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Chapter 10 - Networking: Market Competition 1981-1983

10.0 Overview

Entrepreneurs needed no crystal balls of market demand to know that if they did not launch their companies soon they risked being left behind. Each felt they viewed the market advantageously and would collectively confuse potential customers with newer versions of Ethernet (Interlan and Bridge Communications), token ring (Proteon), token bus (Concord Data Systems), and scores of proprietary local area networks (LANs).

LAN start-ups and dataPBX firms were reacting to the needs of customers wanting to connect computers to computers, or terminals to multiple computers. Market experts, meanwhile, held a grander vision of computers transforming the office and corporate enterprise. Labeled “The Office of the Future,” it was an economic prize worthy of any strategic plan. And who better than the entrenched PBX firms, already interconnecting and switching voice communications, to simply add data services. In fact, the analog PBXs were already transitioning to computer-based PBXs, or computer branch exchanges (CBXs). The dominant PBX firm, AT&T, however, was constrained from introducing a CBX by the Federal Communication Commission, and was thus rapidly losing market share.

Then in August 1981, IBM introduced its personal computer: the IBM PC. In a few short years, the IBM PC would overturn the paradigm of desktop terminals with one of desktop computers. It was a wave of creative destruction that would sink the hopes of the CBX manufacturers. IBM was equally caught off guard, lacking a LAN solution to interconnect even their computers. In a rash of “not invented here,” IBM management selected an unproven token ring rather than back the choice of some of its competitors: Ethernet.

3Com embraced the introduction of the IBM PC. It was a non-event for both Ungermann-Bass and Sytek who remained focused on their existing strategies. Soon many more companies began offering LANs, including Digital Equipment Corporation (DEC), Excelan, CMC and even General Electric. Data communication competitors joined Micom and Codex in selling dataPBXs. In total, nearly 200 firms announced networking products.

The tide of market deregulation that began with Carterfone in 1968 came to a roaring crash in 1982 when AT&T agreed to disbandment. Now freed to compete, AT&T still took over a year to introduce a CBX. IBM also evaded the constraints of anti-trust when their suit was dismissed. It did little to change either the unexpected success of the IBM PC or the ever-receding market introduction of their token ring LAN.

Between 1981-1982, the obvious choice of the PBX and the unanticipated surprise of the IBM PC made life challenging for the hundreds of companies selling products to interconnect computers and terminals. Customer confusion can be read in the disappointing sales of networking products for 1982. LAN sales were a bitter $63 million. DataPBX sales limped to $45 million. But the future was about to change markedly. In 1986, LAN sales would soar to $1 billion. The dataPBX would be left behind at $86 million. Now to a peek into the dynamics leading to utter confusion.