The Calculator Wars
How a Business Failure Led to the Personal Computer
Fifty years ago, Ed Roberts was facing bankruptcy. His response kicked off a personal computer revolution.
The Calculator Market
Today, a calculator is an app, and not one you’d actually pay for. The ability to perform a quick calculation is an affordance you expect any computer system to provide. But fifty years ago, a calculator was a significant purchase, and calculators were a serious market.
Serious, yes, but not stable. The calculator market was a dizzying place to be in the early 1970s. In 1969, when Intel got the contract to produce chips for the Japanese calculator firm Busicom, the cost to build and sell a calculator nearly approached the cost to build and sell a low-end minicomputer.
But over the next couple of years, semiconductor technology had transformed the calculator market so radically that hobby electronics entrepreneur Ed Roberts could reasonably consider wrapping some electronics and a case around some chips from Intel and selling the results for a small fraction of the purchase price of that Busicom calculator.
Ed Roberts was representative of a lot of hobby electronics entrepreneurs of the day: no matter what you told the bank, your business model was really based on “Wouldn’t it be cool if….” Ed was selling electronic devices to electronics hobbyists, often in kit form, by mail order. He thought it would be cool to design and sell programmable calculators. He was sure his customers would think so too.
And he was right. The calculator kits sold so well among enthusiasts that Ed decided to invest the bulk of his company’s capital and development efforts in commercial handheld calculators.
That decision turned out to be disastrously ill-timed.
The Calculator Wars
The semiconductor companies were at this time involved in fierce technological and price competition. For Ed Roberts, this was a good thing: since the most expensive component of his kit calculators was the processor, competition that brought the price of chips down was great for his bottom line.
At Intel, Robert Noyce had a rule: we don’t compete with our customers. Intel competitor Texas Instruments, though, decided that it was dumb to let easy profits slip away, and in 1972 it jumped into the calculator market with both feet.
“They just came in and ripped everybody to shreds,” said semiconductor designer Chuck Peddle. TI’s attack on the industry was characteristically aggressive: it burst upon the market and immediately undercut everyone else’s prices.
1974 was not a good year for the calculator industry. Peddle, who was working on microprocessor design at Motorola, recalled, “The market went to hell that year. Supply started catching up with demand. Everybody… lost money in the calculator business.” Calculators went from being a high-end purchase to a sidewalk giveaway. Open an account at the bank and they’d give you a calculator. The average price for a consumer calculator in 1973 was $150. In 1974 it was $26.25.
One of the firms stricken by the recession and lackluster profits was Ed Roberts’. In January 1974, Ed was selling a simple eight-function calculator kit for $99.95, and couldn’t bring the price any lower. Texas Instruments was offering a comparable, fully assembled calculator for less than half what Roberts was asking. He couldn’t swim in those waters. He lay awake nights trying to figure out where he had gone wrong.
The Kit Computer
Ed made a decision of his own that spring: he was going to build a kit computer. He had been toying with the idea for some time only to find that by early 1974 the chips, so to speak, were down.
But it wasn’t obvious how he was going to do it. His company’s calculator business had blown away like desert sand, leaving him heavily in debt. Faced with the likelihood of going under, Ed decided to go for broke. He would build a product that had essentially no precedent or defined market, a product most people considered fanciful at best. The specter of bankruptcy didn’t dissuade him, it only gave urgency to his decision.
Ed Roberts always cared more about technological challenges than about any business risks they presented. He would probably have gone ahead with the kit computer under any circumstances. Because wouldn’t it be cool…?
Over the summer of 1974, Ed sketched out the machine he wanted. As his ideas took shape, he passed them along to his engineering team, Jim Bybe and Bill Yates. A quiet and serious man, Yates worked long hours on the layout of the main circuit board for the machine, planning how each electrical signal would get from one point to another in the computer.
Talking to the Banker
Meanwhile, it was becoming increasingly likely that this computer was destined to die in the workshop. Ed owed around $300,000 to his creditors and had no product to generate the income to pay them back.
In mid-September, out of money and desperately needing another loan, Ed went to the bank, fully expecting to be turned down. Given his current credit rating and his depleted assets, he doubted anyone would lend him the $65,000 he needed to keep the company’s doors open. But he put on his talking-to-bankers clothes and went downtown to make his pitch.
The officer of the bank listened patiently. He was going to build a kit computer? And what exactly was that? Uh-huh. And who, did he think, would buy such a product? Electronics hobbyists, sight unseen, from ads in magazines? Uh-huh. And how many of these kit computers did he think he could sell in the next year to these electronics hobbyists through advertisements in magazines?
“Eight hundred,” he answered with a straight face.
“You won’t sell eight hundred,” the bank officer told him bluntly. Nobody was going to sell eight hundred kit computers to electronics hobbyists with an ad in a hobbyist magazine.
Still, there was no advantage to the bank in bankrupting a company with outstanding loans. If Roberts could sell, say, two hundred of the things, it would help him to repay the bank something. It wasn’t a vote of confidence, but it was a yes. The bank would advance Ed the $65,000.
Ed did his best to hide his surprise. He was glad he hadn’t mentioned the informal market survey that he had just conducted. Trying to get some sense of how the machine would be received, he described it to some engineers he knew and asked if any of them would buy it. They all said no.
In fact, it worked out a little better than anyone expected…
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