Osborne effect

From Wikipedia, the free encyclopedia

This article needs additional citations for verification. Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (September 2009)

This article's introduction section may not adequately summarize its contents. To comply with Wikipedia's lead section guidelines, please consider expanding the lead to provide an accessible overview of the article's key points. (September 2009)

The term Osborne effect describes a market situation where sales of a product decline due to consumer anticipation of the product's successor or replacement. Disclosure of a company's future products can affect market demand by influencing potential customers into delaying or avoiding the purchase of a company's current product.

Pre-announcing products in a way that incurs the Osborne effect is an example of a self-defeating prophecy, as the announcement of the new product is ultimately responsible for its own abandonment. At the very least, any unexpected delays may mean the new product comes to be perceived as vaporware, further damaging the company's credibility and thus profitability.

Contents 1 The Osborne Myth 2 Other examples 3 Reverse-Osborne 4 See also 5 References

[edit] The Osborne Myth

Doubt that announcement ahead of availability alone was the reason Osborne failed was revealed in interviews with former employees.^[1][2] This originated in the planned replacement of Osborne 1 home computer, a 1980s home computer sold by the Osborne Computer Corporation. In 1983, inventor Adam Osborne pre-announced several next-generation computer models (the "Executive" and "Vixen" models), which had not yet been built, highlighting the fact that they would outperform the existing model. A widely held belief was that sales of the Osborne 1 sharply fell as customers anticipated those more advanced systems, leading to a sales decline from which Osborne Computer was unable to recover.

After renewed discussion of the effect in 2005, columnist Robert X. Cringely interviewed ex-Osborne employee Mike McCarthy and clarified the story behind the "Osborne effect". Purportedly, the new Executive model from Osborne Computer was priced at $2,195 and came with a 7-inch (178 mm) screen, while competitor Kaypro produced a computer with a 9-inch (229 mm) screen for $400 less. The Kaypro computer had already begun to cut into sales of the Osborne 1 (a computer with a 5-inch (127 mm) screen for $1,995) but inventories of the Osborne 1 cleared out, and customers switched almost entirely to the Kaypro.

On 20 June 2005, The Register quoted Osborne's memoirs and interviewed Osborne repairman Charles Eicher to tell a tale of corporate decisions that led to the company's demise.^[2] Apparently, while sales dipped after the initial announcement, they eventually began to pick up, and cash started flowing into the company. Then a vice president discovered some fully equipped motherboards for the older models, worth $150,000. Some time and a few bad decisions later, a staggering $2 million, far more money than anybody anticipated, were spent for the CRTs, RAM, floppy disk drives, and to restore production of molded cases. It was then that the company folded due to debt.

[edit] Other examples

In 1978, North Star Computers announced a new version of their floppy disk controller, which had double the capacity, to be sold at the same price as their existing range. Sales of the existing products plummeted and the company almost went bankrupt.

When Sega began publicly discussing their next-generation system, barely two years after having launched the Saturn, it became a self-defeating prophecy. This move, combined with Sega's recent history of short-lived consoles, particularly the Sega CD and 32X which were considered ill-conceived "stopgaps" that turned off gamers and developers alike, led to a chain reaction that quickly caused the Saturn's future to collapse. Immediately following the announcement, sales of the console and software substantially tapered off in the second half of 1997, while many planned games were canceled, causing the console's life expectancy to shorten substantially. While this let Sega focus on bringing out its successor, premature demise of the Saturn caused them financial problems. Even though the Dreamcast did address many of the problems with the Saturn, Sega's bad reputation caused customers and publishers to be skeptical and hold out, which led to its demise as well.

[edit] Reverse-Osborne

Occasionally, marketing strategies may result in what is described as a "Reverse-Osborne" effect.^{[citation needed]} Selected release of information might spur sales due to fears of future discontinuations or price increases.

A notable more recent example is Sony's press release on the discontinuation of the $499 (US market) 60GB model of its PlayStation 3 system, leading many to believe that waiting until the holiday season would force them to buy the more expensive and less functional 80GB PS3 bundle.^{[citation needed]} This may have contributed to increased sales of the 60GB system (though the effect would be difficult to determine, due to the proximity to the initial price drop). In fact, Sony lowered the price of the 80GB version to match the $499 price, and introduced a new 40GB system at a lower price of $399 US.^[3]

[edit] See also

• Self-defeating prophecy

[edit] References