IBM Introduces Its Personal Computer

After other companies had pioneered in the production and sale of personal computers, International Business Machines entered the product area in 1981 and for a while seemed likely to dominate the field.

Summary of Event

The computer revolution, which began shortly after the end of World War II, seemed to have reached a state of maturity by the late 1960’s. At that time, International Business Machines (IBM) dominated the field, producing large machines called mainframes used primarily by government agencies and major corporations. IBM’s chief rivals in the mainframe business were Burroughs, Univac, National Cash Register, Control Data, Honeywell, Radio Corporation of America (RCA), and General Electric. On the horizon were such significant Japanese companies as NEC, Fujitsu, and Hitachi. The industry’s attention was concentrated on IBM, its rivals, and mainframes. IBM;personal computers
Personal computers
[kw]IBM Introduces Its Personal Computer (Aug. 12, 1981)
[kw]Personal Computer, IBM Introduces Its (Aug. 12, 1981)
[kw]Computer, IBM Introduces Its Personal (Aug. 12, 1981)
IBM;personal computers
Personal computers
[g]North America;Aug. 12, 1981: IBM Introduces Its Personal Computer[04620]
[g]United States;Aug. 12, 1981: IBM Introduces Its Personal Computer[04620]
[c]Computers and computer science;Aug. 12, 1981: IBM Introduces Its Personal Computer[04620]
[c]Trade and commerce;Aug. 12, 1981: IBM Introduces Its Personal Computer[04620]
[c]Business and labor;Aug. 12, 1981: IBM Introduces Its Personal Computer[04620]
[c]Communications and media;Aug. 12, 1981: IBM Introduces Its Personal Computer[04620]
Estridge, Philip Donald
Cary, Frank Taylor
Jobs, Steve
Akers, John

A small number of hobbyists became interested in much smaller machines. These could be assembled from parts and were inexpensive enough to be used by individuals rather than corporations and government agencies. The movement toward smaller machines began in 1971 with Marcian Edward Hoff, Hoff, Marcian Edward, Jr. Jr., who worked at Intel Corporation, an electronics manufacturer. Hoff designed and then created the first microprocessor, Microprocessors
Integrated circuits or computer on a chip, the 4004. It was little more than a curiosity, but even then Hoff knew that it could become the heart of a small computer. Intel Corporation

Scientists at the small, New Mexico-based electronics firm of Micro Instrumentation and Telemetry Systems Micro Instrumentation and Telemetry Systems had the same realization. In 1975, they created the Altair, Altair a $400 kit from which could be assembled a small computer that contained the 8080 microprocessor. Peripheral equipment costing about $2,000 would allow a hobbyist to assemble a complete small computer.

Other kits followed, most sold from small stores catering to hobbyists. The market for small computers then developed through other channels. In the late 1970’s, Commodore International came out with the PET, a preassembled computer. Heath offered computer equipment through catalogs, and Radio Shack, a chain store, offered the TRS-80 computer, which sold for $499.

The real breakthrough, however, came from another firm, Apple Computer. Apple Computer Founders Steve Jobs and Stephen Wozniak Wozniak, Stephen had produced the Apple I, a relatively weak machine, and then went on to create the Apple II, Apple II computer[Apple two computer] which was demonstrated at the West Coast Computer Fair in 1977. Apple took orders for the small machine and was surprised by the demand. The company grew rapidly, achieving $2.5 million in revenues in 1977, then $117 million in 1980. Other companies also made their mark, among them Kaypro and Osborne. By the late 1970’s, it appeared that the small computer was an established part of the market.

Observing all of this was IBM chairman Frank Taylor Cary, who was in the midst of revamping the corporation by attempting to shed its traditional, slow-moving, bureaucratic structure. Those efforts had met with limited success, but Cary had introduced an element of flexibility into the firm. The key was the restructuring of the General Systems Division. Important new facilities were created far from the Atlanta, Georgia, headquarters. By the end of the 1970’s, installations in Boulder, Colorado, and San Jose, California, were filled with bearded, sandaled young men who were far different from what the public had come to expect from IBM.

Cary selected Philip Donald Estridge, a middle manager, to head a team that would create a small computer that would be IBM’s entry into the product area. Estridge and his associates were based in a ramshackle building in Boca Raton, Florida. Cary ordered that Estridge was to work undisturbed by the IBM bureaucracy. Estridge and his team created the PC, which was designed to run on DOS, the operating system that Bill Gates Gates, Bill of Microsoft Microsoft Corporation had purchased for $75,000.

The computer, known as the IBM PC, was introduced on August 12, 1981. It was an instant hit; IBM could not produce enough to keep up with demand. Unlike Apple, IBM did not insist on retaining patent or other rights to software. This meant that Microsoft, Lotus, and other vendors were free to offer it to other PC manufacturers. IBM did not attempt to prevent Intel, which provided the PC’s chips, from dealing with rivals either. The approach all but ensured that the IBM machines would become the standard for the industry and that “clone” manufacturers would proliferate. Soon Compaq, Columbia, Corona, Dell, and many more manufacturers were producing machines intended to emulate the IBM PC. Wang came out with a dedicated word processor that soon became the class of the industry. In time, Japanese, Korean, Dutch, and British computers came to market as well.

Even so, in the beginning IBM led the pack, primarily because of the company’s financial clout and reputation. In the early 1980’s, most computer purchasers had little notion of the machines’ capabilities or even the names of the clone manufacturers. They had heard of IBM, one of the most honored and trusted nameplates in the business machines market. They purchased the IBM PC, even though it cost more than the others, because of that reputation.

The original IBM PC/XT computer.

(International Business Machines)

The PC was a huge success, far greater than IBM anticipated it would be. At the time, IBM sold or leased about 2,500 mainframes a year. The company sold about 200,000 PCs in the first year that the product was on the market. Soon the company was selling that many a month. The profit margins were lower than for mainframes, but the returns were still gratifying.

Estridge did not rest on his laurels. One of the few people at IBM who had a thorough knowledge of the personal computer industry and who recognized that rapid change would be the rule, he appreciated that the PC soon would become obsolete. He rushed the introduction of the XT, with a hard disk, and then the PC AT (advanced technology), a faster machine. These products were released in 1983. The XT and AT duplicated the original PC’s success. By then, IBM had 75 percent of the personal computer business.


It was then that the company took the first of several missteps. Aiming at a home market for computers that did not develop until the late 1980’s, it released the IBM PCjr in 1983. IBM was fearful of cutting into the XT market and so designed the new machine with low power and a smaller keyboard. It was unable to run the Lotus 1-2-3 spreadsheet, one of the most popular programs of the period, and customers complained that the keyboard was difficult to use.

Expected sales failed to materialize, and within months it was clear that IBM had stumbled badly. The company cut prices, added features, offered to replace keyboards on previously purchased machines, and stepped up advertising. Nothing worked. In 1985, IBM announced that the PCjr would “fulfill its manufacturing schedules,” meaning that it would be killed. By then, Estridge was more involved in IBM’s internal politics and in the process of being edged out of the operation. In 1985, he died in an airplane crash, and others took over the PC operation.

Other blunders followed. In 1982, Compaq had come out with a transportable personal computer. Although it was the size and weight of a suitcase, it could be carried from place to place. It was not the first portable computer, but the Kaypro best seller was not IBM-compatible, as it used the CP/M system. IBM followed Compaq’s lead, but its product was a disaster. By the time IBM produced an acceptable transportable computer, the public demanded laptop computers. After further stumbles, IBM produced an acceptable laptop, but by that time the public wanted even smaller notebook computers. It was not until the 1990’s that IBM turned out acceptable versions, but by then its cachet had been lost.

Early on, Bill Gates had realized that PCs were only vehicles to run software; software would become the paramount consideration for users. In contrast, IBM thought that the machine itself was central to the sale. Gates knew that in time PC users would educate themselves about software applications and not require the kind of technical support IBM had provided for mainframe users. IBM talked of the nation becoming computer literate; Gates knew that the trick was to make software so simple that such literacy would not be required.

Steve Jobs of Apple also had that insight. Even IBM could not provide all the technical support that some users would desire; the trick was to build technical support into the software and make it as simple to use as possible. Given its history and traditions, IBM was unable to accept this truism. Steve Armstrong, a key player in the IBM PC business, noted that the IBM philosophy was that prevailing in PCs would be no different from prevailing in the rest of the computer business.

That philosophy was the basis of many of IBM’s problems. The company was comfortable dealing with mainframes and their users, but customers were being drawn to simpler programs and smaller machines. Corporate clients would spend millions of dollars on IBM equipment because, as the saying went, “No one ever got fired for using IBM.” Years later, some writers would reveal the IBM “golden screwdriver,” a good example of the company’s arrogance. A customer would be sold a computer, but IBM would ship a machine twice as powerful as the one requested, with a few lines of software added to block some of its capabilities. Then, when the customer invariably required a faster machine with more memory, an IBM technician would arrive and, with the golden screwdriver, erase the redundant software and make a few other changes. Soon after, the customer would receive a large bill for the improvements.

In the early 1980’s, IBM seemed to believe that its magic initials on a machine were worth hundreds or thousands of dollars to writers, students, office managers, and other potential purchasers of PCs. At first, IBM’s reputation did carry the market, but consumers proved to be more informed and perceptive buyers than were corporate purchasing agents who, after all, were not spending their own money. Consumers wanted value, so they learned to shun high-priced IBM PCs and opt for machines from young companies such as Apple and Kaypro, then later Dell, Compaq, and other “clone” manufacturers. Stephen Wozniak, an Apple cofounder, once told a reporter that Apple was successful because he and Jobs had never manufactured computers before and so were not encumbered by the kind of ideology that blinded IBM.

IBM failed to take advantage of several opportunities. It could have controlled Microsoft, which would have died without IBM’s early patronage. As late as 1986, Gates was willing to sell IBM a major interest in his company. IBM had taken a 20 percent stake in Intel in 1983 and could have expanded that share at will to 30 percent or perhaps more. Lotus and Borland, two software manufacturers, would have gone nowhere without IBM’s patronage; they too would have sold out to IBM. After dismissal of an antitrust action against IBM in 1981 and given the probusiness stance of the government at the time, IBM might have made these acquisitions with ease and might have been able to maintain control in the computer market. The 1980’s were cluttered with IBM’s lost opportunities.

Much of IBM’s failure resulted from a lack of vision. Cary’s successor, John Opel, was the quintessential company man. John Akers followed Opel and resigned in disgrace in 1993. Under Akers, IBM instituted a large-scale layoff program, cut spending and stock dividends, and showed signs of revival in the PC area. By the time Akers left, to be succeeded by Louis V. Gerstner, Jr., Gerstner, Louis V., Jr. the first outsider to head the company, its personal computers and notebook computers were as good as rivals’ machines and priced competitively. IBM remained the industry’s leading company, but the old mystique was gone, possibly forever. The mystique was killed not by Japanese competitors in mainframes, where the challenge seemed to be at the beginning of the 1980’s, but by scores of much smaller American competitors, software companies, and chip manufacturers that became the major forces in this stage of the computer revolution. IBM;personal computers
Personal computers

Further Reading

  • Carroll, Paul. Big Blues: The Unmaking of IBM. New York: Crown, 1993. Carroll covered the IBM story for The Wall Street Journal and based this book on his observations and interviews with IBM rivals, particularly those at Microsoft. The best book on the subject of how IBM’s culture weakened it in the struggle for domination of the industry.
  • Chposky, James, and Ted Leonsis. Blue Magic: The People, Power, and Politics Behind the IBM Personal Computer. New York: Facts On File, 1988. A good chronological study of the making and unmaking of the personal computer project at IBM. A good introduction to the subject.
  • DeLamarter, Richard. Big Blue: IBM’s Use and Abuse of Power. New York: Dodd, Mead, 1986. Written before IBM’s failures were well known. DeLamarter was convinced that IBM had the power to crush all rivals. This book offers insights into how students of the industry misread the signs of failure.
  • McKenna, Regis. Who’s Afraid of Big Blue? Reading, Mass.: Addison-Wesley, 1989. McKenna was one of the first to realize the weaknesses in IBM’s strategies regarding the personal computer. Somewhat dated, but useful.
  • Manes, Stephen, and Paul Andrews. Gates: How Microsoft’s Mogul Reinvented an Industry. New York: Doubleday, 1993. A study of Bill Gates of Microsoft, with an explanation of why the personal computer industry demanded strategy and tactics different from those used by IBM in gaining the lion’s share of the mainframe market.
  • Moritz, Michael. The Little Kingdom: The Private Story of Apple Computer. New York: William Morrow, 1984. An early history of Apple Computer. Describes in detail Steve Jobs’s view of the personal computer, different from IBM’s.
  • Pugh, Emerson W. Building IBM: Shaping an Industry and Its Technology. Cambridge, Mass.: MIT Press, 1995. Useful history, both as a case study of IBM and as an overview of the computer industry generally. Contains an extensive bibliography and an index.
  • Rodgers, F. G. The IBM Way: Insights into the World’s Most Successful Marketing Organization. New York: Harper & Row, 1986. Rodgers was a longtime IBM executive, mostly in sales and promotion. In this book, he attempts to explain IBM’s success. Careful readers will realize that he is also explaining weaknesses that would surface in the computer wars.
  • Rose, Frank. West of Eden: The End of Innocence at Apple Computer. New York: Viking Press, 1989. A detailed account of the computer wars, told from the Apple point of view. An update of the Moritz book, showing how Apple made a series of errors in the fight with IBM.
  • Slater, Robert. Saving Big Blue: Leadership Lessons and Turnaround Tactics of IBM’s Lou Gerstner. New York: McGraw-Hill, 1999. A light biography on Gerstner, who took over as CEO of IBM in 1993, a time when the company was lagging behind its competitors Microsoft and Intel.

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