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HARD START FOR NEW SOFTWARE IBM admits problems with OS/2 launch


NEW YORK -- Top executives of International Business Machines have conceded that they mishandled the launch of OS/2 2.0, a software product they consider key to the company's $8.5 billion personal computer business.

The admissions came amid complaints from computer dealers and consultants that IBM mistakes had already cost it the first round of a battle with Microsoft Corp. The Redmond, Wash., software company's rollout of a competing software product called Windows 3.1 has gone much more smoothly, analysts said.

IBM has plenty of time to recover from its early missteps, especially since sales of its OS/2 2.0 software are not expected to take off until late in the year.

But the company's failure to at least tie Microsoft in the race to market caused analysts to question the effectiveness of a December restructuring of IBM's desk-top computer business.

"Marketing of the entire OS/2 program has been little short of abysmal," wrote Thomas Kucharvy in the April edition of Summit Strategies' Market Vision newsletter.

"Few dealers have seen much interest in OS/2 and most will be too preoccupied with keeping up with demand for Windows 3.1 to devote much effort to selling OS/2."

While conceding the delays in supplying dealers, top IBM executives say OS/2 sales are exceeding IBM's projections.

"We were slow to get to market," admitted James A. Cannavino, who is in charge of IBM's $14 billion work station and personal computer business. "But we are making haste now."

Shipping delays were triggered when programmers at IBM's lab in Boca Raton, Fla., were told to keep working on OS/2 through March to add features requested by customers, said Lee Reiswig, the IBM executive who made the decision.

"We missed every checkpoint we set for this project," Mr. Reiswig said. "But now there is a bottom up, grass-roots demand driving this thing."

When IBM's March 31 launch date rolled around, outside software publishers were just starting to manufacture OS/2 diskettes. Advertising programs had not reached trade publications and notices had not been mailed out to users of earlier OS/2 software entitled to free copies of the software.

By late April, many dealers were complaining about the delay, leading IBM executives to second-guess their decisions.

"I never would have announced it without preloading [the sales network] if I had to do it again," said Fernand Sarrat, IBM's top PC marketing executive.

Meanwhile, Microsoft's $30 million marketing blitz for Windows 3.1 has been running full tilt.

By last Wednesday, the company had shipped 3 million copies of Windows 3.1 to computer dealers. Reviews of the product have dominated the covers of trade magazines and dealers are reporting brisk sales.

By comparison, IBM had sold about a half-million copies of OS/2 2.0, a pace that put IBM ahead of its own projections, Mr. Sarrat said.

About 98 percent of the orders taken over a new IBM toll-free telephone service came from people upgrading from Windows 3.0, Mr. Sarrat said. Almost 50 percent came from people using non-IBM machines.

Although much of IBM's $50 million OS/2 advertising budget remains unspent, many analysts said the company has already lost the first round of the marketing war with Microsoft.

Nor has IBM made much progress persuading competing PC makers to program their machines with OS/2 at the factory. While many companies have expressed interest, only Reply Computer and IBM were "bundling" OS/2 with their machines as of last week, Mr. Cannavino said.

Microsoft, meanwhile, has licensed Dell, AST, Digital Equipment, Tandy, Zenith, Packard Bell and Gateway 2000 to bundle Windows 3.1, according to Summit Strategies.

Mr. Sarrat emphasized that the battle has just begun and that IBM's enormous sales force was pushing OS/2 worldwide.

Since March 31, IBM has introduced the software in 12 languages to 255,000 people and persuaded half the nation's Fortune 500 companies to test it, Mr. Sarrat said.

The company has also staffed a "SWAT Team" with experts from its Boca Raton lab to help its branch offices close OS/2 sales with major accounts.

Additionally, district sales managers' bonuses have been tied to converting their top 150 accounts to OS/2 and 70 people have been assigned exclusively to recruit companies to develop software for OS/2.

Some OS/2 skeptics will never change their opinion, Mr. Sarrat said.

"It's gone from: 'They can't develop it', to 'they can develop it,' to 'they did develop it,' " he said. "And now it's, 'they can't market it' "

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