Making Economic Sense
Making
Economic Sense
by Murray Rothbard
(Contents
by Publication Date)
Chapter 54
Competition at Work: Xerox at 25
Little over 25 years ago a revolutionary event
occurred in the world of business and in
American society generally. It was a revolution accomplished without
bloodshed and without
anyone being executed. The Xerox 914, the world's first fully-automated
plain-paper copier, was
exhibited to the press in New York City.
Before then copiers existed, but they were clumsy
and complex, they took a long time,
and the final product was a fuzzy mess
imprinted on special, unattractive pink paper.
The advent of Xerox ushered in the photocopying age, and was successful
to such an extent that
within a decade the word "xerox" was in danger of slipping out of
trademark and becoming a
generic term in the public domain.
Many people, and even some economists, believe that
large, highly capitalized firms can
always outcompete small ones. Nothing could be further from the truth.
In the pre-Xerox age, the
photography industry was dominated, at least in the United States, by
one giant, Eastman Kodak.
And yet it was not Kodak or any other giant business or massive
research facility that invented or
even developed the Xerox process. It was invented, instead, by one man,
Chester Carlson, a New
York City patent attorney, who did the initial experiments in the
kitchen of his apartment home
in 1938. Carlson then looked around for a firm that would develop a
commercial product from
his invention. He first thought of Eastman Kodak, but Kodak told him it
would never work, that
it was too complex, would be too costly to develop, and, most
remarkably of all, would have only
a small potential market! The same answer was given to Carlson by 21
other large firms such as
IBM. They were the "experts"; how could they all be wrong?
Finally, one small firm in Rochester took a gamble
on the Xerox project. Haloid Co., a
photographic paper manufacturer with annual sales of less than $7
million, bought the rights to
the process from Carlson in 1947, and spent $20 million and 12 years
before the mighty Xerox
914 came on the market in the fateful fall of 1959. Horace Becket, who
was chief engineer on the
Xerox 914, explains that "technically, it did not look like a winner .
. . . That which we did, a big
company could not have afforded to do. We really shot the dice, because
it didn't make any
difference." Small business can outcompete, and outinnovate, the
giants.
Haloid Co., then Haloid Xerox Co., and finally
Xerox, became one of the great business
and stock-market success stories of the 1960s. By the early 1970s, it
had captured almost all of
the new, huge photocopier market, and its 1983 revenues totaled $8.5
billion. But by the mid
1970s, Xerox, too, was getting big, bureaucratic, and sluggish, and
Japan invaded the photocopy
market with the successful Savin copier. As competition by new
originally small firms
accelerated, Xerox's share of the market fell to 75% in 1975, 47% in
1980, and less than 40
percent in 1982. As one investment analyst commented, "They had an
aging product line. They
were caught off guard."
In the world of business, no firm, even the giants,
can stand still for long. In trouble,
Xerox fought back with its new and improved 10 Series of "Marathon"
copiers, and in 1983 the
company increased its share of the photocopy market for the first time
since 1970; and its record
considerably improved in 1984.
So, Happy Birthday Xerox! The Xerox success story
is a monument to what a brilliant
and determined lone inventor can accomplish. It is a living testimony
of how a small firm can
innovate and outcompete giant firms, and of how a small firm, become a
giant, can rethink and
retool in order to keep up with a host of new competitors. But above
all, the Xerox story is a
tribute to what free competition and free enterprise can accomplish, in
short, what people can do
if they are allowed to think and work and invest and employ their
energies in freedom. Human
progress and human freedom go hand in hand.
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