Data Communications: Market Competition 1969-1972
Modems and Multiplexers
By year-end 1968, the decisions by the management
of Codex and Milgo, to broaden out of their government contracting
businesses and sell modems, showed markings of genius. Both companies
were now public with cash in the bank and growth in their strategic
plans. Even the multiplexer start-up, American Data Systems (ADS),
had reason to be giddy. They had innovated the next generation time-division
multiplexer and signed a million dollar contract to supply product
to IBM. The managements of all three firms were so overwhelmed they
had little time to worry about new competition or speculate as to
how government policies might affect future sales. Which proved fortunate,
for if they had, they might have doubted what they were doing and
lost the very nerve that had them looking like early winners.
The opportunities in data communication
had become obvious by 1972, with over one hundred new competitors
fielding products. Certain of these entrants had histories closely
intertwined with those of Codex Milgo and ADS. The entrepreneurs
founding Infotron, General DataComm, Timeplex, Paradyne, Vadic and
Universal Data Systems, all acted for very personal, or local, reasons
not because they saw weaknesses in those who had preceded them or
because they possessed some grand vision of the future.
Which was probably a good thing,
for if they had, the drastic economic brakes the Federal Government
applied in January 1969 would have scared off all but the most committed.
Concerned about inflation and an over-heating economy, the Government
raised interest rates, increased the tax rates on capital gains,
and filed an anti-trust suit against IBM. The days of ever-rising
stocks prices would soon end, especially for technology stocks, and
years of economic uncertainty would dampen investment and purchases
of technology products including data communication products.
Not all the news was depressing
however. The continual saga between AT&T and the FCC pointed
towards more market competition and less market regulation. Not that
AT&T was rolling over without a fight. One attempt to stifle
competition resulted in the banding together of the modem manufacturers
into a trade association, the Independent Data Communication Manufacturer’s
Association (IDCMA). This group would prove instrumental in countering
the immense market power of AT&T.
Notwithstanding all of the uncertainty
surrounding them, the fates of Codex, Milgo and ADS continued to
be decided more by their internal decisions and actions than by market
forces or economic conditions. By the end of 1972, Codex and Milgo
would have succeeded in their transitions to profitable companies
while ADS would be struggling.