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Changing technology drives Alaska's computer industry.

Changing Technology Drives Alaska's Computer Industry

TWO MEN MUNCH PIZZA AT Anchorage's Dimond Mall, talking shop. Computer shop. One, recently arrived in Alaska, represents a line of minicomputers and software and sells his troubleshooting services. The other, a veteran of the state's computer industry, has been involved in sales, programming and repair and maintenance in the 49th state for more than a decade.

"The computer industry is changing up here," says the veteran. "Customization is where you make the money."

They discuss the growing power of microcomputers, which is pinching the minicomputer market, and the impact of technological advances on sales strategies. The veteran advises that in the small Alaskan market, competitors can sometimes be partners, that profitable strategic alliances among consultants can be established by those who know each other's strengths and weaknesses and have a good eye for new possibilities in computer applications.

New sales prospects, while not abundant in Alaska's current economy, can be uncovered by getting to know the state's business community. "Look for growing companies, those adding new subdivisions or subsidiaries," advises the veteran.

And be persistent, he says. Though businesses are increasingly computer automated, some good old-fashioned selling is sometimes needed to help potential customers understand the practical value of adding new technology to their operations.

Others familiar with computers in Alaska agree that rapid change in microchip technology and national and international consumer developments are affecting long-term trends in hardware/software sales and consulting here. Although recent shakeout in Alaska's computer sector has paralleled the general downturn, it is attributable less to declining oil prices than to increasingly competitive struggles by computer companies. Their challenges have focused on keeping pace with new technology and meeting the needs of today's more literate hardware/software buyers and their appetites for more powerful microcomputers.

The computer (or data processing, as it used to be called) industry in Alaska is made up of several segments, often overlapping and influencing one another. The industry is shaped by Alaska's geographical location and unique circumstances and by national and international computer change.

Among the suppliers are outlets dealing primarily in ready-to-use hardware and prepackaged software systems. These range from Anchorage's Costco and Pricesavers wholesale stores that sell inexpensive IBM clones to retail stores such as Computer Land, which carries several prominent name brands and provides the level of customer support mandated by manufacturers. Other equipment suppliers include manufacturers' representatives for companies such as Wang, IBM and Digital Equipment Corp.

Another kind of industry player is companies selling prepackaged software and custom-designed software and computer systems. These firms market to large and small businesses looking for comprehensive computer solutions for functions such as accounting, inventory control and payroll, as well as more specialized applications in vertical markets that include food services, aviation and tourism.

These value-added Alaskan companies include MicroAge, which is completing a major shift from a retail hardware emphasis to marketing computer solutions for business; TCBC/ Compueaze; and ComRim Systems, which specializes in custom computer programming for large corporations and institutions.

Also competing to supply computer components and services are numerous small one-line retailers, specialty shops, wholesalers, used equipment dealers and free-lance consultants.

Another smaller sector in Alaska's computer market is companies selling computer software solutions and expertise outside of Alaska. Many consider the export of computer technology to be a very promising avenue. On the other hand, very real obstacles exist.

The range of issues facing Alaska's computer industry as the 1990s begin are a complex mosaic of potentials and pitfalls. The industry not only is affected by winds of the state's economic fortune, but itself has potential to be a catalyst of economic fortune as well.

According to industry analysts, the computer issues facing Alaska include:

* National developments. Among these are the debate over the future of minicomputers, the growth of networking and systems integration, the surging power of microcomputers and the latest rivalries between industry giants, specifically Apple and IBM.

* The computerization of Alaska. Despite a high level of computer literacy and success stories proving the value of computer solutions, not everybody has seen the computer light. Many have lacked the resources to automate. Though the Alaskan market is considered shallow by national standards, vendors competing in the post-recession Alaska market have become more adept and sophisticated in marketing their wares and services. They look forward to hustling potentially large contracts with the state, military, school districts and municipalities, as well as with businesses.

* Crying foul. A number of vendors who covet the state's annual computer procurement contract are unhappy with the way the state has been making contract awards. They say Alaska officials are allowing large Outside corporations with low Alaskan overheads to take advantage of a loophole to earn the state bidder's preference. Inclusion of a preference system in bid evaluations was intended to level the playing field and compensate local firms for the high cost of doing business in Alaska.

* The future of high-tech exports. Alaskans can develop computer-based solutions to the unique problems arising from living in a rigorous environment far away from anywhere and sell these solutions elsewhere. But experts agree the scenario requires healthy investment; a supportive infrastructure - for example, dedicated assistance of state agencies and university participation; and a strong commitment to marketing.

One national trend shaping business in Alaska is the increasing power and decreasing costs of microcomputers. Further, new ways are being developed to tie personal computers together in evermore powerful applications.

For perspective on computers, remember desktop-and even laptop-sized microcomputers, also called personal computers, have the least power and most mobility. Minicomputers are multi-component systems requiring at least the space of a large desk and are capable of networking to allow various users to share the same data.

Mainframes, which occupy the space equivalent to an entire room and require a temperature- and humidity-controlled environment, are the most powerful computers, offering the ability to process and store huge amounts of data in addition to networking. They are the backbones of highly integrated data processing systems such as those used by banks.

Martin Tschannen, marketing vice president for Alaska Datatronics Inc. in Anchorage, says, "Probably the biggest development of the past five years has been the `local area network,' LAN for short. These personal computer networks basically allow a group of personal computers to work together, to share information, to share the desk space, to share printer resources, to share tape drive resources and allow for a much smaller sum of money for processing power that you could only achieve with a mainframe before."

Tschannen notes that although bugs still are being worked out of LAN software, the networks are viable. What's more, they rival the capabilities of minicomputers for a fraction of the previous cost.

For the near term, however, mainframes will continue to play a very important role in mid- and large-sized businesses. Personal computers and workstation software is not yet as powerful as minicomputers, he adds.

Dave Van Amburg, now a representative for Apple, was consulting in the minicomputer market when the microcomputer surge dumped him behind the line of scrimmage. "What it did was put a lot of pressure on folks like myself who were building custom solutions for minicomputers for people," he says. "Minicomputers became almost passe, they have almost dropped out of the marketplace. The mainframe has stayed there as the only means of processing huge volumes of data. But the personal computer has really taken over the low- as well as the mid-range of product."

Understandably, Van Amburg is a close observer of the IBM-Apple rivalry. He is convinced that technological developments favoring simplicity and user-friendliness are going to win out.

But as computers become easier for people to use, components facilitating the user interface, such as the keyboard and screen, are going to get more complicated. Those in the computer industry believe such trends will boost demand for their services. Says Van Amburg, "A network that involves hundreds of microcomputers trying to coordinate their activities and work is far more difficult to establish and maintain than is a mainframe that has terminals off of it."

Posturing. Local businesses are positioning themselves to continue the computerization of Alaska in light of these industry trends. Several can attribute their growing market shares to convincing Alaskan consumers that computer-automating was a smart strategy for getting through economic doldrums by cutting labor costs and creating badly needed efficiencies.

Craig Clark, president of TCBC/Compueaze in Anchorage, feels the sales surge will continue. His operation grossed nearly $1 million in sales in 1988 and $2.1 million last year. "I would say we're looking at doubling that for 1990," adds Clark.

He feels the success of TCBC/Compueaze hinged on shifting emphasis as the price of microcomputers continued to drop. Clark says 50 percent margins were not uncommon a few years ago. "Today those margins have eroded," he explains. "You can't make a living selling hardware, and it's going to get worse. To see 10 percent margins on that retail sale is not that uncommon anymore. If we try to exist as a retail store, we're going to go broke. We're a re-seller (of name brand hardware), and we're becoming basically a value-added re-seller."

According to Clark, competition is getting tougher and though the Alaska market is relatively small, there's a lot of work to be done. "Office environments in Anchorage are not fully automated at this time. There's a phone on every desk, a calculator on every desk. I think in the near future there will be a computer on every desk," he says.

MicroAge, purchased last year from Transalaska Data Systems by Jon Peacock and Tim Fargo, reports 1988 sales totalled $12.5 million. The company's outlets in Anchorage, Fairbanks and Juneau grossed $17 million between February 1989 and January 1990.

Fargo, president of MicroAge, says, "MicroAge is not perceived so much as a retailer as ComputerLand is. We have a focus on services. Our focus is to be out in the vertical markets in the line of business solutions."

He explains his company opted for a strategy of becoming more attractive and useful to the business clients it wanted to attract. Management has pursued an upscale image, moved to Midtown in Anchorage, redesigned the showroom to emulate a comfortable office environment, reduced the size but increased the technical qualifications of the sales staff, and raised the level of technical services. The strategy seems to be working. According to Fargo, about 80 percent of MicroAge's business comes from outside the store.

He points out that the profile of Alaskan computer consumers is changing: "We see a much different world than we saw two years ago. We're seeing a shift away from the entry-level customer." This greater literacy makes for more discerning shoppers with higher expectations focused on easy-to-use, powerful systems.

According to Fargo, in their eagerness to increase computer applications to their businesses and households, buyers are essentially pushing off the map of their own expertise and, in their relatively greater sophistication, seeking the added value that his firm and others are now positioned to provide.

Short Shrift. Although optimistic about continued sales growth, Fargo is concerned about procurement practices by the state of Alaska that he feels rob local firms of a fair opportunity to sell hardware and software to the state. He warns that the state practice could be the catalyst for further contraction in the computer sector.

According to Fargo, the Department of Administration has been granting the Alaska business bidder's preference even to companies such as the Sears Business Center in Juneau. A low-overhead operation with a handful of employees, the Sears outlet is licensed to do business in Alaska, but not as a name-brand computer re-seller. It supplies its Alaskan customers from a Bellevue outlet, which is a licensed reseller.

"The state is not looking at the interests of its constituency. It's going to be a growing problem," says Fargo.

Others agree. TCBC/Compueaze's Clark adds, "The state is hardly supporting the local computer business. Its method of purchasing is not beneficial to the industry."

Tschannen, too, feels the contracting problem is serious: "We face a higher cost of doing business in Alaska. It's tougher for us to compete with the higher overhead and the lower margins available to us today."

The state's potential role in developing a computer export business is also on the minds of many. Apple's Van Amburg regards the export segment as "virtually nonexistent." He says, "We've made some good attempts in that area and it represents the area that has what I think is one of greatest potentials. It's also been one that we haven't been very successful at promoting and doing something with."

In Alaska's favor, say Van Amburg and others, the state's high cost of labor, remoteness and other factors made computer-driven solutions for business and industry cost-effective before they were in other parts of the country. "We are probably more computer-intensive than most any other population of 500,000 people you'll find in the United States," notes Van Amburg.

Much of this progress is attributable to natural resource industries that have been operating in Alaska. Tschannen points to the oil industry's development of the pipeline and North Slope production facilities. "They found it would cost them perhaps $800,000 a man-year to have a man on three shifts watching an instrument on the Slope to make sure all of the processes were monitored and all of the functions were going smoothly. They decided that for an investment of $250,000 and perhaps one part-time person, they could put that money into data-processing equipment and reduce the cost of labor," he says.

Van Amburg notes that certain disadvantages that commonly hamper other Alaskan export enterprises don't stand in the way of computer export. Electronics components and software are light. Federal Express rates are the same for Alaska as elsewhere, and computer products are high value, so there is no shipping cost disadvantage. While overhead costs are higher per square foot in Alaska, electronics don't require large amounts of space for development and assembly.

Alaska also benefits from an experienced and technically qualified labor pool capable of developing computer products. Says Van Amburg, "So we've got people that would make us a resource. We've got a reasonably level playing field to work from until we get to marketing costs." Because of the absence of successful marketing, however, the name "Alaska" is a liability in promoting high-tech products.

Van Amburg also laments the lack of computer-development-minded infrastructure needed to support a serious research, development and marketing effort. "What we don't have is a university that is a center of excellence. I think we've got a good university; it's just that it's not focused. Our university has been given a charter to be everything to everybody. If I go to Stanford, I can find a center of excellence for some field or specialty," he adds.

Among other computer-based solutions, those developed for challenges such as delivering quality education in rural Alaska would be highly marketable in Canada, Australia, much of the Third World and even underpopulated areas of the Lower 48, Van Amburg argues. "We've got the greatest of all laboratories. If we were to focus resources, here's an area where we could lead the world," he says.

"There's a scarcity that exists out there today for knowledge and information that we don't have to wait to develop. If we simply solve some of our problems, without importing solutions, we will have a product right now we can export.

"The government programs designed to promote small business do not offer any compelling reasons to stay here and develop and grow. All of the Alaska nurturing programs for business seem to be focused on the service and resource industries. If we are to successfully nurture the producers of high value products, we must change some of this focus."

Whether or not Alaska takes a national or international lead in manufacturing innovative computer technology may depend a lot on the climate for investment and development created by the state, either through the university or other agencies. But other variables charting the 49th state's course include intangibles such as entrepreneurial spirit and savvy.

In fact, surviving and profiting in any segment of Alaska's computer industry requires a special breed. Says Tschannen, "Computer technology changes so fast, that to stay on top of it, and to successfully run a business at the same time, requires very shrewd business decision-making."

PHOTO : Consumers now can choose from a wide array of laptop computer models, such as these on display at ComputerLand in Anchorage.
COPYRIGHT 1990 Alaska Business Publishing Company, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Author:Richardson, Jeffrey
Publication:Alaska Business Monthly
Date:Mar 1, 1990
Words:2764
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