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                             PHILADELPHIA INQUIRER

                  Copyright Philadelphia Newspapers Inc. 1994

                            Reprinted with permission



 DATE: SUNDAY    May 8, 1994

 PAGE: E01                                         EDITION: FINAL

 SECTION: BUSINESS                                 LENGTH: LONG

 SOURCE: By Anthony Gnoffo Jr., INQUIRER STAFF WRITER



                    THE DECLINE AND FALL OF COMMODORE INTL.
                 IT WAS A FAILURE OF MARKETING, NOT TECHNOLOGY.



    It was a wake in cyberspace.

    Minutes after Commodore International Ltd., the company that helped launch
the personal-computer revolution 15 years ago, said it was going out of
business nine days ago, the Commodore faithful tapped into the Internet,
CompuServe, GEnie and a host of other on-line services and computer bulletin
boards.

    They came from their bedrooms and dens, from offices and college
dormitories, from America and Europe and Australia and Asia, from everywhere
people keep desktop computers. Software engineers, videographers, techno-
artists, hackers - they eulogized Commodore's Amiga computer as far better
than those pitiful Macintoshes and IBM-compatibles.

    Their Amigas can handle streams of video that would choke a Mac or an IBM.
Their Amigas can produce eye-popping graphics and dazzling sound at a lower
cost than the competition. Yet their Amiga was unappreciated in the personal-
computer marketplace dominated by Macs and IBMs.

    Why didn't Commodore try harder, they wondered.

    ''They really seemed to believe that if you build a better mousetrap, the
world will beat a path to your door,''said Brian Jackson, a former Commodore
engineer.

    Why didn't chairman Irving Gould, who routinely was paid more in a month
than most people make in a year, spend more to market the Amiga? Why was their
beloved computer left to wither and die?

    They may never know.

    As is its habit, Commodore, which is incorporated in the Bahamas but keeps
much of its corporate offices in West Chester, announced its bad news after
the close of the stock market on a Friday. As has also been their habit,
Commodore officials have not returned repeated phone calls to answer any of
the questions raised by their terse announcement.

    Drowning in debt from its recent losses, Commodore did say that it would
voluntarily sell off its assets for the benefit of its creditors. Among the
creditors is Gould, who lent the company $17 million in 1993, when the company
erased its shareholders' equity with a $356.5 million loss for the year that
ended June 30.

    Commodore's overseas subsidiaries were not included in the announcement.
What is to become of them, including operations in Europe and Asia, is not
known.

    The company said it would turn its assets over to an unidentified trustee
who would oversee their sale under Bahamian law.

    There have been assumptions and rumors among the Commodore cult that
Commodore's technology, so adored for its ability to process video images and
multimedia applications, will live on. Such theories hold that some other
company - perhaps a big Japanese consumer electronics house - will buy the
rights to Commodore's proprietary chips. But no one knows for sure, and no
companies have made any offers.

    At least not in public.

    There is also a movement afoot among the small companies and individuals
who developed software and peripheral hardware for Commodore to assemble a
consortium to buy the technology rights. It is being organized on the
Internet, just as a move to gain control of the company's board of directors
was pursued this year; that effort failed.

    ''No one knows what's going on or what will happen,'' said one Commodore
dealer. ''There's nothing but guesses and speculation.''

                                       *

    Paul Higginbottom began tinkering with a Commodore PET computer - PET, for
Personal Electronic Transactor - in 1978, when he was still a college student
in England. Jimmy Carter was in the White House; Mac's Apple II was not yet on
the market, and the IBM PC was three years away.

    ''I was experimenting with it, writing some programs, just a typical
hobbyist kind of guy,'' he said. ''So I showed (Commodore) one of the programs
I wrote, and they thought it would be quite useful.'' In the summer of 1979,
he went to work for Commodore.

    ''What I liked about going to work for Commodore was that it was a new
industry,'' he said. ''No one knew where it could really go, but the sky
seemed to be the limit as far as where you could go within the company.

    ''It was a place where the engineers were looking into neat things. The
company was innovative.''

    And it was a leader. As early as 1979, Commodore shipped 80,000 small
computers, 14 percent of all the PCs sold that year, according to the market-
research firm Dataquest, of San Jose, Calif.

    Fueled by the popular Commodore 64 computer, which was introduced in 1982,
the company hit its peak in 1984, shipping 3.4 million desktop computers and
controlling nearly a quarter of the market.

    Of course, 1984 was the year that Apple introduced Macintosh. And it was
also about that time that computer firms from the Silicon Valley to Singapore
began marketing inexpensive clones of the IBM PC.

    Since 1979, Commodore has sold more than 20 million personal computers
worldwide, according to Dataquest. Compare that, however, with the universe of
IBM-compatible personal computers, of which nearly 30 million were sold in
1992 alone.

    Instead of recognizing the pervasiveness of IBM's operating system,
Commodore continued to bet on its own system, and upon that isolated
foundation built its Amiga computer. And just as Sony's Betamax video format
failed to capture the market, even though it was judged superior to VHS,
Commodore's Amiga operating system failed to wrest customers from IBM's MS-
DOS.

 AMIGA'S MARKETING SPOTTY

    ''I can still remember the introduction of the Amiga'' in 1985, said Andy
Bose, an analyst at Link Resources Inc., a technology market-research firm in
New York. ''It was a real media event. It was at Lincoln Center. Andy Warhol
was there, Deborah Harry from (the pop group) Blondie. It was truly a rich
computer; perhaps it was ahead of its time.''

    Its lavish introduction aside, Commodore's marketing efforts on behalf of
Amiga were spotty. Ad campaigns were launched, then dropped before they could
be effective, analysts said.

    Eventually, Commodore made an effort to sell IBM-compatible systems in
Europe. But the effort, said Dataquest analyst Philippe de Marcillac, was too
little and too late.

    ''If they had just been more wholehearted about things,'' de Marcillac
said, ''a lot would have been different.''

    Many analysts, company insiders, shareholders and other Commodore
stakeholders lay the blame squarely at the feet of Gould and his lieutenant,
Mehdi R. Ali, the president of the company.

 FINGERS POINTED AT TOP

    In 1993, when the company lost $356.5 million, Gould drew a salary and
benefits of $708,333; Ali's salary and benefits amounted to $1,038,098.
Neither was awarded bonuses that year, according to the company's proxy
statement. And for the current fiscal year, Ali had his base salary reduced
from $1 million to $750,000, and Gould's was reduced from $750,000 to
$250,000.

    ''There is only one answer for what happened to Commodore, and that's
Irving Gould,'' said Tim Bajarin, president of Creative Strategies
International, a computer-marketing consulting firm in San Jose.

    ''He lived by quarterly numbers,'' Bajarin said of the Commodore chairman.

 ''I don't think he ever understood the computer revolution and what it took
to take part in the infrastructure of the computer revolution.''

    What it took was an operating system common to many computers, Bajarin
said. ''But he kept moving in proprietary directions.''

GOOD AT FINANCE, BUT  . . .

    Like Gould, Ali knew how to read a balance sheet, Commodore employees
said.

 What he didn't understand was the computer business.

    ''He was very sharp at finance,'' said Higginbottom, who left the company
in 1991. ''He never understood that if you are going to have a proprietary
operating system, you have to go to great lengths to support the people who
are writing software for your system. Apple understood that. Mehdi Ali did
not.

    ''He just didn't know the computer industry; he didn't understand
technology.''

    For the computer-oriented middle managers at Commodore's offices in West
Chester, where employment fell from more than 400 in 1984 to about 20 or so
when the liquidation was announced, the result was a harried and unpredictable
working environment, former employees said.

    ''Commodore was just so nuts,'' said Jackson, the engineer who was laid
off in June 1993, when the company seemed to give up any hope for the future
by letting go more than half of its engineers. ''If it appeared nuts from the
outside, it really appeared nuts from the inside.

    ''You didn't really have a computer company,'' Jackson said. ''Commodore
was a widgets company. They wanted anything we could hack together real quick
from existing technology and sell a zillion of them like we did with the
Commodore 64. And with that mentality, you can never really support
customers.''

    Indeed, many Commodore observers said, the success of the Commodore 64,
which came without an aggressive marketing campaign, may have spoiled
Commodore's top managers into believing that such was the way of the computer
business.

    ''So that's what they were always looking for, the next big hit,'' Jackson
said.

    When the Amiga didn't provide the big hit, the focus, in 1992, became
CDTV, for Commodore Dynamic Television. That product was intended to bring the
computer into the homes of people who were afraid of computers. A Trojan
horse, the CDTV had a computer on the inside, but no keyboard. It played games
and multimedia reference works on the family TV set, controlled by the couch-
potato's favorite tool, the hand-held remote control.

    But it, too, suffered from a lack of marketing. Analysts said that by the
time Commodore brought CDTV and its enhanced successor, CD32, to market, the
company's financial situation was too precarious. Credit markets would not
provide the funds needed to pay for a major advertising push. The product
languished even though some reviewers of CD32 have said it is better than the
well-hyped products by Sega and 3DO.

                                       *

    The epilogue to Commodore's sad story is anybody's guess.

    ''There is so much speculation; people are mentioning Hewlett-Packard and
Philips and Sony as possible buyers of the technology,'' said Michael Levin, a
former Commodore employee who heads the Commodore Shareholders Movement, the
Internet-linked group that tried to oust the company's management.

    ''The dream would be a consortium of Amiga developers,'' he said,
acknowledging that such a scenario is, for now at least, fairly far-fetched.

    ''The dice are being rolled, and anything could happen with the Amiga
technology,'' he said.

    Indeed, all that can be said for certain about the future of Commodore and
its Amiga technology is that the lawyers are likely to have a field day
interpreting Bahamian corporate law.

    In the meantime, computer junkies across the globe will be watching events
unfold. One young Commodore customer posted this message on the Internet last
weekend:

    ''I am a very shy teenager who grew up with few friends. What did I care?
I had my Commodore computers! THEY were my friends. They didn't care about the
way you looked, the way you spoke, the way you did ANYTHING! Just press RETURN
after every line; that's all they wanted. In a way, I have lost a friend. I
cannot say that I didn't give birth to a small tear when I heard the news of
(Commodore's) liquidation.''


 GRAPHICS: PHOTO (2)
  1. Chairman Irving Gould, in a 1987 photo, lent $17 million of his own
    funds to Commodore last year, but that didn't stem the losses.
    (For The Inquirer / CORI WELLS BRAUN)

  2. For Commodore International Ltd., the surge provided by its first big
     product, the Commodore 64 personal computer, fizzled as competitors
     entered the market.

 CHART (2)
  1. Personal computers shipped
  2. Share of market (SOURCE: Dataquest; The Philadelphia Inquirer / ROGER
     HASLER)