While the personal computer business has developed into a battleground for the giants, with the likes of IBM Corp. and Apple Computer Inc. duking it out for supremacy, some small electronics companies have found successful skirmishing ground in the growing market for add-on systems. Add-ons, which are used to increase the internal memory of microcomputers or allow them to perform new functions, currently account for sales of some $500 million a year by 60 or so companies. The market is expected to double by 1985, according to a study by International Data Corp.'s Pacific Technology Center in Santa Monica, Calif.
Many of the companies, such as Carmel, Calif.-based Legacy Computer Systems, have their roots in back-of-the-shop tinkering. In 1982, computer store owners Rick Ramras and his wife, Josephine, noticed that many of their customers wanted to expand the memory and uses of their small computers. So Ramras, a former sales executive at Datapoint Corp., went out back and started experimenting with printed circuit boards and microprocessors that could add functions to one of the store's top sellers, the Kaypro portable personal computer. Perhaps the most significant result was an insertable board that allows the computer to run on all three major operating systems: CP/M, MS-DOS (used by the IBM Personal Computer) and Bell Telephone Laboratories Inc.'s Unix.
Demand skyrocketed for the new boards. As word spread, orders poured in to Legacy's Carmel store from other Kaypro dealers around the country. Ramras even started receiving large orders from such major microcomputer users as American Telephone & Telegraph Co. and Rand Corp. By the end of last year, Legacy's add-on systems sales broke the $1-million mark, and 1984 revenues are running at a pace of more than $3.5 million annually.
Ramras believes the success of small add-on companies like his proves that entrepreneurs can thrive in the personal computer business by offering features not available from the large manufacturers. "I thought from the start that we could prevent IBM from taking over," Ramras maintains. "This is the only hope for the industry. I think the independent guy can beat up on them by being innovative and offering the customer more. We might be small, but we're numerous. We're picking away at them like gnats."
Not everyone, however, believes small shop operations such as Legacy can ever seriously undermine IBM's quest for domination in the personal computer field. "Thinking you can threaten them is a fantasy," says Bill Meserve, senior management consultant at Cambridge Mass.-based Arthur D. Little Inc. "Anyone who says the add-on boards can devastate IBM is smoking something funny."
Certainly IBM's still-dominant position is underscored by the fact that 60% of all add-on businesses serve the market of owners of IBM PCs and IBM compatibles. And that follow-the-leader strategy has paid off handsomely for such companies as Tecmar Inc. in Cleveland and Quadram Corp. in Norcross, Ga.
Like Legacy, Quadram was co-founded by a computer store owner, Leland Strange, who saw the opportunities in making PC add-ons that expand memory, provide buffers for printers, and allow IBM PCs to run Apple Computer software. Founded in 1981, Quadram's sales reached $12 million in fiscal 1983 and for the year ending March 1984, sales were around $50 million. Last year Quadram was acquired for stock estimated at $35 million by Intelligent Systems Corp., also in Norcross.
But there may be dangers for IBM, even from add-on companies who traditionally play follow the leader. A year and a half ago, Colby Computer, a division of Colby Research Industries Inc. of Mountain View, Calif., started selling kits that allow IBM PCs to be turned into portable units. Long before IBM offered its own portable, Colby was selling its kits to such major clients as the Federal Reserve Bank of Chicago, Eaton, and Eastman Kodak. When IBM recently came out with its portable PC, Colby announced its own IBM-compatible portable that is actually proving more compatible with the huge world of software written for the IBM PC than Big Blue's own portable, according to a study by PC Week magazine. "We make the IBM portable PC better than they do," says company founder Chuck Colby, who expects monthly sales of the new machines to crack the $500,000 mark by the end of the year.