social phenomenon
Social phenomena or social phenomenon (singular) are any behaviours, actions, or events that takes place because of social influence, including from contemporary as well as historical societal influences. They are often a result of multifaceted pr ...
of customers canceling or deferring orders for the current, soon-to-be-obsolete product as an unexpected drawback of a company's announcing a future product prematurely. It is an example of cannibalization.
The term alludes to the
Osborne Computer Corporation
The Osborne Computer Corporation (OCC) was a pioneering maker of portable computers. It was located in the Silicon Valley of the southern San Francisco Bay Area in California.
Description
The Osborne Effect states that prematurely discussing future, unavailable products damages sales of existing products. The name comes from the planned replacement of the
Osborne 1
The Osborne 1 is the first commercially successful portable computer, released on April 3, 1981 by Osborne Computer Corporation. It weighs , cost US$1,795, and runs the CP/M 2.2 operating system. It is powered from a wall socket, as it has no on- ...
, an early personal computer first sold by the
Osborne Computer Corporation
The Osborne Computer Corporation (OCC) was a pioneering maker of portable computers. It was located in the Silicon Valley of the southern San Francisco Bay Area in California.Adam Osborne
Adam Osborne (March 6, 1939 – March 18, 2003) was a British author, book and software publisher, and computer designer who founded several companies in the United States and elsewhere. He introduced the Osborne 1, the first commercially su ...
pre-announced several next-generation computer models (the
Osborne Executive
The Osborne Executive is the successor of the already commercially successful Osborne 1 portable computer by Osborne Computer Corporation. The Executive consists of a collection of the good features from the Osborne 1 and fixes some of its predece ...
and
Osborne Vixen
The Osborne Vixen is a "luggable" portable computer announced by the Osborne Computer Corporation in November 1984, as a follow-up to their Osborne 1 and Osborne Executive system.
The Vixen has a 4 MHz Zilog Z80 microprocessor with 64&nbs ...
), which were only prototypes, highlighting the fact that they would outperform the existing model as the prototypes dramatically cut down assembly time. A widely held belief was that sales of the Osborne 1 fell sharply as customers anticipated those more advanced systems, leading to a sales decline from which Osborne Computer was unable to recover. This belief appeared in the media almost immediately after the company's September 1983 bankruptcy:
Osborne reacted by drastically cutting prices on the Osborne 1 in an effort to stimulate cash flow. But nothing seemed to work, and for several months sales were practically non-existent.
Pre-announcement is done for several reasons: to reassure current customers that there is improvement or lower cost coming, to increase the interest of the media and investors in the company's future prospects, and to intimidate or confuse competitors. When done correctly, the sales or cash flow impact to the company is minimal, with the revenue drop for the current product being offset by orders or completed sales of the new product as it becomes available. However, when the Osborne effect occurs, the quantity of unsold goods increases and the company must react by discounting and/or lowering production of the current product, both of which depress cash flow.
Criticism
Interviews with former employees cast doubt on the idea that Osborne's downfall was caused solely by announcement ahead of availability.
After renewed discussion of the Osborne effect in 2005, columnist Robert X. Cringely interviewed ex-Osborne employee Mike McCarthy, and clarified the story behind the Osborne effect. Purportedly, while the new Executive model from Osborne Computer was priced at US$2,195 and came with a screen, competitor
Kaypro
Kaypro Corporation was an American home and personal computer manufacturer based out of San Diego in the 1980s. The company was founded by Non-Linear Systems (NLS) to compete with the popular Osborne 1 portable microcomputer. Kaypro produced a ...
was selling a computer with a screen for $400 less, and the Kaypro machine had already begun to cut into sales of the Osborne 1, a computer with a screen for $1,995.
Consequently, after inventory of the Osborne 1 had been cleared out, McCarthy believed, customers switched to Kaypro, causing monthly sales of the Executive to fall to less than 10% of its predecessor.
On 20 June 2005, ''
The Register
''The Register'' is a British technology news website co-founded in 1994 by Mike Magee, John Lettice and Ross Alderson. The online newspaper's masthead sublogo is "''Biting the hand that feeds IT''." Their primary focus is information tec ...
'' quoted Osborne's memoirs and interviewed Osborne repairman Charles Eicher to tell a tale of corporate decisions that led to the company's demise. Apparently, while sales of the new model were relatively slow, they were starting to show a profit when a vice president discovered that there was an inventory of fully equipped motherboards for the older models worth $150,000. Rather than discard the motherboards, the vice president sold Osborne leadership on the idea of building them into complete units and selling them.
Soon, $2 million was spent to turn the motherboards into completed units, and for CRTs, RAM, floppy disk drives, to restore production and fabricate the molded cases. This was far more money than anybody anticipated, and also more than the company could afford at that time. In his autobiography, Osborne described this as a case of "throwing good money after bad". It was at this time that the company folded.
Other examples
In 1978,
North Star Computers
North Star Computers Inc. (later styled as NorthStar) was an American computer company based in Berkeley, California existing between June 1976 (when according to popular rumor it was formed as "Kentucky Fried Computers") and 1989. Originally a mai ...
announced a new version of its floppy disk controller with double the capacity which was to be sold at the same price as their existing range. Sales of the existing products plummeted. The company almost went bankrupt, folding in 1984.
Other consumer electronic products have been continually plagued by the Osborne effect as well. In the early 1990s, TV sets' sales were depressed by talk of the imminent release of HDTV, which did not actually become widespread for another 10 years.
When
Sega
is a Japanese multinational corporation, multinational video game and entertainment company headquartered in Shinagawa, Tokyo. Its international branches, Sega of America and Sega Europe, are headquartered in Irvine, California and London, r ...
began publicly discussing their next-generation system (eventually released as the
Dreamcast
The is a home video game console released by Sega on November 27, 1998, in Japan; September 9, 1999, in North America; and October 14, 1999, in Europe. It was the first sixth-generation video game console, preceding Sony's PlayStation 2, N ...
), barely two years after launching the
Saturn
Saturn is the sixth planet from the Sun and the second-largest in the Solar System, after Jupiter. It is a gas giant with an average radius of about nine and a half times that of Earth. It has only one-eighth the average density of Earth; h ...
, it became a self-defeating prophecy. At the time Sega had a history of short-lived consoles, particularly the
Sega Mega-CD
The Sega CD, released as the in most regions outside North America and Brazil, is a CD-ROM accessory for the Sega Genesis produced by Sega as part of the fourth generation of video game consoles. It was released on December 12, 1991, in Japan, ...
and 32X, which were considered ill-conceived "stopgaps". Those consoles, along with the early release of the Saturn in the United States to compete with Sony's PlayStation, ended sales of Sega's own
Genesis
Genesis may refer to:
Bible
* Book of Genesis, the first book of the biblical scriptures of both Judaism and Christianity, describing the creation of the Earth and of mankind
* Genesis creation narrative, the first several chapters of the Book of ...
and frustrated players (the early release meant they could not afford the console) and developers (the early release of the Saturn forced developers to finish their games) alike. These factors quickly led to the failure of the Saturn: following the Dreamcast announcement, sales of Saturn consoles and software substantially tapered off in the second half of 1997, while many planned games were canceled, shortening the console's life expectancy substantially. While this let Sega focus on bringing out its successor, premature demise of the Saturn caused customers and developers to be skeptical and hold out, which led to the Dreamcast's failure as well, and Sega's exit from the console industry.
Another example of the Osborne effect took place as a result of
Nokia
Nokia Corporation (natively Nokia Oyj, referred to as Nokia) is a Finnish multinational corporation, multinational telecommunications industry, telecommunications, technology company, information technology, and consumer electronics corporatio ...
's CEO Stephen Elop's implementation of the plan to shift away from
Symbian
Symbian is a discontinued mobile operating system
A mobile operating system is an operating system for mobile phones, tablets, smartwatches, smartglasses, or other non-laptop personal mobile computing devices. While computers such as typic ...
to
Windows Phone
Windows Phone (WP) is a discontinued family of mobile operating systems developed by Microsoft for smartphones as the replacement successor to Windows Mobile and Zune. Windows Phone featured a new user interface derived from the Metro design la ...
for its mobile software platform. On top of this, criticism of existing products was compared to the Ratner effect. Although it was known for some time that Nokia's Symbian phones were no longer competitive against
iOS
iOS (formerly iPhone OS) is a mobile operating system created and developed by Apple Inc. exclusively for its hardware. It is the operating system that powers many of the company's mobile devices, including the iPhone; the term also includes ...
and Android, they still generated significant profit thanks to Nokia's brand recognition until Elop's "burning platform" memo "effectively transformed the Symbian cash-cow into a dead duck". At the same time, Nokia's first Windows Phone devices would not be ready for a year, and once they were released their sales were not enough to replace the volume and profit of Symbian devices. Furthermore, the announcement that
Windows Phone 7
Windows Phone 7 is the first release of the Windows Phone mobile client operating system, released worldwide on October 21, 2010, and in the United States on November 8, 2010. It runs on the Windows CE 6.0 kernel.
It received multiple large upda ...
devices would not be able to upgrade to
Windows Phone 8
Windows Phone 8 is the second generation of the Windows Phone mobile operating system from Microsoft. It was released on October 29, 2012, and, like its predecessor, it features a flat user interface based on the Metro design language. It was su ...
hurt sales of Nokia's Windows Phone 7 phones, plus it was a risky move for
Microsoft
Microsoft Corporation is an American multinational technology corporation producing computer software, consumer electronics, personal computers, and related services headquartered at the Microsoft Redmond campus located in Redmond, Washing ...
which "can ill afford to alienate people when there are scores of highly capable and affordable Android phones up for grabs, or years-old Apple iPhones which aren't being prematurely shut out of the iOS playground." Poor performance led Nokia to sell its mobile phone division to Microsoft in 2013.
MakerBot
MakerBot Industries, LLC is an American desktop 3D printer manufacturer company headquartered in New York City. It was founded in January 2009 by Bre Pettis, Adam Mayer, and Zach "Hoeken" Smith to build on the early progress of the RepRap Proje ...
also appears to have fallen victim to the Osborne effect, as talking openly about a future product significantly reduced the sales of their current product.Jason Huggins (April 2015), What Doomed MakerBot? The Osborne Effect '
See also
*
Cannibalization (marketing)
In marketing strategy, cannibalization is a reduction in sales volume, sales revenue, or market share of one product when the same company introduces a new product.
Description
In e-commerce, some companies intentionally cannibalize their retail ...
A market or product destroyed by another of a firm's product.
* Internal competition
*
Second-system effect
The second-system effect or second-system syndrome is the tendency of small, elegant, and successful systems to be succeeded by over-engineered, bloated systems, due to inflated expectations and overconfidence.
The phrase was first used by Fred ...
Deflation
In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the value of currency over time, but sudden deflation ...
can occur when consumers expect prices to go lower in the future.