Xerox Corporation

Xerox Corporation

800 Long Ridge Road
Stamford, Connecticut 06904
U.S.A.
(203) 968-3000
Fax: (203)968-4312

Public Company
Incorporated: 1961
Employees: 111,400
Sales: $17.64 billion
Stock Exchanges: New York Midwest Boston Cincinnati Pacific Philadelphia London Paris Basel Berne Geneva Lausanne Zürich Amsterdam Düsseldorf Frankfurt

Xerox has become virtually synonymous with photocopying. Xerox was a small company in 1960 when its first practical copier was introduced, but the company zoomed into the Fortune 500 during the next few years. About 1,800 people worked there in 1959, and 55,000 in 1969.

The company began in 1906 as a photography-paper business named the Haloid Company, in Rochester, New York. Its neighbor, Kodak, ignored the company, and Haloid managed to build a business on the fringe of the the photography market. In 1912 control of the company was sold to Rochester businessman Gilbert E. Mosher for $50,000. Mosher became president but left the day-to-day running of the company to its founders. Mosher kept Haloid profitable and opened sales offices in Chicago, Boston, and New York City. To broaden the company’s market share, Haloid’s board decided to develop a better paper. It took several years, but when Haloid Record finally came out in 1933 it was so successful that it saved the company from the worst of the Great Depression. By 1934 Haloid’s sales were approaching $1 million. In 1935 Joseph R. Wilson, the son of one of the founders, decided Haloid should buy the Rectigraph Company, a photocopying-machine manufacturer that used Haloid’s paper. Haloid went public to raise the money, and selling Rectigraphs became an important part of Haloid’s business.

In 1936 Haloid’s 120 employees struck for benefits and higher wages. Mosher proved intransigent, and Wilson stepped in and offered concessions. Tension and resentment between labor and management persisted until World War II. During the war the armed forces needed high-quality photographic paper for reconnaissance, and business boomed. When the war ended Haloid faced stiff competition from new paper manufacturers.

Haloid needed to come up with new products, particularly after a showdown between Mosher—who wanted to sell Haloid to another company—and Wilson—who did not. Wilson won, and in 1947 Haloid entered into an agreement with Battelle Memorial Institute, a nonprofit research organization in Columbus, Ohio, to produce a machine based on a new process called xerography.

Xerography, a word derived from the Greek words for “dry” and “writing,” was the invention of Chester Carlson. Carlson was born in Seattle, Washington, in 1906, and was a patent lawyer employed by a New York electronics firm. Frustrated by the difficulty and expense of copying documents, in 1938 Carlson invented a method of transferring images from one piece of paper to another using static electricity. In 1944 Battelle signed a royalty-sharing agreement with Carlson and began to develop commercial applications for xerography.

In 1949, two years after Haloid signed its agreement with Battelle, Haloid introduced the XeroX Copier, spelled with a capital “X”. The machine required much of the processing to be done manually. The XeroX was difficult and messy to use and made errors frequently. Many in the financial community thought that Haloid’s large investment in xerography was a big mistake, but Battelle engineers discovered that the XeroX made excellent masters for offset printing, an unforeseen quality that sold many machines. Haloid invested earnings from these sales in research on a second-generation xerographic copier.

In 1950 Battelle made Haloid the sole licensing agency for all patents based on xerography, but Battelle owned the basic patents until 1955. Haloid licensed the patents liberally to spread the usage of xerography to corporations like RCA, IBM, and General Electric. In 1950 Haloid sold its first commercial contract for a xerographic copier to the state of Michigan. Meanwhile, Haloid’s other products were again highly profitable, with paper sales increasing and several successful new office photocopying machines selling well.

In 1953 Carlson received the Edward Longstreth Medal of Merit from the Franklin Institute, for the invention of xerography. In 1955 Haloid revamped its 18 regional offices to make them showrooms for its Xerox machines instead of photo-paper warehouses, hired 200 sales and service people, began building the first Xerox factory in Webster, New York, and introduced three new types of photography paper. Haloid also introduced the Copyflo, Haloid’s semi-automatic copying machine. In 1956 Haloid president Joe Wilson, Joseph R. Wilson’s son, formed an overseas affiliate called Rank Xerox with The Rank Organisation, a British film company seeking to diversify. This arrangement paved the way for Xerox factories in Great Britain and a sales and distribution system that brought Xerox machines to the European market. In 1958 Haloid changed its name to Haloid Xerox, reflecting its belief that the company’s future lay with xerography, although photography products were still more profitable. That balance quickly changed with the success of the Xerox 914 copier, introduced in 1960. It was the first automatic Xerox copier, and the first marketable plain-paper copier. The company could not afford a blanket advertising campaign, and placed ads in magazines and on television programs where it hoped business people would see them. The company also offered the machines for monthly lease to make xerography affordable for smaller businesses.

Demand for the 650-pound 914 exceeded Haloid-Xerox’s most optimistic projections, despite its large size. Fortune later called it “the most successful product ever marketed in America”. Sales and rental of xerographic products doubled in 1961, and kept growing. In 1961 the company was listed on the New York Stock Exchange and changed its name to the Xerox Corporation; photography operations became the Haloid photo division. In 1962 Xerox formed Fuji Xerox in Japan with Fuji Photo Film Company. Also during the 1960s Xerox opened subsidiaries in Australia, Mexico, and continental Europe. The company had sunk $12.5 million into developing the 914, more than Haloid’s total earnings from 1950 to 1959, but the 914 led the company to more than $1 billion in sales by 1968. In 1963 Xerox introduced a desktop version of the 914. Although this machine sold well, it was not very profitable, and Xerox has depended on its larger machines ever since.

With its suddenly large profits, Xerox began a string of acquisitions, purchasing University Microfilms in 1962 and Electro-Optical Systems in 1963. The market for copiers continued to expand at such a rate that they remained Xerox’s chief source of revenue. The 1960s were a tremendously successful time for Xerox, which became one of the 100 largest corporations in the United States, and, in 1969, moved to Stamford, Connecticut.

In the late 1960s Xerox began to focus less on copiers and more on designing an electronic office that would not use paper. With this end in mind the corporation bought a computer company, Scientific Data Systems, in 1969, for nearly $1 billion in stock, only to have it fail and close down in 1975. Xerox also formed Xerox Computer Services in 1970, bought several small computer firms in the next few years, and opened the Xerox Palo Alto Research Center (PARC) in California.

Scientists at PARC invented what may have the world’s first personal computer. So innovative was the work of the PARC scientists that many features they invented later appeared on Apple Macintosh computers. In December 1989 Xerox sued Apple Computer for $150 million, alleging that Apple had stolen the technology that helped make its computers so successful. Apple co-founder Steven Jobs, who later hired some researchers from PARC, claimed that his company had refined Xerox’s work, and thus made it original.

PARC’s innovations were overlooked by Xerox; the computer division and the copier division competed for resources and failed to communicate. Products were released by the office products division in Dallas, Texas, that PARC had never seen before. Disagreements broke out at Xerox headquarters at the suggestion of change, further stifling innovation.

In April 1970 IBM introduced an office copying machine, giving Xerox its first real competition. IBM’s machine was not as fast or as sophisticated as the Xerox copiers, but it was well built and was backed by IBM’s reputation. Xerox responded with a suit charging IBM with patent infringement. The dispute was settled in 1978 when IBM paid Xerox $25 million. Meanwhile, Xerox itself became the defendant repeatedly for antitrust violations, including a suit by the Federal Trade Commission.

Distracted from its market by these legal battles, Xerox lost its lead in the industry when Kodak came out with a copier that was more sophisticated than Xerox’s. IBM and Kodak followed a strategy similar to that of Xerox, leasing their machines and attracting many large accounts on which Xerox depended.

Xerox had become inefficient as its executives concentrated on growth during the 1960s. Xerox had spent hundreds of millions of dollars on product development but introduced few new products. Engineers and designers were divided into small groups that fought over details as they missed deadlines. While the company sought to perfect the copying machine it failed to challenge the new products on the market, and Xerox’s market share dropped.

By 1985 Xerox’s worldwide plain-paper copier share had dropped to 40%, from 85% in 1974. Yet Xerox’s revenues grew from 1.6 billion in 1970 to $8 billion in 1980, partially because Xerox began to sell the machines it had been renting, depleting its lease base.

Beginning in the mid-1970s, Japanese products emerged as an even more dangerous threat. Xerox machines were big and complex and averaged three breakdowns a month. Ricoh introduced a less expensive, smaller machine that broke down less often. The Japanese strategy was to capture the low end of the market and move up. By 1980 another Japanese competitor, Canon, was challenging Xerox’s market share in higher-end machines.

In the late 1970s Xerox began reorganizing, making market share its goal, and learning some lessons about quality control and low-end copiers from its Japanese subsidiary. The company also cut manufacturing costs drastically. Xerox regained copier market share, but intense price competition kept copier revenue around $8 billion for most of the 1980s.

In 1981 Xerox finally began releasing new products, beginning with the Memorywriter typewriter. This typewriter soon outsold IBM’s and captured over 20% of the electric typewriter market. By January 1983 Xerox had unveiled a Memorywriter that could store large amounts of data internally. In 1982 the 10-series copiers, the first truly new line since the 1960s, was introduced. These machines used microprocessors to regulate internal functions and were able to perform a variety of complicated tasks on different types of paper. They were also smaller and far less likely to break down than earlier Xerox copiers. The 10-series machines used technology developed at PARC, which was becoming more integrated with the company.

Xerox began gaining market share for the first time in years, and morale improved. It also released computer workstations and software and built a $1 billion business in laser printers. The workstations proved to be an expensive flop, and by 1989 the company planned to close its workstation-hardware business. Xerox also moved to protect its 50% share of the high-end market in the United States with machines that make 70 or more copies a minute. The major high-end competition was Kodak, but the Japanese—led by Ricoh—were again launching a drive for this market.

During the 1970s Xerox had also diversified into financial services. In 1983 it bought Crum and Forster, a property-casualty insurer, and in 1984 it formed Xerox Financial Services (XFS), which bought two investment-banking firms in the next few years. By 1988 XFS supplied nearly 50% of Xerox’s income—$315 million of the $632 million total. XFS performed well, able to raise funds at a low cost because it was backed by the Xerox “A” credit rating.

Xerox spent more than $3 billion on research and development in the 1980s, looking for new technologies, such as those for digital and color copying, to promote growth. Xerox was a leader in developing technologies, but often had trouble creating and marketing products based on them, particularly computers.

In 1988 Xerox underwent a $275 million restructuring, cutting 2,000 jobs, shrinking its electronic typewriter output, dropping its medical systems business, and creating a new marketing organization, Integrated Systems Operations, to get new technologies into the marketplace more effectively. Xerox’s comeback was so impressive that in 1989 its Business Products & Systems unit won Congress’s Malcolm Baldridge National Quality Award for regaining its lead in copier quality. Xerox demonstrated its ability to change in the late 1970s when it responded to the first wave of Japanese competition. Many analysts believe that Paul A. Allaire, a career Xerox man named CEO in 1990, must repeat that performance if Xerox is to survive as an independent corporation.

Principal Subsidiaries

Rank Xerox (U.K., 51%); Xerox Financial Services, Inc.; Crum and Forster, Inc.; Xerox Credit Corporation; Van Kampen Merritt Inc.; Furman Selz; Xerox Life; Fuji Xerox (Japan, 51%).

Further Reading

Dessauer, John H., My Years with Xerox, Garden City, New York, Doubleday & Company, Inc., 1971; The Story of Xerography, Stamford, Connecticut, Xerox Corporation, 1978; Jacobson, Gary, and John Hillkirk, Xerox: American Samurai, New York, Macmillan Publishing Company, 1986; Alexander, Robert C., and Douglas K. Smith, Fumbling the Future, New York, William Morrow and Company, Inc., 1988; 1988 Fact Book, Stamford, Connecticut, Xerox Corporation, 1988.

—Scott M. Lewis