IBM Prepares to Leave an Industry It Created

By Wayne Rash  |  Posted 2004-12-03

IBM Prepares to Leave an Industry It Created

In August 1981, the world of computing changed. When IBM launched its first IBM PC, most observers at the time simply thought it was a good move by a company that was already a leader. The new computer would help IBM stay relevant and provide a new class of computers that would add some revenue. But it turned out to be much more than that.

The arrival of the IBM PC legitimized what until then had been the realm of hobbyists and experimenters. While there were some business uses for a few of the personal computers at the time, and while there was some interest in Apple Computers offerings in education, PCs had very little impact on business. Until 1981.

Then, with the IBM logo showing up on desktop computers, business paid attention. But so did a lot of small companies just entering the electronics business.

"IBMs decision to publish in the open literature the design and specifications of its PC created a new ecosystem," said Dag Spicer, senior curator of the Computer History Museum in Mountain View, Calif.

Click here for analysts take on whether Lenovo is the right choice to take over IBMs PC business.

While the idea of an open standard wasnt new to computing—the S100 bus was an attempt at the same end and had been out for a couple of years by the time IBM shipped the PC—it was a first for IBM. "Theyd been a proprietary company before that," Spicer said.

But the move to the open standard resulted in the rapid growth of an industry. Companies created add-on cards, peripherals, accessories and, of course, computers. The open standard did more than make hardware add-ons possible; it created a software industry as well. Within months of the first IBM PC shipment, the concept of being "IBM PC compatible" had already entered the literature.

But the source of the standard was as important as the fact that it existed at all. "Ten or 15 years ago, the fact that a technology came from IBM was considered to be an important endorsement," said Alan Zeichick, principal analyst at Camden Associates in San Bruno, Calif. Spicer agreed, calling IBM "the Vatican of computing."

With the arrival of new manufacturers came new products, and of course a new industry. Microsoft, picked by the original Skunk Works team in Boca Raton for the initial operating system, went from being a tiny maker of tape-based BASIC interpreters to the largest software company on the planet.

Next Page: Some competitors couldnt adapt.


Intel, similarly chosen, became the dominant chipmaker. Almost by accident, IBM forced every other maker of small computers to either join it or be relegated to a tiny niche.

In the process, some of its main competitors found themselves unable to adapt, and they eventually died. Digital Equipment Company, then the dominant maker of minicomputers, moved into the PC arena too late. First it tried to set its own standard, then eventually moved to PCs too late, and was taken over by Compaq as a result. Data General, Wang and others likewise found the PC juggernaut to be their undoing.

But before anyone realized it, IBM lost control of its own industry. Worse, when the company realized this and attempted to regain control by setting new standards, it didnt work.

"Two huge missteps, the microchannel-based PS/2 hardware and the half-hearted OS/2 operating system, swiftly eroded enterprise confidence in IBMs PC division," Zeichick said.

IBM never really recovered the leadership role it held before those events. While the company remained a serious competitor, as well as being the third-largest PC maker, margins dropped—and with the drop came pressure to drop that part of the business.

"It should surprise no one," said Simon Yates, senior analyst at Forrester Research in Cambridge, Mass. Yates said IBM was finding it tough to compete in the PC market because it was difficult to keep prices down.

"Theyve always been the technology innovator in the PC industry," Yates said, adding that because the company was the innovator, it had to keep its prices up to pay for it.

Unfortunately, keeping prices up meant that IBM was never able to compete effectively in the PC marketplace, and that kept margins low.

With IBMs growing focus on services and higher-end hardware such as servers, the choice was obvious. But being obvious doesnt make it any less painful, especially to IBM customers, many of whom are upset by the idea of a pending sale.

Boston-based marketing consultant Cheryl Delgreco pointed out that for many companies, buying IBM as she did for her company was a matter of trust. You always knew the company would be there for you, she said. "What happens if something goes wrong?" Delgreco asked. "Am I supposed to call somebody in China?"

That probably wont be necessary, of course. Even if IBM sells its business to Hong Kong-based Lenovo, its certain that the infrastructure will remain, if only to service existing customers and meet existing contracts.

But its also likely that Lenovo will get to keep some of the IBM PC identity as part of the sale. So, the IBM PC name may continue, at least for a while, even if IBM isnt making them. And, of course, IBM hasnt been making those PCs for a while anyway. Manufacturing was outsourced two years ago.

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