Thank You IBM
How to buy Thank You IBM
I cover all the billionaires and multimillionaires in all the industries that IBM gave up in my two books, Thank You IBM, and Thank you IBM (the second edition).The second edition corrects some typos in the first and adds well over 100 pages and a new section about Application Software entrepreneurs such as SAP and Amazon, and the billionaires from these companies and others. Both editions are available for purchase at www.bookhawkers.com. Go to page 3 and you will find both books. Additionally, as you can see, the Preface and the Table of Contents and Chapter 1 are available with a link from this site, www.letsgopublish.com. Look for Thank You IBM Materials and take the link.
I hope you have enjoyed this introduction and I would most appreciate your bringing one of these books home to enjoy. You won’t be able to put it down.
Direct link to buy Thank You IBM 1st edition
Thank You IBM Chapter 1
Introduction to the Book & Section I
This is the first of six separate and distinct sections in this book. In the chapters within this section, we discuss IBM's lost opportunities throughout its corporate life. We also introduce the fact that IBM's performance pleased its stockholders. There were very few complaints about how IBM management steered the Big Ship IBM. Yet, history as scribed in detail in this book is not kind to IBM. It shows that when IBM lost an industry, somebody with no IBM affiliation often stepped in, succeeded, and within just a few years, became a millionaire or billionaire. Meanwhile IBM received no compensation for the hard work and innovations that enabled so many other entrepreneurs.
IBM mainframes always made lots of money for the Company and because of this, IBM stockholders never saw the true value of the non-mainframe parts of the business, which IBM executives frittered away. The opportunity loss can be measured in $trillions. Look at the value of Apple, Microsoft, Intel, Oracle, and others and their billionaire founders to see just how much IBM stockholders lost by IBM's poor management of the non-mainframe parts of the Company.
In this section, following Chapter 1, which sets the stage for IBM's lost chances, we take you right to the present time to see where the IBM Company is right now. We also ask some important questions to get us all thinking about the essence of this book. We then look at a number of the opportunities that IBM missed by examining the companies that took those opportunities and ran with them.
Moving right along, we look at the IBM Company and its groundbreaking products. IBM may have squandered its opportunities along the way but the Company created all of those opportunities for itself. Nobody gave IBM anything. Finally we take a look at the future of IBM.
IBM really knows how to make great computer systems and the accoutrements that differentiate their great products. If only IBM's marketing and its corporate management were as good as its research, development, and product support.
Get ready for an interesting and eventful ride. The five chapters in Section I are as follows:
- IBM's many opportunities and many disappointments
- Fast forward to today. Has IBM improved? Will IBM succeed?
- Can a company pass on opportunities and survive
- The IBM story continues
- IBM was destined for fortune.
Following Section 1, we move into the five other sections of the book. Each of these sections coincides with products and or events that occurred during a particular IBM CEO's time at the helm: The five sections of the book are as follows:
Section I: Introduction to the Book and Section I
Section II: The Watson years
Section III: T. Vincent Learson and Frank T. Cary move IBM past the Watsons
Section IV: CEOs John J. Opel & John Akers together almost sunk IBM
Section V: Application Software: From Watson to Rometty
Section VI: Lou Gerstner, Sam Palmisano, & Ginni Rometty bring us to today
IBM's Many Opportunities & Many Disappointments
IBM's failings made a lot of one-time little guys very rich
This book is the story of the many opportunities which have been presented to IBM over the years and how the Company managed to fritter away a disproportionate share of those opportunities. In addition to bungling phenomenally big chances over the years, there were other times in which IBM actually won; but the odds of winning were so poor, and the risks were so great, that most other companies would not have taken the gamble.
In some instances, such as the $5 Billion gamble with the System/360, no perfectly sane person would have ever put so much on the line for any size potential chance of success. That IBM achieved success in such instances may be attributed to fate or manifest destiny as much as to excellent planning and execution. IBM defined computing in the early days when just about everything worked the way IBM dictated.
There is no question that IBM's mark on the world has been its major computing innovations and its original ability to sell such solutions to the business masses. We discuss these aspects of IBM in this book.
However, in a pop-culture world, IBM's modern legacy may very well be that it lent more than a helping hand to create so many technology billionaires and multi-millionaires—starting with the richest man in the world, Bill Gates. The list is enormous and in this book we tell the story behind each name on the list.
Thank You IBM!
Before we move on with the stories, let's take a look at a list of most of the billionaires and multi-millionaires that IBM helped create over the years. By not capitalizing on its own innovations, IBM turned over a large share of IBM stockholder wealth to anybody that cared to take it.
Besides IBM's founders and other CEOs, which are not on the list, only one person on this list, the late Ted Codd hails from IBM. Codd invented relational database while an employee at IBM. Yet, he made his money as do all entrepreneurs, by creating his own Company and working hard after his IBM career.
The major players on this list are from companies you will recognize, and you will also recognize many of the names. Some of their pictures are on the book's cover. They are on this list because of their own motivation for sure. However, their chances for success were multiplied as IBM was paying attention to other matters, and was not concerned with minding its core business. IBM forgot about making money the old fashioned way—by accepting new challenges and winning new opportunities.
This list is not 100% complete but it is close. IN subsequent book revisions, we'll make it better. It contains the names of prominent people and their companies in the IT industry. The names on this list benefitted most from IBM's belief that it was a mainframe-only company and everything else was secondary.
If you are unfamiliar with IBM as you go through the stories in this book, you will be amazed that the Corporation's board of directors waited so long to take action against the many top executives in IBM that compromised the stockholders' good fortune. The companies behind the billionaires took what would have been IBM earnings for IBM stockholders and profited in industries in which IBM somehow once led in many cases and then somehow could not compete. IBM created more millionaires than most would ever believe.
IBM after the Watsons had a basic unwillingness to protect its business assets, its inventions, and its many opportunities. The Watsons who first managed IBM did very well in this regard, but when they were gone. IBM managers focused on the low-lying fruit and short-changed stockholders by their shortsightedness. They ignored huge industries in which Big IBM had the upper hand in controlling and realizing substantial profits. This book is about all of that.
To whet your appetite for the stories behind the list, I present the list of the many billionaires, multimillionaires and plain old millionaires below. All of these entrepreneurs owe IBM a huge thank you in one way or another for making them so successful:
Please note that this list is in sequence of net worth. This list is more current than text notions of net worth. This list was updated right before printing whereas text notions remained as they were. As most already know at the very top of the list is Microsoft's former Chairman, Bill Gates with a net worth of $84 Billion even after having given over $30 Billion to charity over the years. As of 2016, Gates had been at the top for 17 of the last 22 years. More than anybody else on the list, Mr. Gates owes his great fortune to IBM for IBM's gullibility at a time that it should have been very watchful and cautious in picking its partners and friends.
*** List cannot be materialized
IBM's Thomas Watson, Sr.
In many ways Thomas Watson Sr., IBM’s founder, was blessed in the same fashion as Apple’s founder—the late Steven Jobs. Everything the senior Watson touched was successful. His only real historical faux pas was that he chose to resist computers until it was almost too late. But, again fortune came his way, as his son Thomas Jr. was able to put a team together quickly in the 1950's, to gain back the lost ground in the computer industry.
Watson Sr. gave IBM a proud legacy and a loyal constituency. Watson Sr. created an environment for employees that encouraged their best, and best efforts were always rewarded. The Company was family first and for this, Watson Sr. received the full loyalty of all of his employees. The Company had been profitable for over forty years when Tom Sr. turned the reins over to Tom Jr. Tom Sr. had accumulated lots of cash. I mean lots of cash. He was an astute businessman.
IBM has been well known through most of its recent history as one of the world's largest computer companies and systems integrators. The Company has well over 400,000 employees worldwide. At one time, I was included within the ranks.
Big Blue has always been one of the largest and most profitable information technology employers in the world. IBM has a history of inventing things—even things that it could not sell as completed products. And so the Company today brings in a lot of revenue selling the rights to its many patents.
Big Blue holds more patents than any other U.S. based technology company. It has eleven research laboratories worldwide. Each and every year IBM files more patents than any other corporation by a wide margin.
Patents are something IBM pursues and a major area in which it excels. One can argue that IBM today continues to be the most innovative corporation in existence—even compared to Apple. in IBM's case, it takes a very long-term view of the value of innovation. This book in many ways reflects the big difference about how very innovative they are; versus how poor they are at actually bringing their innovations to market and making a big splash with them. IBM has struck out so many times in the latter, I was compelled to write this book.
Besides production workers, IBM employs knowledge workers and marketers. The Company has many scientists, engineers, consultants, and sales professionals working in over 170 countries. IBM is recognized as a great technological company as its employees have earned five Nobel Prizes, four Turing Awards, five National Medals of Technology, and five National Medals of Science. And, folks, IBM even today still spends tons of money on pure research and development. It pays off.
For example, on January 12, 2015, IBM announced that it had received a record 7,534 patents in 2014 -- marking the 22nd consecutive year that the Company topped the annual list of U.S. patent recipients. No US company has ever received more than 7,000 patents in one year. Congratulations, IBM.
IBM has deep roots
IBM's roots go back even further than Thomas J. Watson, Sr. but the IBM that most of us know began when Watson Sr. took the helm. You have to go back to the 1880s, long before electronic computers to find the first "IBM" employee.
The IBM structure which we see today was formed long ago by the merger of three companies: (1) The Tabulating Machine Company of Washington, D.C., a firm which began in the 1880's; (2) The International Time Recording Company, a 1900 era company founded in Endicott, and (3) The Computing Scale Company, which began in 1901 in Dayton, Ohio.
Going back to a 1911 stock prospectus states, we can see that actually four companies were consolidated to form IBM--the three described by IBM and another known as the Bundy Manufacturing Company, which was begun in 1889. Reading this history tells us that the reports of a merger were not true either as the IBM predecessor Company that emerged—the Computing-Tabulating-Recording Company (CTR), was in fact a holding company.
In other words, the individual separate companies continued to operate using their particular names until the holding company itself was brought to an end in 1933. CTR had been incorporated on June 16, 1911 in Endicott, New York, U.S.A.
Tom Watson Sr. was hired to run IBM
The man who had engineered the merger and the creation of the Computing-Tabulating-Recording Company (CTR) was Charles Ranlett Flint. Mr. Flint was not as good at managing companies as he was at putting deals together. So, he naturally found it difficult keeping the operation going. He looked to the NCR Corporation and specifically to one of their best and brightest—Thomas J. Watson Sr. Flint hired Watson to manage the new company.
- J. Watson, Sr. became general manager of C-T-R on May 1, 1914 when the Company had just about 1300 employees. Eleven months later as the tale goes, Watson became president of CTR and four years after that, this superior businessman doubled its revenues to $9 million. Watson ran C-T-R like it was his own company and in fact, in many ways, it was. The Watsons made billions at IBM.
IBM stock at one time was increasing at a blistering pace. In discussing Watson Sr. and IBM's stock prowess in 1982, the NY Times recorded the following:
"It would have cost $2,750 to buy 100 shares of the Company's stock in 1914, the year Mr. Watson took over. Anyone exercising rights accruing to those shares through 1925 would have increased his cash investment to $6,364 for 153 shares.
"Such a person would now (1982) hold 3,990 shares, and would have obtained a value of $2,164,000 based on market prices this year and cash dividends of $209,000 paid thus far.
In 1924, Watson, Sr. renamed the Company International Business Machines Corporation (IBM). Considering that the On to Europe campaign had not yet started, it was a brash move including the word International in the Company name. Watson made IBM into the Company he viewed with the name change.
IBM as run by Watson, was such a dominant company in whatever areas it touched that the federal government filed a civil antitrust suit against it in 1952. IBM was king of business data processing at the time, even before many of its fine computers had ever seen the light of day from its research laboratories.
IBM owned and rented to its customers more than 90 percent of all of the heavy electromechanical tabulating machines in the United States at the time. When Watson died in 1956, IBM was still making a killing every year on gear that had been recycled many times, and each time the customer found benefits.
*** Picture of Tabulating Machine
IBM's annual revenues were $897 million, and the Company had grown from 1300 to 72,500 employees. Thomas Watson Sr. was personally responsible for this success. He knew success and he demanded success from all his employees. IBMers delivered success in all areas for Watson Sr.
Thomas Watson Sr. had this thing about renting machines from which businesses could continually gain value. He justified machines based on the salaries of a number of future bookkeeping employees a given company could save by not having to hire them in the first place. He also sold the companies on being able to process more orders in the future with fewer people. Their salaries were "justification" for the data processing machines.
If Watson had sold instead of rented the machines, he would have to sell something new and better every five years but by renting them, he could merely increase the rental every now and then and sell more customers on the idea of getting more efficient.
And, so in Watson's C-T-R, and then Watson's IBM, not only was there lots of money continually streaming in from long-term rentals of tired old equipment, written off many times, Mr. Watson also inspired a crackerjack field sales force to keep selling more and more and even more stuff.
Spare parts fix broken machines
Much of what IBM sold and rented cost companies a good penny per month but the companies saved even more in expenses by deploying Watson's data processing technology. Ironically, if it had not been for a business model that put old machines back in inventory for long periods of time until they were rented again, TJ Watson Sr.'s rental business would have had no value at all.
IBM built more than enough spare parts for its aging rental electromechanical behemoths and the machines often lasted more than thirty years before reaching their discard point.
IBM’s year to year financial sustenance and growth was always assured through its rentals. Even if nobody sold anything new for a long, long time, with Tom Sr.’s cherished rentals, there would still be a big wad of cash coming into the Company’s coffers. But, of course that was not the objective. Watson played the game of business to grow IBM's revenue each and every year.
IBM loved to get new accounts
Watson loved to win new business, and so he kept hiring the best and the sharpest sales personnel. His son, Thomas Jr. used the same model. In later years, the sales personnel Marketing Representatives to differentiate IBM's talented few from the run of the mill pitch men.
The Watson objective was always to make a buck... but not at all costs. Both Watson Sr. & Watson Jr. believed that “If you take care of the people (the employees in the business), the people will take care of the business.” The Company thrived on new sales.
The IBM which Watson Sr. passed on to Watson Jr., was so well blessed with momentum and assets, it could literally afford to make lots of mistakes, though not necessarily the huge mistake that could have come about from Thomas Watson, Jr. overplaying his $5 billion hand in IBM's biggest marketing gamble.
Thomas Watson Sr. Dies at 82 Years of Age
On June 20, 1956, one day after his death, the NY Times praised Watson Sr. in an obituary that had all the markings of a printed eulogy. Watson was exceptional and his style created an exceptional company with exceptional employees. This is an excerpt from the Times article:
"Mr. Watson was of that breed of capitalists to whom the accumulation of huge personal fortune and the building of a vast business empire became opportunities for the spreading of huge personal benefactions and the accomplishment of widespread public service.
To a great extent, the International Business Machines Corporation is a reflection of the character of the man who led it to a position of eminence among the business machine manufacturers of the world.
From the slogans that adorn its walls in eighty nations and the expenditures made from its treasury for good works, to the methods by which it introduces recruits to what may be called the I.B.M. way of life, the company is the creature of the man who commanded it for forty-two years."
TJ Watson Jr, a great leader succeeds his father as chairman
Like his Dad, Thomas Jr. did not make many big mistakes. However, he was much more inclined to take a gamble than his ultra conservative father. On Tom Jr.’s watch, IBM achieved its first $billion year, and the Company was closing in on $10 billion per year in revenue when TJ Jr. passed the reins to the first non-Watson, a gentleman by the name of T. Vincent Learson.
The caretakers to whom Watson and Learson passed the Company, however, were not as vigilant with the Company’s assets and options as were the Watsons and Learson. They brought nothing close to the business acumen both Watsons brought the company. My suspicion is that if Learson put in more than the two years he was permitted, he would have made a better CEO than all of the non-Watson CEOs with perhaps the exception of Lou Gerstner.
Having graduated to success through selling big iron (mainframe computers) to big companies and big government, the latter day IBM CEOs always had a difficult time figuring out how to be successful with any other product line than the largest of large mainframes. In other words, they were blinded by the existing success of IBM and so they did not see opportunities that were not as obvious to them as mainframes and supercomputers.
This mainframe predisposition of IBM, which could easily be described as “mainframe über alles,” and mainframe myopia, cost the Company big time over the years. Those of us working on the IBM team during this period, watching from the playing field, never saw any recognition from the mother ship of this huge mistake. We saw it but IBM did not often ask its minions about its big decisions.
Big egos like those in IBM in the 1970s through the 1980's, made no mistakes. Big Egos at IBM as Big Egos in many organizations provide negative energy. They simply destroy things. Their biggest affirmation of successful management, even though they were neglecting major opportunities was the principle of "non-neglect." Nobody could say they were losing when profits were so good.
Even if it had nothing to do with their principles and plans, it was OK regardless of the marketplace and their participation. IBM's huge profits always came in as anticipated and that is all that mattered even if the business were being run poorly. IBM was so well-endowed with opportunities, for years it simply could not possibly fail financially. Nobody questioned whether the captains were steering the ship properly. Stockholders were happy and employees were paid well.
Even if profits were based on the work of prior IBM leaders, the current leader always got to take the full credit. Credit, not reality, was what success was all about for CEOs post Watson.
In other words, IBM thought that it was doing fine as a company because its bottom line was always well above low water. And so ignoring opportunities was simply part of its game. IBM executives joked about leaving 90% of the great ideas from R&D in R&D—never to see the light of day. I often wondered what it would have been like if IBM did not care as much about which division brought in the most revenue.
The culture of the day favored the mainframe and IBM felt it held a grip on those American and international corporations that required huge mainframes to run their huge enterprises. Nobody could compete with IBM in this arena. For business analysts doing an autopsy on a failed IBM, there is a lot of material to support this view.
A cursory analysis shows that were many more dollars left on the cutting room floor than those that found their way into the IBM coffers. After the Watsons, and I include Learson in this, IBM management seemingly never had the guts of Thomas Watson Jr. to dream up and then capitalize on risky ventures. In fact, latter day IBM managers often did not take the time to peek around the corner just to see what was there.
IBM stockholders should be upset at its cost to them. Yet, somehow even Warren Buffet remains hopeful that IBM is a good stock market bet. As an IBM stockholder, I hope he is right, but with a duet of Palmisano and Rometty at the top, I do not see from where the necessary leadership will come.
Stockholders need to begin asking IBM's top executives tough questions. In this book, we demonstrate so many lost opportunities, it is amazing how easy the owners of this one-time great company have been on management. In a natural business life, surely some opportunities would have been missed. IBM failed so frequently in areas of endeavor in which less skilled teams would win that it is highly problematic.
How big was the cost of missing all the opportunities portrayed in this book? The answer I give is truthful and the facts about IBM giving up its dominance in so many industries is legendary. I won’t add it up completely for you, but you will have what you need to form your own conclusions. In the PC area alone, IBM's opportunity loss approaches $1trillion per year in revenue that other companies now claim as theirs. That trillion dollars' worth of IBM leftovers provides a lot of non-IBM stockholders a growing fortune.
Overnight it seemed that before the end of 1982, with the IBM PC having been announced just sixteen months earlier, IBM quickly had lost over 90% of the PC market that the Company had just created. Industry bloodhounds smelled the money and IBM ignored the scent. This is a huge loss for IBM stockholders.
When we consider that today IBM has no share at all of the most lucrative technical marketplace in the world, we must ask whether it was malfeasance or incompetence. How could such a real loss of business have happened to any company that had in fact invented that marketplaces that survived and now thrive?
IBM did not bet the farm but the Company lost the whole farm several times over nonetheless by not even being willing to intelligently conduct business. You will learn in this book that IBM's # 1 goal through the 1980's was to be a $100 billion dollar company before 1990? Unfortunately for stockholders, Big Blue did not even come close. The Company finally got above $100 billion in 2011 with a year-busting revenue of $107 billion.
Is it appropriate to ask "why IBM could not sustain that revenue amount?" Another appropriate question is "why has yearly revenue fallen from that $107 billion to $92.7 billion as of 2014?" Something still seems to be very wrong inside IBM and there may not be enough cash on hand to save the Company from bad management this time.
Will IBM recover? Facetiously, I might suggest that perhaps IBM does not have to recover if it could simply drive all expenses from the Company and not worry about maintaining or increasing its sales. That's what it seems to be proposing but the logic is non sequitur.
Here we go again! Before Lou Gerstner, John Akers tried the same thing. Gerstner, much more astute than the average CEO of any company, realized that if the Akers approach were deployed continuously, eventually, there would be no IBM products to sell and thus, no IBM.
As noted twenty-one years past due, IBM did make it to the $100 billion mark. Ironically, the value of just IBM's 1981 PC business, one small segment of IBM at the time, is now worth a staggering in the neighborhood of $1 trillion per year. It really is too bad for all IBM stockholders that IBM no longer lives in that neighborhood.
Should IBM stockholders feel aggrieved that none of this huge revenue stream has ever come back to IBM, the Company that created the PC? Yes, stockholders should be very upset unless they are not in it for the money!
Thinking that it is a mainframe company rather than an information technology computer company hurt IBM more than analysts and IBM managers seem willing to ever admit. In many ways it is like the analogy of those in the railroad industry not believing that they were really in the transportation industry.
IBM has never been in the mainframe industry. It was and is in fact in the general computer industry—aka the information technology industry. IBM competes against all shapes, sizes, and models of information technology hardware and software. Management after Watson just liked the mainframe business more than all other sources of revenue.
The impact of this mistake has been monumental and would be in the morning news if IBM somehow over the years had not been able to make a huge profit each year despite its stumbling. Even as IBM loses revenue today, its profits magically are increasing. After so many divestitures shall we ask how much of IBM can be left for the future?
IBM is not even a player in this opportunity-rich marketplace—the market in which most profits occur today—the PC market. It is hard to believe and bears repeating that IBM invented and owned the PC marketplace but lost it through poor management decisions. The Company has demonstrated many times that it does not understand long term opportunity assets. Otherwise the Company would still be renting machines to somebody.
The Big Blue Company was not suffering for revenue until the 1990's and theoretically, it was not looking for more success than it already enjoyed. Yet, with its market ignorance and poor management practices, IBM left hundreds of billions of dollars for other companies to enjoy. Yes, for a while, IBM stockholders got rich on the easy pickings—the low lying fruit. If IBM had played its cards to win, many IBM employees would be millionaires.
Eventually when a corporation does not take its future product mix seriously, and it plays only to its cash cows, the milk ultimately dries up. Moreover, other companies looking to make it big choose to take those chances seriously that companies like IBM consistently leave on the table.
In this light, the IT world seemed surprised that on May 3, 2002, Hewlett Packard (HP), a company that was not even a PC pioneer when IBM introduced its life changing unit, bought Compaq, the premier non-IBM PC Company in the industry. The industry was even more surprised three years later when HP under Carly Fiorina surpassed IBM as the largest technology company in the world—bigger than IBM itself. Ms. Fiorina, a candidate for President in 2015, was CEO at HP during this period. She took IBM on; punched it black and blue; and she won.
There is not much more one can say to excuse IBM from its mismanagement in losing the PC marketplace. Among other things, the Company had clearly miscalculated which industry players were friends and worthy of partnership and which ones were cutthroat foes with no concern at all for trusting relationships.
In many ways the Company did not consider the industry competition as competition as it went about its business. With 13 years of antitrust action weakening the combative resolve of IBM executives, during this time period, the IBM team began to believe that their worst enemy had become the US government, and not industry competition. Microsoft had no such fear and so, it kicked IBM down the street and buried it.
Fearing the government is not a good enough excuse for IBM as it mocks the reality of the day. The government decided to drop its Anti-Trust Case less than six months after IBM released its original PC. An IBM that had chosen to take the business wherever it could get it, could have immediately prospered in all of its many businesses. But, it did not. It did not recalculate its enemies list and it did not recalculate its opportunities list. It simply capitulated in all areas that were not mainframe.
IBM and Wintel: trust but verify
When the Reagan administration withdrew its antitrust actions against IBM in 1982, the Company remarkably took no immediate action to claim back the PC territory it had given to others. Intel and Microsoft had gained the most and should have had the most to fear. In 1982 both were very vulnerable and IBM had the upper hand. But, IBM played its hand like it was the lesser and the Wintel group was the greater.
Their affiliation with IBM took both Wintel companies from little more than also-rans in a big industry to multi-billion dollar behemoths in an industry both eventually dominated. It got so bad that IBM was no longer even considered a worthwhile competitor. None of its "friends" offered IBM a helping hand as Big Blue had given them when it made them billionaires.
Bill Gates played IBM as a fine tuned instrument while Intel gained from IBM’s indifference to not having “IBM inside.” History proves that IBM’s loss of preeminence in the computer field was caused more by a poor choice of friends and partners than their perceived enemy, Uncle Sam.
Both IBM’s fear of government intervention, and its belief that it was a mainframe company, were major contributing factors to the Company getting off-track in the microcomputer / PC market. But, it was clearly the myopic mainframe vision which did the Company in.
For years, IBM sat idly by, as an entire industry of PC competitors (the compatibles vendors) came into being and were permitted to prosper and thrive. It was minicomputers all over again. Against microcomputer vendors, IBM fared even poorer. At least IBM today continues as a major player in the minicomputer aka small business computer marketplace but Wintel is even closing in on that.
IBM aided and abetted its own demise. The emerging PC leaders helped take the edge from Big Blue by using IBM’s own intellectual capital and original ideas. Some of the takers were partners while others were just good entrepreneurs. There were lots of takers.
It was not long before this burgeoning industry seceded from the IBM mother-ship, and became self-sustaining as the "clones." The PC marketplace no longer was defined by IBM. Even then IBM still chose not to fight back like it cared and acknowledge the real fight that was happening in this IBM-created industry. IBM simply laid down and died.
As we will see in this book, quite a bit of time passed after the PC business was released from the IBM barn. Eventually, the IBM Company reacted as if it had finally realized what it had lost. When it finally comprehended that it had to close the door, however, it was too little... but more importantly, it was too late.
The best technology loses to the best marketing plan.
IBM always had a major touch of arrogance to back its one-time industry leadership. Sometimes in the Watson years, even when its technology did not win the day, its arrogance and cunning would win and keep the ship afloat. While its PC customers wanted to buy IBM compatible units for the least cost, IBM chose to win back the PC marketplace with earth-shattering improvements in PC technology. Big Mainframe IBM must have made that decision because the word small systems never was a frightening term to big system IBM.
The Company planned to use its OS/2 and PS/2 "earth rattling" announcements in 1987 to “reclaim” the industry it had created and lost. After losing the keys to the kingdom, IBM at least began to show an interest in knowing how it could find its keys.
Unfortunately, IBM's mainframe arrogance resurfaced. Big Blue believed that just being IBM would be more than enough to win back corporate America and all those individuals who had not been able to afford IBM PC products in the past. Unfortunately for IBM, many of the same people making the decisions in corporate America had already been successfully using Compaq and Apple PCs in their personal lives for years.
Therefore many of the same people had primarily selected Compaq as the company to save their organizations from having to pay the huge IBM PC price tag. Apple was not as well-known and their wares were a bit more pricy than IBM, but the Apple zealots clearly hated IBM, Microsoft and Intel for sure. IBM had few regular people rooting for it.
Why? IBM seemed like a company selling bread and milk that noticed the river banks had just gone over and so they raised the prices ten-fold to capitalize on the newness of the issue. IBM was many more times more expensive than the clones.
IBM seemed to have no knowledge of the concept of price sensitivity. And, of course there were many IBM large and small clients alike, who had no forgotten the snubbing of having to go to the PC stores and not their IBM sales representative in order to buy one PC or thousands of PCs.
When it was too late; it was too late
With the PS/2, IBM thought that it had made all other compatible clones, incompatible. Instead, IBM had made itself incompatible to the PC industry standards, which were developed without IBM's assistance.
Though IBM was clearly ready to bully the marketplace; the marketplace actually began to bully IBM. The big-time PC partners, which IBM had created from dust, Microsoft and Intel, were not ready to give up their new opportunities to help IBM in any way in its attempted leadership resurgence.
With Microsoft's Operating Systems and Intel's chips well in their camp, PC clone manufacturers, such as Compaq and Hewlett Packard and Dell and Gateway were emboldened and began to ignore IBM as a leader in the industry. They had no regard for the fact that the IBM Company had created the PC.
Even Intel, but more especially Microsoft, surprised IBM with their independence and lack of sensitivity to IBM's plight. And. so, despite its massive PS/2 investment, IBM failed again. It had created a phenomenally new type of PC but nobody wanted it. IBM's marketing efforts were outgunned by the new PC industry that had formed—the one that felt it did not need IBM.
Mainframe- cause of success & cause of failure
Even today, the failure point of IBM throughout the years, the mainframe, still dominates the IBM corporate culture. It has provided the bulk of the revenue for years so nobody was complaining during those years. Nobody is brave enough to complain even today. IBM continues to protect its mainframe business above everything else. Today, IBM's largest computers provide 25% of the Company's revenue.
IBM has been, continues to be, and seems like it is always going to be in the mainframe business, even if that business is renamed to "Cloud Computing." The Company executes precisely in the mainframe business. IBM is acclaimed as best of breed as a supplier of huge computers. Everything else in IBM has always been and continues to be a sideshow to the big mainframe event. IBM needs another Lou Gerstner, not a couple half-baked Gerstner clones that he thought might do OK!
Big IBM has found that it is very difficult to believe that it is in the information technology business. It cannot accept that mainframes are just a segment in the major IT industry. Thus, in most of its other business areas (non-mainframe), IBM continues to prove that it is easy pickings. Its new breed of competitors are better schooled in marketing in the modern era than Big Blue.
Let's now fast forward to today to get a feel for how this predisposition to mainframes has panned out for the IBM Company. We have much more to discuss about particulars and details in later chapters. We'll be back to a chronological look at IBM through its various CEOs in later sections after we take you to today and back. We'll be back in the past before you know it.
Thank You IBM Preface
Since the 1950's, IBM has been synonymous with innovation, cutting-edge technology, and major league research and development. IBM pushed the boundaries of what computers were capable of doing with technology. As of the last several years, that storied legacy may be ending as IBM is sorting out its future as a company in the IT industry. IBM thinks its future, as clear as they can see it; is quite cloudy!
It would take a crowd of people to come up with the right number of fingers to match the number of marketing opportunities that your author saw the IBM Company turn over to its competitors over the years. It is inexplicable and as a stockholder, I feel it is unforgivable. Yet, IBM still turns a profit.
At a worldwide level, if IBM were ever again to become the leader in a given IT industry sub-segment, based on its track record, we could all predict with 100% accuracy the final outcome. First, after bleeding cash from the entity, Big Blue would claim that profits were not up to the company's expectations. Then, IBM would make a quick exit to conserve the company's cash reserve. The company would then bail and sell out the entire sub-industry business to whomever it could as quickly as it could. They would then express shock as the business they shed became a leader in the industry.
In 2014, IBM again executed this formula for failure. It first sold its PC x86 powerful server business to Lenovo for $2.1 billion. This is the typical IBM modus operandi. But, then Big Blue pulled a surprise in what goes down as an industry first in enabling a purchase. IBM "sold" its highly advanced Power Chip foundries for a negative $1.5 billion payable over three years.
Yes, that is correct and confirmed by IBM. You read that correctly. IBM is paying GlobalFoundries $1.5 billion in cash to take the "loss-making" unit off its hands. In the deal, IBM promises to buy its chips exclusively from GlobalFoundries and the foundry promises to make the chips for IBM's needs for the next ten years.
Who knows what the cost will be if IBM decides to leave the mainframe business; sells it off; and exits hardware completely?
Right now, TSMC, GlobalFoundries, Intel, and Samsung are the only companies in the chip industry with cutting-edge deployments. Once again, in an industry that IBM created, the IBM Company could not compete, and others will definitely prosper.
Is it not fascinating how one company can thrive off the product line leavings that another throws away. There are always companies that can run profitably what others cannot. One can legitimately ask if IBM just recently has become the company that can't or perhaps Big Blue really has been this way for a long time. Perhaps all the easy cash sources have just now dried up?
Even when the company was tops in innovation and product excellence, IBM could not hold on to major subindustries—those that it created and even those acquired such as Rolm and Satellite Business System. The IBM Company inevitably lost money in these industries, and had to sell off divisions and companies. I have concluded that IBM does everything right except for one thing: It simply does not know how to run a business in which there is both opportunity and competition.
If IBM had no mainframe product line, its staple for revenue over the years, there would not have been enough profits to sustain the company through 2015? With CEO Rometty having placed a big X (target) on hardware for dissolution within IBM, industry analysts are not sure how long even the mainframe will last. Why trust Rometty? Who knows if mainframes will even be a part of the IT landscape in another ten years? Then what for IBM?
In its formative years, IBM owned whatever IT sub marketplaces in which it chose to compete. Things were literally too good as it was so easy, IBM forgot how to compete. The magnitude of IBM's financial opportunity loss in many such instances has been staggering.
When IBM ignored obvious high potential sub-marketplaces such as the PC area, for its own reasons, more often than not, the revenues ballooned. But, the revenue was collected by other companies such as Microsoft, Intel, Phoenix Technologies, and Dell. The combined revenues of these newly formed companies became several times larger than the IBM Corporation itself.
Just looking at Intel and Microsoft for the last year—just two of many companies in the huge PC industry, the total is a staggering $150 billion and growing rapidly. Compare this with IBM's declining revenue now slipping downwards from $92.7 billion. Apple tops the charts at over $200 Billion.
Without Intel, Microsoft alone pulled ahead of IBM in 2015 with about $94 billion, up from $77 billion in 2013. Somebody is making money—lots of money—but it is not IBM. Intel pulled in about $54 billion up slightly from 2013.
For IBM, nothing seems right. Sales are down for the 13th quarter in a row. Big Blue brought in $6 billion less in 2014 than in 2013 and the company was down $14 billion from 2012. Thankfully for stockholders, IBM's bottom line is not yet in the red. But marketing tricks cannot promise anything sustainable for IBM's future.
The PC industry sub-segment is the one area that most industry-watchers understand. It became IBM's worst loss ever from bad management decisions and neglect.
Many programmers are fully aware that in 1980, IBM took a pile of bugs, and rewrote the Microsoft DOS PC operating system that Gates tried to say was ready to go. IBM cleaned up 300 bugs before giving it back to Bill Gates for no charge whatsoever. Gates is now the richest man in the world. Meanwhile IBM is selling off once profitable segments faster than the industry is creating new opportunities. IBM's stockholders have been shortchanged for a long time.
IBM also got snookered by Intel. Big Blue could have tied Intel up with an exclusive contract on its 8088 microprocessor for the IBM PC but again IBM executives chose to permit Intel to call the shots. Intel would not have been so greedy if IBM controlled the marketplace. Instead, they would have literally done anything to maintain the IBM contract.
IBM asked for nothing. Unbelievable! Worse than that, Big Blue gave Intel the tacit OK to sell the 8088 to all comers with no restrictions knowing IBM's PC would be the direct competitors of the newly established clone PCs. Clone company entrepreneurs were carrying loads of "IBM" cash to their banks.
The clone makers of course owed IBM nothing and soon learned how to out-IBM, IBM. The leader in the IT Industry had forgotten how to protect its intellectual property, its assets, and its future profits. IBM forgot how to sell; or it chose not to sell. Either way, IBM lost one major product line sales opportunity after another.
During this time, clearly IBM was not paying attention to the needs of its stockholders as its biggest sin was not protecting future stockholder opportunity for profits. Ironically, IBM showed more respect for Microsoft and Intel than for its own investors and employees.
IBM wrote many other operating systems between 1964 and 1980 and it could have written the 4,000 lines of assembler code turned over by Microsoft, in its sleep. IBM's OS/360 operating system built in 1964 checked in initially with 1 million lines of code and before it was replaced, it had grown to 10 million lines. IBM knows operating system.
Big Blue chose to ignore the prospects for substantial revenue from operating systems by making it so easy for Microsoft to win the day. The net loss for IBM for not knowing how to run its PC business, is over a trillion dollars. Think about that for a while. Let it set in.
That is what this book is all about. Think of what IBM could have been. Think of how successful IBM made IT industry technology pioneers. The stories are phenomenal because they are real and truthfully told. You won’t believe how rich everybody else in sub-industry after sub-industry has become, and I am not highlighting just the $1trillion PC area. There are many others.
From RISC computers to telecommunications, to disk drives and tape drives, to networking, to microprocessors, to minicomputers, to storage systems, to Unix, to relational database, to clones and to BIOS vendors and to various sized PCs and x86 PC servers, and on and on, IBM stockholders seem to have been the only losers while others became billionaires.
When I began to write this book over twenty years ago, I knew that I wanted to tell the true story about how IBM made a lot of brand new IT companies successful by choosing not to compete against them in the PC arena and other marketplaces. I knew there was a lot more than just the PC industry that IBM's style precluded the company from dominating. I saw it when I was an employee.
I began to write about those stories twenty years ago. But until this past summer, I had not closed them all out. The stories were easy to find and easy to finish. I had written the facts down from the 1990's and then in the summer of 2015, I proved or disproved my suppositions and ideas through research at many levels. This book came together quickly.
Nobody can deny that the PC marketplace continues to be a $1 trillion loss to IBM's annual revenue—each and every year. It is IBM's biggest blunder but few know that it is just one of many. In industry sub-segment after sub-segment over the years, IBM failed miserably and sold-out. Ironically, IBM did so well in managing its earnings that it rarely came close to hurting itself for all of its bad decisions.
In this second edition, I added software opportunities to the list of IBM's squandering's. IBM owned the application software industry when the computer industry was in its infancy. It had little foresight into what application software would become. The prognosis for IBM by industry analysts is not promising. Without a major revenue improvement from its current $7 billion level in cloud computing revenue, the new IBM future is not going to carry the day. IBM gave up on application software years ago and does not even have a small share of this $200 Billion market. We discuss this in the new Section V in this book.
When IBM almost died at the time that John Akers was selling off plants and businesses, Lou Gerstner immediately realized the way IBM ran its hardware business was not the answer. He arrived at IBM after multi-billion dollar annual losses. Gerstner was very smart. He cleverly picked software and was able to move the company forward while reducing expenses by 60,000 employee cuts.
Gerstner saw the obvious. However, he picked middleware and expensive services, not customer application software such as IUPs, SAP, or the packages acquired by Microsoft and Oracle. Gerstner's IBM did not think that it needed to engage in the application software business at all. In fact, in his biggest mistake, Gerstner pulled the plug on a revived application software business, the linchpin of cloud computing. This huge mistake is now coming home to roost big time as companies in the cloud do not need middleware.
That's why this book has a lot of great stories to tell you and why there is lots of interesting stuff that you can learn. Who made out the best? Who has the money? Who does not and who does owe IBM a big thank you for Big Blue's misgivings about being too successful.
IBM executives over the years from the CEO on down were all paid very well; but they seemed to understand just one aspect of IBM—its mainframe business. So they lost in just about all other marketplaces. They simply handed very crafty "entrepreneurs," the whole game. In Microsoft internal meetings, they openly mocked IBM and laughed about how gullible IBM was as a company.
In many cases, IBM executives simply gave it all away because they thought they were giving away nothing. They did not understand the opportunities, which they completely controlled. So, they held nothing back for IBM and its stockholders. IBM got no requisite share of its own successful innovations in tons of industry sub-segments. Instead, the Company unwittingly created many industry tycoons by not properly watching its assets.
The tycoons went on to become multimillionaires or billionaires. Microsoft alone has four documented billionaires on its list which is topped by Bill Gates, the richest man in the world at $79 billion. Additionally, there are over 12,000 other Microsoft employees who became millionaires. IBM paid for all of these millionaires' good fortunes out of what would have been stockholder dividends.
Considering that IBM's relationship with Microsoft started by IBM accepting a dirty OS that Microsoft had not even written itself, and then IBM rewrote this operating system to remove over 300 bugs for Bill Gates and Big Blue took nothing in return, one can see what a major disservice IBM executives of this era did for the company's future and the stockholders share value.
In Chapter 1, your author presents the list of most of the billionaires and millionaires who benefitted from IBM's lack of prudence. It is a very long list. I wonder if any of these folks have ever called up the IBM Company just to say thank you.
Is IBM a Poorly Run Company?
The biggest story is about Microsoft and IBM and the PC. But there are many other stories. There are so many that IBM should be embarrassed. Your author tells the essence of the full Microsoft / IBM story along with many other stories of IBM squandering real opportunities. You will enjoy the intrigue in these stories and the stories themselves. It may even cross your mind that no company executives could have consistently made such poor decisions without being part of a conspiracy to defraud the IBM Company. Could this have been? I do not think so. But it would make a good movie.
Industry analysts, however, who have never loved IBM, and have never been employed by IBM are making noises to suggest that perhaps IBM is simply a poorly run company, and that makes the analysis very simple. This surely shines a negative light on IBM's current management and past management back to the Watson era.
In January, 2015 a group known as 24/7 Wall Street declared IBM as the worst run company in America. This is the criteria they used. You make the call:
"In order to be considered truly poorly run, a company must have a track record of missed opportunities, mismanaged risks, poor operational decisions or executive malfeasance. In short, a company must demonstrate a pattern of decision-making that calls into question the ability of its management and directors to adequately provide returns to shareholders."
What would 24/7 Wall Street think about a company whose shareholders benefitted very little while the employees of its competitors—as many as 15,000, became millionaires and multimillionaires—and the executives of its competitors—as many as 90—became billionaires and multibillionaires.
These lucky people gained their fortunes as a direct result of IBM's poor executive decision making in dealing with non-mainframe sub-industries.
If IBM were not so poorly run over the past thirty-five years with the exception of the Gerstner years, one might even accuse executives at Big Blue of malfeasance. How else can we explain stockholders being shortchanged a trillion dollars a year in lost PC sub-industry revenue?
But, to be fair, nobody has ever suggested IBMers on the front line or at the top desks ever took bribes from Microsoft or Intel or Compaq or Phoenix Technologies or anybody. There are no reports of IBM executives shortchanging the company for their own enrichment. The simple truth appears to be that IBM just blew it.
You'll love this book.
Where we have taken the reader in this Preface is more of a primer than a peek, I hope that we have proven that you are going to love this book. It is designed by an IBM insider and told with respect for IBM and with the truth that all of these great stories deserve. You will not want to put this book down.
Brian W. Kelly, my dad, not only gives the facts about how these billionaire entrepreneurs made their fortunes; he shows which IBM executives gave way the store. Kelly lived through these days and saw it unfold at IBM and in the industry. He knows what he is talking about. Kelly also provides a rich history lesson about the entire computer industry that will capture your imagination.
The book begins with the introduction of the first computer and it takes you on a ride through all of the major events that occurred during each IBM CEO's tenure. The story thus begins with Thomas Watson Sr, as CEO and continues with son, Thomas Jr. as CEO. The book then progresses section by section and chapter by chapter to the state of the computer industry today. Kelly does it all in 57 easy-to-read, highly enjoyable chapters.
Few books are a must-read but ThankYou,IBM. will quickly be at the top of your list and America’s most read list.
Who is Brian W. Kelly?
Brian Kelly is one of the leading authors in America with this his 62nd published book. He continues to be an outspoken and eloquent expert on IT topics. Of his 62 books, Kelly has written over thirty books and several hundred articles on IT topics that either teach technology or they tell a story about technology.
Brian has been writing books and articles for more than thirty years and he has many great books to his credit.
He also writes patriotic books and some of these include: Saving America; Taxation without Representation; Jobs! Jobs! Jobs!; The Constitution 4 Dummmies!; America 4 Dummmies! -- as well as many others. Kelly's books are highlighted at many web site sales sites including www.letsgopublish.com. They are also for sale at www.bookhawkers.com
Enjoy and please tell others about your enjoyment!
Brian P. Kelly, Editor in Chief
Thank You IBM Table Of Contents
Table of Contents Page xvii
Section I Introduction........................................................................................ 1
Chapter 1 Many Opportunities, Many Disappointments........................................ 3
Chapter 2 Fast Forward to Today. Has IBM improved? ..................................... 27
Chapter 3 IBM Once Thought It Could Say No & Survive.................................. 35
Chapter 4 The IBM Story Continues.................................................................... 43
Chapter 5. IBM Was Destined for Fortune........................................................... 47
Section II The Watson Years............................................................................ 49
Chapter 6. IBM's Thomas Watson Sr.: Continuous Excellence.......................... 51
Chapter 7. Early IBM Product Line of Electromechanical Devices..................... 57
Chapter 8. IBM's Early Efforts with Real Computers.......................................... 81
Chapter 9. Thomas Watson Jr. IBM Presidency and Chair................................. 65
Chapter 10. The Mainframe Era Begins!.............................................................. 71
Chapter 11. Modern Mainframes......................................................................... 83
Chapter 12. IBM Small Business Computers....................................................... 83
Chapter 13. IBM System/3 Starts a New Age..................................................... 95
Chapter 14. IBM System/38—Most Advanced System Ever........................... 101
Chapter 15. AS/400 Comes Invited to the System/38 Party............................. 107
Chapter 16. IBM Merges System i & System p (AS/400 & RS/6000)............... 116
Chapter 17. Thomas Watson Jr. Steps Down as Chair & CEO........................ 125
Section III T. Vincent Learson & Frank T. Cary--IBM past Watsons........ 131
Chapter 18. Starting with Learson...................................................................... 135
Chapter 19. Frank Cary, the Mainframe, Mini, and Micro CEO........................ 137
Chapter 20. DEC Invents the Minicomputer...................................................... 141
Chapter 21. Hewlett-Packard Enters Minicomputer Arena............................... 161
Chapter 22. Data General Formed as a Minicomputer Company..................... 183
Chapter 23. EMC Buys DG; Enters the Minicomputer Marketplace................. 189
Chapter 24. IBM's Non-Minicomputer Minicomputers....................................... 199
Chapter 25. IBM Introduces the Series/1 as a Bona Fide Minicomputer........... 203
Chapter 26. MIT, IBM and the Early Development of Unix............................... 209
Chapter 27. What is Unix and Why Does It Matter?.......................................... 227
Chapter 28. Among Many Unixes, Another Unix—Linux.................................. 235
Chapter 29. The Microcomputer Revolution...................................................... 249
Chapter 30. TI—a Micro Tech Pioneer and Eternal Innovator.......................... 257
Chapter 31. Shockley & Fairchild Semiconductor Pioneers.............................. 263
Chapter 32. Motorola the Chip Maker with Different Roots............................... 267
Chapter 33. The Founding of Intel...................................................................... 277
Chapter 34. Zilog: Great Microcomputer Pioneer.............................................. 291
Chapter 35. MOS Technologies / Commodore................................................. 295
Chapter 36. Radio Shack – The first Personal Computer Company................ 301
Chapter 37. Apple Piqued the Home Computerist in Us All............................... 309
Chapter 38. A Key IBM Software Invention: Relational Database.................... 321
Chapter 39. Oracle Announces First Relational Database product................... 327
Chapter 40. IBM and Data Communications: Why Big Blue Failed?................ 341
Chapter 41. Teleprocessing: Next Step after Cards & Printers......................... 357
Chapter 42. IBM and Local Area Networks....................................................... 383
Chapter 43. Cisco Beats IBM in Networking...................................................... 395
Section IV CEOs John Opel & John Akers Almost Sunk IBM.................. 405
Chapter 44. John Opel—A CEO with Spirit, Opportunity & Failure................... 407
Chapter 45. A Deeper Look at John Akers' Years............................................. 407
Chapter 46. IBM Invented RISC Technology in 1974........................................ 439
Chapter 47. Sun Microsystems Makes It Big With RISC.................................. 441
Chapter 48. IBM RS/6000–A Great RISC/UNIX System.................................. 455
Chapter 49. Power Architecture World's Fastest Supercomputers................... 441
Chapter 50. IBM PC Introduced in Opel Years.................................................. 459
Chapter 50 Appendix. The PC Story IBM at its Worst..................................... 481
Chapter 51. Compaq Beats IBM BIOS & Becomes Top PC Company............ 497
Chapter 52. Gateway Computer Company – 2000........................................... 503
Chapter 53. Dell Computer still on top................................................................ 511
Chapter 54. IBM Says Good-By to the PC Industry.......................................... 515
Chapter 55. Microsoft Becomes Champion of PC / x86 Software................... 521
Section V Application Software: From Watson to Rometty............... 551
Chapter 56. What is Application Software? ........................................................ 553
Chapter 57. Business Application Software, Service Bureaus, & Clouds ......... 563
Chapter 58. IBM Once Was the Application Software Leader ......................... 573
Chapter 59. Impact of Catamore Lawsuit on IBM App Software Strategy........ 579
Chapter 60. IBM's Post S/3 -- Formal Application Software Package............... 583
Chapter 61. IBM Failed in the Application Software Industry ............................ 589
Chapter 62. Shared Medical Systems ............................................................. 597
Chapter 63. A Quick Look at IBM's MAPICS Application and SAP ................. 603
Chapter 64. SAP, The Best In ERP Software .................................................. 607
Chapter 65. Small Companies -- Application Software Millionaires ................ 613
Chapter 66. Large Software Companies—Many Rich Entrepreneurs ............ 625
Section VI Gerstner, Palmisano, & Rommety,IBM's Latest CEOs ............ 639
Chapter 67 Lou Gerstner: The First IBM CEO Not Bred in IBM's culture.......... 641
Chapter 68 The END: IBM's Sam Palmisano and Ginni Rometty..................... 667
Advertising Lets Go Publish Publishers Other Books........................................ 675