One by-product of the RE article on the Mark-8 was that it forced its rival magazine, Popular Electronics, to abandon a potential feature on a similar computer and instead latch onto the concept of the computer proposed by Roberts. Roberts had a concept of what he wished to produce, but more importantly he had secured an agreement with Intel for the supply of the more powerful 8080 chips at a discount of nearly 80% to the ‘normal’ price of the time. The key was a promise of volume sales, just as it had been for Intel in its deal with Busicom, although that had also involved development funding. Roberts, therefore, had gambled on his ability to produce a machine that could be completed in time to take the lead in the market and to sell in sufficient volume to justify his contract with Intel. There were thus three interested parties in the development: the supplier of the chips (Intel), the builder of the computer (MITS) and the marketer (Popular Electronics). The task of producing the computer, though, rested with Roberts and his team.
The target was to produce a machine that could be sold for under $500. The machine would be built in such a manner that it could be expanded by the user, allowing additional functionality to be added as desired. Development was handicapped by the availability of finance. The budget was extremely tight and funded by debt, with no certainty of future availability. The timescale was determined primarily by the requirements of Popular Electronics, which had a deadline for the article on the machine to be published. The computer, subsequently named the Altair (reflecting the interest of the editor of Popular Electronic’s daughter in the television programme Star Trek), was produced under intense financial and time pressure. The original model was shipped to the magazine and lost en route, causing great consternation for a magazine with a scheduled feature story and no feature. Since another model could not possibly be assembled in time, a mocked-up version had to be used.
The article in the January edition of Popular Electronics has been described as the first announcement of the personal computer’s arrival, but what exactly was being announced? Like Roberts’s previous product, the Altair had to be assembled by the purchaser. The Altair had no keyboard, no screen, no printer, and no permanent storage. The key point, however, was that it sold for $397 ($1,100). At this price point it was affordable for the growing number of computer enthusiasts. Enthusiasm was certainly necessary since after hours of assembly there was no guarantee that the product would actually work, and even if it did, the eloquent response it gave to painstaking programming through the flipping of minute switches was to blink some lights. Moreover, the equipment had no means of program storage. This meant that if the excitement of the blinking lights was to be repeated after the power source had been shut down and started up, the switch-flipping had to begin all over again.
Despite the humble nature of the machine it met a hitherto unperceived need, and this was demonstrated by the overwhelming response to the PE article. MITS, which to survive required hundreds of orders to amortise the cost of purchased components, found itself with thousands of orders. The company was overwhelmed. Development of add-ons and peripherals had to be set aside as the small staff worked frantically in makeshift premises to avoid falling further behind the increasing flow of orders. Out of necessity, Roberts kept the production cycle as simple as possible, analogous to the famous Henry Ford quote that “the customer can have any color he wants – as long as it is black”. Altair customers could order any combination of requirements, but only the basic components would be shipped. Peripherals or expansion would have to wait until the initial demand was satisfied. The user would receive the basic components, assemble the computer, and then try to figure out what to do with it.
Part of this process involved creating software that would run on the machine, despite the fact that at the time the means to store programs were unavailable to customers. The large computer manufacturers had baulked at the level of resources needed to provide customers with software, peripherals, after-sales service and maintenance. For them this represented simply too large a commitment to a market of unknown size and potential, at a time when maintaining a position in the competitive mini and mainframe markets was demanding enough. If it was demanding for the DECs and IBMs of the world, it was simply overwhelming for MITS.
One consolation was that the support required could be segmented. The manufacturer had to be able to provide a product that worked and one that could be repaired if necessary. However, a single company did not need to provide all the other items. The level of interest in such a basic product demonstrated the appetite of customers to develop their own knowledge, and investigate what could be done. It was not long before individuals were adapting existing languages and writing software programs for the machine. Since MITS was unable to supply the demand for peripherals and expansion, this left a gap for others to try and fill.
So far as the software was concerned, two individuals found the Altair intriguing. Paul Allen and Bill Gates had spent much of their spare time working on a machine to collate and analyse traffic flow statistics. In doing this, they had built on their work with the Intel 8008 chip and the development of BASIC, a programming language adapted for the chip. The project and its follow-on work had given them a degree of financial reward, but not enough. The two friends turned to pursue other options, while spending much of their spare time on programming and attempting to turn their Traf-O-Data company into a viable commercial venture. The announcement of the Altair opened up a whole new potential avenue for their efforts.
From myth to reality – two new products
Allen and Gates contacted Ed Roberts, who after a demonstration of their BASIC software agreed to purchase it from their company, now renamed Micro-Soft, when it could be shown to work on the Altair. Allen was later offered and accepted the position of director of software at MITS. The quest then began to develop sufficient memory for the Altair to allow it to house the BASIC software, while still leaving enough space for users to make use of the language. To be practical, there had to be a method of storing programs and avoiding the untenable position of having to re-input them every time the computer was switched on. Roberts had already designed a 4k memory board (i.e. 16 times the size of the 256 bytes supplied with the early machines). So far as program storage was concerned, he wanted to move from paper tape to a more advanced method, such as tape cassettes or the more expensive but faster disk drives. Roberts decided that disk drives represented the way forward and initiated a project to that end, enlisting Bill Gates to write the necessary interface software. Both of these developments were to be vital in the eventual success of the PC, but neither of these early initiatives was successfully completed. The memory board never worked properly and was prone to failure. Gates had insufficient time to spend on the disk-drive software project, given his other commitments, which included a series of roadshows to publicise Altair.
These flaws were to prove fatal to MITS’s hopes of dominating the new market. Combined with its inability to service existing demand, the marketplace was wide open for competitors. Aside from the advantage of bringing the product to market first and being a trailblazer in this regard, all Altair really had was price – and this depended upon its deal with Intel. Moreover, to maintain this price, margins had to be kept razor thin, meaning that MITS depended upon volume sales of Altair and higher-margin peripherals for its profitability. Worse still, the rapid expansion had left the company unable to develop the potential of the peripherals business. It was not long, therefore, before the gaps were exploited. For example, a company called Processor Technology was formed to manufacture superior 4k memory boards. MITS tried to exclude them from the market by bundling the BASIC software with its unreliable memory board, and trying to make it uneconomic to purchase the software alone. The natural consequence was that users simply bought the memory boards which worked and pirated the software. MITS was not ignorant of the dangers posed to its market lead by the flaws in its equipment and the unavailability of higher value add-ons. The company continued to work on t
hese areas, even if at times it appeared in denial about the self-evident shortcomings.
The company’s strategy contained both positive and negative elements. On the negative side, it sought to disparage both competitors and their products. It also sought exclusive contracts with distributors to stock only MITS products (in addition to its own product-bundling strategy). On the positive side MITS sought to rectify some of the existing quality issues while increasing the pressure on Bill Gates to complete the disk software.
One further strand was added. In response to the development of the Motorola MC6800 processor and the potential it might provide for competitors MITS decided to build another machine – but one based around the Motorola chip. The machine was named the Altair 680b and retailed for just under $300. The machine was launched at roughly the same time as an equivalent produced by a new competitor, Southwest Technical Products. At first sight the Altair 680b could have been viewed as a sensible move to protect MITS leadership position by offering a competitive product which would potentially deter new entrants. The problem was that the 680b could not run the software developed for the Intel processor – so not only were the production tasks doubled, so too were the programming ones. And they doubled at a time when the staff could barely cope with the existing fixes and development requirements. Gates did complete the code for the disk drive in early 1976, but in the intervening period had been spending an increasing amount of his time broadening the appeal of his BASIC by adapting it for other computers.
MITS’s early advantage was compromised by its inability to deliver the product and support, which in turn was undermined by the distraction of the attempt to produce a non-compatible alternative. The MITS products held no great technological lead given that they were based on third-party processors. The essential advantage rested on the kudos flowing from its groundbreaking product and the price at which it sold it. The technological lead was quickly whittled away by others who had been working along similar lines but were spurred to redouble their efforts by the obvious success of the Altair. The new competitors comprised a mixture of ‘amateur’ enthusiasts, and more overtly commercially oriented ventures. In this there were many similarities to the automobile industry at the beginning of the 20th century. Back then, there were hundreds of very small companies who would buy in the major components and seek to use their skills to assemble a working car. They would survive on credit provided by their suppliers, but were often able to be pre-paid in the early days of the industry, when demand was well in excess of supply and purchasers were willing to conduct their own maintenance.
The main difference was that the automobile was a low-volume item and the personal computer was high-volume. The PC industry was to grow and mature much more quickly than the auto industry, but it did so along very similar lines. The keys to success proved identical. Firstly, there was the simple issue of the product – was it reliable and priced correctly? Secondly, would it do what you wanted and was it interchangeable? In other words, could an individual proficient on one PC be equally so on another? Thirdly, was it all-purpose? Was there distribution and after-sales support?
The speed with which the industry matured left little scope for error. The real competitive threat came from organisations like IMSAI, formed by the former IBM salesman Bill Millard shortly after the launch of the Altair. Millard was convinced that there existed a large latent market for computers in small business applications. Millard believed that if computers could do simple accounting-type functions, the sales potential was enormous. The initial condition of MITS, though, was such that it could not have supplied assembled machines to Millard’s specifications even if it had had the desire to do so.
Millard was forced to produce an alternative. This was done by pulling apart the Altair and reconstructing it. Despite correctly identifying the target market, IMSAI ran into many of the problems which hindered MITS. Fuelled by a growing market and an aggressive sales force, IMSAI quickly established a strong market position. The IMSAI machine purchased the CP/M disk operating system developed by Gary Kildall for $25,000, and BASIC software to run on it. It was arguable whether the IMSAI machine was any better than Altair, and the instructions and maintenance associated with it were threadbare. In practice, it was scarcely more user-friendly. IMSAI learned from MITS’s distribution errors in requiring exclusivity and out of IMSAI was spawned a franchise distributor named ComputerLand, started by the former sales director Ed Faber. Despite the problems being stored up by the lack of support for the original product and the consequent slowing revenue growth, the sales-dominated culture at the company pushed forward the launch of a new product with an integral screen, the VDP-80. This was supposed to replace some of the revenue from the first machine but the VDP-80 had not been fully tested and no sooner was the product shipped than it was promptly returned under warranty. The whole picture deteriorated and as cash drained out of the company it was forced to seek protection from its creditors. In mid-1979 it filed for Chapter 11.
The demise of IMSAI followed that of MITS. For MITS, though, at least Ed Roberts managed to sell the company as a going concern while it retained a meaningful market position. Perhaps spurred by the entrance of a new company named Apple and a product from Commodore, Roberts sold MITS to Pertec in a stock swap for the equivalent of $6m. In return, Pertec received the Altair machines – which were effectively out-of-date. Much to the disgust of Roberts, the software which was supposed to be part of the deal, was deemed by the courts to be the property of Microsoft and not MITS, but fortunately for Roberts this proved insufficient to undermine Pertec’s intentions. Perhaps Roberts’s unfortunate experience in the calculator industry stood him in good stead – or perhaps Pertec’s management was simply incapable of sustaining the necessary development process as the industry advanced. In any case, this time Roberts grabbed the deal, and within a short space of time MITS was no longer a presence in the personal computer market.
9.6 – A prophet in his own lifetime: Professor Moses predicts
Source: Dr Dobb’s Journal of Computer Calisthenics and Orthodontia, October 1976.
The advent of the personal computer and the development of the microprocessor potentially opened up whole new vistas. The immediate impact, as well as the future uses, of computing were relatively accurately forecast by the leading lights in the industry. The only major errors were those based on the presumption that human nature would change or be changed by the new advances (see figure 9.6).
Apple and the search for a user-friendly machine
The ‘new’ kids on the block were now Apple and Commodore. The former was the product of a partnership between a former Atari computer games programmer named Steve Jobs and the Hewlett-Packard engineer Stephen Wozniak. In his time at Hewlett-Packard, Wozniak had seen his proposed small computer rejected because of the uncertainty as to its potential customer base. Both Jobs and Wozniak attended the Homebrew Computer Club in Menlo Park, California, and witnessed firsthand the excitement generated by the Altair. The club was frequented by an assortment of hackers, engineers and others interested in computing. Wozniak had already put together a crude small computer as an improvement on the Altair. With the excitement generated by the growth of demand for Altairs in 1975, Jobs and Wozniak decided to harness their combined talents and produce their own personal computer.
The first edition was targeted directly at the kind of users who comprised the Homebrew Club. The machine, named the ‘Apple’, was based on a Mostek 6502 chip and fairly rudimentary. The ‘computer’ was effectively simply a circuit board which could run BASIC. There was still no keyboard, screen or power supply. A fellow Homebrew member, Paul Terrell, ordered 50 units to retail through his new computer shop. Terrell was only willing to stock fully assembled computers in his Byte Shop, forcing Jobs and Wozniak to somehow complete 50 machines within the 30-day credit period that suppliers were willing to extend based on the Terrell order. Somehow the work was completed within the allotted period and roughly 200 comput
ers were sold, retailing at $666, a price reflecting the black humour of the proprietors. The initial Apple partnership included a former Atari service engineer named Ron Wayne, but following the frenetic activity associated with the Apple I, was reduced to Jobs and Wozniak when Wayne tendered his resignation and received $800 for his partnership share.
Work on a successor to Apple I began immediately. Unlike the first version, the Apple II was to include features that would make it appeal to more than the experienced or enthusiastic hobbyist. Firstly, it would be in a box. Secondly, it would be integrated, with a power supply, keyboard and screen included. Finally, it would have BASIC and colour graphics software. There was nothing revolutionary about this development. Many others in the field were also seeking to move down this path. Few were to do so successfully. In the mid-1970s the industry remained chaotic and unprofessional.
Engines That Move Markets (2nd Ed) Page 46