Today in Tedium: There’s a story I keep thinking about from a couple of years ago that I worry might be the future of the internet. Essentially, The Frisky, a website targeted at women, was separated from its original owners, and then landed in the hand of a Serbian music producer, who turned the site into a pay-for-play splog. I have raised concerns about similar sites, like Digital.com, running into this problem. But this is a historical context that in some ways plays out all the time in the real world, too. Case in point: The onetime headquarters of the Memorex Corporation, which was once one of Silicon Valley’s most important companies, is likely to be torn down and converted into a data center, with its legacy replaced by a mural. In a way, it makes perfect sense—one storage company replacing another, not exactly paving paradise and putting up a parking lot—but it still feels strange. Nobody talks about Memorex these days, even though it’s likely a familiar name to anyone who has ever bought a cassette tape or floppy disk. Today’s Tedium looks back at Memorex, a company that turned 60 years old this year, but whose legacy should resonate more than just its name. — Ernie @ Tedium
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The year Memorex was founded. The company, formed by former employees of the bedrock Ampex corporation, is considered by many to be the Silicon Valley’s first startup, a company that formed 60 years ago with the goal of creating tape-based media, as Ampex had previously done. Its founder, Laurence Spitters, had a Wall Street background, and was previously responsible for helping Ampex prepare for its initial public offering. (Another early company, Fairchild Semiconductor, was formed as a subsidiary of another company and later spun off as independent, making it not technically a startup.)
What happened with Memorex before Ella’s voice broke the glass
If you know anything about the history of Memorex, it’s likely one specific detail: A 1972 commercial in which a tape of Ella Fitzgerald’s voice broke glass. It’s a groundbreaking ad, and one that had a lasting impact on Memorex as a company—and whose impact led to the rise of similar commercials from companies like Maxell.
But that happened a full 11 years after Memorex was formed—a million years in startup-world. At the time Facebook had been around for 11 years, it had owned Instagram for three of them. And that time for Memorex was a pretty hustle-bustle time.
In one of the earliest stories about Memorex published in the San Francisco Examiner in 1962, financial editor Donald K. White made clear that the problem the company aimed to solve was the challenge of creating high-quality tape for enterprise customers, a notoriously difficult problem to solve at the time. As White put it:
The production of this high-speed, high precision tape is one of the most ticklish jobs in scientific industry. An infinitesimal flaw or a spot of dust on the tape can throw computers out of kilter. At a missile launching site, this can cause misfires. A bum tape in a bank’s computing department can raise hob with the customers’ dispositions.
Many of the top tape manufacturers admit that as much as a third of the tape they produce for high science or big computer use can’t be used for that purpose.
This tape then winds up in an unmarked white box at a cut-rate price and is sold to the home recorder who merely wants to record the sound of his children’s birthday party.
(Sounds like someone needs error correction.)
Memorex felt it would be able to solve the tape-manufacturing challenges by building a highly automated clean-room environment, an idea borrowed from the pharmaceutical field.
“We use dust filters similar to those employed in atomic energy facilities to prevent the escape of radioactive particles,” Spitters told White.
The manufacturer of precision tape requires a substantially higher capital investment and engineering maintenance and related plant costs. However, the ratio of such costs to sales of a precision tape manufacturer should be substantially the same as the ratio of similar costs to sales of a nonprecision tape manufacturer because of the higher sales prices of precision tapes. On the other hand, the costs of materials and direct labor which are the principal manufacturing costs in both precision and nonprecision tape manufacturing operations as a percentage of sales should be much less in the case of precision tape operations. Consequently, the margin of profit of a magnetic tape manufacturer should, in large part, be reflected by the extent to which he is successful in competing in the precision tape markets.
Effectively, the company made a bet that the business market would pay more for specialized tape, but the cost of producing that tape over time would lower as upfront costs faded from view.
And suitably, this general model eventually pushed Memorex into creating offerings for the IBM market, for which it became a prominent third-party vendor of replacement hardware and software. For example, Memorex developed one of the first IBM plug-compatible hard drive replacements in 1968.
Just one problem: At the time, IBM’s dominant role in the computing industry at the time meant that Memorex’s efforts to serve this market led to a lot of saber-rattling from IBM, with lots of lawsuits involved. IBM sued over the apparent theft of trade secrets; Memorex countered with a $3 billion antitrust lawsuit that accused Big Blue of abusing its market position and crowding out competitors.
This lawsuit ran on for years, and in the interim, the company was basically holding on for dear life in hopes of avoiding a bankruptcy. Bank of America, which had invested in Memorex early in its history, had to bail it out, in part because they had a huge stake in the company. The company had been doing well on the stock market, but as Moira Johnston recalled in the book The Tumultuous History of the Bank of America, a closer look led the bank to get directly involved in managing the company.
“Then, suddenly, all didn’t seem too well … and when we went down and took a look at it, it turned out to be a financial disaster,” said Al Rice, who led the bank’s venture capital unit at the time. “Memorex had a negative net worth of eighty million dollars—and they owed four hundred fifty million dollars. We had enormous investments in it. … We had a hundred million dollars in loans, at risk.”
As Johnson recalls, Rice basically became Memorex’s de facto leader for a time, turning around the company to the point where it became an attractive acquisition—something that happened when Burroughs bought the company in the early 1980s—ensuring that B of A made back its full investment.
It was around this period that Memorex, struggling with legal problems with IBM, decided to go all-in on consumer products. It was never a huge part of its business, but it was a very visible one.
By the time that it lost its antitrust suit, Memorex was arguably a very different company than when it started—from a hardware vendor to a household name. And you could probably thank Ella Fitzgerald for all that, because people knew to look for Memorex when trying to buy blank cassette tapes, and eventually, floppy disks.
The jury’s vote, favoring Memorex, in a 1970s-era antitrust lawsuit the company brought against IBM for anticompetitive business practices. Despite the jury mostly agreeing that Memorex was in the right, IBM was able to get the lawsuit declared a mistrial in 1978, which allowed it to avoid paying out a massive settlement.
Five times Memorex was sold off or split up throughout its long history
- 1981: To Burroughs. In the early 1980s, Memorex wasn’t exactly seen as a strong company, with retellings of its 1970s-era history making it clear it only scraped by, despite its prominence in the consumer market. Burroughs, the company best known for selling business equipment like adding machines, nonetheless saw an opportunity to modernize its approach by acquiring the newer monolith. Not everyone was a fan: A Detroit Free Press article about the acquisition was headlined “Why Weak Burroughs Took a Weaker Partner.” And you might not be shocked to learn the deal didn’t work out based on that assessment.
- 1982: Consumer business, to Tandy. In case you ever wondered why Memorex was once such a prominent brand at Radio Shacks around the country, a big part of the reason for that is that Memorex’s consumer business was owned by Tandy for more than a decade—a sale that happened most likely because Burroughs really only cared about Memorex from an enterprise standpoint. (At the time, Memorex’s consumer business represented only 10 percent of the total business.) While the consumer business was initially purchased with the goal of bolstering Tandy’s own tape-manufacturing capabilities, the Memorex brand did eventually appear in Radio Shack, most notably as the brand name of the company’s infamous Video Information System. Apparently the infamously bad VIS did some damage, because Radio Shack sold off the Memorex consumer business to Hanny Magnetics Ltd., a Hong Kong-based manufacturer, in 1993. (Hanny had its own problems with Memorex.)
- 1986-1988: Spinoff from Burroughs, merger with Telex. This version of Memorex, technically the one that opened up the building 60 years ago, came about after Burroughs decided it could not compete in the IBM-compatible hardware business anymore. Soon after the spinoff, the company made a pitch to acquire Telex, a maker of audio equipment that had produced some IBM-compatible tape machines that also caught IBM’s ire. (Of note: Telex’s longtime CEO and chairman, Roger Wheeler, had been murdered by notorious organized crime boss Whitey Bulger and a pair of accomplices a few years prior.) The joint company, which came to be known as Memorex Telex NV, struggled to survive because both the spinoff and the Telex acquisition were done through borrowed money, and the joint company eventually faded entirely, unable to pay its bills, by 1996.
- 2006: Consumer brand sold to Imation. Imation, which is essentially the consumer storage spinoff of 3M, another famed company frequently seen on floppy disks, purchased the company in 2006 in a deal worth $330 million. Imation ultimately came to aim for higher-end storage media, leaving Memorex to the consumer market, and eventually leading to yet more sales of the Memorex brand and its assets. (And like Memorex, Imation exists essentially as a subsidiary brand now.)
- 2016: Brand name sold to DPI. You might not know Digital Products International, but you’ve probably seen some of the brand names it owns, including Memorex, GPX, and Amped Wireless. The company, which started in 1971 as an importer of electronics into the American market by its founder, Dick Proctor, basically does the same thing today, selling commodity consumer products to the public. It’s basically the perfect home for Memorex in 2021.
How Memorex evolved into the ultimate anonymous consumer brand, despite being built with a completely different focus
In many ways, Memorex’s decision to start its business by focusing on the high-end market was a useful tactic to reinforce that it took tape quality seriously, which meant that by the time it was making tape for consumers, it could take those broader lessons to millions of people who wanted to make mixtapes or record some shows on their VCRs.
Of course, the problem with this approach is that you don’t necessarily build fans by simply creating blank media. I mean, I don’t know about you, but I don’t really run around singing the praises of my favorite kind of paper. It’s a product that, as long as it works, you’re happy. Not a lot of brand affinity involved.
Also not helping matters was the purchase by Burroughs, which led the consumer brand to be sold off to Tandy. Now Tandy, best known for Radio Shack, was very much the kind of company that was known for having a whole bunch of house brands. On that front, it was second to Sears.
But Memorex, which built a legacy of its own separately from the retailer, was largely separate from Radio Shack until the early 1990s, when the company made the decision to rebrand Realistic equipment such as tape players, VCRs, and camcorders with the Memorex name.
And then, a couple years later, Memorex, the consumer brand, was sold off. And a couple of years after that, Memorex, the enterprise brand, disappeared entirely.
The sale of Memorex as a consumer brand to a Hong Kong-based conglomerate, combined with Radio Shack effectively turning it into a white-label brand, basically kind of ensured its current fate.
Now, to be clear, white-label brands can transcend their status—Craftsman, for example, was sold for $900 million dollars and is likely to outlive Sears. But that is the exception, not the rule.
This would be a brand that passed hands repeatedly, was put on cheap consumer equipment—the type you might buy in drug stores—and would not really have much in the way of cultural value.
In roughly 50 years, Memorex’s brand turned from clever Ella Fitzgerald ad into a faint echo, much as magnetic media turned from primary storage medium to secondary storage medium into niche product.
If you go to the Memorex website today, you’ll likely see a bunch of random electronics that don’t particularly go out of their way to differentiate themselves. If you’ve seen one pair of knockoff Beats or AirPods, you’re seen them all, right?
Its legacy tie to the stuff it did in the ’60s and ’70s lives on in the fact that the company still sells cassette players in 2021, which doesn’t feel like a lot, but given the way this uniquely American company was passed around repeatedly, it’s actually kind of a shock anything survived.
But tying back to my original point, we don’t exactly have much in the way of plot lines to go on to see where these numerous startups—many of which we rely on to do basic functions like eat, sleep, travel, or pay bills—go in 60 years. Not many companies in the technology space have survived that long.
And Memorex has been chopped up and sold so many times that one has to worry if that’s what a lot of Silicon Valley companies could look like when all is said and done—just anonymous brands we place on products, that give us vague memories of what the original company did, because nobody involved with that original company is even within shouting distance of it anymore. Memorex is the “ghost kitchen” of consumer goods, a brand that basically lives as a brand, and can be used to sell a few products because you’ll vaguely remember that it used to be worth something. Maybe that vagueness will lead you to pick up a CD player or a set of headphones.
Time passes, and people leave ideas. Permanence is not baked into a business model, even though the idea that a company is a “going concern” might be.
To put this all another way: A good brand alone does not make a company.
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