A Misinterpretation from IBM’s Consultants and the Rise of Xerox 

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Xerox being a colloquial word

All of us at some point in life were more familiar with the word Xerox than photocopying. Perhaps, some of us even find it inconvenient to say photocopy and rather prefer to stick with the word Xerox in day to day practice. That’s the impact Xerox has had in the photocopying industry. They were the first to introduce a machine in the corporate sector which was capable of producing similar copies with a great quality, disrupting carbon copying and stenciling forever. 

Despite the rich history, profits and the impact – there was a point when Xerox had no option but to sell the company at bargain basements and yet the proposal was defenestrated by giants like IBM, General Electric and Kodak.

Millennials usually have the reference of Yahoo rejecting to buy Google when they think of a firm who rejected the opportunity which would have helped them to dominate the market. But six decades ago, IBM was in a similar position and one rejection saw the rise of a micro enterprise from bankruptcy to an unheard dominance. 

This is the story of Xerox.

The Invention of Photocopying 

Electrophotography, better known as xerography or simply dry photocopying was invented by Chester Carlson who was an attorney at a patent law firm. His job required him to make copies of patent documents on a regular basis. He found carbon copying and stenciling to be tiresome as only limited copies could be produced after spending a great deal of time. This led to Carlson thinking of a technology that could produce copies in no time with great qualities and that the offices could benefit from making copies on site. Being a lawyer as well as a physicist, he began experimenting in his apartment kitchen which would often leave his building with foul smells. He thought of over 400 ideas that could be implemented and kept experimenting one after another. He was convinced by his wife that he cannot conduct his experiments in the kitchen, after which he rented an apartment which he used as a research laboratory and even hired an assistant.

On 22nd October 1938, after more than half a decade of having the idea, they got the historic breakthrough when a zinc plate coated with sulphur was rubbed, in dark, with a cotton handkerchief to apply an electrostatic charge and then exposing it to a bright light created the first photocopy. Being a patent attorney, he soon patented his invention.

Chester Carlson and the first photocopy

The Struggle to Commercialize

From 1939 to 1944, Carlson was turned down by more than 20 companies even though his invention had the potential to disrupt the market. In 1944, he finally got his contract when Battelle Memorial Institute signed a Royalty Sharing Agreement for the photocopies. During the time, Battelle’s risk of considering Carlson’s idea made headlines which came in the notice of Haloid, a small photo paper company which was later known to be Xerox. Three years later, Battelle along with Carlson entered into an agreement with Haloid and gave the right to develop a xerographic machine. The contract cost Haloid $10,000 which was ten percent of Haloid’s total earnings in the last couple of years. After the indenture, Battelle conducted research on electrophotography and Haloid focussed on developing a commercial product out of the results. Carlson, being worried about the slow pace of research and that his patent would expire in a few years, joined as a consultant to Haloid.

IBM’s Rejection 

In 1959, 21 years later after the first photocopy was seen, Haloid unveiled the 914, a machine which was capable of producing thousands of copies within a few minutes. It was the first convenient office copier. Interestingly, Haloid had spent all its money in the last couple of decades for the research and development, producing only a single unit. Without any money left to produce and market the copier, they went to IBM who with their vast sales and service network seemed to be the perfect partner. 

IBM considered looking out for this opportunity and asked Arthur D. Little, a well-known management consulting firm, to investigate this proposal. After their analysis, they discarded the offer stating it as an unprofitable venture. The report said, “Although it might be admirably suited for a few specialized copying applications, model 914 has no future in the office copying business”. This analysis even led to rejections of the 914 from General Electric and Kodak.

Arthur D. Little’s report on the 914 which was submitted to IBM

The Rise of Xerox

After having to face multiple rejections, Xerox, earlier known as Haloid, gave up on selling the 914 and instead offered customers a lease. As per their subscription plans, the customers would pay $95 a month with free copying up to 2,000 copies a month promising to pay as little as $0.04 per copy thereafter. The lease could be cancelled on 15 days notice. 

This scheme was not only a great deal for customers in terms of investments and maintenance but also allowed a varied range of offices to experiment with using the machine and look if it was actually helpful for them. Overnight, the demand for Xerox’s copier increased by leaps and bounds, and users became so much dependent on the photocopying machine, that they started buying it from them rather than getting binded to any leasing agreements.

Xerox subsequently grew a compound 41% per year for the next 12 years and became one of the most profitable US companies for a long time afterwards, dominating the market at such degrees that even when other companies tried to enter, there was hardly any scope left for them.

Over the years, Xerox continued the research and would launch products with improvements, reaching new heights in the photocopying business which not only disrupted the market forever but revolutionized the paper copying industry. Their legacy was a result of a rejection that they had faced from IBM for their first product. If IBM would have considered accepting the proposal, the colloquial languages would have had a different word for photocopying. But amongst all the ifs, which wouldn’t have mattered if Xerox would have given up on the product and declared themselves as bankcurrupts. Their sheer perseverance is what led to their legacy and nothing would matter in front of that. Therefore changing the perspectives and the office cultures for decades to come.

– Vedant Paradkar