Chapter 12 - Networking: Market Order: LANs 1983-1986
In 1983, the sales growth of Micom no longer rested entirely on the sales of their data concentrator, or statistical multiplexer, products. Their data PBX products had grown to equal nearly one-third of their sales and forced management to make significant changes to how they both innovated and sold products. Steve Frankel remembers that when he took over marketing he created mini-business units called Marketing and Development teams:
I put marketing and engineering people together, and those teams would focus on a particular marketplace, segment of the communications market. It was that strategic decision that allowed the company to create this very expensive data PBX business. Without that, the company never would have done it, because the resources would have been employed elsewhere. So, as a result of that, we grew multiple arms for the company.
But selling the more complicated, and longer sales-cycle data PBX, required Micom to evolve their very successful rep (representative) sales organization. Again Frankel remembers:
We had enough channel strength and enough resources to find another layer of sales and supporting people to start making some real headway in that market, and then we really started evolving the data PBX into a much more capable product.
In 1983, Micom’s sales grew only 50% over 1982. Management rationalized the results to the continuing recessionary economy and, more importantly, to the slowdown in minicomputer sales. Fortunately the data PBX had grown to nearly a $20 million product line.
By the spring of 1984, however, when the sales of data PBXs slowed unexpectedly, management had to face the fact that competition for dataPBXs was changing. Frankel recalls:
The PC, and as a result of the PC, in my view, the local area network, was really starting to come up, and right in parallel with that was a tremendous push being exerted by the voice/data PBX manufacturers. So you had this tremendous collision of evolving technology. Who would win out? Would the data PBX people sustain their market share to provide switched service or would, in fact, LANs evolve into a business, or would, in fact, the voice people take the data business? Given they already had to put a voice switch on the site, why not just add some interfaces and take the business? It was becoming clear by early ‘84 that there was a tremendous frontal attack on the data PBX business because the growth in the data PBX business was slowing down. It was still growing, but growing at a lesser rate. As we went around and talked to customers and potential customers, it became clear that their desire was, as a result of the advent of the PC, more file transfer, and a lot more desktop processing and that kind of thing.
Roger Evans, Executive Vice-President, remembers the shift happening with customers:
It was the data PBX customer who was increasingly putting PCs on the desk where terminals had been. He was increasingly saying: ‘If you’re going to stick around, you’re going to have to provide high speed communications in your local network product. The data PBX is fine for our terminals, but not fine for PCs’ And then, in parallel with that, we have DEC essentially making their very open statement that it was going to murder the data PBX because its whole strategy was going to be based on convincing its customers that if you didn’t have a capability of taking 10 megabits to the desk, you were living in yesteryear. And all of a sudden to sell a data PBX you almost had to wear a grubby raincoat, because if a customer was going to buy a data PBX, he wore a grubby raincoat because he didn’t want anybody to recognize him doing it.
Evans and Frankel began discussing what to do. Only they came to different conclusions. Frankel remembers:
What happened was Roger took his position and I took mine. We had fundamentally different opinions at that time. Roger’s view was that the company should launch a voice/data PBX product. I decided no, LANs were going to take the business. We fundamentally disagreed.
Bill Norred, president, remembers the discussions among the three of them:
There was a lot of discussion about what should we do? Should we build off of the data PBX technology and direction and get into the voice business and combine the voice and data together? I know that we had some very long discussions about the voice PBX business and concluded it was just a business that we had no business being in. There were just too many obstacles, and it was also the time that the other companies were already starting to see some slowing in the growth, and we just felt we were not likely to be in a position to be a significant factor in that marketplace.
The conclusion was to see if there was a LAN company they could acquire. Frankel remembers:
So what happened then was we decided: ‘Well, it sounds like LAN is going to win out, and we better go do something about this.’ By that time Ungermann-Bass was growing nicely, and basically growing in 17 different directions, which is how they went. Bridge was in business and 3Com was too, but the strategy was to preserve and enhance the minicomputer-based market share we had, and we would then launch into PC stuff later, if it made sense, but we had to sustain the revenue stream and the profit return from the core. So Bridge was interesting, also, because, at that time, they were still using some of the reps that Micom was. So, there was some very interesting synergy.
Only conversations with Bridge failed to stimulate any interest. Bill Carrico, president of Bridge Communications remembers:
We talked to the Micom guys. They came to us and said: ‘Maybe we should buy you,’ and we said: ‘No thank you.’ They have a box mentality and a hardware mentality, and the LAN business, the general purpose LAN business, was a system business; software system-sell. At Bridge, we outnumbered software engineers to hardware engineers like ten to one. It was a software business, and these guys – it was probably the inverse.
The opportunities seemed limited until they received a call from Alex. Brown & Sons on a retainer to sell Interlan. Conversations progressed rapidly. Then in December 1984, Frankel left Micom for another entrepreneurial opportunity. Evans began negotiating the acquisition of Interlan.