Ten tech firms that blew it

Technology is an unforgiving business. Companies that appear to have unassailable leads in their market one minute can find themselves fearfully looking in the rear-view mirror the next. Technology firms are always at risk of being superseded by someone faster, smarter or richer.

In this feature, however, we’re focusing on the companies that contributed to their own downfall, with one or a series of catastrophic decisions that wreaked irreparable damage to their business.

Our top ten spans smartphones, servers, storage and more. We also profile one firm that managed to bounce back from near-oblivion.

Nokia

In early 2007, Nokia was the world’s largest handset manufacturer. It had just released the N95, the first truly consumer-focused smartphone. But only a few months later, Apple revealed the iPhone, leaving the Finnish firm so far behind that it’s still trying to catch up.

It didn’t need to be that way. Well before Apple’s innovations arrived, Nokia not only had the largest slice of market share and a reputation for building high-quality handsets, it also had the idea for touchscreen phones. Nokia showed off a prototype of a web-enabled touchscreen device as far back as 2004, but it canned the idea because of high development costs.

Nokia had even latched onto the idea of mobile apps before Apple made them a worldwide phenomenon. Dubbed WidSets – or “mini-applications”, as we described them at the time – the concept made PC Pro’s list of top techs to watch for in 2007.

Four years on, WidSets were subsumed into Nokia’s Ovi Store, a pale imitation of Apple’s massively successful App Store.

The player also spewed out more pop-ups than a dodgy porn site

Imagine an alternative tech world in which Nokia released the first touchscreen smartphone and popularised the app store. That thought must bring tears of regret to Nokia’s shareholders, employees and the Symbian community. Instead of dominating the mobile market, Nokia was forced to cut a deal with Microsoft to survive.

The deal will reportedly be worth billions of dollars to ailing Nokia, but it could have been so much more than merely Microsoft’s handset maker.

Real Networks

At one point, you could barely watch a video or listen to a music clip online without needing RealPlayer on your PC. It was so ubiquitous that it was bundled as an optional extra with Windows 98.

However, Real Networks ultimately managed to throw itself onto the pyre of smouldering tech failures by irritating the hell out of its own customers. RealPlayer had a habit of installing itself as your default media player for every media file type under the sun, even when you hadn’t asked it to.

The player also spewed out more pop-ups than a dodgy porn site, turning the Windows System Tray into a cheap motel. And it was at the centre of a privacy storm in 1999, when the Real Jukebox software was found to be phoning home with details of songs its users were listening to, forcing the company into a hasty patch.

With the web moving towards open, non-proprietary media formats, RealPlayer has shrunk into – frankly deserved – obscurity. In 2000, it was the most-used internet media player, according to Nielsen; last year, it was a rapidly declining fifth.

QuarkXPress

QuarkXPress was the first publishing application with the power to replace traditional layout and typesetting methods completely – and it ran on a modest desktop computer.

In 1998, the Zip drive claimed 87% of the “high-capacity” disk market, according to analyst IDC – in an era when “high capacity” meant 100MB

Publishers small and large leapt at it. Within ten years of its launch in 1987, it had reportedly cemented a 90% share of the booming desktop publishing market.

Although Quark’s success came quickly, however, the software itself evolved at a glacial pace. In those ten years it gained a mere handful of new features – and missed some important ones, including the ability to produce PDFs.

While both the Mac OS and Windows repeatedly refined and redesigned their user interfaces, Quark stuck with exactly the same crude, chunky front-end it had always used.

Things got worse in 2001, when Apple introduced the brand-new OS X. QuarkXPress took two years to provide an update that ran natively in the new OS, angering many of its users. Worse still, rather than trying to address complaints, Quark CEO Fred Ebrahimi dismissed them, inviting those who were unhappy with Quark to “switch to something else”.

Most professionals did just that. While Quark had been taking its users for granted, Adobe had been perfecting its own DTP package. Originally launched in 1999, successive versions of Adobe InDesign quickly came to offer a fuller set of features than QuarkXPress, with a more sophisticated interface and a much faster update cycle.

Today, Quark’s market share has plummeted to around 25%. The company still sells publishing software (see our review of QuarkXPress 9), but there’s no doubt that its heyday is behind it.

Iomega

In the days before external hard disks were affordable, and online backup was as fanciful as taking Kylie home for tea, Iomega dominated the external storage scene. In 1998, the Zip drive claimed 87% of the “high-capacity” disk market, according to analyst IDC – in an era when “high capacity” meant 100MB.

Yet Iomega’s grasp on the external storage market wasn’t to last. The infamous “click of death” – where misaligned heads caused Zip disks to all-too-audibly fail – severely dented Iomega’s reputation for reliability. However, its rigid adherence to its expensive, proprietary storage format was ultimately its undoing.

As our 2002 review of the Iomega Zip 750 noted, the device itself cost £145 and the 750MB Zip disks another £10 each. With CD-RW drives at that time costing only half as much, and blank discs only a few pennies each, Iomega was fighting a losing battle. And instead of encouraging an eco-system around its Zip products, Iomega resorted to suing companies attempting to sell “Zip-compatible” media.

In 2008, Iomega – whose share price had fallen from a high of over $100 to $3.60 – was bought by storage giant EMC. It still produces a wide range of consumer products, but its days as a household name are over.

Palm

A decade or so ago, Palm could do little wrong in the eyes of PC Pro’s reviews team. The “perfectly formed” Palm III won our December 1998 PDA Labs, while the legendary Palm V, with its metallic case and hinged leatherette cover, was a design classic.

It achieved Hoover-like levels of recognition among gadget fans: you didn’t buy a PDA, you bought a Palm Pilot.

Palm was therefore almost perfectly placed to make the transition from PDA to smartphone. So what went wrong?

The internal turmoil at Palm HQ certainly didn’t help. 3Com’s takeover prompted Palm founders Jeff Hawkins and Donna Dubinsky to strike out on their own and form the ill-fated Handspring, which split the loyal fanbase and Palm’s product development.

The decision to spin off Palm OS as a discrete company – separating the software side from the hardware division – was equally catastrophic, creating unnecessary upheaval at a time when more nimble rivals such as RIM’s BlackBerry were emerging and defining the early smartphone market.

In the end, Palm OS was run into the ground to such an extent that the company was forced to abandon it altogether and bet the house on webOS and the Palm Pre – a move that paid off in the form of a $1 billion takeover by HP, but which currently looks unlikely to return the Palm brand to the market-leading position it once enjoyed.

AOL

In the early years of the web, AOL was how millions of people first got online. The company hooked users by flooding mailboxes and magazines with what felt like billions of CDs offering a few free hours of internet access, addicting people to the web like a dealer offering the first hit for free.

The tactic clearly worked, as did a deal with Microsoft in 1996 to bundle AOL’s software and web access with Windows. AOL became synonymous with instant web access, solidifying its reputation as the easy way for less technically savvy people to get online.

Yahoo didn’t just blow it once – the firm arguably missed a hatful of opportunities to save itself

The company was by far the biggest internet provider in the US and had more than 35 million subscribers globally, leaving it rich enough to shell out a stunning $147 billion to buy Time Warner – owner of CNN, among other media firms – in 2001.

A decade on, the tables have turned. Time Warner has spun off AOL, and the firm is now a punchline for jokes about people who don’t quite understand the internet. What happened?

AOL may have had access to a vast wealth of Time Warner video content, but remarkably it failed to migrate its customers to broadband to enable them to enjoy all that content. It has now refocused on selling advertising online, buying up blog properties such as The Huffington Post, but it still makes 40% of its revenue from subscribers to its web services and dial-up access.

In light of reports that as many as 75% of its dial-up subscribers also have a broadband service – which suggests they’re paying purely for AOL email and other web services – a focus on content may indeed be AOL’s only hope for survival.

Yahoo

Yahoo didn’t just blow it once – the firm arguably missed a hatful of opportunities to save itself.

The one-time search leader was caught cold by Google’s superior search technology – so much so that in 2000, it actually borrowed Google’s engine to power its own search results. Indeed, Yahoo liked it so much it tried to buy the company, but then-CEO Terry Semel refused to improve on a $3 billion offer for Google in 2002.

Two years later, Google’s IPO valued the firm at $27 billion, and today it’s worth a staggering $184 billion. While doubling or even tripling the offer may not have been enough to force Google’s hand, Yahoo’s unwillingness to take a risk on what would become its biggest competitor spoke volumes.

Yahoo repeated the mistake with Facebook in 2006, refusing to offer more than $1 billion for the social networking firm. Today, according to Goldman Sachs, Facebook is valued at $50 billion.

Possibly the biggest Yahoo misstep – for its shareholders, at least – was turning down Microsoft. The firms had been in acquisition talks for three years when Microsoft lost patience and made an unfriendly takeover bid – or as unfriendly as $44 billion can be. Yahoo dodged the deal, and a subsequent offer of $20 billion for its search business, but eventually signed on for a ten-year search partnership.

Yahoo is now valued at half of Microsoft’s buy-out offer, and is now focusing on ad sales and letting Microsoft’s Bing take on the mantle of official rival to Google.

Friends Reunited

Friends Reunited not only pioneered social networking in Britain but, miraculously, found a way to make people pay.

Set up in 2000 by husband and wife team Steve and Julie Pankhurst, Friends Reunited was based on the premise of looking up old school friends. In the days before Facebook, the voyeuristic draw of finding out what had happened to former classmates proved irresistible, and it became the most talked-about site of the early 21st century.

The genius of Friends Reunited’s business model was charging users if they wanted to contact old school chums. The prospect of millions of users handing over £5 each provoked wild valuations of the company’s worth, even in the post-dotcom-boom era, finally tempting broadcaster ITV to buy the site for £120 million in 2005.

But few ever paid twice for Friends Reunited.

Once you’d handed over your fiver, shared a few reminiscent emails with Steve from the school football team, made an awkward pass at a teenage crush, and worked out that Dave from 3C was still the pillock he was 15 years ago, there was no incentive to go back. No status updates, no applications, none of the things that allowed Facebook to come along and steal Friends Reunited’s dinner money a few short years later.

Friends Reunited eventually dropped the fee in 2008, but by then all life had been sucked out of the site. ITV sold it last year for a reported £25 million – barely a fifth of what it had paid for it.

Dec Alpha

Alpha was a revolutionary CPU architecture. Designed by DEC and launched in 1992, it was intended as a workstation and server platform that would remain stable for decades, through successive generations.

Accordingly, even though a fully loaded server at the time might have had no more than 4MB of RAM, Alpha was implemented as a fully 64-bit architecture capable of addressing 16 million gigabytes of memory.

In order for Alpha to achieve its intended long life, DEC realised that performance would need to scale up enormously over time. Alpha was therefore equipped with an extremely simple instruction set, and lacked some of the sophisticated features found on modern processors, so that massively increased clock frequencies and any number of additional cores could easily be implemented in the future.

On paper, Alpha was brilliant, and it got off to a good start: Unix and VMS distributions were ported to run on Alpha chips, and Microsoft published Windows NT for the Alpha architecture.

Apple came perilously close to going out of business. After Steve Jobs was ousted in 1985, the firm stumbled through a series of missteps

Unfortunately, although the product was sound, the strategy wasn’t. Almost as soon as Alpha processors appeared, businesses began to move away from workstations and multi-user servers in favour of increasingly cheap and capable Windows PCs.

Microsoft shifted its focus to this market and began to phase out support for Alpha, leaving the platform – and its manufacturer – to serve a shrinking niche market. DEC faltered, and ended up being bought by Compaq, which was in turn acquired by HP, which halted development of Alpha processors in 2004.

Sun Microsystems

Sun’s early sales success was partially responsible for its downfall. It sold oodles of its flexible systems to startups and web firms during the boom of the 1990s, leaving a glut of second-hand equipment in the market when the bust ruined everyone’s fun.

Sun also continued to focus on systems based on its own Sparc architecture while x86 was taking off, leaving it trailing behind in the enterprise space.

Despite the ensuing sales troubles, Sun managed to stay innovative, buying and open-sourcing the productivity suite that became known as OpenOffice, creating Java and even offering utility computing systems a year before Amazon unveiled its own cloud product.

None of that could hold off the inevitable, however, and Sun’s value slid to $3 billion in 2008. A year later, after shunning IBM’s offer, Sun was bought by Oracle, leading many to speculate that the classic tech firm may be dismantled for parts.

Think of what Sun has created or backed: Sparc, Java, Solaris and OpenOffice. The latter still exists, but after disputes with Oracle, key developers forked it off to create LibreOffice – now the default productivity suite for Ubuntu. And Oracle has already started using its ownership of Java to start hassling Google over Android. In other words, two of Sun’s key open technologies have already been killed off or are being used as a blunt object to smack rivals. That isn’t much of a legacy for such an innovative firm.

Apple: the comeback king

If any of the surviving companies in our top ten are short on belief that they can still turn it around, they should look no further than Apple.

The company has gone from the brink of bankruptcy to the biggest tech company in the world, thanks to the success of the iPod, iPhone and iPad.

Apple came perilously close to going out of business. After Steve Jobs was ousted in 1985, the firm stumbled through a series of missteps, and its more expensive machines couldn’t keep up with cheaper PCs and clones.

In 1997, however, Steve Jobs strolled onto the stage at MacWorld Expo as interim CEO, with $150 million in backing from Microsoft. Apple fans in attendance apparently booed the move, but Jobs quickly set about rebuilding the company he helped found.

While Apple has never recovered its market share on the desktop, high margins and a series of market-defining devices have seen it top the market value of its saviour Microsoft. It’s a Cinderella story any struggling tech firm would hope to emulate, although it’s left many worrying each and every time Steve Jobs takes medical leave.