If you have never heard of Digital Equipment Corporation (DEC) – I wouldn’t blame you. I myself first heard of it yesterday while reading the first chapter of Venture Deals by Brad Feld and Jason Mendelson.
DEC it so happens was amongst the first famous VC investments ever. AR&D on an investment of $70K made returns 5000x return on this! Let’s dig into the history of DEC and its unassuming downfall.
DEC was founded in 1957 by two MIT grads: Ken Olsen and Harlan Anderson. So yeah even before Apple, IBM or Microsoft were a thing, DEC was the boss. Their product? An affordable, high-performing computing system targeted at scientific/technical users. Plus they did venture into software and internet.
Their original business plan was focused on computers. But the investors were worried about the future of computing (yep!) and they had to shift focus to equipments. And hence Digital Equipment Company and not Digital Computing Systems.
American Research and Development Corporation (AR&D) decided to put in the money into DEC – making it one of the first ever VC investments in the world.
1957: In the first year DEC rolled out a digital laboratory module and made $94K return.
1960: DEC rolls out its first computer. Since people were reluctant to adopt computer tech back then they marketed it as “programmable data processor(PDP)”.
The first variant of PDP cost $120K (in image below). 1962: PDP-4 sold at $65K.
1964: DEC pivots its business model with the availability of its new tech called Flip Chip that allowed users to convert their old computers (PDPs) to upgraded versions.
1965: An important year for computing industry as whole. DEC releases PDP-8 – considered as the first commercial successful minicomputer. It was a huge success – but not owing to technological marvel but its price tag: $18,500. Over 50K customers bought it!
1968: DEC goes public. AR&D’s investment of $70,000 for 78% stake in the company is worth $355 million – a 5000x times return on the investment! AR&D founder Georges Doriot who took the risk of investing in a company rejected by many sure had a great champagne that night.
1970: PDP-11 minicomputer released. DEC sold over 600K units until it stopped selling it in 1990. A major reason along with the design of this minicomputer was its OS that a lot of rivals took inspiration from.
1971: DEC moves to a new market: Europe. Sets up a factory in Ireland. 1974: DEC becomes a Fortune 500 company.
1978: DEC moves into production of high-end computers. Rolls out VAX – a 32bit minicomputer. It was beating out rival IBM’s computers in the market.
1982: DEC moves into personal computing space. Rolls out The Rainbow 100.
1985: DEC registers the domain dec.com.
1986: Fortune Magazine names founder and CEO Ken Olsen “America’s most successful entrepreneur”.
1988: DEC becomes the second largest computer company behind IBM. Generates over $11Billion in revenues and employs over 120K people.
1990: DEC reports its first quarterly loss.
1991: DEC reports its first annual loss. 1992: Founder Ken Olsen retires.
1994: DEC releases Alpha AXP, a 64-bit minicomputer.
1995: DEC launches AltaVista, one of the first search engines for the internet. AltaVista receives 300K users on day one.
1996: The world’s first richest man for a year now, Bill Gates recalls in an interview working on DEC’s computers as a teenager. Gates spent time to find bugs on DEC’s computers to get his rent waivered!
1997: DEC keeps losing market share. Sells its microprocessor plant in Hudson to Intel for $1.5 Billion. Sadly that money wasn’t enough to keep the company afloat.
At the same time AltaVista search engine now records 80Million hits every day.
1998: DEC is acquired by Compaq for $9.6Billion.
2003: Yahoo buys AltaVista search engine.
2002: Hewlett-Packard acquires Compaq.
2013: Yahoo shuts down AltaVista search engine.
Why did DEC fail?
Answered on Quora by ex-DEC employees and MIT community, the consensus is on the founders’ lack of foresight in personal computing industry.
In 1977, founder Ken Olsen made a remark that now is infamously associated and somewhat read out-of-context.
DEC’s business model did not adapt to changing markets. It could not profitably sell a computer for less than $50K while IBM with the very same processors was able to make money at a $2K price point and 20% gross margins. They shook the markets. Archives from IBM show the amount of progress they were doing in 1998.
The next time someone tells you ‘too big to fail‘ – you know which blog to redirect them to 😉