IBM enters 'the office of the future'
Few new features, but the system reveals IBM's direction and strategy
February 14, 1977
International Business Machines Corp. dominates the word-processing business even more than it does the data-processing market. But that big lead has slipped in the past two years, as a growing number of companies, led by Xerox Corp., entered the market with advanced products. For many months now, IBM's worried competitors have watched anxiously for the computer giant's counterattack. Last week it finally happened when IBM launched its next-generation product, Office System 6.
In a matter of hours, the new IBM system became the most analyzed new product in years. This is not because of its new technology, since System 6 has few features that are not in products already being marketed. Instead, interest ran high because System 6 tells so much about the direction that IBM plans to take in office automation. Word-processing equipment, particularly the text-editing typewriter pioneered by IBM in 1964, is the first step to the "office of the future." But most office automation equipment is still being sold as stand-alone products -- not connected to other machines. The big surge in automation will come when the new machines are linked together in systems.
'A transitional step'
This is the step that some fast-stepping IBM competitors have taken in recent months, and it is the one that IBM took last week. Instead a mechanical typewriter with a magnetic-card or magnetic-tape memory, System 6 features a terminal with a small TV-like screen to display text, a "floppy disk" memory that stores more information, and a high-speed inkjet printer that controls a flow of ink droplets to form characters on paper. The inkjet printer, introduced last June as part of another system, turns out 1,100 words per minute -- more than five times as many as IBM's current Selectric. Most important, the new system can communicate with a computer or with other IBM word processors over phone lines.
To Vincent E. Giuliano, office automation expert at Arthur D. Little Inc., System 6 is "a transitional, but a definite step toward the integrated office of the future." And as world-processing terminals begin swapping electronic mail and reaching into electronic files, the system will begin to look more and more like a data-processing system.
This has led most industry experts to believe that the day is not far off when the EDP world and the word-processing world will converge. The biggest impact of IBM's new system, declares Giuliano, is that the System 6 "closes the gap between the two worlds of IBM," meaning the company's huge marketing efforts in data-processing and office products.
A 'product strategy'
But Office System 6, as important as it is, clearly disappointed some IBM-watchers who expected a lot more, and it delighted competitors for the same reason. The new system is a "typical IBM move," says an official of Digital Equipment Corp., which is currently moving into the word-processing market, "in that it moves IBM into systems but protects its customers now using the Mag Card 2 text-editing typewriter." Mag Card 2 users will soon be able to add a communications option so they can link up with System 6.
IBM's giant lease base of Mag Card 2 and older models, many of them completely amortized, is estimated to exceed 150,000 units -- a source of huge profits that IBM hates to erode. James J. Forese, president of IBM's Office Products Div., a $2.6 billion giant in its own right, says that he does not expect to see much switching to the new system by users of IBM's older units. "The Office System 6 is a complementary product in our product strategy," he says.
Even so, most IBM's competitors feel that IBM would have held off its announcement were it not for the increasing competition that its word-processing line was encountering from their newer, higher-performance equipment. An Wang, president of Wang Laboratories, Inc., says that in the seven months since his company introduced its advanced word-processing system, it has booked more than $7 million worth, "the major portion of these bookings coming from IBM Mag Card 2 users."
Wang is not the only challenger. Xerox Corp., which markets a text-editing typewriter that prints faster than IBM's is generally regarded as IBM's leading competitor -- albeit a distant one -- in the word-processing market. Fighting for the No. 3 spot are Redactron Corp., a subsidiary of Burroughs Corp., Vydec Inc., and Wang.
As a result of such competition, IBM's market share has slipped in the last two years from 90% to 80%, and analysts forecast a drop to 65% by 1981. In 1975, the industry shipped 50,000 units, worth almost $500 million; annual shipments are forecast to rise to 200,000 units by 1981, worth $1.5 billion.
Interactive display systems will grow in importance even faster during that period, according to one forecast. From 11% of total units shipped in 1975, they will soar to at least 35% by 1981 -- thanks in part to IBM's endorsement. With its new system, says Wang, "IBM is endorsing the importance of computer features such as visual displays, random-access storage, equipment sharing, easy-to-use operator aids, and functions such as recordkeeping that go beyond the traditional text-manipulation function that IBM offered previously."
While many competitors insist that IBM's new system will stimulate the market to their ultimate benefit, less biased observers believe that some companies will be hurt. They disagree on whom, however. David G. Jorgensen, office equipment analyst at Dataquest Inc., a Menlo Park (Calif.) market research firm, believes that makers of video terminals are likely to be hurt, with Vydec suffering most and Lexitron Corp. next. Arthur D. Little's Giuliano believes the impact will fall most heavily on the makers of editing typewriters -- notably Xerox and Redactron. Xerox is developing a display terminal, but has not yet announced it, while Redactron recently began shipping one.
IBM's cost factor
Vydec, of one, does not agree with Jorgensen's assessment. "We come out stronger," insists Edward I. Rosen, marketing vice-president. For one thing, the Vydec terminal, with its 540-word-per-minute printer from Qume Corp., costs $17,400, only slightly above the $16,450 price tag for IBM's new terminal without a printer. Add the powerful inkjet printer, and the IBM price tag grows to $31,850.
Another IBM weakness: There is a large gap in the printers available with its word-processing line. If the old Mag Card 2 is too slow at 180 words per minute, the only other option IBM customers have is to go to the speedy but costly inkjet printer. Prior to last week's announcement, there were reports that IBM would offer a printer to plug that gap. That did not happen, but the company later confirmed that "there is a procurement agreement with Qume Corp. for printers." That indicates that the same type of printer that Vydec now offers may also be available in the near future as part of IBM System 6.
One of the other surprises in System 6 is the limited size of the display -- enough to show just six lines of text. This can be troublesome for the operator, says Theodore L. Levin, president of Daconics Corp., a Xerox subsidiary. "The more lines you have [for editing], the better," he says. IBM's Forese says that IBM feels "after an extensive field survey" that the smaller display "hits the majority of applications."
Industry analysts were also scrutinizing the new IBM system for another reason. Though details are sparse, IBM's Office Products Div., its Data Processing Div., and its General Systems Div. have been waging a three-way internal battle for years over which one will have the dominant role in the newly developing office systems market. To some observers, the new System 6 from Office Products and other recent moves indicate that the Franklin Lakes (N.J.) divisions has won. Says Dataquest's Jorgensen: "There was a lot of trauma over which way to go [at IBM] in word processing." He calls the word-processing package announced last June by the General Systems Div. for its System 32 a "Band-Aid to patch a problem." That activity has since been moved to Office Products, as part of that division's new Office Systems Group. "The situation was certainly clarified when the Office Systems Group was created" last year, says Alan Purchase, an office automation expert at Stanford Research Institute in Menlo Park, Calif.
But other IBM watchers read the introduction of System 6 very differently. Arthur D. Little's Christopher Burns, for example, says the announcement indicates that IBM has not yet resolved its internal three-way struggle because there is no software to tie the pieces together, "and this could prove to be a problem for IBM down the road."
GRAPHIC: Pictures, IBM's Forese: "The Office System 6 is a complementary product in our product strategy." Judy Gurovitz
Copyright 1977 McGraw-Hill, Inc.