Why Amiga failed

I defiantly celebrated the 25th anniversary of Windows 95 by buying myself an Amiga 500. That relic from 1987 did everything Windows 95 did, and it ran an operating system that first appeared on the market 10 years before Windows 95. It was easily 10 years ahead of its time. But it flopped. Here’s why Amiga failed.

There wasn’t any single thing that brought Amiga and its parent company, Commodore, down. If anything, the Amiga is a cautionary tale of how good engineering won’t save you if you get everything else wrong.

The Amiga and market penetration

Why Amiga failed
The Amiga was 10 years ahead of everyone else. Yet Amiga failed spectacularly, because Commodore couldn’t tell you why it was better, and they couldn’t even tell you why they built it.

First, let’s take a look at markets. Markets can be a funny thing. We have two standards for smartphones, Apple and Android. Yet we have three standards for video game consoles, with Sony Playstation, Nintendo, and Microsoft Xbox. We had two standards for VCRs and for high definition DVD, yet in both cases, one died out early and the other thrived.

The simplistic answer about what survives is that the cheap enough, good enough solution usually survives. But that doesn’t explain Cyrix, an Intel competitor from the 1990s that tried the cheap enough/good enough combination and flamed out almost as quickly as Amiga did.  It also doesn’t answer the question of markets that support two or three incompatible standards.

The magic number is somewhere around 16 percent. When a standard reaches 16 percent of its potential market, it survives. That’s critical mass for market penetration. When a competing product reaches 16 percent and you don’t, your product will fail.

In order to guarantee survival, Commodore needed to sell around 14 million Amigas in the United States. Some would argue 14 million worldwide would have done the trick, and maybe it would have, but that doesn’t matter because Commodore sold about 3 million Amigas worldwide, falling far short of that goal.

Apple had trouble getting to 14 million units, but they made it to that figure sometime in 1994 or 1995. Apple struggled in the late 90s but had enough viable units in use to remain viable. Commodore didn’t.

Commodore reached critical mass once with the C-64, or at least came reasonably close, so why couldn’t they do it again with the Amiga, which was a much more ambitious and innovative product?

Amiga marketing failures

The biggest problem with Commodore was marketing. Commodore’s marketing in the early 80s was pretty successful, but it was a pricing play. The VIC-20 sold well because it was the cheapest computer worth having. Everything that matched its price had something else wrong with it, and everything that beat its price lacked color, sound, and a full travel keyboard. The C-64 was a much better computer, which was what made it much more enduring, but it, too, was just a pricing play. No one else could deliver a home computer with 64K of memory, color, and sound at the C-64’s price.

Commodore’s marketing was pretty simple. Everyone else is ripping you off.

In 1985, Commodore ran an ad that was a variant on that rip-off theme, but it pitted the Commodore 128 against the Apple IIc. But it showed why the Commodore 128 was better. The Apple had very limited sound capability, so Commodore showed the Apple IIc buried in musical instruments and other consumer goods that the Commodore could imitate that the Apple couldn’t. Look how much better the 128 is, it said. And it’s cheaper too.

I had a Commodore 128 growing up, and I loved that machine. But the Amiga was in a different universe. Commodore never demonstrated in its advertising what the machine could do. They barely mentioned the machine had multitasking, let alone telling you why once you had it, you wouldn’t want to live without it. They had true multitasking 10 years before Microsoft and 15 years before Apple, but couldn’t tell you why you wanted it. Bill Gates was a marketing genius compared to anyone Commodore had. The most extreme marketing failure was the Amiga 600, but they had plenty of incompetence in other years too.

What Apple figured out that Commodore never did was that they needed to tell you why they built it. Commodore had no idea. And Jay Miner, the key engineer behind it, gave a passionate speech in 1990, soon before he died. At least he could speak to why his machine was better. But he never said why he built it either.

Amiga failed partly because of price

The Amiga lost its price advantage over other machines. Upon release, it was about halfway between the Atari ST and the Macintosh. It was a much better computer than either, but Commodore couldn’t tell you why.

Like the C-64, the Amiga was full of custom chips Commodore made itself. And in 1982, it could make its own chips cheaper than anyone else could. But while other companies were updating their manufacturing process to make chips cheaper and more efficiently and adding factories, Commodore stood still. In 1986, they even closed one of their chipmaking facilities. At that time, Intel was modernizing its plants. Commodore needed to modernize that plant to use up-to-date manufacturing processes, then shift production from Pennsylvania to California and update the plant in Pennsylvania. If they’d done that, their chips would have been cheaper to make, and they could have cut prices when they needed to.

The Amiga’s chips pushed the limits of Commodore’s manufacturing capability, and the AGA chips in the last-generation Amigas exceeded it. Commodore had to farm out production of some of the key Amiga chips to VLSI and HP. Neither of them make chips anymore, but they were less far behind than Commodore.

The Amiga’s custom chips were key to its success. There wasn’t anything Commodore could buy off the shelf that could match their capability in the 1980s and early 1990s. But Commodore couldn’t tell you why they were worth paying extra. And over the years, that price gap kept widening while the advantage narrowed.

You don’t have to be cheaper to succeed. Apple proved that. But Commodore didn’t know any other way.

Amiga failed because it wasn’t easy to buy

Another key reason Amiga failed was because it wasn’t easy to buy one. In the C-64’s heyday, you could buy one at stores like Kmart and Target. And yes, at the time, it was about as easy to find a Kmart as it is to find a Target today.

Commodore decided that wasn’t good for its reputation, but they didn’t line up any alternative. Selling at mass market decimated their network of independent dealers, and stores like Best Buy and Circuit City were just in the process of going national. Commodore didn’t sell the Amiga there either. The only national chain that carried it was Software Etc., and only briefly. The Amiga 500 sold reasonably well through Software Etc, but Commodore couldn’t reach an agreement to keep its machines there continuously. And Software Etc wasn’t exactly the most stable of retail operations. They needed someplace better. Not instead, but in addition. And they didn’t have it.

When I bought my Amiga 500, I had to drive 100 miles to get it. Ironically, to get an Amiga in 1991, I had to drive about 50 miles. I would have needed to drive maybe five miles to get a PC and 20 miles to get a Mac. That’s why Apple sold a million Macs and PC makers collectively sold more than 15 million units that year.

Zealots like me will drive 50 miles if we like your stuff, but you can’t build a business for the ages like that.

3D gaming

The knock on the Amiga was that is was only a games machine. That wasn’t true, but the best titles were games. And then, in May 1992, Wolfenstein 3D came out and changed the world. Suddenly, the Amiga’s great platform games didn’t matter because PCs had a game in 3D. And Wolfenstein 3D ran just fine on a 386SX computer you could buy at any big-box electronics store.

The AGA Amigas came out in October 1992 and they narrowed the gap in graphics capability, exceeding PC chipsets in some regards, but not in 3D. A 386SX cost less that a similarly outfitted Amiga 1200, and could play Wolfenstein 3D, and you didn’t have to drive far to get one.

Commodore still sold all the Amiga 1200s it could make, but the advent of 3D gaming would have made it a tough climb back. They needed to sell 3-4 million units in 1993 to make up for lost ground, and of course they didn’t come close to doing that.

Software development

People point to Lotus 1-2-3 as the reason people bought IBM PCs, Visicalc as the reason they bought Apple IIs, and Aldus Pagemaker as the reason they bought Macs. There was no comparable killer app on the Amiga.

I think desktop video could have been it. Desktop video was the one thing Amigas could do easily that PCs and Macs couldn’t in the early 90s. Commodore recognized this to a degree, but didn’t develop anything in this space, and didn’t do anything to promote or tout the companies who were.

This became a chicken-and-egg problem. There weren’t enough machines to attract developers, but there wasn’t enough software to sell machines. Apple got around this by publishing software, and continues to do so. Commodore did too, in the early days of the 64. But they didn’t do the same with the Amiga.

Ultimately, Amiga failed due to mismanagement

Ultimately, Amiga’s failure shows Commodore’s mismanagement. You don’t have to get all of this right to survive, as Commodore’s successful international subsidiaries proved. Amigas sold much better in Europe, especially the UK, than they did in the United States. But it wasn’t enough, and in the crucial US market, management got it all wrong.

Irving Gould deserves most of the blame. He wasn’t interested in understanding the business. He saw Commodore as a piggybank to support his excessive 80s multimillionaire jetsetting lifestyle. And he wouldn’t hire CEOs and give them enough time to understand Commodore’s problems and turn them around. The legendary Jean-Louis Gassée told Gould he could turn Commodore around, but he needed three years with no interference from him. Gould never agreed to anything like that up front. He rarely gave anyone three years and never without interference. The only CEO who got three years was Mehdi Ali, and that was largely because he was in it for the piggybank scheme too, and willing to take less money than Gould.

Commodore is infamous for its mismanagement woes, so this probably isn’t news to you. How exactly they misstepped, and what they needed to do differently might be. It’s surprising how little success they actually needed in order to survive as a third standard, but it’s sad how far short they fell.

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