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How to Stay Ahead in a World of Disruptive Innovation: Part 3

Date posted: 7th November 2015

Part 3 “The Phoenix Rises Again, how IBM Biting Apple made it Personal”

“Stay Hungry, Stay Foolish” – Steve Jobs

We left off last week with an analysis of the rise and fall of IBM’s 3rd generation mainframe the system/360. IBM became the gold standard of 1960s computing with early innovation in customizable software, marketing toward business impact, and the earliest ancestor of cloud computing. Once the decade ended IBM’s dominance did not sustain as their market share in computing was cut in half by the close of the 1970s.

Disruptive innovation from DEC and Amdahl along with an ongoing antitrust lawsuit caused IBM to miss much of the growth happening in the 70s. By the end of this period it was clear that IBM was just another massive Old Guard OEM (OGO) pushing last-generation product. IBM’s lost decade successfully ended the antitrust lawsuit but left their earnings and the company as a whole in need of a massive pivot.

We started this series with a current day analysis of how Amazon Web Services is creating an IT Tsunami forcing the OGOs of yesteryear to innovate or die. The remarkable turnaround story of IBM in the 1980s is perhaps a case study for 2015 IT giants as despite being late to market and perhaps offering inferior technology — IBM dominated anyway. This happened because they accepted the new future standard and moved fast on “learning to swim”

Today we are going to take a look at the return of IBM, say the word “copy” way too many times and analyze the personal computing era with “The Phoenix Rises again, how IBM Biting Apple Made it Personal”

The PC looks good for its age….

Just as Amazon didn’t invent Cloud Computing in 2003, the personal computer was also pioneered well before it became the nucleus of IT. Both of these innovations are much older than you think though, the PC is in fact one year OLDER than the IBM mainframe we discussed last Friday.

With development starting all the way back in the early 1950’s, Italy based Olivetti released the world’s first commercial Personal Computer (PC), the Programma 101 at New York’s 1964 World Fair. Roberto Olivetti, the CEO of his namesake company was looking to start a revolution during a time when computers all consisted of massive full-room installations. The Programma 101 introduced features that through evolution still were in use years later including removable magnetic card storage (later known as floppy disk), and delay line (sequential access) memory an early predecessor to random-access memory more commonly known as RAM.

Olivetti wasn’t entirely clear on what they had invented though and the machine was almost killed shortly after completion. Deep financial troubles at the company along with the departure of CEO Roberto Olivetti left the project in peril as new management didn’t see any market for the new machine. However unlike DEC’s rejection 10 years later, Olivetti did see success with the PC following strong reception and demand created from the 1964 World’s Fair launch. From there the Programma 101 went onto success for the remainder of the decade with customers including the NASA Apollo Space Program. If that sounds familiar from last week it should be as ”IBM’s 3rd generation mainframe never came back from the moon”, but the future disruptive force of IT – the personal computer was right there with them 15 years before the rest of the world (& IBM) caught up.

Olivetti quietly continued in business through the years that followed but never again reached the pinnacle of innovation they saw in the early years. By 1983 Olivetti the inventor of the first commercial PC had fallen back to distributing IBM PC clones. The company still exists today as a smaller end business product company but never quite reached the success due to IBM’s stunning return. Please be sure to pay attention to that point closely as that will not be the final of the “first in” pioneers to fail in this series.

The “other” inventor of the PC…the copier who copied got copied (and then they got copied)

This wouldn’t be a complete story of the PC without a mention of Apple of course. Macintosh marketing including the Super Bowl commercial “1984” takes the most popular acclaim as the dawn of the PC era. Apple’s 2nd golden era, which started in 1997 and later made them the world’s most recognized brand doesn’t hurt either in fueling some myths about the first run of Jobs and company.

Let’s take a step back to analyze further, Apple saw their initial success with the Apple II in 1977. Apple II is credited with innovating the “appliance computer” a complete system ready for business or consumer use out-of-the-box. This consumer focused ease-of-use, new applications such as VisiCalc and strong marketing from co-founder Steve Jobs made Apple II the most popular perceived father of the PC era.

Nearby to Apple’s Cupertino headquarters, in the city of Palo Alto – Xerox had built the Alto, a system inspired by the NLS or oN-Line System developed by Stanford Research Center in the 1960s. The NLS was the first in the world in introduce clickable graphic interface, the mouse, video monitors and on-screen windows. Stanford’s innovation though years ahead of its time never took off due to difficulty in use and complicated command based codes.

Xerox’s research lab copied the mouse driven, graphical user-interface from Stanford and released it in 1973 as the Xerox Alto. As with DEC and Olivetti’s management they did not quite realize what they had and Xerox choose to focus on their core business which somewhat ironically was and is copying.

Apple on the other hand decided to push forward aggressively on GUI based personal computing with the release of Macintosh in 1984. This machine was the first mass market machine to offer the GUI and mouse invented by Stanford and its innovative marketing and brand name is arguably more successful than the machine itself.

To summarize

  • Olivetti invented the PC
  • NLS invented the GUI, Xerox copied it, Apple copied it
  • IBM copied them all….and won
  • Copying wins in the PC era aside from Xerox who won with a different type of copying

IBM becomes the standard PC….Then Gets Copied

IBM dominated the 1960’s, got lost in the 1970s and came back stronger than ever in the 1980s. The turnaround story driven by the IBM PC is one of the greatest in American business history. But why did IBM win when others were already in the lead?

Apple’s was never really the market leader to begin with

Apple pre-dates IBM PC by 4 years and even though it sold well in the 80s establishing the foundation for what would later become the world’s most valuable company the technology flaws of follow up computers such as Apple III, closed standard and high cost would end the war before it really started. IBM PC took what Apple built made it cheaper and made it widespread by opening up to 3rd party software and cross compatibility.

On top of that IBM’s existing brand reputation, marketing, sales force and aggressive pricing enabled them to completely dominate Apple with 56% market share compared to Apple’s 16%. The rise of IBM compatible systems combined with a fledgling software company known as Microsoft would make IBM the industry standard of the PC era.

IBM Compatibles

The rise of IBM Compatibles took IBM PC from market leader to market standard. IBM Compatibles on the open architecture of IBM PC and software standards are the father of the modern PC including those made by Compaq, Hewlett-Packard and Dell

IBM won the PC war in the early 80s but in the long run the growth of compatible clones saw the next great shift in the IT world. IBM Compatible would make the base architecture and software of IBM PC the industry standard for years to come but the growth of clones eventually led to the decline of IBM branded PCs. Descendants of IBM PC Compatibles still exist today as the majority of PCs sold today however over the past 25 years the nucleus of the standard has shifted to software rather than hardware.

The company leading this new standard built on top of IBM Compatibles is Microsoft of course. Microsoft which wrote the original MS-DOS operating system on IBM PC later moved their new OS Windows onto the IBM Compatible platform. Since the late 80s and early 90s every single mass market hardware vendor has used the Windows standard taking Microsoft from niche software developer on Apple to the dominant force in computing.

IBM would make one last push to maintain branded hardware control with the IBM PS/2 which set several new standards including PS/2 connection ports (still used today), VGA monitors, floppy disk and 72 pin RAM modules. All this was too little too late for IBM in the consumer market however with strong backlash on the move away from “open standards” which is similar to what slowed Apple. By this point even though it remained the industry standard the children killed the father as Compaq and Dell passed IBM in branded market share. Finally in 2005 IBM finally exited the market all together with the sale of the PC division to Lenovo.

Texas, the heart of the clones…

As IBM’s influence as a hardware brand decreased in the 1980s it left the market open for clone competitors to gain consumer market share. Two startups one from Houston, the other from Austin, Texas would gain to stand the largest benefit from this opportunity

Compaq based in Houston, TX was one of the first IBM compatible “giants”. Compaq mainly won market share on price their entire life but did manage to differentiate them a bit from the clone congestion with the Compaq Portable, an early version of what became the laptop later in the decade albeit requiring a suitcase to carry.

Compaq’s market ascension as a low-cost IBM clone enabled them to eventually acquire 1970’s computer giant Digital Equipment Corporation (DEC) in 1998, however this was the beginning of the end for Compaq as an independent company. By 2002 the giant acquisition of DEC was weighing down Compaq and they entered into a disastrous merger with Hewlett-Packard requiring massive cost cuts across the DEC, HP and Compaq portions of the former independent companies.

Based out of the greater Austin, TX area Dell Computers also rode the wave of IBM clones to great success. Founder Michael Dell started the company in his University of Texas dorm room by building IBM Compatible machines using bootleg and refurbished components. Dell found great success through the late 80s and 90s by offering low cost custom machines direct to consumers. Unlike Compaq though at no point did Dell innovate beyond the standard IBM clone PC. With this Dell arguably isn’t even really a technology company as they truly won their share as a supply-chain and cost-controlling master.

This lack of innovation and reliance of customer replace cycles doom Dell to slower growth more recently as competitors have moved away from the commoditized PC into other technologies including mobile. However Dell’s original idea lives on as the 3rd largest PC vendor behind HP and Lenovo and as a major provider of enterprise server and storage solutions (pending cloud disruption).

The PC era ended in the 1980s?

The PC era started in the late 70s grew to market standards by the close of the 80’s. However as 25 years have passed since then we already know what came next and that is the demotion of the PC from being the nucleus of consumer and business computing. As I write this today IBM PC and Compaq as a company are gone and Windows is no longer the market leader in OS.

That is 2015 though; we’re still in the 1980s with today’s story. So why is this relevant? It is relevant because the seeds of what we become mobile computing and the dominant operating system of today (Android) were planted way back in 1987. So yes, the PC era started to end even before it really peaked back in the late 80s.

The pioneer of tablet computing as we know it today is a little known company known as Go Corporation. Go would innovate the world’s first pen-based user interface and operating system which was later copied by Apple Newton, Microsoft Tablets and of course indirectly Android and iPad touch screens. The story of Go as with Olivetti earlier does not hold to become the market standard though as by 1994 the company was gone. Go Corp did come back from the dead once more in 2008 though to sue Microsoft for patent infringement which of course backed the claim as the innovator of early tablet technology.

To conclude today I wanted to highlight this story about Go because now here in Part 3 of our series we have started to see an information technology industry pattern.

  • Cloud Computing, pioneered in the 1960s. Market standard of the 2010s
  • PC, pioneered in the 1960s. Market standard of the 1980s and 1990s
  • Mobile computing pioneered in the 1980s. Market standard of the 2010s
  • The Internet, pioneered in the 1970s. Market standard in the 1990s

What does this mean? Well it means there is something entirely new being developed in 2015 that will become a disruptive industry force in the next 10-15-20 years. We already know the future beyond 2015 will include massive shifts to the Cloud, IoT, Big Data and Social expansion but what more will come? Continue to follow Netfast IT Business Review to read more.

Coming next week Part 4 “I Don’t Want to Burst Your Bubble…The Rise of Fall of the Internet’s First Generation”

About Author

Joe Asady is the founder and CEO of Netfast Technology Solutions ( Netfast is a leading Cloud Managed Services provider for New York City area mid-market business enabling customers to accelerate Digital Business Transformation with managed cloud and mobile solutions.