Chapter 5 - Data Communications: Market Competition 1969-1972
5.4 Codex Encounters Unexpected Problems: 1969
In early 1969, Codex used money from its public offering to fund a promotions campaign for its AE-96 modem. Mindful that if they could sell 50 modems in the coming year that they would equal all of last year’s sales, they were both stunned and ecstatic when they received 8,000 inquiries. It seemed as though all they had to do was scale up manufacturing and begin filling orders. That was until they had experience with customers using their modem. The AE-96 would not stay working. Carr remembers:
We used to joke that we had made something less than 100 AE-96’s and shipped several hundred of them, because they kept coming back and going out and coming back and going out again.
With each passing month, Carr increasingly bore the brunt of Jim Cryer’s frustrations. Cryer, Carr’s boss and President, read the overwhelming interest in the AE-96 as customers ready to buy and didn’t want to hear Carr’s excuse of ‘but it doesn’t work’ for not meeting sales objectives. Since it had been Cryer’s decision, or mistake as was becoming more apparent, to bet the future of Codex on the AE-96, he leaned on his management to get results, at least as much as his emotions would let him. Being an engineer, this was difficult. And when results were not forthcoming, he felt betrayed and ever more isolated as he watched the ramped up operating expenses depleting the dwindling cash remaining from the Initial Public Offering. Crisis invaded every conversation and decision, suffocating any joy from their work.
Solving the cash crisis meant solving the AE-96 problem. No one understood the problem, much less the solution. Holsinger was stumped. Kohlenberg, bereft of ideas, turned in frustration to G. Dave Forney, who worked exclusively on R&D development contracts, and asked him to drop what he was doing to help. Forney, who had joined Codex in 1965 at the suggestion of Gallager, earned his Ph.D. from MIT in information theory and had virtually no modem experience.
A frustrated Holsinger identified the problem of the AE-96 as “phase jitter” – a problem he thought he had solved at DRC. Phase jitter, while endemic to telephone lines, remained largely unrecognized for it had no affect on voice communications or the slower speed modems of the day. Since telephone lines were not controlled for phase, every circuit could differ as to being either in phase or not. Phase fluctuations – hence jitter – caused modems that seemed equalized to the circuit’s characteristics to lose equalization. Since the AE-96s could neither detect nor correct phase problems, if phase jitter occurred, they ceased working.
Forney quickly, and cleverly, conceived of how to detect and correct phase jitter errors enough of the time to stabilize the performance of the AE-96. With Forney’s innovation, AE-96’s once equalized to a circuit could adapt to subsequent phase jitter. The required electronics forced the addition of another printed circuit board that had to be hung under the lid of the modem for lack of space. Named the Threshold Decision Computer (TDC) for marketing reasons, it pulled out as if from a drawer and had a red light that flashed every time it corrected an error. Carr recalls:
Well, it worked. In fact, I remember going to Air France in Paris, which was the first transatlantic installation of 9600 bit per second traffic, and they used to run it with the drawer out all the time because it somehow gave them comfort to see this red light blinking, and I’d stand there watching the red light blinking and I said to myself – this was a machine that I had now observed going out and coming back because the equalizer wasn’t converging, and they were telling me how happy they were with it, and how wonderful it was, and how much money it was saving them, and I was standing there, shaking my head and looking at this light blinking on and off, and saying: “I really don’t believe I’m here.” You talk about pioneering days, it was really pretty bizarre.
John Pugh, Director of Product Marketing since January 1969 when recruited from 3C by his former and now current boss, Carr, wanted to include the TDC with every AE-96 without charge, arguing that the modem did not work without it. But Cryer, facing a survival-threatening cash crisis, insisted it be sold as an extra. So the TDC, which made for a stable and working AE-96, sold for $2,000 and shipped with every modem.
Next, working AE-96s made obvious the problem that commercial customers did not have peripherals that communicated at 9600 bps. Recalling their days at 3C when they sold minicomputers to multiplex many incoming communication lines to host computers, Carr and Pugh turned to the idea of using a multiplexer. If Codex had a small, inexpensive multiplexer to multiplex and demultiplex eight 1200 bps lines, or four 2400 bps lines, onto one 9600 bps line, then the AE-96 would provide the transmission speeds customers wanted. As if by magic, a multiplexer of eight or four lines solved another problem thought to stand in the way of success. The added expense of the multiplexers, as well as the premium paid for the AE-96s, were recovered easily through reduced telephone line costs, for in the case of eight-line multiplexers and AE-96s, only one telephone line would be needed, not eight.
Carr and Pugh contacted ADS seeking to buy multiplexers they could resell, thus becoming an OEM to ADS – an original equipment manufacturer (OEM) sells product that others resell, either with or without attribution. ADS had absolutely no interest in a OEM arrangement, strained as they were to engineer all the products in their development queue. Carr and Pugh then began arguing their case to Cryer and the engineers. Relieved to have at least reason for optimism, Cryer authorized an internal development effort to develop a multiplexer. (See Appendix 3. Codex Marketing literature.)
Having persuaded Cryer of the logic of multiplexers, Carr next pressed his case for a 4800 bps modem. Only this time his reasoning fell on deaf ears, for building a product already being sold did not conform to the Codex credo of creating technically challenging products. But Carr refused to give up; every day his salesmen complained of having sold customers on upgrading to higher-speed modems, only to have them buy perceived less risky 4800 bps modems, often from Milgo, a competitor of growing concern to Carr. Certain he was right, Carr pressed Cryer at every opportunity: “A, it will work. B, I can sell it, and it would be nice if we had some money coming into the place!” Yet as hard as he lobbied and fought for a 4800, Cryer remained unyielding.
By November, Holsinger no longer could repress his inner calling to start his own company, and he resigned from Codex. The man who first proved a 9600 bps modem possible had seen his knowledge and expertise institutionalized as Codex’s growing engineering department. Lacking challenges and sensing a boring future engineering slower speed modems, as being argued for by Carr and Pugh, Holsinger concluded he could do the same in a company of his own. In 1970, using the profits from the sale of his Codex stock, Holsinger, the entrepreneur, joined a long list of start-ups founding Intertel.