Early in 1958, representatives of IBM were shown a prototype. Haloid Xerox, of Rochester, New York, had spent years developing Chester Carlson’s process for copying onto ordinary paper, and it now had a machine, the Model 914. Worried that its own sales and service force would be too small if the machine succeeded, the company considered letting IBM make and sell it.
IBM hired the consulting firm Arthur D. Little to estimate the market. According to the findings of a federal court that later heard the history at length, Little’s report found the copier field “highly competitive,” dominated by 3M and Kodak, and “attuned to smaller and less expensive devices.” The report ended IBM’s interest. The turndown, the court found, “came as a shock” to Haloid’s president, Joseph C. Wilson.
Haloid had heard discouraging numbers before. Its head of research, John Dessauer, recalled in a 1971 memoir a survey firm that, “after questioning vast numbers of businessmen, reported that we could not look forward to placing more than five thousand copiers in American offices!”
And the machine cost too much to sell. Its direct manufacturing cost was over $2,000 a unit, the court found, while most competing copiers sold for a few hundred dollars.
Nobody had asked
The surveys weren’t necessarily wrong about the market they could see. Offices copied on coated-paper machines and ran longer jobs on duplicators. A businessman asked about a machine he had never used was likely answering for the copying he already did.
Peter Drucker had described the general case four years earlier. In The Practice of Management, in 1954, he gave what he called the “only one valid definition of business purpose: to create a customer.” Markets, he went on, “are not created by God, nature or economic forces but by businessmen.” People may have felt a want for a long time. But “only when the action of businessmen makes it effective demand is there a customer, a market.”
In Drucker’s view, a business exists to create customers; profit is the test, not the aim.
He was explicit about the second half. Profitability, he wrote, is “not the purpose” of business but “a limiting factor on it,” and profit “is not the explanation, cause or rationale of business.” Profit, in his account, is a result, the test a business has to pass.
Paying by the copy
Haloid’s answer was to change what the customer had to decide. It didn’t sell the 914. It leased it at a low monthly minimum and charged essentially by usage. The court recorded the initial pricing as 4.75 cents a copy for the first 2,000 copies and 3.5 cents after that. A customer could cancel on fifteen days’ notice. An office didn’t have to buy a costly machine on faith; it could try one and pay for what it used.
In the court’s phrase, Xerox “nevertheless proceeded and tried to create a demand for the 914.” Its 1960 annual report said orders in the machine’s first nine months were “substantially more than we had thought possible,” and that “the average use for the machines installed has been much higher than our projections.” People, the court found, “were finding new needs and applications for copying.”
In Drucker’s terms, the want may have been there all along. The 914 and its price turned it into copies.
Not everyone accepts Drucker’s ranking. Milton Friedman argued in 1970, in a New York Times Magazine essay titled “The Social Responsibility of Business Is to Increase Its Profits,” that a business’s one social responsibility is to raise its profits within the rules of the game. And the Xerox story carries its own warning. A committee report Haloid prepared while IBM was still deciding listed the risks of going alone, among them that renting out most of the machines would take large amounts of capital. Creating customers is expensive, and a cancellable lease meant every copier in the field could come back.
The tool nobody signed up for
Imagine you’ve built a scheduling tool for the clinic where you work. You ask the receptionists whether they’d use it. They say the paper book works fine, and they’re right: they have never booked a patient any other way.
So you sit at the front desk for a morning and book patients with it yourself while they watch, and you offer to put the paper book back at the end of the week if anyone wants it.
On Friday nobody asks for the paper book. On Monday, one receptionist asks whether the tool can send reminder texts. Nobody had wanted that a week ago.
By 1965, according to the appeals court, Xerox had captured 80 percent of the US market in plain and coated paper copiers. The survey Dessauer remembered had questioned vast numbers of businessmen. The customers who mattered hadn’t made their first copy on a 914 yet.