Chapter 12 - Networking: Market Order: LANs 1983-1986
1985 started out as a disaster. Investment bankers informed the company they were unable to take Sytek public.19 Reasons cited were production problems with the product they were shipping to IBM, low gross margins, and the uncertainty about IBM’s token ring plans. Knowing they need more capital, Pliner approached Metcalfe and Krause at 3Com with the idea of a merger. It lasted but a few meetings.
In March 1985, IBM announced a new $50 million contingent commitment to buy Sytek’s broadband product sold as the PC LAN. Sluggish sales crept impatiently upwards.
On October 15, 1985, IBM finally announced its IBM Token Ring Network. Before the announcement, Pliner and his team had been meeting with IBM representatives to discuss the contention brewing between IBM selling both (it’s – Sytek’s) PC LAN or its (IBM’s) token ring. Pliner remembers being told by the IBM representative:
‘Yeah, you know, we’re going to have to go back to look at the numbers and I don’t have them here, but maybe you can get that from talking to…’
And we all came back and said: ‘We better come up with a new strategic plan,’ and sure enough, when they made the announcement, two, three weeks after we had that meeting, they made the announcement, and the consultants – I can just remember, Gardner Group and all of them said: ‘You’re crazy. This makes no sense at all. How can you take this expensive product and constrain it to a PC onto a workgroup LAN.’ So, nobody bought it, you know, and IBM couldn’t sell it very well, and that was the end. Then we scaled down and eventually stopped manufacturing altogether. Because of our terminal-to-host connectivity, and terminal-to-host was still, not a growing market but still a stable market, we were able to keep the company relatively, you know, moving, alive and somewhat profitable, but not great.
Sytek finished 1985 fifth in sales among LAN vendors.20 The loss of IBM sales, however, portended a bleak future for Sytek in 1986 and beyond.