Monday, 6 February 2012

A $100 Billion Mistake by IBM

It was 1980, Chairman of IBM, Mr.Frank Carey was in a discussion with the company’s heads of the departments. IBM in those days produced only mainframe computers, but the revolutionary hike in the PC market created by the Apple II PC made IBM think out of their mainframes domain. Carey announced his decision of the company entering into the PC market. A man named Bill Lowe stood up and expressed his idea that rather than building PCs from the scratch, it would be easier and quicker way to build an assembled PC, which in IBMs language is said as open-architecture. Chairman Frank agreed.

Within a year, IBM designed the open-architectural PCs with it’s hardware, but it’s equally important counter part, the software, was still a question in their minds. So, IBM sat back and thought, whom should they buy the operating system from?? They had two options, one was Gary Kildel, then aged 39, a Computer Science Ph.D, inventor of the operating system CP/M and the other was a 24 year old Harvard drop-out, named Bill Gates. Gary was the hot cheese of operating systems and by 1980 Bill Gates’ small company Microsoft was already the biggest supplier of computer softwares in the industry.

IBM approached Bill Gates for asking him to write BASIC interpreter for IBM PC, and thought that Microsoft already owned an operating system, but Bill Gates made it clear to them that they don’t and sent them to Gary. But Gary Kildel and his wife Dorothy Kildel turned down the IBMs offer due to it’s many legal agreements. So, IBM, which never faced such refusals from anybody, turned back to Microsoft. Whenever Bill Gates is on the scene, there will be no second chance left to those who already lost one. So, they grabbed it all. But IBM needed a more faster working OS, and Microsoft didn’t have one, so they told IBM that they would bring it from Tim Patterson, who built an OS named QDOS which worked just as Gary Kildel’s CPM. Microsoft later made a deal with Seattle Computer Products(SCP) and became 86 DOS’s full owner, and delivered it to IBM but did not copyright it for them, and called it PC-DOS 1.0. Microsoft had the deal to supply many softwares needed for putting into it. And, that’s it, the IBM PC was ready.
IBM PC was released and became an instantaneous success, taking away half of the PC market share from that of Apple. People of corporate America and many others trusted the three letter word IBM than anything in those times. Everyone wanted only IBM PCs. In those three years, they’ve sold more than 2 Million PCs, and the future infront of them looked blissful for the Big Blue and it was blissful until some time down the line….!

It is in-built in the configuration of humanbeing, to have a look at something that everyone is looking at. This is very much true for the business world than as much it is for anything else in the universe. And this law has brought upon IBM something which it never even envisaged in it’s wildest imaginations: the ‘Reverse-Engineering’ by many other companies to build a PC that works exactly like the IBM PC. Reverse Engineering is a process of examining the working of a machine and building another that works exactly like the one which it is copied or say, cloned from. And the winner of the competition was COMPAQ.

Rod Canion and other founders of COMPAQ, in 1982, set themselves up for this mission. They sketched it all and came up with their version of the PC, which was a step-sibling of the IBM PC. The hereditary among them was so close that COMPAQ PC’s compatibilities were nothing more than those that suited the IBM’s. As for being exactly alike and less expensive compared to the IBM PC, COMPAQ had hit the million dollar jackpot in the first year of it’s release. And, there were many other companies who followed this reverse engineering methology and gave birth to various PCs, all of which were infact distantly-related to the IBM PC in the matter of compatibility of the softwares.

Now, let's do a bit of revision. When IBM bought the softwares for their PC from Microsoft, like DOS and BASIC, they told they’re never gonna pay the royalty for them. So, Bill Gates made a deal which made IBM unable to control Microsoft from licensing the softwares to other people. And the way history turned out, can be absolutely taken as a proof of this Harvard drop-out's smartness. He’d already foreseen the future, where there would be many companies building PCs compatible to IBM’s, and they all will be needing softwares that would work exactly as they do in the IBM PC. So, now what? Microsoft was the company that licensed the softwares needed for all those cloned machines to achieve compatibility as that of the IBM’s. And, also Intel made enormous profits by supplying Microprocessor chips to all those clone companies, just as it supplied for IBM PC.

So, IBM sat back in a swinging chair and retrospected, it had to somehow bring down the clone market as they were making it’s market share cripple very badly. They’ve come up with an idea of building a new operating system named OS/2. And, whom did IBM approach to build it? Microsoft, ofcourse. IBM always believed that Microsoft will stay close to the Big Blue. Microsoft agreed to write the code for OS/2. But, IBM saw that negotiations and contracts about OS/2 were more in favour of Microsoft than of themselves, and so it realized that it’s not gonna work out the way it was expected to. Now, there were business conflicts than just a mis-match of ideas.

Microsoft’s biggest market share came from DOS which every computer in the clone industry uses, and why would Microsoft now build something like OS/2 that would merely be a suicide bomber for the DOS in that clone market?

Microsoft started to build another operating system named Windows, that would work more efficiently and would be more user-friendly and a hell lot more than what DOS was, and it kept telling IBM that Windows and these graphical interfaces would be performing well in the future, and it even suggested IBM to take it as the operating system into their IBM PC. But, IBM didn’t come around on it. Then came the time when Microsoft had to choose between sticking to IBM and divorcing from it and standing by their own creation, Windows. And, Microsoft preferred the development of Windows to the partnership with IBM. And just like that, a 10 year old deal between IBM and Microsoft ended.

And, that was the first time in the history of mankind that a company had made a $100 Billion mistake. Yes, IBM didn’t credit the work done by Microsoft and let it go separate by disagreeing Windows to be used in it’s PC, which if done, would’ve changed away every line in the history of the Personal Computer industry.

When the time rolled on, IBM lost much of it’s PC market share in the industry. Eventually, it left the buildings deserted and moved back into it’s old home, the dominant Mainframe Computer company. And, Microsoft constructed their new buildings, and being a company that was 3000 times smaller than the IBM in 1980 had transformed to more than a $100 Billion company.

This account of some IBM’s bad decisions tells us the story of evolution of PC industry in the world. And, it also reflects the process of how the giant digital empires took shape, those that are now ruling this globe named planet Earth.

Written by:
KrishnaKanth (an NITian)


1 comment:

  1. nice sir...
    today i gotta tht wht a "BIG mistake" they did it.