Osborne effect

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The Osborne effect is exhibited when a company's revelation of information about future products results in customers not purchasing (or 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. This statement is a common myth^[1][2].

Contents 1 The Osborne myth 2 Prevention 3 Other Examples 4 Reverse-Osborne 5 See also 6 References 7 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 that incurs the Osborne effect is an example of a self-defeating 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 X. 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 disk drives, 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 somewhat exaggerated.

[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 it will reveal about product plans and pricing. Apple, Inc., for instance, have been traditionally, and remain, very tight-lipped about new hardware releases (resulting in a substantial Apple "rumour industry.")

[edit] Other Examples

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

When Sega began publicly discussing their next generation system, barely two years after having launched the Saturn, it ironically became a self-fulfilling prophecy. This move, combined with Sega's recent history of short-lived consoles, particularly the Sega CD and 32X which were considered ill-conceived "stopgaps" that turned off gamers and developers alike, led to a chain reaction that quickly caused the Saturn's future to collapse. Immediately following the announcement, sales of the console and software substantially tapered off in the second half of 1997, while many planned games were canceled, causing the console's life expectancy to shorten substantially. While this let Sega focus on bringing out its successor, premature demise of the Saturn caused them financial problems. Even though the Dreamcast did address many of the problems with the Saturn, Sega's bad reputation caused customers and publishers to be skeptical and holdout, which led to its demise as well.

[edit] Reverse-Osborne

Occasionally marketing strategies may result in what's described as a "Reverse-Osborne" effect. Selected release of information might spur sales due to fears of future discontinuations or price increases.

A notable recent example is Sony's press release on the discontinuation of the $499 (US market) 60GB model of its Playstation 3 system, leading many to believe that waiting until the holiday season would force them to buy the more expensive and less functional 80GB PS3 bundle. This may have contributed to increased sales of the 60GB system (though the effect would be difficult to determine, due to the proximity to the initial price drop). In fact, Sony lowered the price of the 80GB version to match the $499 price-point, and introduced a new 40GB system at a lower price point of $399 US. [2]

[edit] See also

• Self-defeating prophecy

[edit] References

1. ^ Taking Osborne out of the Osborne Effect | The Register
2. ^ Musings From the Software Underground: The "Osborne Effect": Myth or Reality?

[edit] External links

• The Osborne Effect. The Osborne Effect: Sometimes What Everyone Remembers Is Wrong. Retrieved on January 21, 2007.
• Taking Osborne out of the Osborne Effect. The Register. Retrieved on June 16, 2005.