1990 Ad

Esther Dyson, EDventure Holdings: Good morning. Last night you heard about the previous ten years. Today you're going to hear about the next ten years - probably more from a technical point of view than an ancedotal one because the personal anecdotes haven't yet happened.

To start off, we're going to hear from Mike Quinlan of IBM who has a varied background including Japan, distribution and so forth. He's a technology scout, and I'm glad he's here because this is the best place to scout technology for the next ten years.

Then Mitchell's going to give us the software design manifesto. After that I'll talk about what happens later.

[Applause]

Michael Quinlan, IBM: Thank you, Esther. Good morning, ladies and gentlemen. About this time in the morning in Tokyo, I'd step out of my apartment house and in Japanese greet the waiting driver. He would respond in English, "Good morning, Mr. Quinlan." For close to two years I dealt with this driver, and we talked to each other, but never in the same language. I hope today I'll communicate in a language we both understand.

I'm impressed by this conference, which I've never attended before. I'm delighted to have the opportunity to see so many industry leaders. I'll start by describing the most impressive person I met in Japan because I think very differently about this industry after that experience.

His name was Mayakawa San, and he's famous in Japan because he used to head the Bank of Japan find the UKVD, the long distance telephone service. Nakasone picked him to study the trade friction between Japan and its major partners. It was his report that guided Japan onto a consumer path.

I met him for the first time at one of our board meetings. He was close to 80 then, but incredibly impressive. He was impeccably attired with ramrod posture; he was alert, articulate and charming. I had the feeling I was in the presence of a wise man.

He began by saying, "Gentlemen, for over 40 years I've been in public policy-making positions with my nation and many of my decisions affected your industry. When I began the language of international business was English. But with the rise of Japan as a true economic superpower, the language of international business today has become broken English."

[Laughter]

Of course his English was perfect.

Living in Tokyo changed me, and I think of our industry differently. You can't help but be impressed by successful Japanese companies whose first priority is market share. They believe it's something they're entitled to if they serve their customers well.

Don't misunderstand. Japanese companies also care about profits, but they see profit as something you can enjoy over the long term if you serve the customer well and establish the right relationships. More about Japan later. Esther asked me to focus on the workstation platform of the 1990s; how IBM intends to get there; and since I'm not a well-known IBM executive, what I do for Jim Cannavino.

The issue was supply

When I came back from Tokyo in January 1989, 1 became the finance and planning officer for personal systems. That means if it sits on a desktop - be it a pc, an RT, a typewriter or a printer - my staff sets the IBM price in the US.

As of this January, I gave up those responsibilities and took on new ones. They include multimedia strategy, partnership and alliance relationships - notably with software houses but not exclusively - and strategy on and enforcement of intellectual property rights.

As I look back on 1989, our US personal systems business started slowly in the first quarter; we had some real supply issues. In the second quarter we repositioned the price of our product to reflect what ye thought were, increasingly competitive measures. By the end of the third quarter we were growing somewhat faster than the industry.

Last October Jim Cannavino and I assessed the rest of them year. After looking at the order rise in the fourth quarter, it was clear that despite our best efforts the real issue was still supply

demand was strong.

We had a good fourth quarter. In fact when we add up 1989, the US company grew faster than the industry for the first time in recent years. So we felt good about a turnaround, yet it was obvious to continue that momentum we had to change, some fundamental things.

A new revolution

Two things warranted immediate action: the multimedia paradigm shift and our view of emerging competition. I use the term "paradigm shift" within IBM to get our management to understand what this fundamental change, is - something so profound it changes the way you think about the world.

For example, what's going on in Eastern Europe is a paradigm shift. What happened to the Swiss in the 70s was a paradigm shift. They ignored the quartz watch and in less than one decade, went from 65 percent of the worldwide market to less than 10 percent. The microprocessor's revolution in the form of a pc in the 80s was a paradigm shift. This industry changed forever.

Multimedia properly defined and implemented has the potential to alter our industry once again. Customers are anxious to apply multimedia solutions to their business problems. Their excitement is real and contagious; they're willing to commit; they're looking for direction.

Today's multimedia products focus primarily on the visual sense. We continue to have dramatic breakthroughs in graphics, animation, interactive video - they seem to get better every day. We're starting to see the integration of audio but in trade shows, rather than in customer environments. This will change; there's no question we'll integrate voice, audio and video.

When we start to use voice as an input device, when touch applications are so widespread that fingers really become a mouse, when handwriting-recognition outputs become common, then we'll be able to address ease-of-use. What we observe on the screen will be truly life-like. When we want to make some notes on a pad, we'll do so with a pen and the workstation will understand it.

Our workstation platform for the 90s must incorporate all those features. Think of it not so much as a workstation with multimedia, but as personal media the user can deal with in a natural, intuitive way. We'll communicate with workstations as easily as we communicate with each other. In doing so, we'll revolutionize the pc industry once again.

Taking a position

When Jim and I looked at order rates we realized this multimedia momentum had accelerated and we had to redouble our efforts. The most important thing we could do was take a clear position early in 1990 on where we were going with multimedia. In doing so we would influence standards so the key to this paradigm shift - the commitment of software houses to write multimedia applications - would occur. With that in mind, 30 days ago we consolidated our multimedia development resources into a management team in Boca Raton, under my direction.

The ABC team in Menlo Park, many of the people in Atlanta who helped develop the Window, those working with Intel on the Princeton DVI team, the people working in England on touch-screen technology - this is a partial list - report to a management team under Bill Smaller, one of my chief lieutenants.

His first priority is to conclude the definition of multimedia APTs. His team has worked with Microsoft and other software companies to assess the tools for first-class multimedia. We're confident the software community will begin to write multimedia applications for IBM platforms if they sec a well-defined set of APIs and an exciting tool. We expect those solutions to be written for both OS/2 and DOS. Competition's new face

Our second focus was the competition in the coming decade.

There are a good number of IBM competitors at this conference. Many were the revolutionaries who changed this industry so profoundly in the 1980s. Within IBM we had a group in the Boca laboratories - an independent business unit under Don Estridge - that was a very different part of IBM. They were our pc revolutionaries.

It's dawned on us, and I hope on you, that the pc revolutionaries have become the establishment. And paradigm shifts often - not always but often - are set in motion by people outside the establishment.

I'm not making a disparaging remark about the pc revolutionaries. I have great respect for them. But we're now traditional competitors. We're still demanding, tough, anxious to win the marketplace and certainly talented, but we an have less freedom given our success with the pc. Said another way: We're losing our ability to shock each other. You can't have a paradigm shift without somebody shocking the industry. Who might that be?

When you think about Japan, the first thing that comes to mind are companies like NEC and Fujitsu, but frankly they're traditional too. We're not paying enough attention to other Japanese companies, those who are leaders in consumer electronics or electronic-toy manufacturers.

The toys tell it all

In Tokyo I discovered the microprocessors in toys were often more powerful than those in Japanese business machines. The Japanese are not the only ones integrating technology into consumer products; a number of European firms also warrant our scrutiny. We shouldn't presume the people in this room are the only ones capable of pursuing leadership in multimedia. It's dangerous to underestimate competition. Consumer-electronic companies have some fascinating characteristics.

First, their technology is converging with ours in a different form. Their microprocessor technology is very similar to the low-end of our technology and it's rapidly improving. We don't give them adequate credit for their sophistication.

Second, as this multimedia revolution evolves and computers truly do become easier to use, they'll also become easier to sen and to support. Then traditional retail channels will play a bigger role. Those channels are well-understood and occupied by successful consumer-electronic companies. Most importantly, these companies are particularly distinctive in that to stay successful, they bring out new products about every six months.

Down with cycles ! I suspect most producers in this room have approximately a one-year to two-year development cycle. Cut it in half if you can. However, that's not a given and it still may not be good enough. Competitors with access to the same technology, with mature distribution and a track record of bringing out good products every six months present a challenge to us an.

We had better think about reducing our development processes. I can assure you that Jim Cannavino is committed to experimenting in this calendar year with different ways of bringing technology to the marketplace. We have to bring research laboratories closer to development laboratories, to customers and to business partners.

If we do that, we may even be able to prove Jim Manzi's law of inertia can be repealed! We have to do it.

Partners a must

Another thing I'm sure of is that any success with multimedia will be accelerated and strengthened by the creativity of our business partners. We keep trying to capture the tight mix of joint development, marketing and financial agreements, because we know our partners are critical elements to our success.

Our Boca team will continue to focus on multimedia on a PS/2 platform. I hope our Austin laboratory win position us in the not- too-distant future to be more competitive in the advanced engineering workstation world. When that occurs, we'll turn our multimedia attention to advanced workstations and UNIX, but that's a story for another day.

Esther, thank you again for the opportunity to be here. Thank you, ladies and gentlemen.

[Applause]

Dyson: There's time for a brief question-and-answer period, and I want to start by asking if you plan to acquire Nintendo or what?

Quinlan: No. Our relationship with other companies isn't one that goes down the path of acquisition. As we acquire companies and have too much control, after a few years they look like us and lose their distinguishing characteristics. My strategy is not to acquire but to influence. If anything, I want an arm's-length relationship with good software companies. On occasion we've taken equity positions, but frankly that was because there was no other option. Apparently venture capital chose not to invest, and there was no one else to come to.

Also, it's obvious customers want access to open non-proprietary avenues. Someone has to distribute products with the potential of developing new standards to the entire industry, including to our competitors. An independent third party seems like a more trustworthy distribution source.

Marc Canter, MacroMind: Mike, I don't want to get to picky but you did mention you saw multimedia happening with OS/2 and DOS. Is that Windows per se? Do you imagine multimedia could happen on a 286 machine with just simple VGA?

Quinlan: I won't repeat the conversations Jim Cannavino and Bill Gates had at COMDEX trying to position DOS and Windows and OS/2 to Presentation Manager. Multimedia win develop on both.

Last year Bill Gates appropriately pointed out that we have to define different levels of multimedia. There will be an entry-level multimedia capability. Ultimately you will move from the 286 to more powerful platforms, because three or four years from now multimedia technology will demand tremendous amounts of computing power. That's when the transition to more, powerful chip sets will occur.

But do you think when people get the initial taste of four-bit graphics and it doesn't have a photograph that will sour their taste? Customers always like the most enhanced offering in the marketplace, but they have practical limitations called budgets. Where they can invest, they will. An educational institution where funds aren't so excessive will respond differently from Fortune 500 companies, who feel they can acquire a competitive edge by investing heavily in multimedia.

It will sort itself out quite nicely with customers driving the vendors.

Dyson: One of the neat things about the NEXT machine is its uncompromising quality, in the sense that you can't buy one without all the trimmings. At what point are you going to have a least common denominator that includes multimedia, et cetera?

Quinlan: When I read about all the things that are standard in the NEXT machine, I have no doubt Steve is right about what's going to be standard in this decade.

I just debate which year that's going to be true because manufacturers must address the issue of who will pay the cost if it's in every machine. I suspect we'll come out in '91 with a flagship multimedia offering that incorporates what we think is the least common denominator, but we'll still offer standard PS/2s for those not yet enamored of multimedia. We can't afford yet to have every machine carry the extra cost associated with the underlying technology.

In the decade of the 90s much of what we're talking about will be standard, but I propose we start with specific machines that are multimedia-oriented. This strategy will allow us to retrofit the installed inventory. Then we'll debate with commercial customers which underlying elements ought to be standard.

But for a while, it's a judgment call box-by-box. The multimedia marketplace isn't mature.

Dyson: As you said, the installed base keeps you stuck?

Quinlan: It's a blessing on one hand; a curse on the other. You can't ignore it - it's a great opportunity. On the other hand, all of us have a vested interest in that installed inventory. Without that, you might think differently about multimedia.

I suspect some of the emerging non-traditional competitors could care less about the installed inventory and may very well surprise us.

Dyson: Thank you very much.

COPYRIGHT 1990 EDventure Holdings, Inc.
COPYRIGHT 2004 Gale Group