Osborne effect

The Osborne effect is a term referring to the unintended consequences of a company pre-announcement made either unaware of the risks involved or when the timing is misjudged, which ends up having a negative impact on the sales of the current product. This is often the case when a product is announced too long before its actual availability. This has the immediate effect of customers canceling or deferring orders for the current product, knowing that it will soon be obsolete, and any unexpected delays often means the new product comes to be perceived as vaporware, damaging the company's credibility and profitability.

The term was coined after the Osborne Computer Corporation, in which the company took more than a year to make its next product available and eventually ran out of cash and went bankrupt in 1985.

Pre-announcement is done for several reasons: to reassure current customers that there is improvement or lower cost coming, to increase the interest of the media and investors in the company's future prospects, and to intimidate or confuse competitors. When done correctly, the sales or cash flow impact to the company is minimal, as the revenue drop for the current product is replaced by orders or completed sales of the new product as it becomes available. However, when the Osborne effect occurs, inventories increase and the company must react by either discounting or lowering production of the current product, both of which depress cash flow.