Osborne effect

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The Osborne effect is exhibited when a company's revelation of information about future products results in customers delaying purchases of the current offering. Its origin is a purported suicidal marketing mistake made by the Osborne Computer Corporation in the 1980s when its announcement of a successor to its Osborne 1 system led to a sharp reduction in sales and the delay of the successor system created a revenue vacuum from which the company did not recover.

1 The Osborne Myth
2 Prevention
3 Other examples
4 See also
5 External links

[edit] The Osborne Myth

In 1983, the inventor Adam Osborne pre-announced several next-generation computer models (the "Executive" and "Vixen" models) which had not yet been built, highlighting the fact that they would outperform the existing model. According to the myth, sales of the Osborne 1 immediately plummeted as customers opted to wait for these improved systems; this caused an attendant drop in cash flow and thus profits, and a few months later the company became bankrupt.

Pre-announcing products in a way which incurs the Osborne effect is an example of a self-defeating prophecy (as opposed to a self-fulfilling prophecy), as the announcement of the new product is ultimately responsible for its own abandonment. At the very least, any unexpected delays may mean the new product comes to be perceived as vaporware, further damaging the company's credibility and thus profitability.

After renewed discussion of the effect in 2005 (see below), columnist Robert Cringely interviewed ex-Osborne employee Mike McCarthy and clarified the story behind the "Osborne effect". Purportedly, the new Executive model from Osborne Computer was priced at $2,195 and came with a 7-inch (179 mm) screen, while competitor Kaypro produced a computer with a 9-inch (229 mm) screen for $400 less. The Kaypro computer had already begun to cut into sales of the Osborne 1 (a computer with a 5-inch (127 mm) screen for $1,995) but inventories of the Osborne 1 cleared out, and customers switched almost entirely to the Kaypro.

On 20 June 2005, The Register quoted Osborne's memoirs and interviewed Osborne repairman Charles Eicher to tell a tale of bad corporate decisions that led to the company's demise. [1] Apparently, while sales dipped after the initial announcement, they eventually began to pick up, and cash started flowing into the company. Then a vice president discovered some fully equipped motherboards (worth $150,000) but no other parts to remake the older models. Some time and a few bad decisions later, $2 million - far more than anybody expected - were spent for the CRTs, RAM, floppy disks, and remolded cases. It was then that the company folded due to debt.

It seems, therefore, that while the pre-announcement myth has been prevalent in the computer industry for years, its manifestation in the Osborne computer's case is almost certainly an urban legend.

[edit] Prevention

Most technology companies today guard against the Osborne effect by very strictly controlling information. In general, the stronger the market position of a company, the less they will reveal about product plans and pricing.

[edit] Other examples

In 1978, North Star Computers announced a new version of their floppy disk controller, that had double the capacity, to be sold at the same price as their existing range. Sales plummeted and the company almost went bankrupt.

In 2005, Apple Computer made an exception to its normal policy of announcing just before release in order to prepare software developers for the switch to Intel hardware. This led to many analysts predicting that they would suffer from the Osborne effect, and sales would immediately drop, with customers preferring to wait for the new models to arrive the following year. However, this proved not to be the case, as the following two quarters actually showed record sales levels.