Will Entering This Market Make Business Sense?

Business managers have to evaluate whether and when to create products to serve market demand. Misreading the depth of the market can lead to significant financial losses. This case, while illustrative, is based on a series of real events. Names and places have been changed to protect the innocent.

The year is 1982. Apple is a major player in the nascent personal computer industry and has recently introduced its Apple II machine. Microsoft is becoming a major player in operating systems and software. Windows is a distant thought on a far horizon. You get the picture.

An Atlanta-based major publisher of children's magazines has launched a new publication to position itself as a category leader in a brand-new market of personal computing education and entertainment. They've devoted a major portion of their editorial staff to bringing the new publication online, and they've hired research staff to support the publication.

The excitement around the possibilities were palpable, and the well-heeled division publisher knew beyond doubt that American children would be lining up to buy computers, just like he did for his daughter.

There was just one minor problem.

One of the junior researchers started looking into market penetration of personal computers, and what she found didn't bode well.

Even though Google hadn't been invented yet, it was still possible to conduct market research by reading publications from inside the computer industry as well as education focused periodicals. She discovered a few things:

• Very few parents were buying personal computers. Partly this was a cost issue. A reasonably equipped PC cost about $2,500. Compared to a reasonably new-but-used car that would go for $3,000, most families would say, I know what to do with a car, but what the heck would I do with this PC thing?
• Most personal computers that kids had access to were located in schools, and not at home. Beyond the location, most schools did not have a lot of computers available. They were typically located in a computer lab, and most kids got at most one 30 - 40 minute period every couple of weeks. The typical ratio of computers to kids was estimated at somewhere between 30 - 50 kids for each machine.
• Very little software was available for kids. Most software that was available for PCs in that era focused on business productivity.
• Kids were not yet glued to a screen. Most kids played outdoors, or they were finding their way to an arcade in a shopping mall to play a relatively new game called Pac-man. 

Over several weeks, the junior researcher became convinced that there was no market for this publication. She wrote it up, and submitted her findings to her manager and the publisher. The report, as you might imagine, was not received well.

The publication did not last for a year before the company decided to pull the plug.