ROEL PIEPER
Tandem Chief Executive Officer

Good Morning to all our friends in the audience and on-line and those of you new to Tandem. You may have never heard of us, but hundreds of millions of people trust Tandem every day.

Anyone who uses a credit card, banks at an ATM, trades a stock, places a phone call, or dials 911 is in one way or another interfacing with a Tandem product.

Our ubiqitity is like the electric utility company. No one has to think much about us because we do our job flawlessly -- and behind the scenes.

We accomplish this reliabilty through high-availability, highly scalable, high-throughput parallel processing information systems.

We have called our computing model, "Non-Stop Computing." The purpose of Non-Stop computing is to provide the necessarily reliable backbone of what is called -- Online Transaction Processing...OLTP for short.

Have we been successful? Those of you who do know us, know that today, we are a 2.3 billion global company.

And OLTP has become synonymous with Tandem. A world of commerce is built upon a foundation of Tandem technology.

Now the world is doing what it does best, changing -- and Tandem is changing too.

Electronic transactions are moving out of the specialized atmosphere of banks and telecommunications companies and into the general commercial world. The vehicle for this move is the internet.

When we say internet, we also mean intranet. Including any corporate network that utilizes the public network or an internal web model.

The internet, including all of its merged private, public and corporate networks, represents the new marketplace where commerce will take place. Electronic commerce means "transactions."

With that in mind, we have leveraged and extended our expertise in Online Transaction Processing to the internet.

The company that invented OLTP now brings the world Internet Transaction Processing, or ITP.

ITP is a natural extension of our business. Before the internet can be a viable commercial environment where businesses and individuals feel secure enough to conduct transactions, trust must be established.

With more and more rich media content set to move across the net, what is also needed is high performance, high throughput, clustered computing.

Security and Trust.
Throughput and reliability.
Clustering and scalability.
These are what we do best.
Our competencies are focused on delivering these virtues.

So how are we accomplishing this move?

As a company we have gone through substantial change to truly pick up more market speed and to be able to work with partners more effectively. Today, this is a world of co-operation between both partners and competitors.

We are forming partnerships and licensing agreements that leverage our technologies and scale them to the appropriate market.

One of our most visible moves is our alliance with Microsoft around NT. At Tandem we like to say our goal is to provide "more Tandem to more people."

Our relationship to NT and its potentially vast market is the ideal vehicle for putting more Tandem out there, serving more people.

We are also focusing on providing a new family of ITP server products that will be required by emerging growth markets. We'll have more on this later.

Today we show you and your customers what you can expect from Tandem.

Let me outline the events of this session.

First we will have a guest speaker, Peter Sealey, who will give a view of the new interactive market space and how its shift in power will affect us all.

We will follow with a conversation via satellite with Steve Ballmer, Microsoft's Executive Vice President and hear from him about the Tandem-Microsoft Alliance and what it means.

After that we will reveal our new products and new systems -- all based around Tandem's revolutionary clustering architecture and proven interconnect technology.

Now I'd like to introduce Mr. Peter Sealey. Mr. Sealey serves as an executive consultant to Sony New Technologies, and is also on the faculty at Haas School of Business at the University of California, at Berkeley.

Previously, during his 24 year career at Coca Cola he held a series of senior management positions in softdrinks, wine and filmed entertainment and rose to become the Senior Vice President of Global Marketing. Peter was responsible for the creation of the "Always Coca Cola" campaign in association with Creative Artists Agency in Los Angeles.

Mr. Sealey has very interesting perspectives on how new technologies are altering the power equation of the marketplace. It's now my privilege to introduce Mr. Peter Sealey.

PETER SEALEY
Ph.D.

Thank you very much Roel for that kind introduction.

My associates at Tandem have entitled today's conference "From Transaction to Interaction" and it is an appropriate theme indeed.

Accordingly, I would like to suggest a framework for you to assess the very significant new strategic trust from Tandem as they embrace the of Internet Transaction Processing. What are the driving forces for not only Tandem but also for their extended family of customers, partners, market makers and observers to so aggressively embrace an Internet-centric strategy?

To understand this, it is necessary to observe that our economy is undergoing a massive shift. This kind of shift only happens on this planet every 200 years or so.

The last two centuries in which capital flowed to build Western industrial society, might best be characterized as the "capitalist world," which, continuing until very recently, was defined by two fundamental pillars: Capital and Labor. Our ideologies, wars, politics, national pride and governments were all expressed by our views of the role and importance of these two elements, capital and labor.

During this period, we became stunningly proficient at mass production, mechanized agriculture and the transport of both people and goods. That period has ended.

Now, consider where we are today by a few measures in the US.

Less than 20% of the American labor force still can be found employed in manufacturing, and that figure is heading to around 12% by the turn of the century. Just for reference, when John F. Kennedy was inaugurated, the figure for manufacturing employment in the US was 57% of the labor force. Fifty-seven percent, compared to 12.

Three percent of our labor force is currently engaged in agriculture. Unions are fading, losing power. The blue collar worker is disappearing into a sea of plant closings and corporate re-engineerings.

While the ending of the Capital and Labor era is noteworthy, what is important to our discussion is what replaced these fundamental pillars of the last 200 years.

(slide)

To quote the pre-eminent business pundit, Peter Drucker: Information has replaced capital as a primary element of the post-capitalist world and the service sector and knowledge worker have replaced the traditional labor component of the industrial worker as the second element.

We are now living in a world where oil underground, cities with great harbors, mineral resources, railroad networks, legions of blue color workers .... these are all diminishing. They are yesterday's news.

Information and information technology are the battlegrounds ofthe 21st century ..... as surely as the great industrial manufacturing cities were the battlegrounds of the 20th century in determining national supremacy and wealth.

So what does this mean? It means our society is changing in a manner that happens only once every 200 years. Our society is changing so completely that our children will not comprehend the world in which our parents grew up.

Total, fundamental, complete and profound change.

Now if you will accept that we are in a transition period so profound that it occurs once only every 200 years, let's move to our second, and related, topic: a fundamental power shift that is occurring as a part of this transition.

To discuss this, I would like to talk to you about two fundamental trends and the impact of technology on both. Now, because of my experience and background, I will discuss this from the perspective of the consumer package goods industry in the US.

I will suggest however, that the basic truth that is shown here is true in every other important sector of our economy and for all the developed economies.

Let me see if I can persuade you.

I'm going to make a central point: co-incidental with our entry into a post-capitalist world, there has been a fundamental shift in marketplace power

twice over the last fifty years. And we're entering a third shift. This third shift in power will be important to all of you in this auditorium and is really the underlying basis, I believe, of Tandem's announcements today.

I would like to go back 50 years to illustrate the beginning of two trends, one trend in technology, the other trend in marketing both of which started in the US. It began in the Spring of 1946.

The first trend began with the genesis of the true mainframe computer, ENIAC, an acronym for "electronic numerical integrator and compute"" which weighed 30 tons and had 18,000 tubes. It was developed at the University of Pennsylvania during World War II to calculate artillery trajectories, and it was big enough to occupy a full room in Philadelphia when it was first revealed in 1946.

The second trend also began 50 years ago. It started with the introduction by The Procter & Gamble Company of a revolutionary soap product called Tide.

This development heralded the beginning of a fundamentally new type of organizational structure which came to be called brand management. Procter & Gamble had created a revolutionary product breakthrough in Tide detergent over other normal soap powders.

This product was so superior to all existing laundry cleaners that P&G decided to put one individual in charge of this brand and this brand alone. It was the first time that the concept of brand management had ever been used.

With the introduction of brand management by Procter, 1946 began the era of what I call empirical marketing or quantitative marketing. A powerful concept.

So let's take these two trends, computers beginning with ENIAC and empirical marketing beginning with Tide, and trace them over the intervening decades to explain the shifts in market power and the impact these shifts had on branding. But how could these seemingly unrelated events be related?

I'm going to try to persuade you that between the years 1946 and1973 the marketer had the big main frame computer, the marketer had the information, therefore the marketer had the power. You see, this was the "era of the marketer."

First, objective, quantitative market research was literally made possible by advances in statistical analysis and operations research created by the military mobilization of this country during World War II. Forecasting, modeling, uniformity and measurement were the foundations of wartime productivity, and these disciplines transferred and ported easily to the peacetime consumer marketplace.

In this period, for the first time, we had Nielsen TV ratings and grocery store market share for each brand and package. The marketer had the data and the information and the mainframe computers at headquarters, so the marketer told the retailer what the market was, how big the market was, how fast the market was growing, and what brand shares there were.

The marketer had computer and the information and because the marketer had both of these; the marketer had the power.

But something happened in 1973 in the US. Two industry groups, the Grocery Manufacturers of America, the GMA, and the Supermarket Institute, now known as the Food Marketing Institute, formed a regulatory body to set standards for a new scannable optical code for packages. The organization was called The Uniform Code Council.

Now the whole reason for adopting the UPC symbol was to get groceries through the check out stand faster. Pure and simple. But what happened was quite unexpected: information began to be captured at the point of sale, for the first time in grocery stores, hypermarkets and mass merchandisers outlets from San Francisco to Sydney.

In 1973, we didn't have computational power to do anything with that information, but we began to have the potential to capture and turn that data into information, useful information.

What we didn't know at the time was that Messrs. Jobs and Wozniac were about to invent the personal computer in a garage in Los Altos, California, and this would set into motion developments that would enable this point of sale data to be processed and used at the retail level.

So, when computing power became inexpensive enough and available enough to be located at retail stores, a fundamental power shift occurred.

Suddenly, if you purchased three grocery store items that were each low in sodium content, and you scanned those items at the point of the sale, the retailer knew it.

That retailer could determine who you were via a credit card, where you lived, that retailer could determine other information from other related data on your household income and the number of people in your family.

Said another way: the retailer had the computer and the retailer had the information and because the retailer had both of these, the retailer had the power. Power had shifted from the marketer to the retailer as the computer moved from headquarters to the store. Marketers shifted money out of their advertising budgets and into "trade promotions" to give the retailers funds to stock and display and put special low prices on their products. The retailers, for the first time, had more information and more knowledge than the marketers.

It was no accident that Procter & Gamble moved 23 executives to the small village of Bentonville, Arkansas to be near the corporate headquarters and computers of Wal-Mart. The same thing happened at Ito Yokado in Japan and Marks & Spencer in the UK.

This fundamental shift in market power was driven by information captured at the point of sale. The retailer had the knowledge, so the retailer had the power. And this power has continued for almost 20 years.

But I believe that retailer power reached its Zenith last year. I believe that 1995 may have been the end of the Era of the Retailer and the beginning of the third era: the Era of the Consumer.

In 1995, some things happened in the US and worldwide, again quite unrelated, but if you add them all up, you'll see an interesting pattern.

* The Internet exploded to over 10 million "hosts" or "domains" worldwide and 2.5 million of these are commercial sites.

* E-mail can now be sent to addresses in 154 countries.

* There are at least 23 million Internet users around the world and 14% of these users have purchased products or services over the Web.

* We believe total transactions conducted over the Internet were $575 million in 1995 and will likely grow to $1.6 billion this year.

* Where data is available in the US and Canada, homes connected to the Internet averaged 5 hours and 28 minutes of use per week and this exceeded the total time spent on the playback of rented video tapes. I believe these numbers would be the same in all countries.

* In the US last year, the dollar value of personal computers sold into the home exceeded the dollar value of television set sales in the United States.

As the networked computer comes into its majority, it will change the way we purchase things, the way we get our information, the way we entertain ourselves and the way we bank. Fundamental and profound change.

On the Internet, time and space and distance are immaterial. The old adage of the real estate industry, Location-Location-Location, doesn't really matter anymore.

Just as the computer gave power first to the marketer, then to the retailer, we are now on the verge of the third wave: a critical global mass of networked computers in the home and in the office all interconnected and allowing unprecedented power for their users.

Consumers, normal people, will have the powerful networked computer. Individuals will have access to knowledge. And because those individuals will have the information, they will also have the power.

And because these consumers will have this power, Internet Transaction Processing will become huge factor in our post capitalist society.We are entering a fundamentally new era. An era driven by information and information technology. This new time will shift power away from the retailer and the manufacturer and shift thatpower to the consumer.

We are seeing the emergence of a far more informed and powerful consumer based on the adoption of the networked, Internet connected, multi-media computer. A consumer who can communicate directly and individually back to the manufacturer or service provider.

We are not living in normal times with contiguous changes. We are living in a period of transformation and discontinuities.That is why Tandem's announcement today has such significance.

This is the new frontier. The Internet is now becoming a mature commercial landscape, and for many businesses it is evolving into a significant sales and marketing channel.

I can't predict the future. Anyone who tries is foolish and doomed to ultimate failure. However, I can suggest some implications for the future based on what has already happened. The discussions on the importance of the Internet are not exaggerated or hyped by and large.

Every completely new form of communications has spurred an explosive period of innovation. It happened in 1455 with the Gutenberg Press and its happening this moment as someone is ordering a book from Amazon.com or a bottle of Cabernet from Virtual Vineyards.

Ladies and gentlemen, the times they are a changin' as the 60's song goes. At the great University in Berkeley at which I teach the "free speech movement" was born in the 60's. The slogan then on campus was "power to the people."

Well, it has taken 30 years and millions of Personal Computers but that cry has come to fruition.

It promises to be interesting times indeed.

Thank you very much.