Business Adventures Page 18
The Haloid Company, started in Rochester in 1906, was the grandfather of Xerox, just as one of its founders—Joseph C. Wilson, a sometime pawnbroker and sometime mayor of Rochester—was the grandfather of his namesake, the 1946–1968 boss of Xerox. Haloid manufactured photographic papers, and, like all photographic companies—and especially those in Rochester—it lived in the giant shadow of its neighbor, Eastman Kodak. Even in this subdued light, though, it was effective enough to weather the Depression in modestly good shape. In the years immediately after the Second World War, however, both competition and labor costs increased, sending Haloid on a search for new products. One of the possibilities its scientists hit upon was a copying process that was being worked on at the Battelle Memorial Institute, a large non-profit industrial-research organization in Columbus, Ohio. At this point, the story flashes back to 1938 and a second-floor kitchen above a bar in Astoria, Queens, which was being used as a makeshift laboratory by an obscure thirty-two-year-old inventor named Chester F. Carlson. The son of a barber of Swedish extraction, and a graduate in physics of the California Institute of Technology, Carlson was employed in New York in the patent department of P. R. Mallory & Co., an Indianapolis manufacturer of electrical and electronic components; in quest of fame, fortune, and independence, he was devoting his spare time to trying to invent an office copying machine, and to help him in this endeavor he had hired Otto Kornei, a German refugee physicist. The fruit of the two men’s experiments was a process by which, on October 22, 1938, after using a good deal of clumsy equipment and producing considerable smoke and stench, they were able to transfer from one piece of paper to another the unheroic message “10–22–38 Astoria.” The process, which Carlson called electrophotography, had—and has—five basic steps: sensitizing a photoconductive surface to light by giving it an electrostatic charge (for example, by rubbing it with fur); exposing this surface to a written page to form an electrostatic image; developing the latent image by dusting the surface with a powder that will adhere only to the charged areas; transferring the image to some sort of paper; and fixing the image by the application of heat. The steps, each of them in itself familiar enough in connection with other technologies, were utterly new in combination—so new, in fact, that the kings and captains of commerce were markedly slow to recognize the potentialities of the process. Applying the knowledge he had picked up in his job downtown, Carlson immediately wove a complicated net of patents around the invention (Kornei shortly left to take a job elsewhere, and thus vanished permanently from the electrophotographic scene) and set about trying to peddle it. Over the next five years, while continuing to work for Mallory, he pursued his moonlighting in a new form, offering rights to the process to every important office-equipment company in the country, only to be turned down every time. Finally, in 1944, Carlson persuaded Battelle Memorial Institute to undertake further development work on his process in exchange for three-quarters of any royalties that might accrue from its sale or license.
Here the flashback ends and xerography, as such, comes into being. By 1946, Battelle’s work on the Carlson process had come to the attention of various people at Haloid, among them the younger Joseph C. Wilson, who was about to assume the presidency of the company. Wilson communicated his interest to a new friend of his—Sol M. Linowitz, a bright and vigorously public-spirited young lawyer, recently back from service in the Navy, who was then busy organizing a new Rochester radio station that would air liberal views as a counterbalance to the conservative views of the Gannett newspapers. Although Haloid had its own lawyers, Wilson, impressed with Linowitz, asked him to look into the Battelle thing as a “one-shot” job for the company. “We went to Columbus to see a piece of metal rubbed with cat’s fur,” Linowitz has since said. Out of that trip and others came an agreement giving Haloid rights to the Carlson process in exchange for royalties to Carlson and Battelle, and committing it to share with Battelle in the work and the costs of development. Everything else, it seemed, flowed from that agreement. In 1948, in search of a new name for the Carlson process, a Battelle man got together with a professor of classical languages at Ohio State University, and by combining two words from classical Greek they came up with “xerography,” or “dry writing.” Meanwhile, small teams of scientists at Battelle and Haloid, struggling to develop the process, were encountering baffling and unexpected technical problems one after another; at one point, indeed, the Haloid people became so discouraged that they considered selling most of their xerography rights to International Business Machines. But the deal was finally called off, and as the research went on and the bills for it mounted, Haloid’s commitment to the process gradually became a do-or-die affair. In 1955, a new agreement was drawn up, under which Haloid took over full title to the Carlson patents and the full cost of the development project, in payment for which it issued huge bundles of Haloid shares to Battelle, which, in turn, issued a bundle or two to Carlson. The cost was staggering. Between 1947 and 1960, Haloid spent about seventy-five million dollars on research in xerography, or about twice what it earned from its regular operations during that period; the balance was raised through borrowing and through the wholesale issuance of common stock to anyone who was kind, reckless, or prescient enough to take it. The University of Rochester, partly out of interest in a struggling local industry, bought an enormous quantity for its endowment fund at a price that subsequently, because of stock splits, amounted to fifty cents a share. “Please don’t be mad at us if we find we have to sell our Haloid stock in a couple of years to cut our losses on it,” a university official nervously warned Wilson. Wilson promised not to be mad. Meanwhile, he and other executives of the company took most of their pay in the form of stock, and some of them went as far as to put up their savings and the mortgages on their houses to help the cause along. (Prominent among the executives by this time was Linowitz, whose association with Haloid had turned out to be anything but a one-shot thing; instead, he became Wilson’s right-hand man, taking charge of the company’s crucial patent arrangements, organizing and guiding its international affiliations, and eventually serving for a time as chairman of its board of directors.) In 1958, after prayerful consideration, the company’s name was changed to Haloid Xerox, even though no xerographic product of major importance was yet on the market. The trademark “XeroX” had been adopted by Haloid several years earlier—a shameless imitation of Eastman’s “Kodak,” as Wilson has admitted. The terminal “X” soon had to be downgraded to lower case, because it was found that nobody would bother to capitalize it, but the near-palindrome, at least as irresistible as Eastman’s, remained. XeroX or Xerox, the trademark, Wilson has said, was adopted and retained against the vehement advice of many of the firm’s consultants, who feared that the public would find it unpronounceable, or would think it denoted an anti-freeze, or would be put in mind of a word highly discouraging to financial ears—“zero.”
Then, in 1960, the explosion came, and suddenly everything was reversed. Instead of worrying about whether its trade name would be successful, the company was worrying about its becoming too successful, for the new verb “to xerox” began to appear so frequently in conversation and in print that the company’s proprietary rights in the name were threatened, and it had to embark on an elaborate campaign against such usage. (In 1961, the company went the whole hog and changed its name to plain Xerox Corporation.) And instead of worrying about the future of themselves and their families, the Xerox executives were worrying about their reputation with the friends and relatives whom they had prudently advised not to invest in the stock at twenty cents a share. In a word, everybody who held Xerox stock in quantity had got rich or richer—the executives who had scrimped and sacrificed, the University of Rochester, Battelle Memorial Institute, and even, of all people, Chester F. Carlson, who had come out of the various agreements with Xerox stock that at 1968 prices was worth many million dollars, putting him (according to Fortune) among the sixty-six richest people in the country.
THUS baldly
outlined, the story of Xerox has an old-fashioned, even a nineteenth-century, ring—the lonely inventor in his crude laboratory, the small, family-oriented company, the initial setbacks, the reliance on the patent system, the resort to classical Greek for a trade name, the eventual triumph gloriously vindicating the free-enterprise system. But there is another dimension to Xerox. In the matter of demonstrating a sense of responsibility to society as a whole, rather than just to its stockholders, employees, and customers, it has shown itself to be the reverse of most nineteenth-century companies—to be, indeed, in the advance guard of twentieth-century companies. “To set high goals, to have almost unattainable aspirations, to imbue people with the belief that they can be achieved—these are as important as the balance sheet, perhaps more so,” Wilson said once, and other Xerox executives have often gone out of their way to emphasize that “the Xerox spirit” is not so much a means to an end as a matter of emphasizing “human values” for their own sake. Such platform rhetoric is far from uncommon in big-business circles, of course, and when it comes from Xerox executives it is just as apt to arouse skepticism—or even, considering the company’s huge profits, irritation. But there is evidence that Xerox means what it says. In 1965, the company donated $1,632,548 to educational and charitable institutions, and $2,246,000 in 1966; both years the biggest recipients were the University of Rochester and the Rochester Community Chest, and in each case the sum represented around one and a half per cent of the company’s net income before taxes. This is markedly higher than the percentage that most large companies set aside for good works; to take a couple of examples from among those often cited for their liberality, R.C.A.’s contributions for 1965 amounted to about seven-tenths of one per cent of pre-tax income, and American Telephone & Telegraph’s to considerably less than one per cent. That Xerox intended to persist in its high-minded ways was indicated by its commitment of itself in 1966 to the “one-per-cent program,” often called the Cleveland Plan—a system inaugurated in that city under which local industries agree to give one per cent of pre-tax income annually to local educational institutions, apart from their other donations—so that if Xerox income continues to soar, the University of Rochester and its sister institutions in the area can face the future with a certain assurance.
In other matters, too, Xerox has taken risks for reasons that have nothing to do with profit. In a 1964 speech, Wilson said, “The corporation cannot refuse to take a stand on public issues of major concern”—a piece of business heresy if there ever was one, since taking a stand on a public issue is the obvious way of alienating customers and potential customers who take the opposite stand. The chief public stand that Xerox has taken is in favor of the United Nations—and, by implication, against its detractors. Early in 1964, the company decided to spend four million dollars—a year’s advertising budget—on underwriting a series of network-television programs dealing with the U.N., the programs to be unaccompanied by commercials or any other identification of Xerox apart from a statement at the beginning and end of each that Xerox had paid for it. That July and August—some three months after the decision had been announced—Xerox suddenly received an avalanche of letters opposing the project and urging the company to abandon it. Numbering almost fifteen thousand, the letters ranged in tone from sweet reasonableness to strident and emotional denunciation. Many of them asserted that the U.N. was an instrument for depriving Americans of their Constitutional rights, that its charter had been written in part by American Communists, and that it was constantly being used to further Communist objectives, and a few letters, from company presidents, bluntly threatened to remove the Xerox machines from their offices unless the series was cancelled. Only a handful of the letter writers mentioned the John Birch Society, and none identified themselves as members of it, but circumstantial evidence suggested that the avalanche represented a carefully planned Birch campaign. For one thing, a recent Birch Society publication had urged that members write to Xerox to protest the U.N. series, pointing out that a flood of letters had succeeded in persuading a major airline to remove the U.N. insigne from its airplanes. Further evidence of a systematic campaign turned up when an analysis, made at Xerox’s instigation, showed that the fifteen thousand letters had been written by only about four thousand persons. In any event, the Xerox offices and directors declined to be persuaded or intimidated; the U.N. series appeared on the American Broadcasting Company network in 1965, to plaudits all around. Wilson later maintained that the series—and the decision to ignore the protest against it—made Xerox many more friends than enemies. In all his public statements on the subject, he insisted on characterizing what many observers considered a rather rare stroke of business idealism, as simply sound business judgment.
In the fall of 1966, Xerox began encountering a measure of adversity for the first time since its introduction of xerography. By that time, there were more than forty companies in the office copier business, many of them producing xerographic devices under license from Xerox. (The only important part of its technology for which Xerox had refused to grant a license was a selenium drum that enables its own machines to make copies on ordinary paper. All competing products still required treated paper.) The great advantage that Xerox had been enjoying was the one that the first to enter a new field always enjoys—the advantage of charging high prices. Now, as Barron’s pointed out in August, it appeared that “this once-fabulous invention may—as all technological advances inevitably must—soon evolve into an accepted commonplace.” Cut-rate latecomers were swarming into copying; one company, in a letter sent to its stockholders in May, foresaw a time when a copier selling for ten or twenty dollars could be marketed “as a toy” (one was actually marketed for about thirty dollars in 1968) and there was even talk of the day when copiers would be given away to promote sales of paper, the way razors have long given away to promote razor blades. For some years, realizing that its cozy little monopoly would eventually pass into the public domain, Xerox had been widening its interests through mergers with companies in other fields, mainly publishing and education; for example, in 1962 it had bought University Microfilms, a library on microfilm of unpublished manuscripts, out-of-print books, doctoral dissertations, periodicals, and newspapers, and in 1965 it had tacked on two other companies—American Education Publications, the country’s largest publisher of educational periodicals for primary- and secondary-school students, and Basic Systems, a manufacturer of teaching machines. But these moves failed to reassure that dogmatic critic the marketplace, and Xerox stock ran into a spell of heavy weather. Between late June, 1966, when it stood at 267¾, and early October, when it dipped to 131⅝, the market value of the company was more than cut in half. In the single business week of October 3rd through October 7th, Xerox dropped 42½ points, and on one particularly alarming day—October 6th—trading in Xerox on the New York Stock Exchange had to be suspended for five hours because there were about twenty-five million dollars’ worth of shares on sale that no one wanted to buy.
I find that companies are inclined to be at their most interesting when they are undergoing a little misfortune, and therefore I chose the fall of 1966 as the time to have a look at Xerox and its people—something I’d had in mind to do for a year or so. I started out by getting acquainted with one of its products. The Xerox line of copiers and related items was by then a comprehensive one. There was, for instance, the 914, a desksize machine that makes black-and-white copies of almost any page—printed, handwritten, typed, or drawn, but not exceeding nine by fourteen inches in size—at a rate of about one copy every six seconds; the 813, a much smaller device, which can stand on top of a desk and is essentially a miniaturized version of the 914 (or, as Xerox technicians like to say, “a 914 with the air left out”); the 2400, a high-speed reproduction machine that looks like a modern kitchen stove and can cook up copies at a rate of forty a minute, or twenty-four hundred an hour; the Copyflo, which is capable of enlarging microfilmed pages into ordinary booksize pages and printing them; th
e LDX, by which documents can be transmitted over telephone wires, microwave radio, or coaxial cable; and the Telecopier, a non-xerographic device, designed and manufactured by Magnavox but sold by Xerox, which is a sort of junior version of the LDX and is especially interesting to a layman because it consists simply of a small box that, when attached to an ordinary telephone, permits the user to rapidly transmit a small picture (with a good deal of squeaking and clicking, to be sure) to anyone equipped with a telephone and a similar small box. Of all these, the 914, the first automatic xerographic product and the one that constituted the big breakthrough, was still much the most important both to Xerox and to its customers.