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Osborne Effect

Definition - What does Osborne Effect mean?

The Osborne Effect refers to the the consequence of publicizing or announcing a new, updated or otherwise improved product so far in advance of its availability that existing customers cancel or delay purchase orders of other products until the new product is received. In the interim, a company’s revenue flow may be seriously affected. Moreover, existing product inventories can increase, forcing the company to lower prices, reduce current product production, or both.

Other consequences of the Osborne Effect may be a damaged reputation and loss of credibility for producing perceived "vaporware."

Techopedia explains Osborne Effect

The Osborne Effect gets its name from the Osborne Computer Corporation, which waited more than a year to deliver its new product after it was publicly announced. Revenues decreased, causing the company to run out of cash and eventually file for bankruptcy in 1985.

Two other companies are often cited in reference to the Osborne Effect. In 1978, North Star Computers announced a new version of its floppy disk controller (FDC) at the same price but with twice 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 1997, in combination with a bad reputation for short-lived gaming consoles and decreasing sales of both its gaming consoles and software, the company eventually had to discontinue hardware production, despite producing the Dreamcast, a superior product. 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 proper timing, a new product announcement can have minimal effect on revenue flow. New product sales increase as old product sales decrease, allowing a company to increase revenues and eventually realize increased net profits.

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