The Biggest Loser in IT History

This story has been told and retold on the Internet so many times that it should be old-hat by now. Unfortunately, it’s almost always told incorrectly. I don’t claim to have any special knowledge of the subject, but I have read several books on the birth of personal computers; I have also seen the documentary “Revenge of the Nerds” and the TNT film “The Pirates of Silicon Valley”, so I think that entitles me to weigh in on the subject.

IBM long prided itself on making the best computers in the world. IBM made huge mainframe computers, elegant, power-hungry monsters that were as big as a refrigerator on the small end and as big as a tractor trailer on the large end. IBM made billions making “real” computers like these, so it’s not entirely surprising that they initially looked at the “personal computer” of the late 1970s as a toy. Much to their distress, however, companies like Apple, Commodore and Timex were shipping personal computers by the millions. While IBM scoffed at the notion that a personal computer could be useful for anything more than storing recipes, entire industries were being built up around the Apple II and the Commodore 64. IBM’s absence from the personal computer market thus started to become quite noticeable. After all, IBM was seen by most Americans as the computer company… yet they offered nothing for the home consumer, enthusiast or even smaller businesses that needed a computer but couldn’t afford one of IBM’s mainframes.

A working group was thus created within IBM to bring a personal computer to market as quickly as possible… which presented a problem. IBM had long prided itself on designing and manufacturing every single part of their computers. That was just “the IBM way”. But the working group quickly discovered that designing a brand-new personal computer from scratch would take years. Since IBM management wanted to enter the personal computer market as quickly as possible, designing a brand-new machine was therefore not an option. The new IBM PC was thus designed with off-the-shelf parts to allow the company to start shipping PCs as quickly as possible.

But then another problem surfaced… what operating system would the new IBM PCs use? It can take just as long (usually longer, in fact) to create an operating system than the hardware it runs on, and IBM didn’t have the time to create one of their own. So they looked to an outside source. And one of the first places they went was a small Seattle company called Microsoft.

Bill Gates was probably flattered to have IBM executives come see him. After all, IBM was the 800-pound gorilla of the computer industry. But Gates turned them down. At the time, Microsoft dealt almost exclusively in computer languages and tools for programmers. They didn’t even have an operating system to sell to IBM, nor were they large enough to create one in a reasonable time frame. Gates thus told IBM to go see a man named Gary Kildall down in California – a man that will probably go down as the biggest loser in IT history.

You see, back in the late 1970s, there were dozens of operating systems out there; some computer enthusiasts even wrote their own! But of this plurality, Kildall’s CP/M was king. Gates was probably right to send IBM to Digital Research, Kildall’s company. But the IBM executives were in for a rude surprise. The reason(s) why the meeting between IBM and Digital Research went so poorly have never been made quite clear. One story has it that Kildall dissed the “suits from IBM” to fly his vintage Pitts Special biplane. Another story says that Kildall’s wife (and business manager) took offense to the non-disclosure agreement (NDA) that IBM wanted Digital Research to sign, so she kicked them out of the office. Yet another story says that Kildall signed the NDA, but simply wasn’t enthusiastic about working with IBM.

Whatever the case may be, IBM soon returned to Microsoft. At this follow-up meeting, IBM revealed that they wouldn’t be working with Digital Research and were still looking for an operating system. During the meeting, Steve Ballmer (Microsoft’s current CEO) had a flash of inspiration. He knew that a local computer company called Seattle Computer Products was building a new computer based on Intel’s 8086 chip. He also knew that Tim Paterson, one of SCP’s employees, had written an operating system called QDOS (Quick and Dirty Operating System) for the new computers. Ballmer quietly took Gates aside and the two of them decided to play hardball with IBM. They asked for $250,000 in advance and $50 for every copy of “their” operating system that IBM sold on new PCs. IBM agreed – hell, they were so desperate that they were happy to have the issue resolved for such a seemingly paltry fee. Microsoft then took $50,000 of IBM’s advance and quietly (and quickly) reached a licensing deal with SCP. QDOS was re-branded as Microsoft DOS (MS-DOS) and a technology legend was born.

Mostly. Of course, IBM shipped thousands of MS-DOS based personal computers. But since IBM decided to build the computers out of off-the-shelf parts, many other entrepreneurs wanted to get into the game. The only proprietary part of the IBM PC was the BIOS chip, and three engineers that formerly worked for Texas Instruments – Rod Canion, Jim Harris and Bill Murto – figured out a way to legally reverse-engineer the chip. Once this was done, they had a PC of their own. Because the two main goals of their new computers were COMPAtibility with IBM machines and overall Quality, they named their company Compaq. And since compatibility with IBM machines was paramount, Compaq also licensed MS-DOS. Between IBM and Compaq, the momentum was there – most any OEM worth his salt licensed MS-DOS so their computers would be compatible with IBM and Compaq machines. It didn’t matter if the company sold 2 or 2 million computers a year – they all shipped with MS-DOS.

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