Posted on 02/09/2011 7:25:47 AM PST by SeekAndFind
Ken Olsen, founder and CEO of Digital Equipment Corporation, died on Super Bowl Sunday. Coders of a certain age have been reminiscing about their first times with a PDP-8 and getting a PDP-11 to really sing. Me too. I wasted millions of ratepayers’ dollars at AT&T Bell Labs on VAX 11/780s. Woo-hoo. DEC was a great company.
But Ken Olsen made a classic mistake. He idolized IBM. Wanted to be them. DEC was the same vertically oriented company as IBM. They designed chips, wrapped plastic around them, wrote operating systems, wrote applications, and then marketed, sold and serviced their minicomputers. Soup to nuts. Chip to dip. (Any reference to salesmen as dips is purely coincidental.) But the world was soon going horizontal and would take DEC out at the knees.
In 1987, Ken Olsen famously hired the giant 963-foot, 70,000-gross ton Queen Elizabeth II ocean liner to dock in Boston Harbor to hold his DECWorld expo. DEC stock hit its all time high of $199.50, and Ken Olsen proudly announced DEC was hiring an additional 10,000 salesmen — “feet on the street,” I believe was Olsen’s quote — to gain market share and not only dominate the weak sisters in minicomputers, like Data General, Wang and HP, but to start to take on the big prize, IBM.
But think about it. This was 1987. The PC was introduced in 1981. Lotus and Compaq went public in 1983. Microsoft went public in 1986. DEC even offered, sorta, kinda PCs under the name Rainbow (it had a proprietary floppy disk format, yikes!).
But the PC didn’t kill DEC, not directly. It was DEC’s business model that was their undoing. Vertical was dead. Olsen just didn’t get the memo. Neither did IBM, really.
Instead, the computer industry, without pre-thought or oversight, organized horizontally. Intel microprocessors, Western Digital hard drives, Read-Rite disk drive heads, Microsoft operating systems, Lotus and Aldus and Adobe applications, and of course IBM and Compaq and Acer and Packard Bell and Dell and Sony and Toshiba computers (who could tell the difference?). The sales channel was not only retail like CompUSA, but distributors like Ingram and 800 numbers like Dell and mail-order catalogs. PCs had more feet on the street than Ken Olsen could ever hire.
By 1990 the stock was $57 and eventually, DEC was sold to Compaq (ouch!) in 1998 for a paltry $9 billion. That’s a slow sinking of a once-great ocean liner.
The lesson? Get horizontal. AT&T once sold phone service from soup to nuts, offered local and long distance, sold phones, repaired wiring. The Internet evolved horizontally. Cisco routers and Netgear switches, Comcast or Verizon broadband, Rackspace servers and distributed data centers, Google search and Apple iPhone Edge devices. There is always room for someone to enter and define a new horizontal layer and own a valuable service (think Facebook) without having to duplicate the entire infrastructure, i.e., you don’t have to rebuild the QE2.
Horizontal makes things efficient. Each layer can go at its own pace of innovation (for example, several iterations of Pentiums during one Microsoft operating system cycle.) After Scale and Waste Abundance, Horizontal is my Rule #3 (out of 12 and a bonus Rule) in my new book Eat People and Other Unapologetic Rules for Game-Changing Entrepreneurs. Now you know how I learned this Rule!
Andy Kessler is a veteran Silicon Valley investor who switched trades and started writing books instead of running money. He is also a keen observer of human foibles.
May you always climb the Slope of Englightenment...:)
Vertical isn’t what killed DEC. Olsen’s ego and autocratic direction of DEC killed it. DEC had great products up until the end of their VAX cycle, but they never evolved beyond the VAX. DEC completely missed the boat on PCs, and while DECnet was great in its day, DEC only reluctantly embraced TCP/IP, and when they did, they came out with over-priced and proprietary networking products, and Cisco kicked their ass.
DEC never developed a successor to the VAX, and Sun, SGI, and others kicked their ass. DEC devolved into a dinosaur in every way. The death blow was when DEC hired their legions of technically ignorant sales folks to harass their customers to buy obsolete products, using DEC’s proprietary “VUPS” performance measure for their failing VAX line, because the industry-standard MIPS showed just how pathetic the VAXen were when compared to the new minicomputers developed by SUN, SGI, and the rest.
DEC also completely refused to listen to their customers, presumably because Olsen didn’t want to hear what they had to say. All of their technologically-savy customers told them that RISC, TCP/IP networking, UNIX, and PCs were the technologies of the future and that the ship they were traveling on was soon going to be capsized by the tsunami of new technologies unless they got with the program. But all we heard back from DEC was the sound of chirping crickets.
It was a bit sad when DEC died, because they started out so great. But in the end, DEC died in the bed Olsen made for them, and they deserved it.
My town is the home of DEC...I was chosen to take part as a jet mechanic, and it was my first introduction to a real mainframe computer, a PDP-11. Lots of blinken lights and address switches, but most surreal to me was the paper tape.
I did a bit of consulting work for DEC and have gotten lost in the mill a few times. Once was because I stopped to get a drink at a drinking fountain; when I lifted my head, I had forgetten which way I was going. In addition to be amazing, the place was a maze.
PDP-11 was a mini, not a mainframe. It had nothing on real mainframes. I once dealt with a Burroughs B6800. That machine had lots of blinkenlights. The CPU alone was larger than most PDP-11 systems.
My brush with the A-7 program was writing an RT-11 device driver for mylar tape. Just like paper tape, only made of mylar.
DEC never developed a successor to the VAX...
So "Alpha" doesn't ring a bell?
I really liked KO, very approachable for who he was and down to earth. He was certainly an engineers engineer and never forgot what is was to be one despite all his years in the board room. LOL, I enjoyed those times when he made his top managers go thru the hands-on the field engineers went thru every day. It brought some sense of reality to some of the products.
No, he just wasn't as prescient as he could have been.
I heard the story when I was in school in the late 1970s.
Thanks for the correction...:)
Mylar tape? Now, THAT’S high tech...
Agreed. Apple does quite well in it's own proprietary world.
No, she went out to buy one!
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