I worked at IBM, '91 - '93, in the PC Business, in the sales channel.
We had a couple of problems that IBM's competitors didn't have. For one thing, we couldn't make too powerful a PC that might cannibalize the minicomputer sales (AS/400). IBM made much more money on an AS/400 than a PS/2 model 95.
Our cost structure was too high. How high? We lost $1 for every $100 we sold.
Part of the reason the cost structure was high were the number of IBM'ers: I worked in an office of about 15 people supporting the NY/Long Island region. Four years later, it was down to 1 person.
Another reason was our physical costs were high. For example, we couldn't buy RAM from Intel; we had to buy RAM from IBM (which was fabbed in Kingston, NY, not to be confused with the Kingston RAM mfr).
Also, we were struggling to get the correct mix of sales channels. For example, we couldn't sell PCs directly through the IBM sales force (too expensive, IIRC it added 36% to the sales cost). Instead, the IBM sales force would partner with dealerships (which added 21% to the sales cost).
The web didn't exist yet, not really, so we couldn't sell through there. We could have done direct-response (an 800 number, like Dell & Gateway were doing), but that took a while to spin up. And it was similar in cost to selling through dealerships. Also we didn't sell through distributors, which was the least-expensive channel (16% IIRC).
I remember looking at the price list. We had two levels of dealers: those who bought large volumes, which typically purchased equipment at 30% off list, and those who worked in smaller quantities, which would get ~20% off list.
As the PC Market became more competitive, we couldn't afford high list prices (we were too expensive), so one of the ways we brought down our list prices was to shrink the discount we gave to the dealers.
The dealer was not allowed to sell online or via computer magazines: there had to be in-person contact. That helped prevent the Atlanta dealers from poaching the NYC dealers' business.
It's easy to armchair-quarterback the decisions IBM made, but a lot of those decisions were nuanced. For example, you could say, "Why didn't IBM have an 800 number to buy PCs?". And the answer is that a lot of our biggest customers were corporations, not individual consumers, and they felt more comfortable purchasing through a dealer they trusted.
> we couldn't make too powerful a PC that might cannibalize the minicomputer sales (AS/400).
Agreed, knowing when to cannibalize your own market is one of the key inflection points.
Apple has done a fantastic job (up until now) of introducing something that basically makes a "current at the time" product obsolete.
Classic version was the iPhone when iPod was a household name. A more conservative company would figure out how to keep the iPod market extremely healthy, but in the end losing out on the whole pie. A lot of smaller/other instances as well.
> IBM made much more money on an AS/400 than a PS/2 model 95.
I wonder if someone high up in IBM made the same mistake for personal computing that Ballmer did with the iPhone - "There's no chance that the iPhone is going to get any significant market share. No chance..."
To be explicit, making the bet to cannibalize your own market is one of the toughest any company can make. High risk, high reward. It's so easy to point at the winners and forget the landscape that laid waste to the ones that lost.
But, being able to do it consistently is what makes a company multi-generational.
This is a classic case of a business losing a market because they didn't want to let go of a dying but profitable business. The market always wins in the long run.
Don't feel sad. This market dynamic is how startups can get ahead. Otherwise everything would be dominated by the huge incumbents forever.
> For one thing, we couldn't make too powerful a PC that might cannibalize the minicomputer sales (AS/400). IBM made much more money on an AS/400 than a PS/2 model 95.
Sure, but it wouldn't be one-for-one. A lot more people can justify buying a PS/2 than can justify an AS/400. Did you make more on an AS/400 than on 100 PS/2s? 1000?
No mention of the PS/2 and Micro Channel Architecture? MCA was IBM's attempt to put the genie back in the bottle and redefine the PC back to being something they wholly controlled, and it utterly failed. It also didn't help that they were late to the market with 386-based computers (Compaq having beaten them to the punch with the Deskpro 386) which already signaled they were losing their market leadership position that allowed them to define the PC platform. In response to MCA, the PC industry formed an independent consortium to define the EISA bus and later Intel itself eventually took over as the de facto standards originator for PCs by developing PCI, USB, ATX, ACPI, AC'97/HD Audio, (U)EFI, and a large part of the other foundational standards on which modern PCs are built.
According to this video[1], Compaq's portable also bested IBM. It was Compaq's first product, and everyone thought IBM's upcoming portable would wipe them out, but they held strong and counted on IBM to have production problems, which they did, so Compaq held onto this segment.
PS/2s were overpriced and underpowered, and people I knew told me that a surprisingly high percentage of them arrived DoA. That was basically the end of "no one ever got fired for buying IBM".
Yes, I recall the MCA, it was born a dead horse and never run a furlong. I recall all the companies who went through the lengthy MCA add-in card signup process - that took a year or more to be granted, whereupon they fielded cards that never sold. I recall the surplus tables at the Dayton hamfest being piled high with MCA detritus - cards that were eventually scrapped for gold. IBM tried mightily to force this dead interface, few bought the idea and made boxes - few sold.
They were dead before they sold one.
The supposed superior MCA bus, was soon humbled by a string of faster and better busses.
There were a few old fogies who clung to big blue - I see them from time to time wandering in the wilderness...
That's like when Intel switched to SECC (single edge card connector) with Pentium2/Pentium3 and stuck it on an Atari(NES?)-like catridge: this was to thwart clones and outstanding cross-licensing with AMD. What a weird decision. I'm not even sure if it worked tactically because it only lasted until Pentium 4. Weird days.
"OS/2 finally came out in late 1987, priced at $340, plus $2,000 for additional memory to run it. By then, Windows had been on the market for two years and was proving hugely popular."
No. Windows was basically irrelevant until 3.0 came out in 1990.
I'd go so far and say irrelevant until Windows for Workgroups 3.11. That's when Banyan Vines + Ethernet (as opposed to token ring) + Lotus (ccMail & 123) really started to take over corporate America.
Seconded. In 1987, Windows was not "hugely popular". It wasn't on anyone's radar. This was still DOS-versus-Mac era, with your Amigas and Ataris and held-over 8 bit micros on the sidelines.
Yes, it didn't feel like a certainty that products like Windows or the Mac would prevail. Early versions of Windows were crude and the Mac was very expensive.
I remember when IBM launched the PC and it looked ludicrously overpriced and lacking in "modern" features (like graphics and sound). I didn't buy one for myself until the 386 came out.
The article's claim about "IBM’s strategic error in not retaining rights to the operating system" begs the question if the PC revolution would have happened had Microsoft not owned it. I personally doubt it. While IBM had success up to the IBM AT, there really wasn't much revolutionary about them and they were stupidly expensive. The clones really made the PC a success. It's just tragic that the crap SW and HW won the market.
Yes. Price competition is a wonderful thing. They undercut IBM's pricing model. IBM tried to get it back with the PS/2, which was patent protected. But that totally missed the point.
> It's just tragic that the crap SW and HW won the market.
Crap SW and HW made the market. There wasn't much of a market for PCs at the PS/2 price point. There was a much larger market at the PC clone price point. (I'd guess that halving the price led to something like 10 times the volume. The PS/2 was locked out of any meaningful volume just by the price.)
General rule: The PC I can afford is better than the PC I can't. Sure, it may be technically inferior. Doesn't matter. The one I can't afford has zero utility for me, so the one I can afford is actually better (for me), no matter how crap it is.
The other thing that made that market was the clone vendors cooperating to define the EISA bus standard. It created a huge market (all the clone companies put together) for peripherals. And because you could get anything in an EISA peripheral, that created a huge market for EISA PCs. It was mutually reinforcing to create an exploding market. If they had fought each other with competing bus standards, that would have killed the market.
But for short-sightedness at DEC and Xerox, things might have been different indeed. Unfortunately, DEC hamstrung their micros until it was too late, and Xerox's pie-in-the-sky machines at PARC were expensive enough that their real-world offering was the 820, a me-too 8-bit CP/M system that came out just in time to be stomped by the PC.
If you have any interest in the origins of the personal computer you should track down the sublime documentary series "Triumph of the Nerds" by Bob Cringely. You an find various versions on Youtube.
PC clones killed IBM in the PC market, which matches how I remember it
> Both Microsoft and Intel made a fortune selling IBM’s competitors the same products they sold to IBM. Rivals figured out that IBM had set the de facto technical standards for PCs, so they developed compatible versions they could bring to market more quickly and sell for less.
Lenovo bought IBM's PC business for $1.75 billion in 2004, or about $2.51 billion adjusted for inflation. Lenovo's PC and smart device sales hit a record 12.4 billion in its FY2020, mostly due to Windows-based PCs. I would argue that had IBM ceded software to Microsoft, and had it focused on hardware and PowerPC chip compatibility, the company could have greatly improved on the 20% margins that were the impetus for selling its PC business to Lenovo.
All in all, I think IBM did mostly the right thing. Given that they published their hardware and software interface standards, they must have expected to be creating a platform as well as a product. They might not have adequately anticipated the resilience of DOS when they tried to come out with OS/2.
They definitely underestimated the market's requirements for DOS compatibility. Microsoft in contrast understood that which is why Windows (though technically inferior to OS/2 in many respects, at least until Windows 95) ultimately won. The Digital Antiquarian blog has an excellent (if long) series of articles covering the history of Windows from its original conception as a product up through Windows 3.1, including looks at OS/2 and other competing products: https://www.filfre.net/2018/06/doing-windows-part-1-ms-dos-a...
I believe you are correct. The IBM PC's direct competition was not so much Apple but 'business standard' CP/M Z80/8080 machines from a variety of vendors.
Also IBM was under an antitrust decree requiring reasonable and discriminatory licensing, so they didn't have much choice in the matter. Once this was lifted, they went the Microchannel route.
I still remember ~1985 paying $1,000 for 512KB of DRAM from suppliers listed in the back of Computer Shopper. Even clones were very expensive then, but not PS2 expensive.
Yes, I was in IBM, some AI in their Research Division, from 1985 to 1993 when IBM had a big crash.
Maybe an old idea I had about PCs has some insight: The idea is that for several years into the rise of the PC, the base, solid as concrete, fundamental, economic productivity reason for the PC was to kill off the typewriters, that is, word processing; as one guy put it, "capture the key strokes". The typewriters didn't "capture the keystrokes" and, thus, were a huge economic waste. Next in line was spreadsheets.
Now the biggie? Okay, replace TVs. We've already essentially replaced newspapers printed on paper; and PDF is replacing a lot of books printed on paper.
The future? See a problem that in terms of economic productivity needs solving, and get one or a few PCs and solve it. How? There is nearly no limit on the new problems to be solved or the new means of solution.
Side note, there are a LOT of die-hard Thinkpad fans, myself included. Sadly it just hasn't been the same since Lenovo took over. I literally grew up playing Counter-Strike Source with the little red dot.
I've got a smallish collection of old IBM ThinkPads I hold on to (most of them with the matching laptop bag). Models include: 701C, 380XD, 380Z, 600X, 770Z, T42P, T43P, X41t. Running Linux on all of them except the T42P, 380XD, and 380Z.
Oddly enough, my current 'laptop' is the Lenovo X1 Tablet, probably the least IBM-like ThinkPad ever (it's like a Microsoft Surface). I just really like the form factor, and unlike the surface, you can take it apart and replace the battery. With thunderbolt, I run an eGPU for light gaming and video editing.
I highly recommend Charles Ferguson's "Computer Wars" on this topic, as well as his other book (about startups and the early Web), "High Stakes, No Prisoners."
Microsoft stabbed IBM in the back with licensing DOS to OEMs and bundling Windows and Office with each OEM PC sold while IBM had OS/2 Microsoft had Windows NT.
[+] [-] brian_cunnie|4 years ago|reply
We had a couple of problems that IBM's competitors didn't have. For one thing, we couldn't make too powerful a PC that might cannibalize the minicomputer sales (AS/400). IBM made much more money on an AS/400 than a PS/2 model 95.
Our cost structure was too high. How high? We lost $1 for every $100 we sold.
Part of the reason the cost structure was high were the number of IBM'ers: I worked in an office of about 15 people supporting the NY/Long Island region. Four years later, it was down to 1 person.
Another reason was our physical costs were high. For example, we couldn't buy RAM from Intel; we had to buy RAM from IBM (which was fabbed in Kingston, NY, not to be confused with the Kingston RAM mfr).
Also, we were struggling to get the correct mix of sales channels. For example, we couldn't sell PCs directly through the IBM sales force (too expensive, IIRC it added 36% to the sales cost). Instead, the IBM sales force would partner with dealerships (which added 21% to the sales cost). The web didn't exist yet, not really, so we couldn't sell through there. We could have done direct-response (an 800 number, like Dell & Gateway were doing), but that took a while to spin up. And it was similar in cost to selling through dealerships. Also we didn't sell through distributors, which was the least-expensive channel (16% IIRC).
I remember looking at the price list. We had two levels of dealers: those who bought large volumes, which typically purchased equipment at 30% off list, and those who worked in smaller quantities, which would get ~20% off list.
As the PC Market became more competitive, we couldn't afford high list prices (we were too expensive), so one of the ways we brought down our list prices was to shrink the discount we gave to the dealers.
The dealer was not allowed to sell online or via computer magazines: there had to be in-person contact. That helped prevent the Atlanta dealers from poaching the NYC dealers' business.
It's easy to armchair-quarterback the decisions IBM made, but a lot of those decisions were nuanced. For example, you could say, "Why didn't IBM have an 800 number to buy PCs?". And the answer is that a lot of our biggest customers were corporations, not individual consumers, and they felt more comfortable purchasing through a dealer they trusted.
[+] [-] irjustin|4 years ago|reply
Agreed, knowing when to cannibalize your own market is one of the key inflection points.
Apple has done a fantastic job (up until now) of introducing something that basically makes a "current at the time" product obsolete.
Classic version was the iPhone when iPod was a household name. A more conservative company would figure out how to keep the iPod market extremely healthy, but in the end losing out on the whole pie. A lot of smaller/other instances as well.
> IBM made much more money on an AS/400 than a PS/2 model 95.
I wonder if someone high up in IBM made the same mistake for personal computing that Ballmer did with the iPhone - "There's no chance that the iPhone is going to get any significant market share. No chance..."
To be explicit, making the bet to cannibalize your own market is one of the toughest any company can make. High risk, high reward. It's so easy to point at the winners and forget the landscape that laid waste to the ones that lost.
But, being able to do it consistently is what makes a company multi-generational.
[+] [-] jandrese|4 years ago|reply
Don't feel sad. This market dynamic is how startups can get ahead. Otherwise everything would be dominated by the huge incumbents forever.
[+] [-] AnimalMuppet|4 years ago|reply
Sure, but it wouldn't be one-for-one. A lot more people can justify buying a PS/2 than can justify an AS/400. Did you make more on an AS/400 than on 100 PS/2s? 1000?
[+] [-] unknown|4 years ago|reply
[deleted]
[+] [-] MrRadar|4 years ago|reply
[+] [-] city41|4 years ago|reply
[1] https://www.youtube.com/watch?v=HEMhpInIACk
[+] [-] CurtHagenlocher|4 years ago|reply
[+] [-] aurizon|4 years ago|reply
[+] [-] davidwtbuxton|4 years ago|reply
https://youtu.be/aYt4ZPxVkSs
IBM engineer responding to the accusation that MCA is proprietary (around 14' 15"):
"I really don't understand the term proprietary. To me that would mean that it's not available [snip] and it's available for use by anyone."
[+] [-] SavantIdiot|4 years ago|reply
[+] [-] D13Fd|4 years ago|reply
[+] [-] CurtHagenlocher|4 years ago|reply
No. Windows was basically irrelevant until 3.0 came out in 1990.
[+] [-] SavantIdiot|4 years ago|reply
[+] [-] midasuni|4 years ago|reply
[+] [-] kazinator|4 years ago|reply
[+] [-] tonyedgecombe|4 years ago|reply
[+] [-] jussij|4 years ago|reply
[+] [-] FullyFunctional|4 years ago|reply
The article's claim about "IBM’s strategic error in not retaining rights to the operating system" begs the question if the PC revolution would have happened had Microsoft not owned it. I personally doubt it. While IBM had success up to the IBM AT, there really wasn't much revolutionary about them and they were stupidly expensive. The clones really made the PC a success. It's just tragic that the crap SW and HW won the market.
[+] [-] AnimalMuppet|4 years ago|reply
Yes. Price competition is a wonderful thing. They undercut IBM's pricing model. IBM tried to get it back with the PS/2, which was patent protected. But that totally missed the point.
> It's just tragic that the crap SW and HW won the market.
Crap SW and HW made the market. There wasn't much of a market for PCs at the PS/2 price point. There was a much larger market at the PC clone price point. (I'd guess that halving the price led to something like 10 times the volume. The PS/2 was locked out of any meaningful volume just by the price.)
General rule: The PC I can afford is better than the PC I can't. Sure, it may be technically inferior. Doesn't matter. The one I can't afford has zero utility for me, so the one I can afford is actually better (for me), no matter how crap it is.
The other thing that made that market was the clone vendors cooperating to define the EISA bus standard. It created a huge market (all the clone companies put together) for peripherals. And because you could get anything in an EISA peripheral, that created a huge market for EISA PCs. It was mutually reinforcing to create an exploding market. If they had fought each other with competing bus standards, that would have killed the market.
[+] [-] jandrese|4 years ago|reply
https://en.wikipedia.org/wiki/Worse_is_better
[+] [-] flyinghamster|4 years ago|reply
[+] [-] Liambp|4 years ago|reply
[+] [-] laumars|4 years ago|reply
[+] [-] okareaman|4 years ago|reply
> Both Microsoft and Intel made a fortune selling IBM’s competitors the same products they sold to IBM. Rivals figured out that IBM had set the de facto technical standards for PCs, so they developed compatible versions they could bring to market more quickly and sell for less.
[+] [-] howmayiannoyyou|4 years ago|reply
[+] [-] protomyth|4 years ago|reply
[+] [-] analog31|4 years ago|reply
[+] [-] MrRadar|4 years ago|reply
[+] [-] flomo|4 years ago|reply
Also IBM was under an antitrust decree requiring reasonable and discriminatory licensing, so they didn't have much choice in the matter. Once this was lifted, they went the Microchannel route.
[+] [-] Trias11|4 years ago|reply
IBM approached PC revolution with a dinosauric mainframe mindset and that killed it.
For them.
[+] [-] SavantIdiot|4 years ago|reply
[+] [-] graycat|4 years ago|reply
Maybe an old idea I had about PCs has some insight: The idea is that for several years into the rise of the PC, the base, solid as concrete, fundamental, economic productivity reason for the PC was to kill off the typewriters, that is, word processing; as one guy put it, "capture the key strokes". The typewriters didn't "capture the keystrokes" and, thus, were a huge economic waste. Next in line was spreadsheets.
Now the biggie? Okay, replace TVs. We've already essentially replaced newspapers printed on paper; and PDF is replacing a lot of books printed on paper.
The future? See a problem that in terms of economic productivity needs solving, and get one or a few PCs and solve it. How? There is nearly no limit on the new problems to be solved or the new means of solution.
[+] [-] pjmlp|4 years ago|reply
[+] [-] sam0x17|4 years ago|reply
[+] [-] chaoticmass|4 years ago|reply
Oddly enough, my current 'laptop' is the Lenovo X1 Tablet, probably the least IBM-like ThinkPad ever (it's like a Microsoft Surface). I just really like the form factor, and unlike the surface, you can take it apart and replace the battery. With thunderbolt, I run an eGPU for light gaming and video editing.
[+] [-] kilroy123|4 years ago|reply
It just never was the same with Lenovo. After 2010, I completely lost interest and moved away to Apple and using a MacBook.
[+] [-] blueyes|4 years ago|reply
[+] [-] orionblastar|4 years ago|reply