November 12, 2019

IBM and the PC


By 1980 IBM's position in the computer market, i.e. as a manufacturer and supplier of mainframes, was dominant. But its bureaucracy proved to be a problem when dealing with the microcomputer industry, where fast development was required. The company decided that it needed to develop a PC and, having previously failed to produce a microcomputer, gave the project to Don Estridge. His instructions were to produce one in a year. Borrowing the idea of a small development team from companies such as Apple, Baton Rouge became the home of Estridge's team, an Independent Business Unit, IBU. This unit ran more or less independently from the main company and, importantly, controlled its own budget. This enabled Estridge to quickly purchase components from outside the company rather than wait for internal supply. This concept of small teams of about 50 programmers to develop software has proven to be advantageous. It reduces errors, simplifies communications and provides for manageable documentation. Estridge brought great success to Big Blue, but was considered to be a maverick and subsequently reigned in by the company. He died in 1985.

The open standard

Standards are laid down by official bodies for telecommunications traffic. In other areas, standards are developed by market forces. IBM produced the de facto standard for the PC by means of the volume of its sales. The IBM configuration covers all aspects of the PC, from the physical dimensions of the slot-in cards and the means of transmitting data over buses, to the operation of the CPU. The operating systems for the PC, initially DOS and later Windows, have also become de facto standards. Apple Mac is not a de facto standard.

Open architecture

Estridge's group decided to have an open architecture buying in outside components and leaving the design freely available to others. (Apple is proprietary with its OS and most components owned by the company). IBM's decision meant that other companies could make PCs. The BIOS however belonged to IBM and it is this that allowed IBM to dominate the market and yet both expand and stabilize that market.

IBM and Microsoft

The deal that these companies signed, for MS to supply IBM with MS-DOS, is generally regarded as the deal that sealed Microsoft's success. The background to this arrangement is shrouded in controversy. Various tales have been told about these events. Cringely contends that the accidental nature of the deal, with Kildall flying when IBM called (Kildall claimed he was on a business trip, others stated he was not), is typical of the PC story. What is not disputed, is that IBM initially approached Gary Kildall at Digital Research with their infamous non-disclosure agreement i.e. the meeting does take place, but only if you sign the agreement. However, if you sign it, you cannot say that the meeting has taken place, or what you talked about.

Kildall and IBM did not make the deal. Bill Gates did and the rest is history. Furthermore, Gates kept the rights to sell his OS to others; so Gates couldn't lose. With IBM's success, Microsoft attained its dominance with MS-DOS. IBM soon realised its mistake and that the ownership of the OS was the most valuable asset. Consequently its relationship with Gates became increasingly strained. This led IBM to develop their own operating system, OS/2. Unfortunately for them, IBM were led by a mainframe mentality. The company did not understand the intrinsic differences between the cultures of mainframes and microcomputers.

These were:

  • The numbers of customers differs.
  • The sales and profits model of each is different. PCs work on low profit margin high sales as opposed to the mainframe model.
  • Customer relations. The PC industry tends to operate on impersonal relations between customer and supplier. With mainframes, the company builds upon the buyer/sales relationship.
  • Compatibility. With microcomputers, compatibility of hardware is essential and the growth of the industry was dependent on this, whereas mainframes tied customers to single suppliers. IBM failed to appreciate that a single OS would be beneficial to market confidence and software development. Customers are resistant to change their OS.

Gates wanted to preserve the relationship. IBM and MS signed a Joint Development Agreement in 1985 to upgrade the OS giving the program to IBM for almost nothing, whilst, significantly, keeping the rights to sell to others. This culture clash eventually led MS to rebel. MS, at that time, was composed of a small team of young programmers. They possessed a hacker mindset, as opposed to Big Blue's corporate rigidity.

Lotus 1-2-3

Cringely says that all computers need a compelling app or killer app. For the IBM PC, it was Lotus 1-2-3. Developed by Mitch Kapor, who had made VisiPlot to add graph plotting capability to VisiCalc. Kapor's start up Lotus Development developed a 3 in 1 program that combined spreadsheet, plotting and database facilities. It was developed specifically for the IBM-PC and DOS. It was therefore lean, fast and more powerful than any competition. Kapor had gambled that IBM/MS would be the dominant system and hung on to their coat tails. In turn, his software helped sales of this system to triple. In 1984, Gates tried to buy Lotus, but the deal failed as did a similar opportunity for IBM two years earlier. IBM didn't realise what they were being offered and showed Kapor the door, thus ensuring his future wealth and their own failure to find another means to obtaining market dominance. In 1995, IBM paid over $3 billion for Lotus, this time to acquire Lotus Notes, which is an example of groupware.


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