Section I

 

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:

1. IBM's many opportunities and many disappointments
2. Fast forward to today. Has IBM improved? Will IBM succeed?
3. Can a company pass on opportunities and survive
4. The IBM story continues
5. 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

 

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Chapter 1

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 22^nd 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.

1. 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.