the Osborne computer's case is almost certainly an urban legend.
Prevention
Most technology companies today guard against the Osborne effect by very strictly controlling information. In general, the stronger the market position of a company, the less they will reveal about product plans and pricing.Other examples
In 1978, North Star Computers announced a new version of their floppy disk controller, that had double the capacity, to be sold at the same price as their existing range. Sales plummeted and the company almost went bankrupt.In 2005, Apple Computer made an exception to its normal policy of announcing just before release in order to prepare software developers for the switch to Intel hardware. This led to many analysts predicting that they would suffer from the Osborne effect, and sales would immediately drop, with customers preferring to wait for the new models to arrive the following year. However, this proved not to be the case, as the following two quarters actually showed record sales levels.
See also
External links
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