A Flop Becomes a Hit

By Philip Elmer-DeWitt

Price cuts, new features and big promotions rescue IBM's PCjr

Only six months after IBM introduced the PCjr home computer in November 1983, the machine looked like one of the biggest flops in the history of computing. Despite IBM's towering prestige and a marketing budget estimated at $40 million, the PCjr sold as sluggishly as Edsels in the late 1950s. Consumers seemed to be turned off by the computer's toylike appearance and $1,269 price tag. Dealers, stuck with growing inventories of unsold machines, were beginning to panic. Wrote Popular Computing Columnist Steven Levy: "The machine has the smell of death about it."

But IBM stood firmly behind its newest and littlest computer. Said Vice President Philip Estridge in April: "Reports of its demise have been greatly exaggerated." Now it seems that Estridge was right. After a quick series of engineering and marketing changes, IBM appears to have turned its loser into a winner. At stores around the U.S., the PCjr is suddenly one of the fastest-selling computers on the shelves, often outperforming cheaper, game-oriented machines like the Atari 800 and the Commodore 64. "This may be an industry first," says Stephen Guty, editor of McGraw-Hill Computer Books. "No product has ever been successfully resurrected after being so condemned."

From the beginning, the PCjr was viewed as something more than just another machine. For some, the entry of IBM into the low-cost market promised the fulfillment of long-held dreams of getting a computer into every home and classroom. Others expected that IBM would quickly dominate the markets for home and school computers just as it had taken over the one for office machines.

But it was not to be, at least not right away. IBM, seeking perhaps to protect sales of its highly popular PC and XT business computers, deliberately limited the power of the PCjr. The company made it difficult for users to add extra memory or disk drives, and it chose a circuitry design that made the computer run slower than comparable machines. The most criticized feature was the Chiclets-style keyboard that was unsuitable for heavy-duty typing and thus reduced the appeal of the machine for word processing or extensive record keeping.

But even as the PCjr's detractors were dancing on its grave, IBM was plotting its rescue. The company's first step was to help beleaguered dealers by allowing them to delay payment until the end of August for computers ordered in January, six months longer than normal. Then, on the last day of July, IBM quietly introduced a flurry of new PCjr features and options, including a typewriter-style keyboard that was retroactively provided free to every registered owner.

Having dealt with the machine's more visible flaws, IBM immediately set in motion a two-pronged marketing campaign that combined dramatic price cuts with blitzkrieg advertising--radio, TV, newspapers, magazines, even direct mail. The price cutting began in earnest in July, when IBM slashed the cost of the basic one-diskdrive model from $1,269 to $999. In mid-October, the company offered dealers an extra $250 rebate and encouraged them to pass on the savings to customers by selling the machine with heavily discounted software and peripheral equipment. By November, computer stores were offering a computer-and-color-monitor package that once went for $1,698 for under $900, and some discount houses were selling it for even less. Now, in the final shopping days before Christmas, the PCjr is undercutting the competing Apple He by about $200 and countering Apple's green-screen monitor with one that shows full color. Says Erik Rossing, a vice president of the Minneapolis-based Computer Depot chain: "The Junior has become the best value in the store."

Sales, which had dwindled to a few thousand a month by July, started doubling and then tripling each month, according to Future Computing, a Dallas-based research firm. An estimated 90,000 computers were sold in November. Retail sales could reach 280,000 this year, a far cry from the 500,000 to 1 million predicted just a year ago but a respectable showing nonetheless.

The PCjr, however, is unlikely now simply to roll over the low-cost computer market. Apple remains the powerhouse in both the home and school. This year it will sell about 900,000 of its He and He machines. Some industry watchers also wonder whether IBM's sales momentum will continue after the generous rebates expire in January.

Despite its belated success, the PCjr still has a few problems. It can run only some 40% of the programs written for the PC, and new software for the home and education markets has been developed slowly. Moreover, in boosting the power of the Junior to make it more attractive to experienced computer users, IBM has made it harder for beginners to handle. For example, plugging in more than one memory-expansion module or peripheral device calls for a tangle of cables and bricklike power-supply boxes, each of which costs extra. In addition, the machine in its various configurations requires three different versions of IBM's somewhat intimidating disk operating system, PC-DOS.

IBM's aggressive campaign to rescue the ailing machine has raised new fears about its corporate clout. Apple Chairman Steven Jobs hints that the company may be unloading its machines at prices below the cost of production. If so, it could be risking trouble with antitrust laws, which prohibit firms from selling products at a loss when the effect is to drive out competitors. The Government's decade-long antitrust case against IBM was dropped in January 1982, but a few industry executives, including Apple's Jobs and Benjamin Rosen, chairman of Compaq, are beginning to talk openly about another one. Says Parren Mitchell, chairman of the House Small Business Committee: "Sooner or later, someone is going to complain to the committee about IBM."

Another company might have cut its losses and dropped the Junior, but by redoubling its efforts IBM ensured itself a share of the $2.8 billion market for home computer systems. Corporate pride was also at stake in the effort to snatch victory from the jaws of what was shaping up as defeat. "IBM didn't like having this black eye," says Egil Juliussen, chairman of Future Computing. "They wanted to figure out a way to help the machine along, and they did." #151; By Philip Elmer-DeWitt.

Reported by Thomas McCarroll/ New York, with other bureaus

With reporting by THOMAS McCARROLL, other bureaus