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Chapter 10 - Networking: Market Competition 1981-1983

10.27 In Perspective

1981-1982 witnessed the early uncertainties and confusion of a forming market. Given sufficient economic potential in a perceived market, a large number of firms, both existing and new, will attempt to compete successfully for market share. In Networking, up to 200 firms announced products. In another common feature of emerging markets, the largest of firms often have the most difficulty competing. AT&T once meant communications and was on their way to becoming an also ran. AT&T was willing to disband to have the freedom to compete in the computer market, and they will, and they will fail. IBM had unsuspectingly introduced creative destruction with their PC, and yet had a hard time making sense of it. They got into the PBX business, and will get out in the future. They shadowboxed the LAN market into early paralysis, contributing more than their share to mass confusion. Or as DataPro, a respected research firm, wrote in December 1982:

Local area networking is one of the hottest topics on today's communications market. At exhibitions, conferences, and seminars, in trade magazines, newspapers, and newsletters, over lunch and at meetings, LAN has been the talk of the town. As a commercial offering, LAN is still so much in its infancy that no one yet knows all the questions. Let alone having all the answers. The marketplace itself has not yet jelled. No vendor involved in data processing, office automation, or communications wants to be left out, and every vendor seems to have a different solution to the LAN "problem."

No wonder customers were reluctant to do more than experiment until the plethora of choices made buying more certain: that even if their vendor did not survive, and who could pick the winner, the technology would not be obsolete but could be continued to be used and improved upon. Given the wide assortment of alternatives, it was not clear the best design would emerge from the unknowable market competition. So customers, particularly government agencies and universities, motivated the creation of standards making bodies to come to impartial recommendations. The making of standards is common to communications, whether it is languages or protocols, and the same would be true for Networking - the story of the next chapter. The following chapter picks up where this chapter ends, and takes it to 1986 when the market becomes orderly and some of the firms in this chapter come to dominate.

Exhibit 10.27.1 Networking Sales 1981-1982 ($ Thousands)

COMPANY 1979 1980 1981 1982
Revenue   436 3,842 11,316
Net Income -196 -1,215 -321 308
Growth Rate     781% 195%
Net Income %   -279% -8% 3%
3COM Fnd      
Revenue   281 506 1,810
Net Income   10 -124 -690
Growth Rate     80% 258%
Net Income %   4% -25% -38%
Revenue       15
Net Income       -1,224
EXCELAN       Fnd
Net Income       -249
Net Income        
Revenues of Public Firms   717 4,348 13,141
Net Income of Public Firms -196 -1,205 -445 -1,855
Growth Rate     506% 202%
Revenues of Private Firms        
Sytek Fnd 1,200 3,100 7,000
Interlan     Fnd  
Concord Data Systems       Fnd
Communication Machinery Corporation     Fnd 130
Total Networking Revenues       $63,000

Source of Data: Public Firms – Prospectuses; Total Revenues - Dataquest