High-flyer EO is GOne!

In pen computing’s sink-or-swim market, EOs go belly-up

The headlines are almost getting repetitive: “Pen Computing Claims its Next Victim.” And, on the surface, things certainly look bleak. One has to wonder whether anyone can make it in an industry that communication giant AT&T claims is too difficult to master.

The collapse of EO comes as no shock to most people watching this industry, at the same time however, we’re all probably a bit surprised. AT&T, majority shareholder in the privately-held EO, is more accustomed than just about anyone in developing and nurturing emerging personal and business technologies.

What could be different about a personal handheld communicator? In reality, not much. Before looking at this, however, here’s what happened.

The News

AT&T announced that EO would cease all operations on Friday, July 29, 1994. As you’ll recall, EO was founded in July 1991 as a spin-off from the now-defunct GO Corporation, a pioneer developer of the stylus-based operating system PenPoint. In April 1993, EO released two tablet-sized “personal communicators” that were, in reality, more computer than communicator.

AT&T was an original investor, and in August 1993, increased its stake in EO to become the majority shareholder at 52%. Other investors in EO included Matsushita Electric, and Marubeni Corp., both of Japan, the Italian computer manufacturer Olivetti, and the Palo Alto-based venture capital firm of Kleiner Perkins Caufield & Byers.

After dismal sales of less than 10,000 units for the 440 and the 880 together, EO changed course to develop what they called a “smart cellular phone.” This device would truly integrate fax, email, and, as an option, handwriting recognition. However, even after EO’s fifty percent staff reduction in February of this year—which saw the resignation of President and CEO Alain Rossman—AT&T still felt that gamble was too risky.

Therefore, on July 26, 1994, EO’s 97 employees and 25 contractors were told the bad news that the company was unable to secure the additional financing required to bring its new product to market. Following an estimated $50 million investment, AT&T had been searching for additional capital from other sources.

AT&T’s Point of View

Publicly, everyone expressed regret and disappointment. Carl Ledbetter, president of AT&T Consumer Products, and also an EO board member, stated that “We are disappointed that EO must close. But given the slow development of the personal communicator market generally, and the low acceptance of EO’s other products, AT&T believed that it would not be prudent for AT&T to invest more in EO without additional financing from other investors.”

AT&T’s Ledbetter continued by saying “AT&T believes the market for wireless personal communications has great potential, and we are committed to participating in the equipment part of this market in the future.” However, one has to wonder whether AT&T ever reached out and touched anyone in this market. The Wall Street Journal quoted Ledbetter saying that they had hoped to sell “zillions” of the devices instead of thousands. As we’ve learned, this type of expectation doesn’t get you far in this industry.

The Reality

All emerging industries are built by solving customer problems. There are at least three observations that can be made with respect to EO’s failure to deliver on this:

1. Both EO, and GO before it, spent precious little time supporting developers producing vertical solutions. Instead of hyping the notion of sending a fax from the beach, time should have been spent selling workable solutions into vertical markets such as the healthcare and insurance industries.
2. During the early days, third-party hardware and software developers are a company’s greatest asset. Energy should go into nurturing these relationships along with making the development tools easier to use, and available to a larger audience at low cost.
3. Mobile and stylus-based computing does not live in a vacuum. Customers need to integrate new solutions into existing systems, often encompassing the entire enterprise today. Notwithstanding an excellent technology base, EO and PenPoint were often viewed as a little too far off base.

Those on the Bleeding Edge

Perhaps one of the reason AT&T felt they could pull the plug on EO is because only about 10,000 devices had sold to date. However, this still leaves many users in a lurch. What happens to their still useful devices, some deployed in important applications?

AT&T stated that it plans to honor the warranties on all AT&T-branded devices, and will maintain the repair services and parts required to honor this commitment.

An AT&T spokesperson also said that the devices already in the reseller channel will continue to be sold at the discretion of the reseller.

The Future of PenPoint

A more tantalizing question concerns the future of the PenPoint operating system itself. AT&T stated that EO is scheduled to go through an orderly liquidation of assets, stressing that the procedure was not a bankruptcy.

To do this, EO will retain a small team that will evaluate its ongoing projects assigning value to its assets, including the company’s intellectual property. However, many in the pen computing industry view PenPoint as more than mere intellectual property.

PenPoint was, and continues to be, a groundbreaking 32-bit multi-tasking operating system supporting an object-oriented programing model with a C-level interface. Its notion of using a notebook interface together with simple pen gestures has a valuable innovation. Clearly, many feel that this platform can still be used to solve a range of problems, with or without EO, GO, or AT&T.

In fact, word has it that a major U.S. insurance firm is maintaining its effort to roll out a PenPoint-based application for insurance estimating. In the process, it is using its muscle (and contracts) to make sure its hardware partners keep the faith.

Other efforts have been underway to give PenPoint the life many feel it deserves. In Silicon Valley, a small group of developers and enthusiasts led by Clayton Weimer have approached EO and AT&T with the intention of keeping PenPoint alive.

One possibility suggested by this yet-unnamed group would be to release the PenPoint operating system source code to universities, independent researchers, and developers.

They feel that the mobile computing industry would be better served by adopting a model similar to the way major enhancements were added to the UNIX operating system, another one-time AT&T property.

Summary

What does all this latest news tell us about pen computing? Not much, unfortunately. The message that high priced technology won’t sell itself—no matter how neat, or how highly-hyped—is one that most of this industry has already learned.

In fact, EO’s demise is no more an indictment of mobile computing than Sony’s failure with Betamax was an indictment of the videorecorder industry. The real message is that while price is important, serving customer problems is what separates the winners from the losers. Add EO to your list of losers.

EO’s upcoming product, code-named “Loki,” or “EO-220,” was a Newton-sized device with a built-in cellular phone connection, a low-resolution (320×200) screen, and a passive digitizer. Loki unfolded, like a paperback novel, but horizontally, exposing a screen, microphone, and speaker.

Loki’s design was redirected several times during its development. And while semi-working prototypes were built early last year, EO had a hard time finishing the product, even when most of their R&D resources were devoted to it for nearly eighteen months, including GO’s software staff, which was redirected away from PenPoint and onto EO-specific work.

In the last analysis, what killed Loki was that AT&T and EO never realized that consumers don’t want, or at least don’t know they want, a “smart cellular phone.” Vertical markets are where the action is, but EO’s venture capitalists, looking for a big score, forced EO to pursue the non-yet-existent horizontal market.

AT&T’s failure to effectively sell the amazingly well-designed, but over-priced, EO-440 and EO-880 caused EO to drop them and concentrate everything on one last attempt at getting Loki out. And when EO couldn’t do that, AT&T pulled the plug.

—analysis submitted by Contributing Editor David Schachter.