20 years ago this week, Microsoft just about killed Australian PC manufacturing
Remembering the demise of Osborne Computer
In late June of 1995, Australia's top PC manufacturer Osborne went into voluntary administration, caused in part by tactics that made Microsoft the titan it is today – and shaped our industry in nasty ways.
Osborne Australia started life as the local distributor of the famed Osborne One CP/M luggable made by US company Osborne Computer Systems. By the mid-1990s Osborne Australia had become Australia's top PC maker, thanks in part to a network of over 50 retail stores, many in regional areas. The company also won plenty of corporate clients at a time that many were starting to build substantial PC fleets.
“At that time there was a home grown mentality among PC buyers, especially for businesses,” says Gartner managing vice president Matthew Boon. IBM had therefore made much of the fact it built PCs in rural Wangaratta, a town 200km from the nearest port but still a hub for exports to Asia. Osborne took on IBM at its own game and won, claiming the top sales spot in Australia..
The retail network was a huge factor in that success and reflected the fact that in the mid-1990s a PC still cost AU$2,000 or more, comfortably a month's salary for plenty of workers and a very significant purchase for many businesses. Matt Burke, a former Osborne owner, told us that shopping with the company “involved multiple trips to the sales room, hands shaken, contracts signed – more like buying a car than buying a computer now.”
Jeremy James, who worked for Osborne in the mid-nineties, recalls that the company had a culture to match that shopping experience. James was recruited as a graduate, whereupon Osborne moved him to Sydney and paid for his accommodation for a fortnight while he found his feet. James says cohorts of people joined the company in this way and as many were new to Sydney, long hours and socialising among co-workers was natural.
“The company got 12-15 hours of work a day because there was nothing else to do for those who moved to Sydney,” he recalls. The workers' effort wasn't grudging: the company had a close-knit culture and strong belief in the company's mission to become Australia's dominant PC company.
Advancement could also be rapid: James started on the PC assembly line and three months later found himself a production supervisor after suggesting and implementing some useful innovations.
But not all was well at Osborne Australia, in part because of Microsoft's insistence that PC-makers who wished to resell Windows must pay Microsoft a licence fee for every machine they sold, regardless of the installed operating system. That licence had the fully-intended consequence of forcing PC-makers to ask themselves if they could really be bothered selling machines pre-loaded with IBM's OS/2, which at the time was a more-than-decent competitor to Windows. Many PC-makers decided that if they had to pay for Windows on every machine, they might as well sell only Windows machines.
Osborne's famously feisty CEO John Linton didn't like that deal and eventually decided he'd find a way to move PCs without giving in to Microsoft's tactics.
Osborne therefore came up with offers like a a free printer with a new PC, a big promise at a time printers weren't cheap. Lifetime warranties were another lure. Osborne also priced its products keenly ... if you paid up front and were willing to wait six weeks for your machine to be delivered.
James says these offers didn't make a difference on the production line, where a just-in-time production plan extended to last-minute parts procurements and a daily challenge to meet construction quotas. By 1995 James had moved into the retail arm of the company and said OS/2 PCs didn't deter retail shoppers. He had inklings, however, that corporate and government buyers weren't as keen on OS/2.
Windows, meanwhile, was gathering pace. And so did Osborne's offers: at one point the company pledged to replace a PC's hard drive and CPU after two years, a great deal at a time when Intel could bump clock speeds by 20 per cent in a year.
By mid-1995, when your correspondent entered the industry at the long-departed PC Week Australia, Osborne was a top-tier technology provider. No roundup of PCs could exclude its latest offerings. No discussion of Australia's emerging technology industry could omit it.
But the company was struggling. This CBR report from June 30th, 1995, says it had lost big contracts with the Australian government and the nation's top telco, Telstra. Consumers were complaining about the company, probably for slow delivery of pre-paid PCs.
Currency-trading efforts using cashflow generated by pre-payments wasn't making up the gap and the company collapsed, suddenly and swiftly, leaving hundreds of customers waiting for PCs they'd paid for. Jeremy James says there were lay-offs in the Townsville store where he worked within days of Osborne entering insolvency.
Gateway 2000 to the rescue
Gateway 2000, a PC-maker that in 1997 was a top tier player to rank alongside the likes of Dell, was looking for new territories to conquer and swooped in to buy Osborne. It inherited all manner of entanglements created by the backlog of orders and update pledges.
I attended the meeting at which Gateway's management presented the acquisition as a fait accompli. Disgruntled buyers waiting for the one PC on which they'd spent a sizeable sum mixed with trade creditors. All were worried if they'd ever see a cent of their hard-earned again. Months of complaints and allegations followed, providing lots of lovely follow-up stories that, like much Osborne history, happened just before online reporting became commonplace.
Gateway named its local outpost Osborne Gateway 2000, although the local name didn't last and nor did much of the company's way of doing business.
Gateway did honour those who had pre-paid for new Osbornes but replaced the lifetime warranties with phone support. Alex Kidman, now an IT journalist (and good friend to The Reg on his site fatducktech.com) worked on the Gateway 2000 help desk in 1997 and recalls several calls from Osborne owners seeking to invoke their warranties or inquiring how to get their promised upgrade from a 386 to a Pentium. Most, he says, took the news of Osborne's demise well, though customers with problematic Gateway machines were harder to handle.
Kidman says photocopied Osborne manuals were a prized resource in the Gateway call centre, as they at least could offer third-party repairers an inkling about what was wrong with machines they'd been asked to fix.
Osborne was arguably the last Australian PC maker of note. Components specialist Hypertech had a go at the market a year or so later, but quickly floundered. Ipex and Optima struggled on for a few years. None ever matched Osborne's retail presence. Before long, the likes of Compaq and HP built their own assembly factories in Australia, their openings marked by ministerial praise.
Microsoft's licences attracted the attention of the US Department of Justice and while Redmond escaped that stoush largely unharmed, by then its sharp practices meant it had painted a target on itself. The rest of the 1990s saw US authorities chase Microsoft hard, even threatening to break it up.
It's impossible to say if Osborne could have survived had Microsoft behaved differently. But even if Redmond had been kinder, it's hard to see how Osborne could have thrived. For one thing, Windows 95 arrived a few months after Osborne went into receivership. Bill Gates was kind of a de facto head of state for technology at the time and Windows 95 was a runaway success. It's hard to see how Osborne could have survived selling OS/2 PCs.
And then there was Dell, which in 1996 opened a factory in Penang, Malaysia. Gartner searched its archives for us and found its last mention of Osborne came in 1997 when the company noted: “Australians are not known for their preference to buy products via telephone or mail-order catalogues.”
Dell changed that, selling PCs at prices local manufacturer couldn’t match even though it was shipping them in from Malaysia. Before long, Australian buying habits changed, mass-market retailers started selling PCs and dedicated computer shops were pushed to the margins. Where they remain today.
Osborne's John Linton went on to found TPG, which brought data services to regional areas. He also established ISP Exetel. In both companies, he wrote on his blog at Exetel, he built regional presences to ensure country Australia wasn't under-served by technology.
Those posts survive Linton, who passed away in 2012.
But Linton's Osborne clearly created a legacy, at least for one former employee. Jeremy James says he remembers Osborne's management styles and approach “as the best I have ever been in. The company was extremely forward thinking.”
Skills he gained at the company set him up for a long IT career in the finance and healthcare sectors.
“It was a good place to start out of university,” he says. “It showed the potential of IT. Other than the last month or so, every memory I have Osborne was that it was a very positive time in my life.” ®