IBM was started by Tom Watson and Tom Watson Jr. They were the big player in the server market and they wanted to get into the growing PC market. An typical IBM employee worked Monday to Friday starting at 8 O'Clock and ending the day at 5 O'Clock. They have to wear white shirts with starched collars with garters on the legs to keep the socks high. They had a way of working you had to follow and they even had a song book full of songs called, "Songs of IBM." They had a corporate culture unique to them. For a big company like them to notice Apple and the growing success of the PC you know it had to be going well.
In August of 1979 IBM enlisted Bill Lowe to head the team that would make the first IBM PC. Bill and his team in Florida had to come up with a way to make an IBM fast to not loose too much of the market to competitors. His idea was to go against common IBM thinking and make it open architecture and use off the shelf components to make the PC. They still had one problem. They needed both a computer language and an Operating System for the computer to work. They had to find somebody to license it to them. They looked at Gary Kildall and Bill Gates to come up with this software. Kildall had CPM which at the time was the first and largest OS. Bill Gates had the biggest computer language in Basic. They needed both but they first talked to Bill Gates.
Bill Gates had a meeting with IBM and told them he did not have a OS. He told IBM to talk to Kildall because he already had one in CPM. When IBM went to Kildall's house they were told to wait around for Kildall and had to talk to his wife. When she would not sign the non disclosure agreement, or NDA, IBM walked away and talked to Gates again. Gates being the great business man he was leaped at the second chance. Paul Allen who worked for Gates at the time knew of another OS made by a man named Tim Patterson. His program was called QDOS or quick and dirty dos. It was almost identical to CPM because Patterson had reversed engineered his OS from it. He could not license the OS to Microsoft because he worked for a company called Seattle Computer Products or SCP. Bill Gates and Microsoft paid SCP $50,000 for the unlimited use of Qdos. It turned out to be a great deal for Microsoft because they in turn sold the licenses to each computer for $50 dollars.
So now that Microsoft had both parts needed for IBM they started to make the IBM PC. They called it "The Floridian Project" and the anticipation for it was big in the PC world. The IBM would release the computer on August 12, 1981 and eventually sold 2 Million PC's. The killer app was a spreadsheet program called Lotus 1-2-3 and IBM quickly gained 50% of the PC market. IBM was king but they did make some crucial mistakes along the way.
IBM did not buy the OS from Gates and did not prevent him from licensing it to other companies. They only paid Gates a fee to use it on the computers and he could do that with anyone else he so wanted. Intel made the CPU for the IBM computer and like Microsoft they too could sell the CPU to anyone that wanted one. With those two key components open to competitors it was only a matter of time before somebody came along and take on IBM.
That company was Rod Canion and Compaq. Compaq could get all the parts it needed for a PC off the shelf and could get the software from Microsoft. What they could not get was the ROM-BIOS that was proprietary to IBM. Compaq had to use a technique called "clean room reverse engineering" to copy the IBM ROM-BIOS legally. Eventually they succeeded and the first IBM "Clone" computer was made. Since Compaq did not have the high costs of IBM they could sell the computer a lot less to consumers. It became a huge success and eventually other computer makers also started to sell IBM clone computers. IBM was seeing its market share sink. They had to come up with a way to gain back what they had lost.
IBM came with with the next IBM called computer called the OS2. Unlike the previous IBM PC the OS2 was more closed ended and did not use off the shelf computer parts. They wanted a proprietary OS for it and went to Microsoft to get it. Microsoft and IBM started to work on the new OS together. At the same time Microsoft was working on a new OS that they were calling Windows. Microsoft claims to have told IBM to use Windows and not OS2 for there next computer. IBM did not like that idea and the relationship started to crumble. The closed down buttoned culture of IBM did not mesh well with the young upstart free wheeling Microsoft. Eventually Bill Gates decided to stick with his OS called Windows and dump IBM. IBM was not happy with this decision and did not make an IBM that had Microsoft software on it.
The Relationship between IBM and Microsoft was an interesting one. It lasted 10 years and made both companies a lot of money. IBM became the biggest PC manufacturer because of it but because of some mistakes also cost them a lot of money in the long run. Because IGM did not buy the OS from Microsoft or make sure Microsoft could not license it to anybody else IBM's time in the sun was short lived. Eventually it because the OS and not the Hardware that drove the personal computer business and let Microsoft become one of the leaders of a one hundred billion dollar industry and IBM left in the dust.
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