Tuesday, June 22, 2010

Excerpt from The Soul of a New Machine


The Soul of a New Machine

By Tracy Kidder

Modern Library

(C)1997 Random House Inc.
All rights reserved.
ISBN: 0-679-60261-5


How to Make a Lot of Money

For a time after the first pieces of Route 495 were laid down across central Massachusetts, in the middle 1960s, the main hazard to drivers was deer. About fifteen years later, although traffic went by in processions, stretches of the highway's banks still looked lonesome. Driving down 495, you passed some modern buildings, but they quickly disappeared and then for a while there would be little to see except the odd farmhouse and acres of trees. The highway traverses some of the ghost country of rural Massachusetts. Like Troy, this region contains evidence of successive sackings: in the pine and hardwood forests, which now comprise two-thirds of the state, many cellar holes and overgrown stone walls that farmers left behind when they went west; riverside textile mills, still the largest buildings in many little towns, but their windows broken now, their machinery crumbling to rust and the business gone to Asia and down south. However, on many of the roads that lead back behind the highway's scenery stand not woods and relics, but brand-new neighborhoods, apartment houses, and shopping centers. The roads around them fill up with cars before nine and after five. They are going to and from commercial buildings that wear on their doors and walls descriptions of new enterprise. Digital Equipment, Data General—there on the edge of the woods, those names seemed like prophecies to me, before I realized that the new order they implied had arrived already.

A few miles north of the junction of Route 495 and the Massachusetts Turnpike, off an access road, sits a two-story brick building, surrounded by parking lots. A sign warns against leaving a car there without authority. The building itself looks like a fort. It has narrow windows, an American flag on a pole out front, a dish antenna on a latticed tower. Mounted on several corners of the roofs, and slowly turning, are little TV cameras.

This is Building 14A/B—14B was fastened seamlessly to 14A. Some employees call the place "Webo," but most refer to it as "Westborough," after the name of the town inside whose borders the building happens to exist. "Westborough" is worldwide headquarters of the Data General Corporation. Driving up to the building one day with one of the company's public relations men, I asked, "Who was the architect?"

"We didn't have one!" cried the beaming press agent.

Company engineers helped to design Westborough, and they made it functional and cheap. One contractor who did some work for Data General was quoted in Fortune as saying, "What they call tough auditing, we call thievery." However they accomplished it, Westborough cost only about nineteen dollars a square foot at a time when the average commercial building in Massachusetts was going for something like thirty-four dollars a foot. But looks do matter here. The company designed Westborough not just for the sake of thriftiness, but also to make plain to investors and financial analysts that Data General really is a thrifty outfit. "There's no reason in our business to have an ostentatious display," a company analyst for investor relations explained. "In fact, it's detrimental."

The TV cameras on the roofs, the first defense against unscrupulous competitors and other sorts of spies and thieves, must comfort those who have a stake in what goes on inside. As for me, I imagined that somewhere in the building men in uniforms were watching me arrive, and I felt discouraged from walking on the grass.

The only door that opens for outsiders leads to the front lobby. A receptionist asks you to sign a logbook, which inquires if you are an American citizen, wants your license plate number, and so on. Still you cannot pass the desk and enter the hallways beyond—not until the employee you want to see comes out and gives you escort. When I inquired, the cheerful young receptionist said that once in a great while some outsider would try to break the rules and try to slip inside.

The lobby could belong to a motor inn. It has orange carpeting and some chairs and a sofa upholstered in vinyl, on which salesmen and would-be employees languish, awaiting appointments. Now and then, a visitor will stand and gaze into a plastic case. It contains the bare bones of a story that will feed the dreams of any ambitious businessman. The First NOVA, reads a legend on the case. Inside sits a small computer, about the size of a suitcase, with a cathode-ray tube—a thing like a television screen—beside it. A swatch of prose on the back wall, inside the case, explains that this was the first computer that Data General ever sold. But the animal in there isn't stuffed; the computer is functioning, lights on it softly blinking as it produces on the screen beside it a series of graphs—ten years' worth of annual reports, a prĂ©is of Data General Corporation's financial history.

Left to their own devices, the engineers who worked in the basement of Building 14A/B could surely have produced a flashier display, but a visitor from Wall Street who had never paid attention to this company before might have felt faint before the thing. The TV screen was blue. The graphs, etched in white, appeared in rotating sequence, and each one bore a name. "Cumulative Computers Shipped Since Our Founding" started with 100 in 1969 and went right up to 70,700 in 1979. The image vanished. "Net Sales" appeared, to show that revenues had ascended without a hitch from nothing in 1968 to $507.5 million in 1979. That graph went away and in its place came one describing profit margins. These hardly varied. The profits just rolled in, year after year, along a nearly straight line, at about 20 percent (before taxes) of those burgeoning net sales.

Someone unaccustomed to reading financial reports might have missed the full import of the numbers on the screen, the glee and madness in them. But anyone could see that they started small and got big fast. Mechanically, monotonously, the computer in the case was telling an old familiar story—the international, materialistic fairy tale come true.

* * *

The first modern computers arrived in the late 1940s, and although many more or less single-handed contributions fostered the technology, they did so mainly in the shade of a familiar association in America among the military, universities and corporations. On the commercial side, IBM quickly established worldwide hegemony; it brought to computers the world's best sales force, all dressed in white shirts and blue suits. For some years the computer industry consisted almost exclusively of IBM and several smaller companies—"IBM and the seven dwarfs," business writers liked to say. Then in the 1960s IBM produced a family of new computers, called the 360 line. It was a daring corporate undertaking. "We're betting the company," one IBM executive remarked. Indeed, the project cost somewhat more than the development of the atom bomb, but it paid off handsomely. It guaranteed for a long time to come IBM's continued preeminence in the making of computers for profit. Meanwhile, though, new parts of the business were growing up, and out from under IBM.

In the early days, computers inspired widespread awe and the popular press dubbed them giant brains. In fact, the computer's power resembled that of a bulldozer; it did not harness subtlety, though subtlety went into its design. It did mainly bookkeeping and math, by rote procedures, and it did them far more quickly than they had ever been done before. But computers were relatively scarce, and they were large and very expensive. Typically, one big machine served an entire organization. Often it lay behind a plate glass window, people in white gowns attending it, and those who wished to use it did so through intermediaries. Users were like supplicants. The process could be annoying.

Scientists and engineers, it seems, were the first to express a desire for a relatively inexpensive computer that they could operate themselves. The result was a machine called a minicomputer. In time, the demand for such a machine turned out to be enormous. Probably IBM could not have controlled this new market, the way it did the one for large computers. As it happened, IBM ignored it, and so the field was left open for aspiring entrepreneurs—often, in this case, young computer engineers who left corporate armies with dreams of building corporate armies of their own.

For many years sociologists and others have written of a computer revolution, impending or in progress. Some enthusiasts have declared that the small inexpensive computer inaugurated a new phase of this upheaval, which would make computers instruments of egalitarianism. By the late seventies, practically every organization in America had come to rely upon computers, and ordinary citizens were buying them for their homes. Within some organizations small bands of professionals had exercised absolute authority over computing, and the proliferation of small computers did weaken their positions. But in the main, computers altered techniques and not intentions and in many cases served to increase the power of executives on top and to prop up venerable institutions. A more likely place to look for radical change was inside the industry actually producing computers. Generally, that industry grew very big and lively, largely because of a single invention.

Shortly after World War II, decades of investigation into the internal workings of the solids yielded a new piece of electronic hardware called a transistor (for its actual invention, three scientists at Bell Laboratories won the Nobel Prize). Transistors, a family of devices, alter and control the flow of electricity in circuits; one standard rough analogy compares their action to that of faucets controlling the flow of water in pipes. Other devices then in existence could do the same work, but transistors are superior. They are solid. They have no cogs and wheels, no separate pieces to be soldered together; it is as if they are stones performing useful work. They are durable, take almost no time to start working, and don't consume much power. Moreover, as physicists and engineers discovered, they could be made very small, indeed microscopic, and they could be produced cheaply in large quantities.

The second crucial stage in the development of the new electronics came when techniques were developed to hook many transistors together into complicated circuits—into little packets called integrated circuits, or chips (imagine the wiring diagram of an office building, inscribed on the nail of your little toe). The semiconductor industry, which is named for the class of solids out of which transistors are made, grew up around these devices and began producing chips in huge quantities. Chips made spaceships and pocket calculators possible. They became the basic building blocks of TVs, radios, stereos, watches, and they made computers ubiquitous and varied. They did not eliminate the sizable, expensive computer; they made it possible for the likes of IBM to produce machines of increased speed and capability and still make handsome profits without raising prices much. At the same time, the development of chips fostered an immense and rapid growth of other kinds of computing machines.

After mainframes, as the big computers were known, came the cheaper and less powerful minicomputers. Then the semiconductor firms contributed the microprocessor, the central works of a computer executed on a chip. For a while, the three classifications really did describe a company's products and define its markets, but then mainframers and microcomputer companies started making minis and minicomputer companies added micros and things that looked like mainframes to their product lines. Meanwhile, a host of frankly imitative enterprises started making computers and gear for computers that could be plugged right into systems built around the wares of the big successful companies. These outfits went by the names of "plug compatibles" and "third-party peripheral manufacturers"; those who lost some business to them called them "knockoff companies." Probably they helped maintain competition in prices. Many "software" houses sprang up, to write programs that would make all those computers actually do work. Many customers, such as the Department of Defense, wanted to buy complete systems, all put together and ready to run with the turn of a key; hence the rise of companies known as original equipment manufacturers, or OEMs—they'd buy gear from various companies and put it together in packages. Some firms made computer systems for hospitals; some specialized in graphics—computers that draw pictures—and others worked on making robots. It became apparent that communications and computing served each other so intimately that they might actually become the same thing; IBM bought a share in a satellite, and that other nation-state, AT&T, the phone company, started making machines that looked suspiciously like computers. Conglomerates, of which Exxon was only the largest, seemed determined to buy up every small computer firm they could. As for those who observed the activity, they constituted an industry in themselves. Trade publications flourished; they bore names such as Datamation, Electronic News, Byte, Computermania. IBM, one executive of a mainframe company once said, represented not competition but "the environment," and on Wall Street and elsewhere some people made a business solely out of attempting to predict what the environment would do next.

I once asked a press agent for a computer company what was the reason for all this enthusiasm. He held a hand before my face and rubbed his thumb across his fingers. "Money," he whispered solemnly. "There's so goddamn much money to be made." Examples of spectacular success abounded. The industry saw some classic dirty deals and some notable failures, too. RCA and Xerox lost about a billion dollars apiece and GE about half a billion making computers. It was a gold rush. IBM set up two main divisions, each one representing the other's main competition. Other companies did not have to invent competitors and did somewhat more of their contending externally. Some did sometimes use illicit tools. Currying favor, seeking big orders for chips, some salesmen of semiconductors, for instance, were known for whispering to one computer maker news about another computer maker's latest unannounced product. Firms fought over patents, marketing practices and employees, and once in a while someone would get caught stealing blueprints or other documents, and for these and other reasons computer companies often went to court. IBM virtually resided there. Everyone sued IBM, it seemed. The biggest suit, the Farndyce v. Farndyce of the industry, involved the Justice Department's attempt to break up IBM. Virtually an entire large law firm was created to defend IBM in this case, which by 1980 had run ten years and had been in continuous trial for several.

Data General took its place in this bellicose land of opportunity in 1968, as a "minicomputer company." By the end of 1978 this increasingly undescriptive term could in some senses be applied to about fifty companies. Their principal but by no means their only business, the manufacture and sale of small computers, had grown spectacularly—from about $150 million worth of shipments in 1968, to about $3.5 billion worth by 1978—and it would continue to grow, most interested parties believed, at the rate of about 30 percent a year. By 1978 Data General ranked third in sales of minicomputers and stood among the powers in this segment of the industry. The leader was Digital Equipment Corporation, or DEC, as it is usually called. DEC produced some of the first minicomputers, back in the early sixties. Data General was the son, emphatically the son, of DEC.

A chapter of DEC's official history, a technical work that the company published, describes the making of a computer called the PDP-8. DEC sent this machine to market in 1965. It was a hit. It made DEC's first fortune. The PDP-8, says the official history, "established the concept of minicomputers, leading the way to a multibillion dollar industry." But the book doesn't say that Edson de Castro, then an engineer in his twenties, led the team that designed the PDP-8. The technical history mentions de Castro only once, briefly, and in another context. They expunged de Castro.

In 1968 de Castro and two other young engineers seceded from DEC. Several completely different versions of their flight exist and have by now acquired the impenetrable quality of myth. Did they quit because, after long and heartfelt labor on a new design, they found that DEC's management would not build their new machine? DEC's management did turn down a new design of de Castro's, and afterward, along with a man from another company named Herb Richman, de Castro and the two other engineers from Digital incorporated Data General and started building their own minicomputer. But did they design this new machine after they seceded, or had they done that job in secret, using DEC's facilities, while still on DEC's payroll? One version of the story suggested the latter. More than ten years later, DEC's founder and president would tell reporters from Fortune, "What they did was so bad we're still upset about it." But DEC never sued Data General's founders, and clearly there were other reasons why Digital might have become upset. For within a year, de Castro and company had set up shop in DEC's own territory and had started raking in the loot.

They rented space in what had been a beauty parlor, in the former mill town of Hudson, Massachusetts. Practically all that remains of that time is a black-and-white photograph of this first headquarters. In the foreground stand four young men with short hair, wearing white shirts and skinny ties and the sort of plain black shoes that J. Edgar Hoover's men favored. They are engaged in what is obviously meant to look like routine conversation. The linoleum floor, the metal furniture, evoke motor vehicle departments, and the youths in the picture could be members of some junior chamber of commerce, playing capitalists for a day. Not shown in this bemusing picture is the shrewd and somewhat older lawyer from a large New York firm who helped Data General's founders raise their capital and who became a crucial member of their team. What also doesn't show is the fact that some of these young men were already computer engineers of no mean repute—their age in this case was no impediment, for computer engineers like athletes often blossom early.

They started Data General at an auspicious time. In the late 1960s, the period memorialized in John Brooks's The Go-Go Years, venture capital (among other things) abounded, and although they started out with only $800,000, more lay in reserve. They also entered a good territory for fledglings. They could not have dreamed of moving in on IBM's markets without truly vast amounts of capital. But the people who bought minicomputers—engineers, scientists, and, mainly, purchasing agents of OEMs—understood the machines. A new manufacturer could reach them through relatively inexpensive ads in the trade journals, and didn't need to build a service organization right away, since these customers could take care of themselves. These were also the sorts of customers who could be expected to embrace a newcomer, if the price was right; they'd prefer a bargain to a brand name.

But around the time when Data General established itself in the beauty parlor, other entrepreneurs were starting up minicomputer companies at the rate of about one every three days. Only a few of those other new outfits survived the decade, whereas Data General, before it had exhausted its first and fairly modest dose of capital, achieved and never fell from that state of grace, a positive cash flow. Why?

From: http://www.businessweek.com/chapter/kidder.htm

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