I.B.M. Set To Re-enter PC Market

I.B.M. Set To Re-enter PC Market

By John Markoff
The New York Times

June 23, 1990

Trying again in an area where it suffered its most embarrassing defeat, the International Business Machines Corporation plans to introduce a new home computer line next week.

In 1983 the computer giant made its first foray into the home market with the PCjr., an ill-starred effort that ended in early 1985 after the machine ended in early 1985 after the machine flopped with consumers.

But I.B.M. is taking a different approach to the problem that derailed its first effort: how to enter the home market aggressively without undercutting its professional machines. The key word this time is marketing, not technology.

Establishing a Beachhead

Industry executives and consultants who have seen the new computers say I.B.M. is not offering significant new technologies, but is instead trying to establish a marketing beachhead for future products. In addition, the machines to be announced next week are relatively limited in their expansion capabilities so as not to cannibalize sales of I.B.M. professional machines, analysts said.

The company is concentrating on simplicity to attract the first-time computer user. The new systems will have a simple ''shell'' program that makes performing basic operations, like starting programs, less taxing.

Still, some analysts say I.B.M. will have trouble re-entering the home market.

''I.B.M. in the past has demonstrated a remarkable inability to understand the home market,'' said Will Zachmann, a computer industry analyst at Canopus Research. ''I wouldn't rule out that this is going to be a repeat of their earlier experience.''

A Three-Pronged Strategy

The announcement of the new line, to be called the PS/1, is set for Tuesday.

Industry analysts said the computer maker, based in Armonk, N.Y., was planning a three-pronged strategy integrating home, educational and on-line consumer services.

Company officials yesterday refrained from providing details about the machines, saying only that they would introduce a family of low-end machines on Tuesday.

The new computers, built around Intel's 80286 microprocessor, will retail for $1,000 to $2,000 and will come with software that permits first-time users to connect easily with a videotex service offering electronic shopping and other consumer services. The new models will have some enhanced sound-generating capabilities and built-in modems.

I.B.M. executives obviously believe that a number of factors have changed since the demise of the PCjr.

The company hopes to gain new leverage from its Prodigy Services, a videotex service that is a joint venture with Sears, Roebuck & Company. Prodigy officials said their service reached 425,000 users this month, an increase of 225,000 since the start of 1990. I.B.M. and Sears have been heavily promoting the service, with analysts saying the companies are spending approximately $30 million annually on advertising.

The new I.B.M. line may actually prove to be a stalking horse for a more powerful family of I.B.M. products still under development. I.B.M. executives have publicly described a new product line they call multimedia personal computers that will offer video and sound features not available on today's machines.

''The key thing now is merchandising,'' said Tim Bajarin, an analyst at Creative Strategies, a market research firm in San Jose, Calif. ''I.B.M. realizes that 1990 is the year of the first-time-user market.''

A new factor is that electronics superstores and mass-marketing chains have become more important in sales of computers to home and small-business consumers. ''This is really a new channel of distribution,'' said Aaron Goldberg, who tracks personal computers at the International Data Corporation in Framingham, Mass. ''It's something that the industry hasn't realized yet. I.B.M. is taking a little risk to get in here early.''

The market that I.B.M. has in mind, 80286-based personal computers, was valued at $8.8 billion in the United States last year. More than four million of these machines were sold nationally, according to International Data Corporation.

In addition to using its traditional computer distributors, I.B.M. is said to be planning three mass-market trials for the new line. Industry executives said I.B.M. would test-market the new line in Minneapolis, Chicago and Dallas using three retail chains: Dayton Hudson, Sears and Dillard's.

The Tandy Challenge

In re-entering the home market, I.B.M.'s biggest challenge may be the competition from the Tandy Corporation, which has been steadily building a large base in the home market.

Tandy is planning a new line of machines to be introduced on July 25. The company said it had an advantage because its new line was the first to receive the Good Housekeeping seal of approval.

Tandy executives said that success in the home market had been linked to ease of use, something that the company had learned in more than a decade of selling personal computers to home users.

''This market will be made or broken by the moms of the world,'' said Ed Juge, Tandy's vice president of marketing. ''If the moms don't use it, I don't think the rest of the family will either.'' Far Above Upper Limit Mr. Juge also said that I.B.M.'s target price, even accounting for discounting, was far above the upper limit for successful consumer electronics products. Items like videocassette recorders and cellular phones did not take off in the mass market until their price fell below $500, he said.

The new products may help I.B.M. continue making inroads into the educational computer market, analysts said. I.B.M. has been gaining some ground against Apple Computer Inc. in recent years. According to Link Resources, a New York City market research firm, I.B.M.'s share of the public-school market rose from 11 percent, to 21 percent, between 1987 and 1989, while Apple's share went from 59 percent to 62 percent.