After Adam Osborne sold his computer book-publishing company to McGraw-Hill in 1979, he decided to market an inexpensive portable computer with bundled software and hired Lee Felsenstein to design it. The resulting Osborne 1 featured a 5 inch 52-column display, two floppy-disk drives, a Z80 microprocessor, and 64 KB of RAM. It could fit under an airplane seat and survive being accidentally dropped. The bundled software package included the CP/M operating system, the BASIC programming language, the WordStar word processing package, and the SuperCalc spreadsheet program. Osborne obtained the software in part by offering stock in the new Osborne Computer Corporation, which he founded in January 1981. For example, MicroPro International received 75,000 shares and $4.60 for each copy of WordStar Osborne distributed with his computers. Unlike other startup companies, Osborne Computer Corporation's first product was ready soon after its founding. The first Osborne 1 shipped in July 1981, and its low price set market expectations for bundled hardware and software packages for several years to come. The company sold 11,000 Osborne 1s in the eight months after its July 1981 debut, with 50,000 more on backorder, although the early units had a 10 to 15% failure rate. The peak sales per month for it over the course of the product lifetime was 10,000 units, despite the initial business plan for the computer predicting a total of only 10,000 units sold over the entire product lifecycle. Osborne had difficulty meeting demand, and the company grew from two employees, Osborne and Felsenstein, to 3,000 people and $73 million in revenue in 12 months. The growth was so rapid that, in one case, an executive who returned from a one-week trade show had to search two buildings to find her relocated staff. The company announced in October 1982 a temporary bundling of Ashton-Tate's dBase II, increasing demand so much that production reached 500 units a day and severely diminishing quality control.
Competition
Despite early success, Osborne struggled under heavy competition. Kaypro Computer offered portables that, like the Osborne 1, ran CP/M and included a software bundle, but Kaypro offered larger 9 inch screens. Apple Computer's offerings had a large software library of their own and with aftermarket cards, could run CP/M as well. IBM's 16-bit IBM PC was faster, more advanced, and offered a rapidly growing software library, and Osborne's efforts to raise $20 million in capital to rush an IBM-compatible computer to market were unsuccessful.
According to proponents of the Osborne Effect theory, Adam Osborne damaged his company's current sales when he began showing the Osborne Executive to journalists in early 1983. Dealers rapidly started cancelling orders for the Osborne 1 in anticipation of the new Executive. Unsold inventory piled up and in spite of dramatic price cuts – the Osborne 1 was selling for $1295 in July 1983 and $995 by August – sales did not recover. Losses, already higher than expected, continued to mount, and OCC declared bankruptcy on September 13, 1983. Disagreement exists on whether the Osborne Effect truly caused the company to collapse, with Robert X. Cringely and Charles Eicher attributing its failure to other causes.
Bankruptcy
When it was apparent that the company would be closing down, a company meeting was held with all employees. The first round of layoffs involved sales staff, production staff, domestic marketing and most mid to low-level clerical support. These employees were presented with their paychecks only. The management that remained was primarily from the international marketing division. Nine days later on September 22, a group of 24 investors filed suit against OCC and several individuals, seeking $8.5 million in damages for masking the company's true financial situation and accusing several directors of the company of insider trading. Osborne emerged from bankruptcy in 1984 and released the Osborne Vixen, a compact portable running CP/M, in late 1984. However, the company never regained its early prominence. A last ditch effort to create a fully IBM compatible Osborne produced three prototypes, but too late to save the company from bankruptcy. Commercial rights for the Osborne brand name were later acquired by the Finnish clone PC maker which to this day markets its server and desktop PCs domestically under the previously world famous name.
