Commodore was more than a stock scam

From time to time, I see the phrase “Commodore stock scam” or something similar come up in my search engine logs. Commodore, in case you don’t know, was a high-flying computer company in the 1980s that was literally making computers as quickly as they could sell them while Apple struggled for its survival, and was in the enviable position of being the main supplier of chips for its competitors. Imagine if Intel sold computers at retail next to HP and Dell, while still selling chips to Dell. That was Commodore in 1984. I don’t have 1984 figures, but in 1985, Commodore had 38% of the computer market all to itself. IBM and its clones, combined, had 49%. Apple had 13%.

But a decade later, Commodore had squandered all of that away and was out of business. That’s why Robert X. Cringely sums up Commodore as Irving Gould‘s stock scam, then goes back to writing about Apple.

The real story is more complicated than that. More interesting, too.

Commodore started out as a typewriter manufacturer, founded by Auschwitz survivor Jack Tramiel. Tramiel struck up a business partnership with a financier named Irving Gould early in the company’s existence. Gould provided the company with a cash infusion and saved it from bankruptcy; Tramiel continued to run the company, but the impression I get from the few histories of Commodore that exist is that Tramiel couldn’t spend much money without asking Gould first, and Gould was more inclined to say no than yes.

In time Commodore grew from making typewriters to making calculators. Then its main supplier, Texas Instruments, decided to compete with them. TI sold whole calculators to the public for less than it charged Commodore for a few chips. So Commodore bought a struggling chip maker, intending to compete with Texas Instruments on equal ground. With that chipmaker they got a chip designer named Chuck Peddle, a design for a simple single-board computer, and Peddle’s idea for expanding that board into a full-blown a desktop computer.

Peddle managed to talk Tramiel into pursuing the computer business. But Peddle was out of the picture by the time Commodore’s computers became a big success. Commodore released the VIC-20, in 1981, which was the first color computer to sell for less than $300. To the surprise of everyone, it took off, and outsold every other computer on the market in 1982. It was underpowered, but the timing was right and it sold 2.5 million units. Commodore followed that success with the C-64, which went on to sell more than 20 million units. The 64’s success literally was paralyzing; Commodore had to cancel some other machines in order to free up capacity to make 64s.

But the success came at a high cost. Commodore constantly fought a price war, lowering prices (and profits) aggressively. This drove a lot of competitors out of the market. It kept the Japanese from entering it. And it nearly drove Apple and Atari out of business. It also meant Commodore didn’t have a lot of capital to show for its sales. Without that capital, they weren’t able to invest in infrastructure and people the way others could.

In 1984, Tramiel left the company over a disagreement over how to run it. I’ve read differing accounts. In 1986 he said he wanted to issue more stock and use the proceeds to pay off the company’s debts, and “the man I worked for” (Gould) didn’t want to. I’ve also read he wanted to bring his sons into the business, and Gould didn’t want to let him. It could be both were true, and there may have been other reasons too.

Commodore never duplicated the 64’s success. With Tramiel gone, Gould installed executives he poached from other companies, but none of them stayed long enough to have any lasting success or impact. Commodore continued to sell 64s at an impressive rate, and the follow-on 128 sold a few million units, and Commodore was able to buy the promising Amiga project to make up for its lack of a promising technology to follow the 64 and 128, but the Amiga never lived up to its promise either, only selling about 3 million units total from its introduction in 1985 to 1994. Commodore also got into the PC clone market with some success, especially in Europe. That fell apart when they waited too long to enter the 386 and 486 era.

Gould did pay himself a lavish salary for not doing much other than saying no, even as Commodore’s market share and profits floundered. And he incorporated the company in the Bahamas, making it difficult for shareholders to get their say in their annual meetings and otherwise taking advantage of Bahaman law versus U.S. or Canadian or British law. And in the early 1990s, Commodore ran out of money and out of time.

That may be why Cringely calls Commodore a stock scam, because in the decade after Tramiel left, Gould basically let the company bleed. But even that is an oversimplification, because he did allow the company to try to expand into the PC business, and to buy Amiga. Then he didn’t know what to do with those businesses once he was in them. But there’s a difference between being in over your head and making sure you’ll get paid handsomely whether the company succeeds or fails, and just running an outright scam.

I find it odd that I’m defending Irving Gould, because he ran my favorite computer company into the ground. I have no reason to like the man. But, as a friend told me once, the simplest answer is often the correct one, and Gould wouldn’t be the only person who ever found himself running a company he didn’t understand.

Keep in mind Gould is dead and not around to defend himself. But there’s little question he didn’t know what he was doing when it came to computers. He was also shrewd enough to see how he could make money even if the company failed. Perhaps Commodore would stumble back into success again the way it had with the VIC and the 64. Perhaps not. So he paid himself what he could get away with, not a penny less and not a penny more. When the inevitable eventually happened, he moved on.

But that’s abuse of power, not a scam. So I argue the Commodore stock scam was just Irving Gould looking out for Number One.

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