The Osborne effect refers to the consequence of publicizing or announcing a new, updated or otherwise improved product so far ahead of its availability that present customers may cancel or delay purchase orders of other existing products to wait for the new product. In the interim, the company’s revenue flow may be seriously affected. Moreover, inventories of existing product can increase, forcing the company to lower prices, reduce current product production, or both.Additional consequences of the Osborne effect may be a damaged reputation and loss of credibility for producing perceived "vaporware".
The Osborne effect gets its name from the Osborne Computer Corporation, which took more than a year to deliver its new product after announcing it to the public. Revenues decreased, causing the company to run out of cash and eventually file for bankruptcy in 1985.Two other companies are often cited as examples of the Osborne effect. In 1978, North Star Computers announced a new version of its floppy disk controller at the same price, but with double the capacity of the old controller. When sales of the old controller decreased, the company nearly went out of business. Similarly, Sega Corporation announced and publicly discussed production of a next-generation system just two years after launching its Saturn computer. In combination with a bad reputation for short-lived gaming consoles and decreasing sales of both its gaming consoles and software in 1997, the company eventually had to discontinue hardware production despite producing the Dreamcast, a product that was superior to the Saturn. In January 2001, Sega became a platform-neutral, third-party software publisher.The Osborne effect is caused by a timing problem. There are benefits to announcing a new and improved product, such as reassuring potential customers of upcoming improvements and/or lower prices, increasing customer, media and investor interest, and intimidating or confusing competitors.With correct timing, a new product announcement can have minimal effect on revenue flow. Sales of the new products increase as sales of old products decrease. This enables the company to increase revenues and eventually realize an increase in net profits.
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