Titans Learn That Customer Is Still King
AT&T; and IBM may have looked a little silly last week as they backed away from each others’ territory, but in their fumblings they offer a glimpse of a real strength of U.S. industry--demanding customers who don’t wait for big companies to tell them what to buy.
First the facts. AT&T; (American Telephone & Telegraph) gave a clear signal that it has changed its mind about becoming a big seller of computers when it declined to increase its investment in Olivetti of Italy--which makes and sells some of AT&T;’s computers.
IBM (International Business Machines) told shareholders that it would gradually sell its 16% interest in MCI, the long-distance phone company, which was acquired three years ago when IBM contemplated invading AT&T;’s home ground.
“Clash of the Titans” said headlines at the time. AT&T; had been expanding in computers since the 1983 breakup of the telephone monopoly, and technology seemed to push a direct confrontation between IBM ($54 billion annual sales) and AT&T; ($34 billion in sales, even after the separation of seven regional phone companies).
The information revolution was in full bloom. Computer usage had mushroomed, and people and companies were demanding computers able to communicate as easily as telephones do.
Companies small and large were scrambling to meet such demands. But many believed that ultimately AT&T; or IBM would be the General Motors of information, that customers wanted a big corporation to provide them with a total package of phone and computer services.
The companies believed it too--a costly mistake. AT&T; has lost more than $1 billion in computers and remains a distant also-ran. IBM talked about products to come while competitors such as Digital Equipment and Apple Computer provided what customers wanted and won business.
The giants didn’t understand that customers no longer wait for instructions but fill their needs inventively. Andrew Silton, research director at First Albany Co., a regional brokerage house, explains. “If we want to try something on our computer system, we call one of those California companies and they send their latest chip or circuit board,” says Silton. “If it works, fine, we buy it and they can tell their other customers about the new usage we’ve developed.”
Proximity at Premium
Fujitsu, the Japanese computer company, tells of trying to sell hand-held computers in Dallas. Frito-Lay, the potato chip maker, didn’t want to buy but talked about its truck drivers’ paper work problems. So Fujitsu developed a program allowing drivers to put delivery data in the computer at each stop and to do away with order books. Customer need, not scientific breakthrough, led to the sale; Fujitsu was adapting an idea developed by MSI Data Corp., a Costa Mesa company, that has been selling inventory-keeping software to supermarkets for years.
Fujitsu is expanding its U.S. operations just because the information industry puts such a premium on being close to the customer.
So what are AT&T; and IBM doing? They’re adapting. Both have formed ventures with smaller companies to ensure they keep up in electronics and software. Meanwhile, they are using their size to advantage--in big investments, says analyst Edward White of Tucker Anthony, a brokerage firm. AT&T; is investing $3 billion a year trying to create a single network for data, voice and video. IBM is investing comparable amounts to develop standards so that all computers can work together--a demand of customers everywhere.
It was customer demand, of course, that broke the telephone monopoly. Carter Electronics Co. of Dallas wanted to attach a mobile phone to AT&T;’s lines in 1968. The company said no, the government said yes, and soon people and businesses were turning to other phone systems, bypassing AT&T.;
The breakup further spurred competition, and the aftermath has not been easy--jobs have been lost at AT&T; and the multipage phone bill has become a national joke. But the U.S. leads the world in developing telecommunications technology. And it is a good bet to go on doing so--not because of giant companies but because of demanding and inventive customers.
