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The 1980s – IBM’s Entry into the Personal Computer Industry and its Effect on Operating Systems:
While the 1980s saw such development related to the operating systems as distributed processing and client-server processing, it is the personal computer segment that had the major impact on the computer industry. In this decade, personal computer and its operating system played a significant role and became the dominating segment in the computer industry.
The watershed event in this decade starts with IBM’s entry into the personal computer market. So far, IBM and most of the other industry heavyweights have shied away from entering into the personal computer market doubting its potential for being a consumer product and leaving it mainly to the upstart small firms. But, Apple’s success demonstrated that the microcomputer had the potential for being attractive to the households and individuals as well as to the businesses with spreadsheet and word processing software. After careful consideration, in 1980, IBM decided to enter the personal computer (PC) market.
As soon as the decision had been made, IBM moved with remarkable speed. Traditionally, IBM’s bureaucratic development structure had been taking about three years to market a product. But, IBM decided that in order to speed the process of bringing its PC to market, it would outsource all the components that it did not already have in production. Although IBM was the world’s largest software developer at that time, paradoxically, it did not have the skills to develop software for personal computers. Its bureaucratic software development procedures were slow and geared to large software projects but it did not have the flexibility, agility and other critical skills to develop the kind of software needed for personal computers (Chopsky and Leonsis, 1988).
IBM decided to use the fastest microprocessor available at that time – Intel 16-bit 8088 which gave it a significant advantage over the other personal computer brands which used 8-bit Intel 8080. For operating systems, Gary Kildall’s CP/M system was the logical choice as it had already established itself as the standard for Intel-based systems. Digital Research, the firm established by Kildall, was at that time developing a 16-bit version of CP/M and IBM decided to approach Kildall for this new version. IBM also decided to include a version of BASIC as the standard option for its PC. Microsoft’s BASIC was at that time the standard in the Altair and other Intel-based microcomputers (Chopsky and Leonsis, 1988).
However, for some reason, Kildall lost the opportunity. There are several versions of the story of how he lost it. One version of the story was that when IBM team arrived, he was doing some recreational flying and without his presence, his wife (or other executives of the company, according to another version) refused to sign the nondisclosure agreement that IBM wanted Digital Research to sign (Manes and Andrews, 1993).
When IBM negotiating team visited Microsoft to close the deal on BASIC, it sought Bill Gates’ help in recommending what to do about the operating system. Bill Gates was highly eager to accommodate IBM’s needs and offered to provide one to IBM, which without seeing the actual product, entered into an agreement. Bill Gates, with his experience of the advantages of royalty rather than outright selling of BASIC for Altair, insisted a royalty for each copy it sells rather than selling outright. IBM agreed with royalty fee set to be between $ 10 and $ 50 for each copy sold.
Microsoft, however, did not have an actual operating system ready, neither did it have the resources to develop one to beat IBM’s deadline. However, Gates knew that Tim Paterson, the owner of Seattle Computer Products had developed an operating system for Intel 8086 chip, known internally by QDOS for “Quick and Dirty Operating System.” Microsoft initially paid $ 15,000 for the rights to use the product and later paid a larger sum of money for the complete rights. Microsoft, after slight modification named it MS-DOS (MS standing for Microsoft) (Ichbiah and Kneeper, 1991).
During the summer of 1991, the first personal computers by IBM began to come off from the IBM assembly plant and by early August, initial shipments totaling 1,700 machines were delivered to Sears Business Centers and ComputerLand stores, the two retail outlets that IBM had chosen. A fully equipped IBM personal computer, with 64 KB of memory and a floppy disk, cost $ 2,880 (Ichbiah and Kneeper, 1991).
Within the next few weeks, the IBM personal computer became a runaway success exceeding almost everybody’s expectations. IBM’s brand name and IBM’s extraordinary marketing effort contributed to this popularity. While many business users had hesitated over buying an Apple or another relatively unknown brand at that time, the presence of IBM logo – most venerated brand name in computer industry at that time – convinced them that the personal computer technology was for real. In this manner, IBM did legitimate the personal computer (Ichbiah and Kneeper, 1991).
During 1982-1983, the IBM personal computer became an industry standard. IBM’s decision to allow it to have an open architecture meant the other firms can copy its design. This encouraged other manufacturers to produce computers with the same architecture which came to be known as clones, in order to take advantage of the huge demand that market was experiencing. The clones were usually less expensive but run on the same software. Among the most successful of the clone manufacturers was Houston-based Compaq. Several of the leading manufacturers of other brands such as Tandy, Commodore, Victor and Zenith also switched into making IBM clones. As the demand for IBM and its clones increased, so did the software. In response, new application software started to come to the market at an increasing rate. Lotus Development Corp’s Lotus 1-2-3 spreadsheet software, WordStar as word processing software, dBase as the database software were the market leaders at that time in their respective product categories. Alongside these hardware and software, a huge sub-industry of peripherals also developed that manufactured printers, memory boards and various add-ons. By 1983, the personal computer impacted society so much that the Time magazine awarded as their Man of the Year, not to a person but a machine: the PC.
One company that benefited the most out of this was Microsoft. Almost every model of IBM PC and its clones were supplied with its MS-DOS operating system. As hundreds of thousands and eventually millions of machines were sold, money poured into Microsoft. By the end of 1993, half a million copies of MS-DOS had been sold, netting $ 10 million (Ferguson and Morris, 1995). This revenue stream allowed Microsoft to diversify into computer application software without having to rely on external venture capital. It also allowed Microsoft to cross-subsidize some of the software that initially did not succeed. For example, in mid-1983, Microsoft began to develop a word processing software package called Word. That product was released in November 1983 with a publicity splash which included distribution of some 450,000 diskettes demonstrating the program in the PC World magazine. Even so, Word was initially not a successful product and had a negligible impact on the market leader at that time, WordStar. But, the cash flow from the MS-DOS allowed Microsoft to continue to market the product at a loss until the opportunity came later to bundle it properly with its new generation of operating systems, Windows (Edstrom and Eller, 1998).
One major deficiency of MS-DOS was that it was not very easy to use. The user interacted with the operating system through a command line interface in which instructions to the operating system had to be typed explicitly by the user in an exact manner. If there was even a single letter out of place or a character is missing or mistyped, the user had to type the line again. While many technical people were delighted in the intricacies of MS-DOS, ordinary users found it highly perplexing and sometimes intimidating. This problem, what is called lack of user-friendliness, prevented the PCs being truly acceptable as a consumer product. In 1984, Apple solved this problem when it introduced its Macintosh model.