Silicon Insider: DEC’s Final Demise
B U R L I N G A M E, Calif., Sept. 19, 2000 -- With last week’s announcement that Web search company AltaVista Co. was going to lay off 225 employees, one-fourth of its workforce, I finally concluded that Digital Equipment Corp., AltaVista’s founder, is the greatest single object lesson of the electronics age.
I used to think that unenviable title was held by DEC’s old neighbor, Wang. After all, it was that company’s newly crowned dauphin, Fred Wang, who, when challenged about his business prowess, said that Wang was “a billion dollar company, and billion companies don’t disappear overnight.” And then, of course, Wang proceeded to do just that.
That was not only a lesson in monumental hubris, but also a testament to the destructive power of rapid change in high tech.
But the DEC story goes much deeper, and its lessons are more sweeping.
A Former Powerhouse
Twenty-five years ago, when I was a junior flack at Hewlett-Packard, the very initials DEC stuck terror in my workmates. Digital Equipment was a colossus, dominating the minicomputer world the way Microsoft does operating systems today. Sure, there were impressive competitors, including HP, Data General, and even mighty IBM, but DEC was the defining force in the field.
Its VAX was the gold standard of minicomputers, the model by which all others were measured. The VAX remains the single most influential computer of all time — not just because of its pre-eminence among minis in the 1970s and 1980s, but because Ted Hoff so admired it that he used its architecture as the basis of the Intel 4004, the world’s first microprocessor. Thus, the VAX is the godfather of the PC as well.
It wasn’t just technological prowess that made DEC awesome. It was generally agreed to have the best sales force in tech, the best run organization and some of the cleverest marketing. Its chairman and president, Ken Olsen, was widely considered the smartest CEO in the business, and treated with the awe that Jack Welch is today.
To the little entrepreneurial companies of Silicon Valley, DEC — with its magnificent corporate campus, its fully verticalized operations, its labs filled with some of the top researchers in the world — looked like Mount Everest. How could you ever challenge it and survive?
At Hewlett-Packard, we were grateful for every sale of our troubled HP 3000. I suspect the same was true even over at old pompous Big Blue.
What Went Wrong
Today, IBM and HP remain among the largest companies on the planet. But DEC is gone. And now, with AltaVista in trouble (it lost $30 million on revenues of $70 million last quarter) all traces of that once great company may soon disappear forever.
What happened? And what can we learn from DEC’s demise? I think three things.
Technology isn’t decisive. We have a myth in tech — probably dating back to Bill and Dave’s original model 200A — that great technology always wins the race. George Gilder, with whom I’ve had a running debate on the subject for years, certainly believes this is true.
But where’s the evidence? Intel has never had the best processor, Microsoft the best operating system or Dell the best PC, yet each has triumphed. They succeeded because they hit the market at the right time, they were marketed brilliantly, and they found both the right strategic partners and the most influential customers.
No example of the failure of technology is more convincing than that of DEC. At various times, DEC had the best computer (the VAX), the best processor (the Alpha EXP) and the best search engine (AltaVista) … and failed. For a quarter century, DEC had the finest technology development on the planet; as did AT&T before it, and it did neither any good.
Timing Matters
The fact is that technology is product not just of engineering, but of timing. Products that miss the sweet spot by arriving too early or too late often fail miserably. The Alpha EXP was a great chip, but Intel had already sewn up the market. Alta Vista managed the near impossibility of being too early for the Web and too late for portals. Only the VAX succeeded — and then DEC stuck with it too long, lingering in minicomputers after the market had turned to workstations.
Fate comes in the oddest forms. DEC was given two glimpses of the future — chances that would have not only saved the company, but could have made it the biggest company in the world — yet failed to react each time. Ironically, both visions came at the hands of Steve Jobs, a young man who in every way was the opposite of everything Ken Olsen and DEC stood for.
The first glimpse came when the engineers at DEC saw the Apple II. Had they the imagination, in that taupe plastic box they could have seen the death of their entire industry. But short of that, they at least should have spotted an enormous business opportunity. Instead, while Apple sparked a consumer revolution, and IBM prepared to give chase, DEC did nothing.
The business PC market was still untouched; companies, fearful of dealing with hippies from Cupertino, prayed for DEC to deliver a corporate PC. When DEC finally did, it was not only years late, but a dual-processor, overpriced kluge. End of DEC’s serious participation in the greatest tech market of them all.
A few years later, the company finally seemed to get religion. It swallowed hard and invited Apple back. This time, a deal was cut to put the Apple OS on all DEC computers. It should have been a masterstroke. Imagine: the best computers with the best interface. It never happened. DEC Labs could not bring itself to work with outlaws … outlaws that might one day have built iMacs around the Alpha EXP.
A Culture That Grew Toxic
Culture ultimately wins. Surprising as it may sound now, in the 1980s there was considerable debate over which of the two great tech enclaves, Boston’s Route 128 and Silicon Valley, would triumph. Route 128 had DEC, Data General and Wang, giant self-contained corporations that did everything from etching the silicon to building the boxes to writing the applications code.
Silicon Valley, meanwhile, had 5,000 squabbling little firms that did one thing each — and seemed to spend more time undermining and raiding each other than actually thinking about the marketplace.
Needless to say, Boston seemed a shoo-in for a victory lap. But what wasn’t noticed was that the Valley was Darwinian: all that fighting quickly sorted out winners from losers. It also perfected new styles of business, marketing and sales. On Route 128, corporate fights were to be avoided. Markets had already been carved up, now the only task was guard the borders.
Thus, Valley start-ups were like the little mammals sniffing around the feet of the Boston dinosaurs. And the story had the same ending.
But there was a second factor as well, one most commentators have hesitated to mention for obvious reason. It is the sense of Puritan fatalism that underscores New England life. Competition is unworthy, triumph is indiscreet, taking your reward now is a sin. It is not a coincidence that New England designed and built the best ships in the world … until it was challenged; had the world’s best factories … .until it was challenged; ruled electronics … you know the rest.
Combine this expectation of loss with a kind of arrogance and you have the makings of a great fall. And so it came to pass for DEC.
And what is remarkable is how toxic that culture became. Buying DEC almost caused Compaq to choke to death. And now, years on, the DEC curse has even reached out and poisoned the one part of the company, AltaVista that managed to escape and adopt the ways of the infidel.
It is a miserable legacy for a great company that once could have had it all.
Michael S. Malone, once called “the Boswell of Silicon Valley,” is editor of Forbes ASAP magazine. His work as the nation’s first daily high-tech reporter at the San Jose Mercury-News sparked the writing of his critically acclaimed The Big Score: The Billion Dollar Story of Silicon Valley, which went on to become a public TV series. He has written several other highly praised business books and a novel about Silicon Valley, where he was raised. For more, go to Forbes.com. And you can talk back to Silicon Insider via e-mail or through an ongoing bulletin board.