Apple Reference & Presen…rary 8 (Internal Edition)/Apple R&P Lib Internal v8.0.iso/3-Presentations/Apple Computer Inc./Industry Competition/ROMs/IBM/IBM PS⁄1

Text File | 1990-06-24 | 11KB | 207 lines

NEW IBM HOME COMPUTER VIA DEPARTMENT STORES THIS SUMMER

Customer & Competitive Analysis

APPLE CONFIDENTIAL / NEED TO KNOW

CONTACT: Ken Lim
(with Michael Jay, also thanks to Joe Sperino)

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EXEC SUMMARY
Sometime in June, IBM will test market a new low-end system aimed specifically
at home and K-12 markets.  The “PS/1” is a slotless, 10 MHz 286-based PC in a
Model 30-type case.  Four working configurations with monitor and storage will
be priced from about $1300 to $2000 (SRP).  Street prices will probably range
from $999 to $1599. A special graphical version of MS-DOS 4.0 and three
applications are bundled.  The PS/1 will be sold primarily via department
stores.  Nationwide launch is expected late August or early September.

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PRODUCT & PRICING SUMMARY:
Major reseller executives and some developers were briefed by IBM last month.
The dealers have dubbed it the “PS/1.”  IBM’s internal code name is allegedly
“Ascot.”  The official name is unknown.

The PS/1 is a slotless, 10 MHz 286-based PC in a Model 30-type case. It will be
available in four configurations:

512K RAM, 1.44 MB 3.5-inch floppy, 12” monochrome VGA monitor, SRP ~ $1295
512K RAM, 1.44 MB 3.5-inch floppy, color VGA monitor, SRP ~ $1,495
1MB RAM, 30MB hard disk, mono, SRP ~ $1,750
1MB RAM, 30MB HD, color, SRP ~ $1,995

Some reports have placed the SRP at $995 to $1600, but we believe (and hope!)
that these are being confused with anticipated dealer prices.  All
configurations include 101-key keyboard, 2-button mouse, 2400 bps modem and a
software bundle consisting of Microsoft Works, Prodigy, a tutorial and one
other program.  An optional, modular, 3 AT-slot expansion chasssis will be
offered for approximately $300.  MS-DOS 4.0 is in ROM with special,
IBM-proprietary windowing extensions.  The hard disk Ps/1s reportedly boot
directly into a tiled window setup with the above four apps ready to be
selected iconically.  Users will never see plain DOS unless they want to.

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CHANNELS, AVAILABILITY & MARGINS:
The new PC reportedly will be test marketed in June, July and August by the
Sears, Dillards and Dayton-Hudson (Target) department stores, but only in
Dallas, Minneapolis and Chicago. Then the machine will ship nationwide
officially in September.

IBM is has a completely new distribution plan and term & conditions for the
PS/1.  IBM is trying to keep it out of the standard PC specialty stores. It
will be sold via IBM’s National Distribution Divisio (NDD) to mass
merchandisers and IBM’s Office Equipment and Typewriter dealers.  Currently
authorized PC dealers won’t be prohibited from carrying the product line, but
the minimum order is rumored to be six pallets with 48 units per pallet.  This
is obviously aimed toward mass merchandisers and effectively eliminates all but
the largest dealer chains.

Dealers get only 25 points margin for floppy systems and 30 points for hard
disk systems.  Co-op plan is only 2%.  Rumors say that there will be no
flooring (third-party inventory credit) plan, market development funds (soft
dollar programs) or return policy.

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IBM DIRECT CUSTOMER SERVICE ON-LINE:
One report indicates that “the initial boot-up screen asks them to fill out
their warranty information and then directs them to send it in electronically
(via Prodigy).  IBM expects to acquire the most complete warranty data and
service history of any PC ever shipped.”

IBM Customer Service will be available on-line via a Prodigy forum called the
“800 End User Club.”  Hardware problems will be serviced by a “1-800 Service
Express number.”  IBM will supposedly ship replacement units directly to the
customer.  The customer then ships the broken unit back to IBM.  If IBM does
not receive it within 14 days, the customer is automatically billed for that
part.

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NETWORKING:
IBM is in discussions with O’Neill Communications, the makers of LAWN (Local
Area Wireless Network), a radio frequency-based LAN device that runs off serial
ports.  This would provide networking capabilities for the slotless PS/1.  The
current LAWN product retails for $495 and has been available for about a year.
From demonstrations we have seen at COMDEX, it looked pretty good in terms of
software, setup and interface.  While we weren’t able to do any testing,
performance seemed to be on par with LocalTalk, but much less reliable. The
system tends to spend a lot of time searching for and re-confirming
connections.

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DEALER & ANALYST REACTIONS:
Dealers’ quotes regarding the PS/1 have been along the lines of: “a dog,”
“woof, woof,” and “PCjr Junior.”  One analyst told us everyone he has talked to
about it “is aghast.”  Distribution and channel analyst Seymour Merrin believes
“It is guaranteed to fail, because they are doing it (the distribution) all
wrong.”  We believe the dealers’ reactions must be tempered with the fact that
they are incensed about the channel conflict and IBM’s low dealer margins.
They are worried about major loss of business to the department stores and
decreasing profitability.  What they seem to be forgetting is that they have
already abandoned the home market to the superstores, third-tier dealers and
department stores TWO YEARS AGO and most chains are so business-oriented that
they would not be able to effectively sell the PS/1 anyway.

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IBM DIRECTION & IMPACT:
We believe the PS/1 is primarily a home market machine with some spillover into
the home business, small business and K-12 markets.  It will be used as a
“Prodigy-machine” and for running entertainment, word processing and personal
finance programs.  The most insidious aspect of this is that, if successful,
IBM will mold people’s usage of and attitude toward computers via the
IBM-controlled content in Prodigy.

The new machines will also undoubtedly cause some pricing adjustments by the
various clone vendors in the home segment such as Epson, Hyundai, Blue Chip and
Vendex/Philips as well as proprietary vendors like Atari and Commodore.

The most important impact will be to focus the industry’s attention on the home
market and on alternative distribution channels.

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WHY IS IBM DOING THIS?
Some PC vendors are beginning to realize that penetrating the 95 million
households in the US is one of the few options available to maintain the growth
rates they have become used to.  As we have said before, IBM believes very
strongly in the home market, probably right on par with Tandy, Atari and
Commodore.  IBM also desparately wants to dislodge Apple from its K-12
stronghold.  They have been searching for the right product formula ever since
the failure of the PCjr.

IBM’s willingness to experiment with alternative channels shows a good
understanding of “the rest of us.”  It has been reported that IBM market
research found that at least 35% of the target market shops in malls regularly
but would never even think of entering a computer specialty store. The strategy
also recognizes that most currently authorized dealers have done a poor job of
selling to homes in the past and would be even less effective now.

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PS/1: SUCCESS OR FAILURE?
IBM’s main problem in creating the right product for the home has been its
dreadful fear of cannibalizing its existing product line.  To avoid this, IBM
tends to purposely cripple low-end products by stripping out some useful,
necessary functions and reducing quality.

Judging from the information available so far, the PS/1 sounds a whole lot
better than the PCjr or the PS/2 Model 25 in nearly all respects. Everything
most people need is built-in so the slotless argument loses steam.  With the
exception of SCSI, it is certainly no less expandable than a Mac SE.  Because
of the bundled modem and video, is quite comparable to any of the 2- and 3-slot
from its major competitors in the MS-DOS world.  Pricing appearsto be within
10% of the major brand name competitors like Tandy and Epson.

Public perception and image will be the swing factor in determining the PS/1’s
success.  If dealers’ and analysts’ vehemently negative opinions get to the
buying public loudly and early enough, the PS/1 will suffer badly and may end
up like the PCjr (although for very different reasons.)

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APPLE IMPLICATIONS:
Things are definitely and obviously heating up in the low-end, high-volume
segment.  Both the recently introduced PS/2 Model 25-286 and the PS/1 are aimed
here.  Several of the Top Ten vendors derive most of their revenues from the
home market.  Even Compaq, with it’s premium-price/high- performance focus,
last week introduced new low-end systems.

One way Apple can attack the system is to characterize it as limited, old
technology that will run Windows 3 very poorly and OS/2 not at all.

IBM and the PS/1 raise some major issues for Apple in the high volume segment
such as:
•  distribution - alternate channel strategy
•  evangelism -  more home, education & entertainment software for Macintosh
•  pricing - IBM setting a new, lower price ceiling for the industry
•  marketing - IBM needs to show the mass merchants that it can generate real
    demand and store traffic.  Expect a major advertising campaign from IBM to
    support this new market and product.

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EDUCATION IMPLICATIONS:
IBM’s James Dezell, VP & GM of Educational Systems, may be announcing a new PC
at the National Education Computing conference in Nashville during the last
week of June.  His talk is entitled “Restructuring Educational Computing
through Multimedia.”  IBM’s time slot at the conference is just hours before
Apple will announce HyperCard 2.0.  There are rumors that a special education
configuration might include a CD-ROM drive and that DVI might be built-in in
the near future (obviously at a much higher price!).

Will this announcement be the PS/1 or yet another low-end machine?  We aren’t
sure.  The PS/1’s slotlessness means that it can be converted to an ILS
platform only with difficulty.  The LAWN product that they describe may work in
the structure of a business office but similar products tested in the Vivarium
and other educational sites proved much too difficult to keep up and running.

With a retail price for the color system of $1495 and probably an Ed price of
around $750-800, they compete favorably with clones and even the latest pricing
on the Mac Plus (of course they are sans networking but we are monochrome).
Most limiting, perhaps, is the proprietary enhanced version of DOS 4.0. Schools
and educational developers will have to ask themselves “do I continue to
develop for plain MS-DOS, what does IBM’s proprietary windowing do for me, or
do I go to Windows 3?”  Granted, the OS in ROM is spiffy but it may only serve
to further confuse an already confused developer.

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We welcome your comments and suggestions.  Please Link us at COMPETITION.