OK... sometimes I get to thinking about a particular topic, and become swept away by my own thinking. Here's an example. I was asked recently about what it's like to work for a global technology company -- something I've done now for a long time. In reply, I dredged up this story from my early career. From 1984....
The defining reality of technology – the source of the love/hate relationship I have with my incredibly diverse and fast-shifting industry – is this: we are inventors and agents of change. Other industries are changed by technology, as Lyft and its counterparts have transformed the taxi model, or as AirBNB is disrupting hospitality. But technology companies are generating the ideas and writing the code that drivesthese transformations. And of course we’re subject to the same dynamics ourselves. Add to that the “normal” chaos, personalities, and happenstances that occur in any business – and you’ve got an industry in continual reinvention. This can feel unstable or even perilous at times. In fact, it’s both. But it’s also invigorating and endlessly fascinating.
That’s a general answer. I’ll now give you one very specific industry experience of my own that illustrates this. Warning: this is a lengthy recollection. It’s meant simply to illustrate one aspect of what I’ve said above. So, bear with me. I’ll include pictures to break up the boredom.
I began “working with computers,” as we once quaintly called it, in the fall of 1979. As a student, I worked part-time at a daily newspaper where I set type on a computerized typesetting/proofreading console that punched data onto a long strip of paper tape, much like these:
Paper tape media. Source:
I continued to operate various computerized systems for several years, but it wasn’t until 1984 that I entered the technology industry itself.
What an amazing year that was! The IBM PC/AT was launched (more on this later). And the Apple “1984” advertisement ran for the first time on December 31, 1983. It took our collective breath away. It told us in powerful, visual language that everything was changing.
A still from “1984” by Apple. Source:
And it was the year I accepted a job at CCH Computax Inc. in Torrance, California, as a Sales Promotional Writer in Marketing.
CCH Computax was in the business of processing income tax returns for accounting, law, and other tax professionals. In those days, the prevailing business model was called a “service bureau”: accountants would interview their clients and fill out interview sheets. These sheets were regularly gathered up and sent — often by courier — to the nearest CCH Computax processing center, where students, part-time workers, vagrants, etc., sitting at computer terminals, typed the interview sheet information into corresponding fields on their screens, thereby entering the interview data into a mainframe computer. The mainframe would process the data and generate a “review return” (tax return data that was fully calculated, but unformatted). The accountant would read the review return, make edits on paper, and hand it back to the courier. Changes were punched into the mainframe and a final return was sent for printing.
At the time I joined the company, our mainframe was an IBM 3081K. Shortly after I joined, Computax purchased another 3081K mainframe. Somehow (I’m working from memory and may have this wrong), when two 3081K’s were connected, the result was a 3084Q. So that’s what we ended up with.
IBM 3084Q mainframe. Source:
Returns were printed by Xerox 9700 lasers. I believe we had more than two dozen of them. We also had some smaller Xerox 8700s. In those days, Computax – the industry’s largest provider, by volume, of tax returns – had more computerized, daily printing capacity than any organization on earth, aside from the U.S. government.
Xerox 9700 Laser Printer. Source:
Within one year, however, this vastly increased computing capacity was expanded yet again. The 3084Q was replaced by two IBM 3090s. And then, just six months later, a third 3090 was added. Yet, during this time our customer base and tax return volume increased only incrementally. Why the dramatic expansion in processing power?
Our customers were becoming edgy. The old service bureau model was reliable, but it was also expensive, time consuming, and tedious. They wanted a faster, better way to generate tax returns – the life blood of a tax consultancy. As a technology provider, we developed solutions for them, launching two new product offerings: Remote Job Entry (known as Computax RJE) and Computax Interactive System (Computax CIS).
With RJE, a customer could enter data at his or her own location. The data would be captured on a disk in some sort of computer system: an IBM System/36 minicomputer, an IBM PC or PC/XT or one of their clones by Eagle, Osborne, and Compaq. Once jobs had been entered, the accounting firm would dial the mainframe system via modem and upload a batch of data. Modems were available at that time in speeds up to 4800 bps, but you could still find older acoustic devices in use, such as this 300 bps device. (One was in the cubicle next to mine, but I recall it being used only a few times.)
300 bps Acoustic Modem. Source:
Computax CIS was a related technology that enabled the tax professional to enter data live. But instead of remote entry and batch upload, the CIS application would dial up the mainframe and allow the tax professional to interact in real time with the data on the mainframe. This required opening communication with the mainframe and maintaining it for as long as the return required editing.
Each of these new product offerings required us to provide both a packaged product for the buyer, and a technology to enable the product. To provide the technology, communication ports had to be added to the mainframe. While ports could be added readily, each addition impacted the mainframe’s performance. This is the reason why the mainframes themselves went through such dramatic expansion in such a short time: customers began interacting with systems and data in very different ways, dramatically changing the technology resources needed to support them.
But then – disruption.
In the fall of 1984, I was in a conference room at CCH Computax headquarters when one of our product managers carried in and set up the first IBM PC/AT I’d ever seen. It was a machine with the state-of-the-art 286 processor. It had 512 Kb of RAM, a 20 Mb hard drive, and a color graphics adapter (CGA) with a color monitor. When he flipped the on switch for the first time, we marveled at its silence. We were breathtaken by the color screen. Then he said, “watch this!” and began pressing the enter key on the keyboard, holding the key down. As we watched in awe, the “C:>” prompts rolled endlessly down the screen, moving faster than we’d ever seen. So fast you almost couldn’t see the flicker as additional C:> prompts were created.
IBM PC/AT. Source:
OK. You had to be there.
We were at the beginning of an incredible revolution that would turn our staid and established industry upside down and inside out, faster than anyone could have imagined. But the IBM PC/AT was only an enabler. The real transformation was driven by this device – which was also introduced to market the same year that I joined CCH Computax.
HP LaserJet printer. Source:
It was tiny: one device could fit easily onto a worker’s desk, occupying only about half of the available surface. And the impact of this device on our industry was incalculable.
Before the advent of the HP LaserJet (and its competitor, the Xerox 4045), here’s how tax forms were created for clients:
- Interview sheets were created and keypunched
- Review returns were produced, edited, and rekeyed
- Final returns were spat out of a Xerox 9700 laser printer
But the 9700s would only produce sheets of paper with output data in the correct locations on the page – not the tiny text, lines, and boxes of the tax forms themselves. To create the actual tax forms with data, the tax preparer would:
- Hire temporary seasonal workers to stand at a copy machine
- The temporaries would take each individual sheet of the tax return – Form 1040, page 1, for example – and join it with a clear plastic overlay with an imprint of the tax form (there were other ways of doing this, such as buying printed forms)
- The two sheets, tax return output and clear acetate overlay, would be photocopied
- Once the completed return was assembled, multiple photocopies would then be made
Consider that a tax form will consist of scores or potentially hundreds of pages, including Federal and State returns, and you can vaguely imagine the time, tedium, and effort involved.
The cost of labor plus processing fees added up to massive cost. It was quite typical for mid-sized tax and accounting firms to be paying hundreds of thousands of dollars to CCH Computax or one of our competitors (primarily CLR/FastTax and Dynatax/Unitax) each season.
With the HP LaserJet, however, our development teams were able to write software for these printers that would allow them to print all the data for a tax return – along with the text, lines, and boxes for the forms themselves! Couple the IBM PC/AT, with its superior processing power and speed, with the HP LaserJet printer, with its ability to produce a complete tax form in a single pass, and you had the makings of a massive marketplace disruption.
A state-of-the-art GDC modem. Source:
Consider the economics.
- $5,000 for an IBM PC/AT
- $4,995 for an HP LaserJet printer
- $5,000 for a GDC 4800 bps modem
- $2,500 for an AST CC432 communication card to allow the modem and PC to communicate
- $25,000 to $50,000 in software license fees (for a single workstation)
(I remember the hardware prices because CCH Computax offered turnkey solutions bundled with hardware for RJE and CIS.)
A typical mid-sized firm would license software for individual, corporate, partnership, and fiduciary tax and information returns, including the relevant state modules for their practice; there were also add-on modules available for automated tax planning, interview sheets, etc.
All of this might cost from $50,000 to $75,000 or more, depending on the volume of their practice and the number of machines and licenses required (the hardware costs would be amortized over multiple years). Compare that to paying several hundreds of thousands of dollars for processing fees and seasonal workers in a single tax season. Then, add the benefit of dramatically faster turnaround time, while eliminating reliance on courier services to shuttle the forms back and forth. It didn’t take accountants long to understand how compelling that value proposition was.
But – they’re also very conservative, peer-influenced buyers. Not so much early adopters. So, the market’s initial response was sluggish – until disaster happened to two of the industry’s leading tax return providers in a single season: 1988.
Tax return preparation is intensely cyclical. Government bodies begin publishing tax forms late in the year. Software developers would grab the forms at the first moment, and develop the code, printing software, and technical documentation, while providing marketing with feature and enhancement information to share with our buyers and prospects.
Software releases would begin in mid-January, so it was an incredibly tight timeframe. (Governments would release preliminary forms, but the software couldn’t begin testing until the final versions were certified.)
Then, the crunch of the personal tax season was on. For months, tax professionals would forego families, friendships, and sanity as they ground out return after return, night after night. Until April 15.
It was a marketplace of windows. Windows in time, each leaving just enough time to get to the next. And if one window was disrupted, everything else was impacted.
In early February 1988, the CCH Computax mainframe crashed. It was a disk pack failure, roughly equivalent to a hard drive failure on a PC. It forced a complete service outage but CCH Computax was able to get their mainframe back online within days.
This is a 1970’s vintage mainframe disk pack. (I can’t find an 80’s version). Source:
All was not so well with the third largest industry provider, Dynatax/Unitax. I don’t know what happened exactly, but they experienced a massive system failure that prevented them from processing returns. Unlike CCH Computax, their system remained unavailable, or available with unreliable service, for some weeks.
It was enough. Accountants lost their confidence in the mainframe-driven service bureau model. Once tax season was over, they began buying PCs, laser printers, and tax software in what became a one-year mass migration event.
Fortunately, in 1987, I had left CCH for Arthur Andersen & Co., one of the “big eight” accounting firms that had recently bought a tax software company called A-plusTax. I’d like to say it was prescience on my part. In fact, it had much more to do with housing. My wife and I had an 18-month-old daughter and a keen desire to buy our first home, but housing in Los Angeles County was vastly beyond our reach. I accepted a job with Andersen in Sarasota, Florida. It was a well-timed move.
In those days, I was getting responses to my direct mail campaigns for tax software that would beggar any marketer’s imagination today. I truly believe I could have scrawled the words “tax software” onto otherwise blank stationery with crayon and gotten a 25% response rate. (Compare that to the “normal” rate of 2% in those days.)
And that’s just one story from one era of a single, niche-focused industry. My apologies for anything I’ve remembered imperfectly.
I can’t begin to express to you just how much change and transformation I’ve experienced in my career — with more on the way. To conceive, design, build and offer a technology solution is an endlessly fascinating experience. Technology companies – the good ones – are constantly churning. Sometimes they’re the source of the upheaval. Sometimes it catches them flat footed. It’s a fun ride.