The 16-bit model, a portable with a 10-megabyte hard disk and 256K RAM, looked somewhat like the Kaypro II and IV. It had an expansion slot into which you could plug a device to hype up the performance of the machine or expand its versatility; and it offered free WordStar along with other software. At $3,295 it sold for $1,700 less than a hard disk portable from Compaq. But it faced stiff competition from machines such as the hard disk desktop from Leading Edge, which was discounted to as low as $2,000. The 16 just wouldn’t wallop rivals the way the original Kaypro II had.
And it shared some of the drawbacks of the Compaq and many other IBM clones—especially the keyboard. The left shift key was in an awkward position like the IBM PC’s, with a weird, nonalphabetical character separating it and the “Z”; imagine the reaction of touch typists who had enjoyed the Kaypro II’s close resemblance to the traditional Selectric keyboard. Many makers of 16-bit machines had aped the horrid PC keyboard, causing one reviewer to liken them to idiot savante piano players who imitated the mistakes of true geniuses.
The 16, moreover, showed Kaypro’s internal weaknesses. Dan Berger of the San Diego recalled how Kaypro had futilely struggled for more than eight months to design the computer in-house. The project had flopped. Kaypro farmed the design out to a San Diego firm, which did the job in a fraction of the time. Earlier in 1984 Andy Kay had told Berger that Kaypro was spending only 1 percent of revenues on research and development, compared to the industry average of about 10 percent. How frustrated he must have felt paying an outside firm. Osborne had had to do that, but technically Kay had placed himself and his company in a different league.
Kaypro was heavily depending on the 16. The company hoped it would provide 40 percent of income for the year ending August 31, 1985.
Early signs were good. A small dealer in Virginia, for instance, The Disk Connection, sold six Kaypro 16s in one week—half to existing Kaypro owners and half to new customers. Some people had demanded an IBM clone, bungled keyboard and all; now Kaypro had given it to them with a vengeance. Appearing late, however, the 16 had lost much of its price advantage. In another six months IBM might well sell its XT hard disk model for as little as the new Kaypro portable.[[14]]
The 16, if successful, would triumph at a helpful time. In the 1983 budget year, the company had earned $12.9 million on $75 million in sales; the next budget year it had lost $267,683 on sales of about $120 million—blaming everything from advertising costs to price-cutting and inventory problems. No longer was Kaypro a success story. It remained strong in some stores specializing in computers; but the share of the whole domestic market for personal micros would be 2.5 percent in 1984—a drop from 1983.[[15]]
In the long run, moreover, unless Andy Kay made major production changes, his computers might lose what price advantage they did have.
Automation was improving rivals’ quality control and whittling down their labor expenses. Eventually, they’d be just a tiny fraction of the cost of a computer. Apple already had built a $20 million plant to crank out the Macintosh computer, using Japanese-style manufacturing savvy; Macs even helped oversee the manufacturing of Macs. “I don’t even know if the Kays could automate their plant,” said the ex-employee who’d accused the family of running a feudal society. “You’ve got these four buildings no wider than a single room. They have a lot of windows, and that’s great for the people—but hard on computer parts. Often people placed piles of parts on the lawn overnight when they didn’t have space elsewhere.” The Kays, to be sure, had put up a semiautomated warehouse designed by Andy’s daughter Janice and built by his son-in-law’s construction firm. “But,” said the ex-Kaypro employee, “that’s not the same as automating the whole plant.” And Andy’s selection of the architect and construction firm was further evidence of the Kays’ tight-grip management style.
This lack of flexibility could especially hurt them in responding to the threat from lap-sized machines with flat screens. Sooner or later they would menace the Kaypro-sized “luggables” in the business market.
About 120,000 flat screens sold in 1983, and although they weren’t moving off the shelves as rapidly as expected in 1984, sales still might exceed several hundred thousand.