Chapter 12 - Choosing the Wrong War

Armonk lost the war with Redmond before it began. The PC was ultimately a consumer business in which IBM had as few viable prospects as Caterpillar Tractor would have against Ferrari in Formula One racing events.

In the early nineties, my e-mail was stuffed with messages from client-company technical staffs expressing their outrage at the world’s unwillingness to acknowledge IBM’s superiority. Many aficionados judged the OS/2 far superior to Microsoft’s offer, especially from a networking perspective. But it didn’t matter. As I replied to my outraged correspondents, “You might be right, but the kids want something they can buy in stores with the most games. And their moms and dads want the same system in their offices that they use in their homes.”

The game was over—or it soon would be. I didn’t need a crystal ball. CIOs from even the truest blue accounts would bow to employee demands for compatibility between the software they used at work and at home. Volume always wins, so IBM’s OS/2 would be displaced. End of story. The only wonder is how little IBM understood the terrain in terms of price point, human interfaces, and the independent software vendors.

The accelerated development of an IBM PC had been personally authorized by CEO Frank Cary back in 1980. Boca Raton, Florida, was chosen as the development site, to allow the PC team to escape the rigidity of IBM’s culture. With that freedom, Phillip “Don” Estridge delivered a successful product in thirteen months with just a dozen people using standard components and third-party operating systems. And IBM beat DEC, HP, and Wang to market with a general-purpose PC that produced around $1 billion of revenue in its first year. Cary got his hoped-for product with an effort that captured the IBM corporate imagination.

The blue-suiters were amazed and ecstatic. The new design methodology had cut through the multilayered blankets of “consensus and concurrence” to deliver a product as quickly as the Japanese. Of course, grumpy old dogs like our friend Jack Reilly growled that the boys in Boca hadn’t really developed anything—they’d just snapped together available parts and put the contraption in a box without much differentiation or margin. Reilly’s observation was ignored amid the celebrations. But both old dogs and young missed the more important point that snapping together components was exactly the essence of the PC business. As such, the market would ultimately belong to the most efficient snapper with the least inventory, lowest sales costs, and greatest appearance of mass customization. And that would be the unencumbered Michael Dell, who was just sixteen years old when Estridge was cheered as the “father of the IBM PC.”

But what really impeded IBM’s dream and strategy for a new product line was Microsoft. Countless books and films have told the story of how IBM, under the stewardship of John Akers, fumbled its opening advantage, losing to a band of brilliant computer nerds, and would have totally imploded were it not for Lou Gerstner and his service businesses. The weakness in these histories is their relentless focus on the PC to the near exclusion of everything else that was going on in the IT industry and at IBM itself in the late eighties and early nineties. In fact, until the 2005 sale of its remaining PC business to Lenovo, IBM remained among the five largest in a market where half the revenue still goes into a collection of small fry designated “all other.” In short, no single PC vendor has come close to the market share IBM holds in its other business lines. The sun didn’t rise and fall on PCs, whatever the enthusiasms of the time.

First Score of the Match

“Snapping pictures” was how IBM product strategists Mike Maples and Lucy Fjeldstadt enthusiastically described Armonk’s new