AT&T's Unix Takes a Stand Against Big Blue

Information Processing

Software

AT&T's Unix Takes a Stand Against Big Blue

Will its home grown software operating system make it to the big time?

By Geoffrey C. Lewis in New York
Business Week

April 22, 1985

If the word Unix seems unfamiliar, don't blame American Telephone & Telegraph Co. In the past year, it spent $3.5 million on print advertisements alone just to plant the name firmly in the minds of computer buyers. In fact, they're going to hear a lot more about Unix as AT&T struggles to establish itself as a major player in a market dominated by International Business Machines Corp.

Unix is AT&T's home-grown software operating system -- the basic set of instructions needed to run the housekeeping functions of any computer. But for AT&T, Unix is more than just an operating system. It is the trump card the company holds in the high-stakes computer game. How skillfully AT&T plays its Unix card will determine its success in computers. Since it has no advantage in hardware technology over IBM, AT&T must leverage its 15 years of Unix software development.

AT&T is using Unix as a wedge to gain market share from computer makers whose proprietary operating systems lock in their customers. Like all such systems, Unix controls functions like reading information from a disk, printing out a file, or relaying information to another computer. But Unix is unique in being able to run on a wide range of computer brands and sizes, from a personal computer to the largest mainframe. Applications software written for one Unix system can be shifted to others with only minor modifications, and data can also be shared more easily between different computers.

NO-FIGHT SWITCHING

The ability to use one software package on different computer models is taken for granted in the personal computer business. Users are accustomed to taking a software disk out of one IBM-compatible PC and loading it into another. But in larger computers, such software portability is downright revolutionary. If a user now wants to switch vendors, he has to rewrite his programs to run on the new computer, a prohibitively expensive process.

AT&T's strategy is to market Unix as an alternative that will let computer buyers avoid dependence on a single equipment vendor and move their software easily when more cost-effective hardware comes along. That strategy is already paying off for Davis Polk & Wardwell, a 1,050-employee Wall Street law firm, which passed up an IBM mainframe in 1978 in favor of Unix on Digital Equipment Corp. minis.

Last year, Davis Polk replaced its aging DEC machines with Unix superminis made by Pyramid Technology Corp., a Mountain View (Calif.) startup. An equivalent DEC system would have cost at least twice as much, while an IBM system would have run four times more, says Robert A. Hendel, executive director. Also, he says, "we retained five years of education, training, and manuals. These 'soft costs' can be much more than the cost of the hardware."

AT&T is not the first computer company to try selling Unix on the strength of software portability. Many computer startups in the early 1980s attempted to create a Unix-standard bandwagon. They figured Unix's software portability would attract customers who would not normally buy from startups. But sales fell far short of expectations. Only about 105,000 Unix systems were shipped in 1984 -- less than 1% of the world computer market. As a result, a number of these Unix startups have gone out of business or merged with larger companies. Others have racked up huge losses: Fortune Systems Corp., for example, lost $43 million in the past three years.

FEDERAL FAVOR

AT&T is preparing to do battle in the vast middle ground between IBM's two biggest strongholds: mainframes and personal computers. AT&T is pushing hardest with its small multi-user Unix computers that can run a small business or a department in a large company. "For these customers, you need good communications and the ability to move from a very small to a very large [computer] without reprogramming. These are Unix's strengths," claims William T. O'Shea, executive director of AT&T's Software Systems Div.

Those strengths are attracting more than a passing glance from some major potential buyers. General Motors Corp. is taking a serious look at standardizing on Unix for the thousands of small computers it uses. And federal agencies increasingly are requiring Unix for any computers they buy. Other customers simply want to avoid having to buy IBM products. Some see Unix as the last chance to prevent IBM's total domination of the computer industry. Says Robert M. Lefkowits, an InfoCorp software industry analyst: "There's a little bit of desperation about Unix -- like it's the last stand against IBM."

That sentiment has spread to the mainframe market, where AT&T does not have its own computers but endorses a Unix system sold by Amdahl Corp.

"Unix tends to get away from [letting] IBM call all the shots. It makes for freer, more open competition," maintains James F. Hughes, Amdahl's manager of Unix product development.

IBM is not taking AT&T's Unix threat lying down. It has been adding Unix to several of its computers and later this year will ship its own Unix operating system for mainframes. The company also has formed a special group to coordinate Unix activities across the IBM line. But although IBM and other computer manufacturers may offer Unix to customers who insist on it, they are not at all likely to promote it at the expense of their proprietary solutions, which are bigger money-makers. There is an inherent risk in Unix for IBM, which offers 19 incompatible operating systems on various products: "They must accept the fact that if they use Unix as the glue to link their [incompatible systems], then a Data General or an AT&T computer running Unix can just as easily [be used]," notes Peter R. Tierney, marketing vicepresident at Relational Technology Inc., a Unix software developer.

SOFTWARE LAG

This would leave AT&T free to be the most aggressive Unix marketer. And because it invented the operating system and designed its computers to run Unix, AT&T has a true home-court advantage. However, O'Shea admits the Unix strategy will not succeed on the strength of the operating system alone. "The key to making Unix a success is providing the right [application software] solutions," he says.

Those solutions must come from the independent software industry. But so far, software writers have been playing a chicken-and-egg game: They won't write application programs for Unix until they see enough systems in the market to make their efforts worthwhile. But customers won't buy systems until the software is there.

AT&T and other major players may finally break that deadlock. Yates Ventures, a market researcher, predicts that shipments from large-scale vendors of low-priced Unix machines, such as the AT&T Unix PC and the IBM PC/AT, which offers Unix as one of its options, will soar to 315,000 in 1986, triple the number of units shipped last year and enough to encourage major software developers.

Some software writers are already perking up. Ashton-Tate Inc. has adapted its dBase data-base package for the new AT&T Unix PC. And William G. Crowell, vice-president of MicroPro International Corp., says his microcomputer software company is ready to add Unix products as well. By the end of 1985, AT&T's O'Shea predicts its Unix software directory will swell to 1,000 titles, up from just 250 last year.

Industry observers, who have grown skeptical as Unix sales have perennially fallen short of its boosters' predictions, aren't convinced. "It's put-up or shut-up time for Unix," says Egil Juliussen, chairman of Dallas market researchers Future Computing Inc.

Even if AT&T makes Unix a hit, that may not be enough to make the telecommunications behemoth a success in computers. InfoCorp's Lefkowits predicts that Unix can be important in the market for multi-user computers selling for $12,000 to $50,000, but his "best-case scenario" shows Unix sales topping out at only 25% of worldwide unit shipments for that segment. And William C. Rosser, a market researcher at Gartner Group Inc., warns: "Even if Unix flies, there's no guarantee customers will buy the AT&T hardware."

GRAPHIC: Picture, DAVIS POLK'S HENDEL: UNIX SAVED "YEARS OF EDUCATION, TRAINING, AND MANUALS", LAWRENCE BARNS