August 12, 1981, at the Waldorf Astoria Hotel, in downtown Manhattan, IBM introduced the company’s new product in the emerging market: the IBM PC. With that, America’s pre-eminent computer manufacturer launched another revolution in computingalthough few realized it at the time, plus the press coverage of this announcement was “lukewarm”.
Soon, however, everyone was adopting small computers into their homes, and IBM was dominating those sales. The personal computer greatly expanded the number of people and organizations that used computers. Other companies, like and Tandy Corp.already made personal computers, but no other machine bore the revered IBM name.
IBM’s essential contributions were to apply technology properly for wide use and set a technology standard. Rivals were forced to meet a demand that all had vastly underestimated. As such, IBM had an even greater effect on PC acceptance than Apple, Compaq, Dell, or . Despite this initial dominance, by 1986 the IBM PC was becoming a byproduct. And in 2005, the Chinese computer manufacturer Lenovo Group bought IBM’s PC business.
Why didn’t IBM succeed in selling personal computers?
And above all… What happened between IBM’s successful entry into the personal computer business and its unfortunate exit almost a quarter of a century later?
From IBM’s perspective, a vast new market quickly became a ugly battlefield with many rivals. The company stumbled a lot, as its bureaucratic approach of product development was not up to the task of a rapidly evolving industry. Over time, it became clear that IBM’s sadness reflected the company’s decline in this sector.
How did the personal computer revolution start?
IBM did not invent the desktop computer. Most historians agree that the personal computer revolution started in april 1977 at the first West Coast Computer Fair in the United States. Over there, Steve Jobs introduced the Apple IIpriced at $1,298 (about $5,800 today), while its rival Commodore presented its PET.
Both machines were designed for consumers, not just hobbyists or technicians. In August Tandy released their TRS-80, which came with kits. In fact, the software for these new machines was largely limited to video games and a few .
IBM’s large commercial clients were faced with the implications of this emerging technology:
- Who would maintain the equipment and its software?
- How secure was the data on these machines?
- Should personal computers be taken seriously or not?
By the 1980s, customers in many industries were telling their contacts at IBM to get in on the fight. At IBM’s San Diego, Endicott, NY, and Poughkeepsie, NY plants, engineers were forming hobbyist clubs to learn about the new personal machines.
The logical place to build a small computer was the IBM General Products Division, which focused on the and the successful business of the . But the division had no budget and no staff to assign to another machine. IBM CEO Frank T. Cary, he decided to finance the development of the PC with his own budget. He resorted to William “Bill” Lowewho had pondered the design of this new machine.
Lowe reported directly to Cary, bypassing IBM’s complex product development bureaucracy, which had grown enormously during the creation of the System/360 and S/370. The normal process for bringing a new product to market it took 4 or 5 years, but the fledgling PC market was moving too fast for that. Cary asked Lowe to come back in several months with a plan to develop a computer within a year, by finding 40 people from across IBM and moving them to Boca Raton, Florida.
Lowe’s plan for the PC was to buy the existing components and software and bundle them into one package for the consumer market. There would be no proprietary or IBM-made chips. The product also had to appeal to corporate customers, although it was not clear how many there would be. It was to be expected that the vendors would ignore or oppose the PC, so the project was kept reasonably secret.
A friend of Lowe’s jack sams, was a software engineer who knew Bill Gates vaguely, and he contacted the 24-year-old Gates to see if he had an operating system that would work for the new PC. Gates had dropped out of Harvard to go into the computer business and ran a 31-person company called Microsoft. Although he viewed programming as an intellectual exercise, Gates also had a keen eye for business.
In July 1980, IBM members met with GatesBut they weren’t very impressed, so they turned to Gary Kildall, president of Digital Research, the most recognized microcomputer software company at the time.
Kildall then made what may have been the business mistake of the century.. He fired the blue-suiters so he could fly his plane, leaving his wife, a lawyer, to deal with them. The meeting went nowherewith too much haggling over non-disclosure agreements, and the IBMers walked out. Gates was now his only option.and took those from IBM seriously.
That August, Lowe presented his plan to Cary and the rest of the steering committee at IBM’s headquarters in Armonk, New York. The idea of creating a PC outside of IBM’s development process made some members of the committee uneasy. The committee knew that IBM had previously failed with their own tiny machines (specifically the Datamaster and 5110), but Lowe offered an alternative strategy and already had Cary’s support. They approved Lowe’s plan.
Lowe negotiated terms, volumes and delivery dates with suppliers, including Gates. To meet IBM’s deadline, Gates concluded that Microsoft could not write an operating system from scratch, so he got one called QDOS (“Quick and Dirty Operating System”) that could be adapted.
IBM wanted Microsoft, not the Boca Raton team, to run the operating system. That meant Microsoft kept the rights to the operating system. Microsoft paid $75,000 for . By the early 1990s, that investment had brought the company’s value to $27 billion.
IBM’s strategic error in not retaining the rights to the operating system went well beyond that $27 billion; meant that Microsoft would set operating system standards for PCs. To be fair to IBM, no one thought the personal computer business would get this big. Gates later said that he had been “lucky”…
Back in Boca Raton, the pieces began to fit. The team designed the new product, queued up with suppliers, and was ready to go. introduce the IBM Personal Computer only a year after getting approval from the steering committee, but… How could IBM do this?
Much of the credit goes to Philip Donald Stridge. Estridge, an engineering director known for breaking company rules, turned out to be the perfect choice to take this project forward. He wouldn’t show up to product development meetings or return phone calls. He made decisions quickly and communicated them to Lowe and Cary later. He surrounded himself with like-minded rebelswho were later nicknamed the “Dirty Dozen”.
In the fall of 1980, Lowe transferred to a new job at IBM, with Estridge taking over. He, he made sure that Microsoft kept the development of the DOS operating system secret, and he quelled rumors that IBM was building a system. The Boca Raton team put in many hours and built a beautiful machine.
The IBM PC was an almost instant success.
the big day came on August 12, 1981. Estridge wondered if anyone would show up at the Waldorf Astoria. After all, the PC was a small product, not in the traditional IBM space. About 100 people crowded into the hotel. Estridge described the PC, had one there for a demo, and answered a few questions.
Meanwhile, IBM salespeople had received packages of material the day before. On August 12, branch managers introduced the PC to employees and then met with customers to do the same. Sellers did not receive sample machines. Along with their clients, they collectively scratched their heads, wondering how they could use the new computer. For most IBM customers and employees, it was a new world.
No one predicted what would happen next. The first shipments began in October 1981.and in its first year, the IBM PC generated $1 billion in revenue, far exceeding the company’s forecasts. IBM’s original manufacturing forecasts called for one million machines in three years, with 200,000 the first year. In fact, customers were buying 200,000 PCs a month in the second year.
Those who ordered the first PCs received what seemed like something pretty clever. It could run various software packages and a good collection of commercial and consumer tools, including the accessible .
The whimsical ads on the PC featured Charlie Chaplin’s Little Tramp and carried the tagline: “A tool for modern times“
People could buy the machines in ComputerLand, a popular chain of stores in the United States. For some corporate clients, the fact that IBM now had a personal computing product meant that these little machines were not some crazy geek or hippie fad, but a new breed of serious computing. Corporate users who did not want to depend on their company users began to turn to these new machines.
Estridge and his team set out to acquire games and business software for the PC. They got Lotus Development Corp. to provide their software package. worksheets 1-2-3; Other software products from multiple vendors followed. When developers began writing software for the IBM PC, they adopted DOS as the industry standard. IBM’s competitors also had to increasingly use DOS and Intel chips. And Cary’s decision to avoid red tape in product development paid off..
IBM could not keep up with its rivals in the personal computer market
Buoyed by its success, the “IBMers” of Boca Raton released a sequel to the PC in early 1983, XT call. In 1984 came the successor to the XT, the OT. That machine would be latest PC designed outside of the IBM development process…
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