Chapter 13 - Powering to the Apogee

Digital Equipment is the poster child for technology’s boom and bust, and its founder/CEO Ken Olsen the brilliant strategist who lost his touch. Almost every ingredient of success, apogee, and subsequent decline is evident in the next two chapters. Success is difficult and slow, failure a sharp downward spiral. What’s especially apparent is how easily an asset becomes an anchor. DEC’s asset was the VAX product line, which stretched from desktop to mainframe. No other computer vendor had anything similar. But asset became anchor when VAX helped slow management’s recognition of and response to Unix and Microsoft.

We last visited the company in 1993, midway through the death spiral that toppled Olsen and ended with DEC’s being acquired by then-PC giant Compaq Computer. Naomi and I lunched that day in Maynard, Massachusetts, in a cozy sitting room with former COO Jack Smith, the holder of badge No. 10 as one of Ken’s first hires. It was Jack’s last day before retirement.

White-haired and with a ring of Boston Irish in his speech, Jack reminisced about the shuttered New England mill towns of the 1960s, where “often the only business still open was the saloon.” Ken, DEC cofounder Harlan Anderson, and Ken’s brother Stan, among others, had reversed that decline, bringing new jobs to down-at-the-heels towns in Massachusetts and surrounding areas. DEC’s headquarters were located in Maynard’s former woolen mill, with its lovely red-brick exterior and broad-boarded floors streaked dark with the oils and sweat of century-old weaving processes. Once the mill made horse blankets for the Union Army. Families had worked there for five generations, or so we were told by more than one secretary who was probably the last in her line to work at “the Mill.”

DEC’s part in that tradition was about to end. The speed of its collapse caught many by surprise, the symptoms of decline masked by the weakness of its traditional competitors. Across New England, factory towns were shuttering again, as the minicomputer competitors faltered and the locus of technology moved west to Silicon Valley.

The Early Years: “Pushing the Iron”

Digital Equipment Corporation was founded in 1957 by a band of MIT engineers from Project Whirlwind, the pioneering effort to develop the first real-time computer for the Air Force, still using vacuum tubes. In return for 70 percent of the company, Ken Olsen and Harlan Anderson coaxed $70,000 in venture capital from American Research & Development and its founder, General Georges Doriot, a legendary lecturer at the Harvard Business School. For her 1981 book The Computer Establishment, Katherine Davis Fishman spoke to both Olsen and Doriot. As Ken recalled, “When we made our first proposal to ARD, Doriot told us our profit projection of 5 percent wasn’t enough, that we’d better raise it to 10 percent, and he said to promise quick results, because most of the men on his board of directors were over 80.”

After two years spent building electronic components, the still- tiny DEC put together its first computer, calling it a “programmed data processor,” or PDP-1, avoiding the word “computer” to calm investors and avoid retaliation by the always-dangerous IBM. “We told Ken not to emphasize computers,” Doriot told Fishman. “Here were IBM, Burroughs, RCA in that business. To have two young men come over to older men and talk of competing with them didn’t sound quite modest.... [Ken] has a full understanding of the market two or three years out, he knows how to take the available techniques and use them imaginatively, and his ideas are not so advanced that they’re dangerous.”