What happens when IBM tastes small-computer market

When all the players on a basketball team are excellent shots but under six feet tall, what do they do when a team of seven-foot slam-dunk artists shows up?

That's the kind of situation companies in the personal computer business have been looking at ever since IBM came out last month with its entry in the small-computer tournament. Some companies have suddenly gotten very nice to their dealers; another brashly ran a full-page newspaper ad welcoming the new kid to the block; and others have gone the "piggyback route."

This last strategy was played out last week in a 20th-floor suite at New York's posh St. Regis Hotel, where executives of the Tandy Corporation and Datapoint Inc. came up from their Texas headquarters to announce that they are now "pardners" in a package that will let businesses use Datapoint's network system to link Tandy's Radio Shack small computers.

Until now all Radio Shack computers were limited to stand-alone, one-person operation. With this package businesses will be able to choose between the independence and privacy of stand-alone computers and the versatility of a network of computer terminals.

"It a very interesting response to IBM," said George Weiss, an analyst with Quantum Science Corporation. "Radio Shack has really turned the tables with this." While IBM is moving into the small stand-alone computers, tandy is going after IBM's territory, the business network systems, supported by its nearly 7, 000 Radio Shack retail outlets.

The Tandy-Datapoint partnership is the latest round in a personal computer war that flared up in earnest when IBM announced its $1,565 small computer designed for schools, homes, and offices. While that basic price tag is essentially a "teaser" that most customers will see grow quickly as they add on more computing capacity and options, the new machinese placed IBM squarely in the middle of the fight for the small-computer market.

Many analysts expect his market will grow -- to the benefit of the better small companies as well as IBM -- precisely because IBM is finally in it.

"IBM's entrance into the marketplace will expand the marketplace because of increased coverage," said Greg Leveille, an analyst with the Gartner Group, a Greenwich, Conn., research firm. "Whether it was fair or not, the microcomputer marketplace was never viewed as a quality industry." So far, he said, it has been dominated by firms either considered too new or not rich enough to provide the expertise and service required of equipment that is still unfamiliar to most people.

While part of Tandy's strategy to respond to IBM is a joint venture with Datapoint to reach new markets, Apple Computers Inc., the other leader in personal computers responded with newspaper ads welcoming IBM to the business. Apple is also planning to introduce a network system in the near future to link its small computers and is working to expand the capability of its recently introduced Apple-III system, spokesman Fred Hoar said.

"We think IBM's entry in the field is very beneficial to everyone," he said. "It will take companies like IBM, which are respected and capable of providing good equipment, to give the market the push it needs."

Actually, the market has been pushing along quite well without IBM. From zero a few years ago, it has built up to more than $1 billion in sales and peddled nearly a million personal computers. Still, most of these have been sold to businesses and professionals, including lawyers, accountants, and market analysts, many of whom use the machines at home.

But the so-called "computer revolution" that was supposed to put a microcomputer in every home has not materialized. Part of the reason is cost: While a basic system can be purchased for under $1,000, many of the uses that are touted for small computers require extra programs and equipment that can push the tag up over the $5,000 level without much trying. Most people are not ready to spend almost as much for this "new fangled thing" as they would for a car.

However, the pace may not be that slow when it is compared with another major invention. "I think if you compared the shipment rate of the personal computer to the telephone [when it was first introduced], you'd find the shape of the curve is almost identical," the Gartner Group's Mr. Leveille says.

Eventually, he said, the expansion of the marketplace, resulting in part from IBM's entrance in it, will help push down the price of microcomputers to a more attractive level.

While consumers must wait to gain from IBM's move, the people who sell small computers are already seeing benefits.

"The companies are being a lot nicer to their dealers," said Michael McConnell, executive vice-president of Computerland, a chain of computer stores with some 200 outlets around the US selling several brands, including Apple, Commodore, Atari, and now, IBM. "Commodore has started building a much closer relationship with their dealers. They visit more often, ask us if we're happy, if they can do anything for us. . . . The battle for the computer companies now is for the hearts and minds of the retailers."

"Our expectations and hope is that IBM will sharpen everyone," he added. "Until now, the market hasn't been that competitive."