First, the company's leaders failed to raise enough money to mitigate the risks involved with entering into a new business. Shifting to databases was risky because Infocom had to invest heavily in building software from scratch, hiring experienced programmers to do the job, and marketing an entirely new product. The potential payoffs were high, but Infocom made itself vulnerable by expanding with the assumption it would have the money to support the new business. Had Infocom been able to raise enough money to fund Cornerstone for a longer period of time, the company would have had a better chance of surviving.
Second, the company overspent its own assets to create its Business Products division. Infocom started as a small, self-financed company operated with great frugality. A $10 million company in 1984, Infocom tried to fund a new business mostly with money out of its own pocket, as it had done before. From 1984 to 1985, the number of employees skyrocketed from 32 to 100. The move to 125 CambridgePark Drive cost over $600,000 per year in rent. Infocom spent $85,000 for an advertisement. Another DECsystem-20 was purchased for development. Such expenses made it difficult to stay profitable, and led to Infocom's posting its first annual loss in 1984.
Third, the company failed to isolate the games and business divisions from each other. The employees in the games business felt resentful because the money that they had made for the company was used for a completely different purpose. The company left the game developers with few resources, precluding them from creating something other than traditional, text-based games. By channeling all of the games profits into the Business Products division, Infocom inextricably tied the fate of both of its divisions together. With little outside capital to weather bad times, the future of the games division rested on Cornerstone.
Infocom's nightmare was realized when Cornerstone failed to turn a profit. Cornerstone sold over 10,000 copies, but that was hardly enough to pay for its expenses. Despite its ease-of-use, Cornerstone lacked the performance and functionality that competitors like dBASE II had. Its slow performance can be attributed to Infocom's efforts to achieve portability by applying the similar byte-code technology used in the Z-machine. While this portability was vital to Infocom's success in the early 1980s, the IBM PC unexpectedly dominated the market by 1984-after work on Cornerstone had already begun. When Cornerstone was released in 1985, portability no longer provided much of an advantage. In fact, the virtual machine used to run Cornerstone made it noticeably slower than competing database products.
Infocom suffered some additional misfortune when the high-tech industry sank far below expectations in 1985. The downturn caused sales to dip and put Infocom in a precarious position. It also prompted the Bank of Boston to call in Infocom's loan and forced the company to lay off its Business Products division. Activision came to the rescue, but no one at Infocom expected Jim Levy, a person friendly to Infocom's corporate culture, to be replaced by Bruce Davis, who changed many of the processes that had made the games business profitable in the past.
The final death knell of Infocom came as a result of its weak game sales under Activision. That Infocom's leaders never felt the games would continue to thrive became, in many ways, a self-fulfilling prophecy. They focused their efforts and resources on Cornerstone but never gave much thought to developing cutting-edge games that exploited the state-of-the-art hardware. Little investment went back into research and development. Although Infocom experimented with many different genres of text-adventure games, the technology behind each game essentially remained the same. When the market for text-only games declined in favor of flashier, graphical games, Infocom's revenues stagnated.
But management was not the only reason to blame for the declining game sales. The engineering culture fostered a conviction to making text-only games. The employees took pride in their ability to write text, and they mocked games that used primitive graphics. Their ads boldly declared, "We draw our graphics from the limitless imagery of your imagination-a technology so powerful that it makes any picture that comes out from a screen look like graffiti in comparison." Indeed, they had evidence to support their claims: Infocom's games consistently outsold other titles. Even Infocom's own graphical game, Fooblitzky, did not sell well. With all their vested tools, skills, and experience, the developers consciously resisted innovating in graphics. Like most disruptive technologies, graphics did not seem like a potential threat to Infocom's core business at the time.
What lessons can we learn from it?