Why SCSI?

One thing I had learned when I worked at Burroughs was the importance of having, and protecting high margins in the technology business. Technology is a fast moving business requiring significant reinvestment if a company is to maintain leadership. Without capital, that reinvestment is not possible. I also saw at Burroughs that commodity technology products were quickly copied and then suffered from low margins. How does a company keep their products from becoming a commodity? Proprietary technology that is difficult or impossible to copy. Some companies do this by using the patent system, but in technology it is more often done by the trade secret and copyright route, and the easiest copyrights and trade secrets to protect are software. Combining hardware and software makes commoditization even more difficult. That was the key to the success of Burroughs, IBM, and today Apple. The IBM PC was an exception to this because IBM had been sued by the Justice Department and had entered into an agreement to no longer bundle hardware and software.

Of all the projects we did, SCSI was the most amenable to margin protection. Why? Because SCSI required not only hardware, but software to be functional. In addition, the software component by its nature was not static. SCSI was an open interface standard, designed to accommodate yet undeveloped storage technology. When the first optical disks were developed what interface did the designers pick? SCSI. As such the software required to support the SCSI interface had to be continually updated for new devices. Along with our SCSI host adapters we developed the first “universal” SCSI software package called “Disk Maestro”, later to be renamed “PowerSCSI!” If a competitor copied our hardware, they would still have to buy our software to make it work, if they copied our software they would need to buy our hardware. This made it very difficult for new competitors to “commoditize” our product. Competitors who when to the trouble of developing a full package for SCSI like Adaptec for instance, had the same need to maintain margin to continue to constantly invest in the software component. I understood the importance of having a proprietary product. Big margins make up for a lot of sins in business. Margin gives you breathing room when the unexpected happens or you make a big mistake. Not having big margins means that one mistake can spell the end. Big margin also allows you to bootstrap a company, small margin means you have to sell equity earlier and more cheaply.

So even though SCSI was not the most advance or “sexiest” technology we worked on as consultants at PM&E, it was be best from the standpoint of maintaining a proprietary advantage, and hence big margins.