Classic Computer Magazine Archive CREATIVE COMPUTING VOL. 10, NO. 11 / NOVEMBER 1984 / PAGE 298

IBM: colossus of Armonk. Corey Sandler.

Staid, conservative, Eastern IBM: a corporation where executives could wear any shade of white shirt they chose, where new employees were taught songs of company loyalty, where unquestioned success had been built upon a platform of room-sized, climate-controlled, multimillion-dollar mainframe computers.

Just as the personal computer business had finally begun to take off at the start of the 1980s, following a trail blazed by companies like IMSAI, MITS, Cromemco, garage-born Apple, and hobbyist-based Radio Shack, the rumor began to float about that the Colossus of Armonk was going to enter the marketplace. "That will be," said one wise industry observer, "like teaching an elephant to tap dance."

Well, the Big Blue pachyderm turned out to be a natural at the two-step, the waltz, and the mambo. It now calls the tune for the entire industry. Its products--the IBM PC, PC-XT, PCjr, and the new PC At--are considered the standard against which would-be participants in the personal computer marketplace ar judged. (You don't ask whether a new machine is fast or slow, new technology or old. The first question is, "Is it PC compatible?")

The story of how IBM came to such prominence would seem to be a combination of careful planning, bureaucratic obstruction, missed opportunities, and perfect timing. All of this was backed, in the last 30 years at least, by the phenomenal financial, research, and marketing resources of one of the world's largest companies. Consider this: last year IBM spent more than $3 billion on research and development around the world. That is three times as much as the total sales grossed by "challenger" Apple in 1983. Roofs

Though IBM is a "new" company in the microcomputer marketplace, it can trace its corporate roots back to 1890 and Herman Hollerith's introduction of the first punch card reader for data tabulation. Hollerith's device was adopted by the U.S. Census office that year to aid with the head-counting task for our fast growing country of 63 million people.

Meanwhile, Thomas Watson Sr., born in 1874 in upstate New York, had progressed from a job as a travelling piano, organ, and sewing machine salesman in Painted Post, NY, to a position with the National Cash Register Company (now know as NCR). The company was run by John H. Patterson, who called himself "the father of modern salesmanship."

Patterson's theories included an all-stops-pulled, no holds barred approach to selling, and a dedication to fiercely loyal corporate culture. Patterson combined handsome rewards and cold fear of failure as motivators for his "troops"--there was a military-like hierachy among employees, with rank and promotion ceremonies. He introduced exclusive territories for salesmen, a sales quota system, and internal societies like the Hundred Percent Club for drummers who had met their quotas.

Within three years of joining NCR, Watson had become the star salesman in upstate New York and was promoted to a managerial position. In 1912, Patterson, Watson and 30 other NCR employees were indicted by the federal government under the Sherman Antitrust Act, accused of practices including tampering with competitors' machines, buying or bribing salesmen from other companies, and seeking to establish and maintain a monopoly in the cash register business. All of the defendants were found guilty and Patterson and Watson were among those sentenced to pay a $5000 fine and serve a year in prison. The case was appealed, and later a retrial was ordered. Before a second trial, though, the government offered an out-of-court settlement. Watson, however, refused to sign a consent decree that would have settled the case--he said later that to do so would have admitted guilt. Patterson fired him. He was 40 years old and out of work.

Watson found a job with the Computing-Tabulating-Recording Co. in 1914, as general manager. The company was a bank-forced amalgamation of three firms: Tabulating Machine, International Time, and Computing Scale in upstate New York. It manufactured butcher scales, meat slicers, coffee grinders, punched card readers, Hollerith tabulating machines, and time clocks. In 1917, CTR entered the Canadian market, and the name was changed to the International Business Machines Corporation for part of its operations. The full company would adopt the IBM label in 1924.

Under Watson's steerage, the company was almost immediately successful. During World War I, its scales were used in shipyards and factories. When the war ended, the company's sales had doubled from $4.2 million in 1914 to $8.3 million in 1917, with earnings up from $490,000 to $1.6 million. Hollerith tabulators and sorters became bestsellers among burgeoning government agencies, insurance companies, and railroads in the post-war era.

One other thing Watson brought to IBM was a refinement of Patterson's management and motivation techniques. The emphasis was on empire and sales. Inside the company, hardworking employees were well rewarded for their loyalty; outside customers paid well for high quality equipment that was backed by unparalleled support. IBM salesmen were often engineers; IBM technicians often spent weeks or months working with customers on planning and installation of major pieces of equipment. And the company was hugely successful, with growth rates between the wars as high as 24% per year. Early Successes

IBM's history, then, has been built upon the quality of its products and the success of its sales force, and not necessarily on always being the first out while a new technology or process. with a new technology or process.

For example, IBM was not the first typewriter maker, but its electric models and later its Selectric line all but took over the huge business market when introduced. So, too, with its computer products.

During the years leading up to World War II, government agencies, universities, and private concerns were hard at work attempting to adapt the mechanical tabulating devices of IBM and other companies to become general purpose computers for scientific purposes. The players included IBM, Remington Rand (a firearm manufacturer that had expanded into the office with a line of typewriters), the buroughs Corp., Watson's old employer NCR, and General Electric. Though IBM spent hundreds of thousands of dollars on development of a large computer in 1940--the Mark I--Thomas Watson Jr., and therefore the company, was unsure about the long term use for the device, and thought them unlikely to replace calculators and adding machines in offices.

In 1950, Remington Rand vaulted to the top of the infant computer business when it introduced the UNIVAC, an offspring of ENIAC (Electric Numeric Integrator and Calculator), developed by physicist John Mauchly and electrical engineer J. Presper Eckert, at the University of Pennsylvania. The first UNIVACs displaced IBM tabulators at the Census Bureau--the place where Herman Hollerith had started the company that lead to IBM. IBM had to wait until 1952 before it could come out with its own model. That device was not as advanced as Remington Rand's machine, but once again IBM was on the move. Within five years, the company's 704 and 705 series computers were the leaders in the industry, and IBM was on top with an 85% share of the infant market.

The first machines were bulky, and their vacuum tubes generated a great deal of heat. IBM's customer service tradition kept it a favorite among corporate clients, even as the competition became more and more intense. IBM was the leader, followed by what quickly became known as the Seven Dwarfs: the merged Sperry-Rand Corp., Control Data, Honeywell, Burroughs, NCR, RCA, and General Electric.

It was in the late sixties and into the seventies, though, that IBM began to lose some of its luster as the result of a pair of occurrences: first, the U.S. Justice Department began investigating and later filed suit against IBM for antitrust violations, centering upon allegations that the company's practice of cradle-to-grave "bundling" of engineering, sales, installation, software design, and maintenance was anticompetitive; second, IBM somehow managed to completely miss the fast growing "Minicomputer" market. Up-starts like Digital Equipment Corp. (DEC) and Data General began to carve away at some of IBM's base by selling smaller computers for specific purposes.

Perhaps, some have said, it was the antitrust suit that distracted IBM's attention--the case dragged on for 13 years before it was finally dropped in 1982. Perhaps it was the bureaucratic inertia of a company with more than 300,000 employees that kept IBM from reacting. In any case, IBM began to change at the end of the 1970s, primarily through the results of an unusual experiment in internal enterprise zones.

IBM established more than a dozen Independent Business Units that were to function essentially as separate enterpreneurial companies within the corporation. They could draw upon IBM's resources and research and use the clout of the IBM name without having to work through the multi-layered bureaucratic structure of the parent company. The Micro Mandate

In the summer of 1980, Philip "Don" Estridge, an IBM divisional vice president, was told to investigate a possible entrance into the microcomputer market. He and a team of 12 worked for the next year on a machine that would make the elephant tap dance.

The Entry Systems Group in Boca Raton, FL, had to make several important decisions:

What kind of design would the machine use? Should it represent the state of the art in technology or should IBM instead "legitimize" the market with a refinement of existing design?

Would they follow IBM tradition and come out with a machine heavily based upon company-patented hardware and software, thereby locking most competitors out of the market?

Which operating system would the machine use? Would it be the developing microcomputer leader, CP/M from Digital Research or a different existing system, or would IBM follow its historical form and use a proprietary system over which it could maintain control?

How would the machine be marketed? As a home computer? As a home/small business machine like the Apple and Radio Shack lines? As a big business machine like the rest of the IBM offerings?

Who would sell the machine? IBM had almost no experience with mass market retailing, relying instead upon its corps of professional sales people.

In retrospect, it seems that Estridge's small enterpreneurship made all of the right decisions in its frenzied year. They made some daring changes from IBM's ordinary way of doing business; in other instances they kept very close to the corporation's super-conservative tradition; in still other areas, they hedged their bets.

It is nearly impossible to pin down the exact order in which decisions were made, but the interlinking process produced the IBM PC as we know it now. Designing the PC

Rather than trying to redefine the microcomputer, IBM would instead rely upon existing, proven technology to produce a competent, well backed, machine. This decision would also help to speed up the design process and allow for a very rapid build-up of production. Along with this path came the decision to purchase as many parts and sub-assemblies of the computer from outside companies as was feasible--again, this saved time, expense, and capital outlay. (Inside IBM's Entry Systems Division, they claim that every manufacturing step is preceded by a "Make or Buy" economic analysis.)

It was also decided along the way that the machine would have an "open" architecture, like that of the Apple family. IBM would include slots under the cover of the machine that could accommodate plug-in boards that would add features or even change the entire personality of the PC. And, to make it relatively easy for outside companies to participate in the building of the PC market, IBM would publish a Technical Reference Manual with the entire set of electrical schematics for the machine and a full explanation and printout of the ROM-based BIOS (Basic input Output System) that provides the hooks into the machine for hardware and software. The ROM BIOS and the IBM logo were actually the only elements of the entire machine that bore an IBM copyright.

According to the unproven history of the time, IBM was undecided whether to use an 8 or 16-bit microprocessor. Discussions were begun--in typical IBM super-secrecy--with Microsoft's Bill Gates for a package of languages. According to several published accounts, IBM, with Gates' introduction, approached Gary Kildall's Digital Research Corp. to talk about purchasing rights to CP/M, but was rebuffed. DR didn't want to sign IBM's broad nondisclosure agreement and release proprietary secrets without some hint of the nature of IBM's interest. IBM would make no compromise and returned to Microsoft, with whom they eventually signed a contract for a new operating system.

Nearly all of the microcomputers then on the market were using 8-bit processors like the 6502 in the Apple or the Z80 in the CP/M machines. There were, though, proven 16-bit microprocessors available, and these chips could operate at much greater speeds and address much larger blocks of memory. Partly at the prodding of Bill Gates, IBM made a strategic compromise here and chose a hybrid microprocessor from Intel, the 8088. This chip could manipulate 16-bit blocks of information internally, but relied upon an 8-bit external bus for support. (Think of it as a 16-lane tunnel with an 8-lane highway connecting to it at either end.) The resulting machine was faster than the 8-bit competition, but not as fast as a true 16-bit device. However, the 8-bit bus was considerably less expensive to design, build, and fill out with add-on devices; thus, IBM was able to hold the price down.

Microsoft's operating system, dubbed PC-DOS, was an adaptation of SCP-DOS, written by Tim Patterson of Seattle Computer Products for a machine based on a true 16-bit microprocessor, the Intel 8086. In a key element of the success of the IBM PC, Microsoft retained marketing rights to a version of the operating system it was selling to IBM. This version, called MS-DOS, was to provide the engine for the dozens of IBM "clones" that would come along in later years.

IBM apparently was quite uncertain where the PC would find its place. It could see hundreds of thousands of Apple IIs and TRS-80 models in the homes, with only relatively insignificant penetration into the office. The Apple II, in its most minimal configuration, was available for about $1500; the TRS-80 Model III was at about the same level.

Although it seems hard to believe now, when IBM first introduced the PC in August, 1981, it offered a model with just 16K of RAM on the motherboard and instructions on how to hook the unit up to a standard home audio cassette machine for recording and playback of data. That model was advertised at $1265, or $1565 with a color/graphics video adapter.

The true cost of an IBM PC configured for serious use, rose rapidly from there, but IBM still seemed bound and determined to compete with the price set by Apple. An Apple II Plus with 48K of RAM, a single 143K disk drive, DOS, and necessary third-party hardware modifications to allow it to display 80 characters on a monitor screen sold for about $2800 list. An equivalent IBM PC, with 48K of RAM, a single 160K disk drive, DOS, a color/graphics adapter board, and a game adapter card had a list price of $2630. Marketing the PC

And then there was the marketing. though there was at first the sort of conservative, image-conscious advertising campaign you might have expected ("Presenting the IBM of Personal Computers" read the headline on the first series of print ads), the campaign soon began to take off in a new direction, waddling into the American consciousness behind the pigeon-toed walk of Charlie Chaplin. More than two years into the campaign (by New York's Lord Geller Advertising Agency), it is hard to see the Little Tramp without thinking, in a warm cuddly sort of way, of IBM and its personal computer products.

There was another crucial decision made, again at major divergence from IBM's history. The company opened up two additional channels of distribution for its machines: it set up its own chain of IBM Product Centers in major cities to ofer officially sanctioned retail sales, and it signed contracts with a carefully chosen group of retail computer stores, including many of the ComputerLAnd franchisees. IBM also gave the machine over to its internal sales force, and they aggressively entered into the corporate world in search of contracts for dozens of computers at a time--often at corporate discounts of as much as 40%.

We will probably never know exactly how many PCs IBM has sold, since the company does not divulge product shipment numbers; nor does it break down profit and loss by division in a meaningful fashion. however, it is estimated that there are already between one and one-and-a-half million IBM PCs in the hands of users, and that number could grow by several million more just in 1984. Impact of the PC

Another way to measure the impact of the IBM microcomputer is to look at the growth of the hangers-on, companies that came from nowhere or close to it, to become multimillion dollar operations: Tandon (at first the only supplier or floppy dis drives for IBM and now one of several large volume suppliers to IBM and compatible manufacturers); Tecmar (from a small specialty hardware company to a major supplier of hardware for IBM, Apple, and other computer manufacturers); AST; Quadram (credited with launching the multi-function board sub-industry for devices to plug into the limited slots of the PC); Lotus Development Corp. (developer and marketer of Lotus 1-2-3 software); Microsoft (which has gone on to develop, with IBM, later versions of PD-DOS, and other languages, and has sold hundreds of thousands of licenses for MS-DOS to PC-compatible manufacturers.)

And, part of the history can be gauged by the story of PC magazine, launched in early 1982 with a slim 96-page bi-monthly effort. By December of 1983, the now-monthly magazine had crossed 800 pages--nearly 500 of them advertisements. PC magazine doubled its frequency again in 1984, and each of its bi-weekly issues currently weighs in at about 400 pages.

And finally, there has been the phenomenon of the PC-compatible computer. There are now dozens of ways to buy a computer that will run some percentage of the programs written for the IBM PC; many of those machines will accept most of the hardware developed for the "real thing." The most spectacular success story appears to be that of Compaq Computer, which went from zero income and no product in 1982 to sales of about $100 million in 1983. That company shrank the size of the PC down to fit into a sewing machine sized box--they called it a portable, but most weary users would admit its 30 pounds or so of weight made it more of a "transportable."

Other companies like Columbia and Corona sought at first to compete with IBM on the basis of price and later on added features. Recently, machines from Eagle, Stearns, Compaq, Radio Shack, and others have taken a step away from a high level of compatibility in favor of going beyond the limits of the 8088 chip and toward what has been dubbed the "turbo" performance of microprocessors like the 8086, the 80816, and the 80286.

IBM itself has paid scant notice to the compatible marketplace, since it has had little trouble selling as many PCs as it could crank out of its factories. It has, though, jealously guarded the copyright on its ROM BIOS, taking a few manufacturers to court when they strayed too close in their emulation. Climbing the Sales Curve--Again

Meanwhile, IBM took steps to ensure the sales of its top-line personal computers. Management reverted to one of the company's tried and true operating strategies: It consistently dropped the prices on its PC line as competitors began to come close to affecting demand for available machines. And, just at the moment when it appeared that the IBM PC might be at the top of a bell curve-shaped sales history, it announced a new family of machines that seem destined to be its replacement.

The PC AT is one of IBM's most aggressive marketing moves in many years. Instead of taking the conservative, proven route IBM chose when it introduced the PC, the company has leaped over the heads of its competitors with a line of microcomputers offering advanced technology and features. The PC AT, with its speedy 80286 microprocessor, its 1.2Mb floppy disks, and its available internal 20-megabyte hard disks, is generations ahead of any other major company offering--certainly well ahead of any present or near-to-market offerings from number two Apple.

Along the way to the PC AT, IBM made what has to be considered the biggest misstep of the Entry Systems Division--the mislaunch of the PCjr. But the nature and means of the company's recovery from that error is representative both of IBM's corporate history and its future plans.

According to company sources, IBM began development of a low price, easy-to-use "home computer" based on the IBM PC soon after the larger machine was deemed a likely success. Somewhere along its its two-year development path, though, the machine turned into a strange amalgam of a high-powered IBM compatible computer and a series of intentional crippling design elements. The marketers thought was that this machine should go only into the homes and schools of America, and not cannibalize the sales of the PC. The designers though that their mandate was to find ways to sharply reduce the manufacturing cost of a PC-DOS computer. At the same time, the supposed home computer market turned out to be much more interested in VisiCalc than in Space Invaders.

The PCjr, with its toy-like Chiclet keyboard, single dis drive, and official top-end memory limit of 128K, was greeted with boos by the press and a universal yawn from the public. But once again, IBM's Entry Systems Division showed itself willing to change--and anxious to redeem its good name. At the end of July of this year, IBM announced a series of improvements for the PCjr, including a new full-stroke keyboard and memory modules that can take the machine to 512K. Also included in the announcement was the availability of Lotus 1-2-3 on a plug-in ROM cartridge and an IBM-sanctioned RAM disk that would simulate a second disk drive.

Now, the PCjr seems poised for an invasion of the country's offices for use in stand-alone word processing, data entry, and spreadsheet applications, and a renewed mandate as the home computer for personal productivity applications. It will be aided by an advertising campaign deemed the most intensive in the company's history. According to IBM sources, in the period from August 1 to December 31 of 1984, 98% of the American public will see at least 30 PCjr advertising messages.

IBM took one other, unprecedented step: The company announced that any early purchaser of the PCjr would be offered a new keyboard free. No swap, no upgrade fee--no charge. This is roughly equivalent to General Motors sending a telegram to all 1983 purchasers of the Chevy Citation reading: "We have been convinced by pressures of the marketplace that radial tires are better than bias ply tires. We value your early faith in us, and therefore we will be sending you a new set of four radial tires for your car. You can keep the old tires as spares."

Why did they do that? Well, obviously they expected to reap a public relations benefit from the move, and they did. However, it goes deeper than that. As one high placed IBM employee told me, "When we came into the market everyone said that IBM will legitimize the personal computer market and that Big Blue can be counted on to stand behind its products and its customers. That's what we're doing here."

In this new, competitive market, IBM is still operating very cautiously, with one eye always on the U.S. Justice Department. (Push any IBM executive about marketing strategies and sooner or later the antitrust jitters will surface. "You know, if we really wanted to," an IBM executive once told me, "we could buy Apple Computer out of petty cash lying around in drawers in Armonk. Apple?," she said, flicking casually at the sleeve of her blouse, "goodbye."

That almost certainly won't happen, and I'm not convinced very many IBMers would enjoy that. Much of the thrill of success at Big Blue seems to come from competitively won battles, harking for inspiration all the way back to Thomas Watson Sr. and his wagon load of pianos, organs, and sewing machines.

IBM's new PC AT products obviously have stolen back the limelight from compatible manufacturers. It seems likely that we will see another cycle, with the PC AT becoming the standard for the next round of competition. IBM should sell a lot of PC ATs as well as other machines in the PC family, and then just as the rest of the industry comes close to catching up with them, IBM will move on, leaving the others gasping in its wake.