Part II: How the ThinkPad changed the market for notebook computers
By Peter Golden

02pad1 In October 1992, the new IBM notebook line was unveiled to glowing reviews. The reviewer in PC Magazine described the top-of-the-line ThinkPad 700C as "The best notebook I've ever used," and PCLapTop stated what would slowly dawn on the industry: "IBM has finally come to play in the portable market."

Despite a suggested retail price of $4,350, buyers were delighted with the IBM ThinkPad 700C, especially its 10.4-inch, active-matrix color screen, the largest thin-film transistor (TFT) color screen then available in a laptop.

"Somebody bet me $5 the engineers couldn't get that size screen into a ThinkPad," says Jim Cannavino, who at the time was the general manager of IBM's Personal Systems Group and today serves as CEO and chairman of CyberSafe Corp., Issaquah, WA, a network security provider. "I have that $5 bill framed and hanging on my wall." (See "A legend in his own time".)

The praise for the screen also confirmed Cannavino's belief that he had made the right choice to develop the computer in Japan, where competing manufacturers work together more collaboratively than they do in the United States. The screen in the ThinkPad, for example, had been made possible by a joint venture between Armonk, NY-based IBM Corp. and Toshiba Corp. of Tokyo.

"The ThinkPad rocked the market," says Bob O'Malley, who that fall was the managing director of IBM Personal Systems, Asia-Pacific. "The early notebooks were like the fleet cars purchased by a utility company . . . functional, ordinary. But the ThinkPad was like a Porsche convertible. It made people say, 'Wow!' and that 'wow' was unprecedented. I remember that none of the geographic areas could get enough ThinkPads. It seemed as though everybody had to have one."

O'Malley continues to be particularly well-suited to gauge the impact of the ThinkPad on the notebook market because he became chief executive officer of $5-billion Pinacor Inc., Tempe, AZ, the third-largest distributor of technology products in the United States.

"The ThinkPad revolutionized the way notebooks were packaged," he says. "It had so much cachet that the tech people suddenly weren't making the buying decisions on notebooks. Now the CEOs were saying, 'I want one of those, nothing else.' The ThinkPad got IBM where they needed to go to expand all of their businesses--right inside the executive suite."

This excitement translated into sales. According to Dataquest Inc., the San Jose-based market research firm, in 1991 IBM wasn't even among the top-five laptop vendors, but the ThinkPad changed that. Within 24 months of releasing the ThinkPad, IBM pulled even in notebook sales through the reseller channel with market leaders Toshiba of Irvine, CA, and Compaq Computer Corp. of Houston.

* * *

The early success of the ThinkPad was the haphazard result of a dedicated group of IBMers learning from the company's previous failures in the mobile market, and overcoming corporate recalcitrance (see Part I of this story, in Electronic Business, Jan. 1999, p.68). But the long-term success of the ThinkPad line was attributable much more to a branding initiative that was unprecedented in the notebook market.

In 1992, Bruce Claflin was named general manager of IBM Mobile Computing. Claflin had a marketing background, and this was critically important to ThinkPad

products. If technology had always been presumed to be paramount, IBM was about to be confronted with startling news. As Designer Richard Sapper told the international design journal, I.D. Magazine: "IBM did some market research [the year following its introduction] and found that 30% of the ThinkPads were bought because of their design. It was a shock to many people."

02pad2"I'm that idiot"

Claflin, who is currently president and chief operating officer of 3Com Corp., Santa Clara, had anticipated the findings of that research. According to Debi Dell, who was a member of the Mobile Computing Group, "Bruce Claflin is the father of the ThinkPad brand. He was responsible for identifying ThinkPad as a class of products. And Jim Cannavino deserves credit for bringing him onboard."

Dell recalls a meeting she attended with the Mobile Computing Group, and the first question she asked was: "Who is the idiot who decided to use ThinkPad across all the notebook lines?"

Smiling, Claflin replied, "I'm that idiot."

Once Claflin ensured that IBM notebooks would be known by a single name, he had the various models divided by numbers, much as Mercedes-Benz differentiates its cars. The ThinkPad 700 models were at the high end; the 300 line was for value; and 500 was used for subnotebooks. Other designations would be added as the line evolved.

At the time, Claflin's approach ran counter to the prevailing wisdom among notebook manufacturers, who were not much concerned with establishing a single brand identity for all their models. As journalist Mark Brownstein points out in "The Portable Computing Story," (PC Portables, March 1998) since the earliest days most vendors had relied on the jazziest "gotta-have" features to sell their notebooks--docking stations, DVD drives and infrared ports, for example.

On the contrary, Claflin had little patience for haphazardly flaunting a feature here or an innovation there, because, besides keeping a close watch on the identity of the ThinkPad, Claflin paid strict attention to customer requirements, an IBM tradition rooted in the early mainframe days.

Dr. John Armstrong, who spent 30 years at IBM, during which he served as director of research, recalls: "IBM would bring in its big corporate customers, and they would be given a confidential look at our developing technology. We asked their opinion, and their answers were taken seriously."

IBM, Armstrong adds, was well-suited to produce for the portable market because, in a sense, notebooks are far more similar to mainframes than to desktop PCs.

"A notebook is not as much a collection of commodities as a desktop [PC]," says Armstrong. "Nor is it designed to be opened up and fiddled with. The components and ergonomics are mainly controlled by the manufacturer, much as with mainframes. Furthermore, one of the biggest challenges in designing a notebook is managing heat, and, from its mainframe experience, IBM knows almost everything there is to know about thermal control. Finally, nearly all successful product development is incremental. That's the dirty little secret of technological progress, and IBM was keenly aware of it."

That was Bruce Claflin's goal: protecting and gradually strengthening the brand. Design choices were based on customer requirements, but Claflin searched for input beyond his biggest clients. At Comdex in 1992, Claflin spoke with Dr. J. Gerry Purdy, at the time a vice president and chief analyst at Dataquest. Claflin asked Purdy if, with the ThinkPad 700C, IBM had at last arrived in the notebook market. Purdy said, "You're an unknown to the analysts. Apple, Compaq and Toshiba have been selling good notebooks for years. You need to build credibility."

Purdy suggested that IBM meet periodically with industry analysts and the computer press, and Claflin backed the idea, which led to the creation of the Mobile Computing Industry Advisory Council, a varied group of experts who still meet with IBM to hear its plans and offer advice. If any experts forget to check their egos at the door, they aren't invited again.

"I was--and continue to be--impressed by IBM's willingness to share information with us," says Purdy, who now heads his own consulting firm, Mobile Insights Inc., in Mountain View. "None of the members are paid for their time, and at the end of our discussions we just about take a vote. Not only does IBM get some meaningful advice, these meetings become casting sessions for consultants."

* * *

02pad3The success of the ThinkPad couldn't have come at a better moment for company morale. From 1991 through 1993, IBM reported losses of $16 billion and 117,000 jobs were cut. Then, on April 1, 1993, Louis Gerstner Jr. replaced John Akers as CEO.

Gerstner had a reputation for being tough and smart, but most fortuitous for the future of the ThinkPad was the fact that his vision for reviving IBM was in accord with Claflin's brand strategy in the mobile market.

While Gerstner was heading American Express, AMEX was running its "Membership has its privileges" ad campaign. Shelly Lazarus, chairman and chief executive of advertising agency Ogilvy & Mather, who was working on the account, told Fortune: "I learned a big lesson from Lou . . . nobody ever got a . . . discounted card. Lou would say, 'This is a violation of the brand, and we're not doing it.' "

Secondly, as Gerstner himself recalled for the cable television news network CNBC in October 1998: "We had to focus this company maniacally on the customer."

This approach would pay off during the five years of Gerstner's stewardship: Shortly before he spoke to CNBC, IBM stock hit its record high of $143.69 a share, up from a low of $25.

Mobile Computing remained dedicated to the marketing strategy established by Claflin even after he left the group, but technical innovations also helped to attract buyers.

For example, there was the work of John Karidis, now an IBM distinguished engineer, who in 1995 managed to fit a full-size keyboard into the 4.5-pound ThinkPad 701C. The keyboard folded up when the ThinkPad was closed and expanded over the edges of the case when it was opened. It was known as the "butterfly," a feature whose popularity with users spawned legends at Big Blue. One customer, an elderly woman, so the story goes, was so enchanted with her butterfly keyboard as she passed the hours playing solitaire on her notebook that, when she died, her grandchildren buried her ThinkPad with her.

Bells and whistles attracted buyers, but it was strict adherence to brand identity that would be responsible for the staying power of the line. By mid-1995, the research firm of Audits & Surveys, New York, was reporting that IBM was the notebook sales leader in the reseller channel, controlling 29%, with Toshiba and Compaq holding 23% and 21%, respectively. An analyst at Audits & Surveys explained the change, telling PC Week: "Toshiba and Compaq haven't done badly. It's just that IBM gained."

The report did not include sales through mass merchandise or retail distribution channels, where Toshiba and Compaq occupied the top two spots.

For the moment, IBM contented itself by leading the corporate market. But as the ThinkPad became an established brand, the marketplace itself began to spin, creating a slugfest among the notebook giants. The battles could be traced to four main causes: the new presence of IBM; the speed of emerging technology; the rapidly growing demand for notebooks; and the ability of some smaller companies to cut themselves a significant piece of the mobile pie.

In an attempt to grab back the lead among corporate buyers, Toshiba matched IBM's technological advancements with their own. In 1995, for example, Toshiba discontinued its advanced notebook line and replaced it with a totally redesigned family. IBM countered with more new technology, the ThinkPad 760. As IBM and Toshiba squared off, Compaq introduced three new consumer models. Compaq had always charted a middle course in designing their notebooks--solid product, decent technology, reasonable price--and now they slashed prices on both their high- and low-end systems and took over as the leading seller of consumer notebooks.

By the third quarter of 1997, the CNET News Web site was reporting that "traditional leader Toshiba [was finding] its once-unassailable spot at the top of the notebook world . . . eroding."

In this case, "eroding" was an extremely charitable choice of words. Actually, Toshiba had seen its 41.5% of sales in the retail and dealer notebook channels slip to 24.8% in a market that was expanding at an annual rate of over of 20%.

02pad4 Shake-up

Toshiba would recapture the lead in retail notebooks, but by then the playing field had shifted again. Notebook components had become standardized and readily available, and down in Round Rock, TX, at Dell Computer Corp., this development was regarded as the loud knock of opportunity.

"Dell managed to compete with the major notebook manufacturers by waiting until the supply of relevant technology was plentiful," says Randy Giusto of market research firm International Data Corp., Framingham, MA. "They avoided the cutting edge that IBM and Toshiba occupied. It was too expensive."

Dell kept its inventory small and built notebooks to order, enabling them to pare prices to the bone and push competition to the limit, causing one IBM product marketing manager to mention to a ZDNet reporter that Dell was "going at it like mad things."

According to Pinacor's O'Malley, the authority of the ThinkPad brand forced Dell to take a completely different tack. "Dell couldn't compete with the brand identity established by the ThinkPad," says O'Malley, "so they focused their identity on the experience of purchasing a notebook. Configuring and pricing it on the Web, placing the order and waiting for the delivery. That's a big part of the Dell brand--how you actually wind up owning their product. But it was IBM that first showed the notebook industry that success was tied to strong branding standards."

In response to Dell, IBM, Toshiba and Compaq inaugurated build-to-order programs. In addition, to hold onto precious market share, the trio repeatedly cut prices across the board. IBM even made a stab at retail channels by introducing the ThinkPad 310, an entry-level system priced under $1,600 with a dual-scan display, which never really secured a foothold in the market.

Far more successful was the ThinkPad 380 Series, an all-in-one design with a built-in hard drive and a CD-ROM stacked on top of the floppy drive. IBM classified the 380s as mid-priced, and sales were brisk. To meet the demand the company would manufacture one million 380s in 18 months. But with a suggested retail price of between $2,199 and $3,899, IBM still could not overtake the lower-priced machines offered by Toshiba and Compaq, and so from 1997 until the fall of 1998, Big Blue chose to remain the pricey darling of the corporate world.

The dominance of ThinkPads among high-end buyers was not lost on manufacturers. For instance, in early 1998 Micron Electronics, Nampa, ID, introduced its GoBook. From the 4.4-pound notebook's sleek black case, standard-sized laptop keyboard and bright screen, it appeared that the Micron design team was emulating the ThinkPad 560, IBM's best-selling subnotebook, trying to improve on its features and beat its price by selling it direct.

IBM's reply to its challengers for king of the Fortune-1,000 hill came in the spring of 1998 in the form of the ThinkPad 600, a remarkable thin-and-light model designed specifically for the corporate market, where, according to analysts at ZD Market Intelligence, during the third quarter of 1998 IBM would up its lead over all notebook makers with a 47% market share.

By the fall of 1998, it also seemed that IBM was working its way beyond its usual backyard. Although ThinkPads were not widely sold at standard retail outlets, in September PC Magazine published a list of the top-selling retail notebooks, and ThinkPads held 6 of the 10 spots. The list was good news for IBM, because retail plays a considerable role in maintaining brand identity.

"Plant your flag"

As senior hardware analyst Stephen Baker of PC Data Inc., Reston, VA, says, "All the volume in notebook sales is to corporations. But you also need a healthy presence in stores to hold onto that market. Executives may not purchase their notebooks at CompUSA, but they shop there, and the visual publicity is critical. You have to plant your flag."

IBM unfurled its retail banner most recently on October 13, 1998, with the ThinkPad i Series. The i Series featured the black matte finish, TrackPoint and keyboard common to all ThinkPads, but it was designed based on six research studies of the consumer mobile market, consumers being defined by IBM as people spending their own money on technology whether for a small business or personal use. For example, one study showed that consumers wanted active-matrix screens, so that is all you will find on the three models that make up the i Series. Another survey revealed that IBM wasn't taking advantage of the notebook's brand equity.

"We discovered that 92% of shoppers in retail outlets, who are among the fastest-growing segment of the mobile market, were aware of ThinkPad, but considered them unaffordable," says Adalio Sanchez, general manager of IBM Mobile Computing. "We also discovered that there were three major price points where they decided not to buy--$1,500, $2,000 and $2,500, so each of the three i Series models are priced accordingly. [Price your products right] and people whom you didn't think of as your market suddenly become potential customers."

Numbers alone--an estimated $5 billion in sales--establish the ThinkPad as a financial success. The success of the brand can be demonstrated in other ways. James Sciales, public relations manager for the IBM Personal Systems Group, reports that not long ago he saw a television commercial produced by IBM Japan. Remember that when Denny Wainwright proposed the name "ThinkPad," the IBM corporate naming committee objected to it, claiming it would hurt sales overseas because the name wouldn't translate into foreign languages. It didn't have to. The committee had not understood the power a brand can have. In the TV spot, the actress, Ryo, is walking and carrying a notebook computer. She speaks entirely in Japanese. Then she pauses and smiles, holding up her computer to the camera, and says a final word: "ThinkPad."

Peter Golden has been a contributor to Newsweek and the Detroit Free Press. Email him at pagolden@earthlink.net.

Electronic Business would like to thank Debi Dell and Dr. J. Gerry Purdy for their generous assistance with this article. Dell is currently national competency manager in charge of IBM Mobile and Wireless Services. Purdy is an industry analyst and is the president of Mobile Insights Inc. in Mountain View. Dell and Purdy have recently authored a book on the ThinkPad.

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