The IBM PC

By the time 1980 arrived, International Business Machines was in trouble. The company which had become synonymous with computers in the sixties was fading fast and showing no signs of recovery, a victim of internal and external turmoil and a federal antitrust suit filed in 1969 that would not be dropped until 1982, thirteen long years later and well after the damage had been done. Dealing with massive internal bureaucracy, IBM now faced a market shifting quickly beneath its feet. Mainframe and minicomputer sales kept the life support on, but the days of dominance were long gone. In an attempt to preserve the company, IBM's CEO, John Opel, and the company's executive committee, were about to dissolve IBM's long standing reputation as a "one stop shop" as well.

Having seen its initial foray into the personal computer industry, the 5100 series, fail miserably and rejecting the idea of reselling someone else's computer with a IBM logo slapped on it, the company looked to Bill Lowe in July 1980 and gave him thirty days to produce a prototype of IBM's version of the Apple. The IBM PC team, located in Boca Raton, Florida, would be led by Don Estridge, operate outside the day-to-day functions of the company, and consist of employees that were not the typical stoic, blue-suit-wearing IBMers. In order to produce the machine as quickly as possible and reach the greatest market, the decision was made that the IBM PC would have an open design and be built using off-the-shelf parts, including Intel microprocessors. Apprehensive about being able to provide it internally in the time necessary, it was also determined that the software would be provided by an outside company as well, and IBM turned to Microsoft.

How IBM came to use Microsoft as its software provider is a matter of debate. Some say it came as a result of a friendship between John Opel and Mary Gates, Bill's mother, who had served on the board of the United Way with the IBM CEO. Others say that the producers of the IBM PC were well aware of the current market environment and Microsoft's track record in languages and thus Microsoft was a natural choice. However, it is curious how IBM would be aware of Microsoft's languages without being aware of Digital Research's CP/M operating system, to which Gates and Microsoft directed the IBM team, and that the industry behemoth would be willing to bet a degree of its future on a 24-year-old without some reassurance. The most likely scenario is that it was a combination of the factors.

After being directed by Gates and Microsoft, IBM did indeed approach Digital Research to supply the operating system for the forthcoming PC. However, due to a debatable set of circumstances, an agreement would not be reached, and IBM would turn back to Microsoft to supply not only the languages and applications for the IBM PC but the operating system as well. Microsoft agreed and then began the frantic search for the operating system they did not have.

Faced with delays by Digital Research to produce a 16-bit version of its CP/M operating system for the Intel 8086, Tim Paterson of Seattle Computer Products developed his own operating system, called 86-QDOS. Tim then contacted Microsoft concerning software for his new operating system. IBM wanted a 16-bit operating system, so Microsoft turned to Seattle Computer and reached a nonexclusive licensing agreement for QDOS. So, to close the deal with IBM in order to sell its profitable languages, Microsoft paid Seattle Computer $25,000 for the QDOS license and then turned around and licensed it to IBM for $15,000.

Microsoft, which had hired Tim Paterson away from Seattle Computer, wound up purchasing the complete rights to QDOS from Seattle Computer in exchange for preferential pricing on languages, rights to updated versions of QDOS, and $50,000. The deal would go through just two weeks prior to the debut of the IBM PC on August 12, 1981. Exploiting the IBM name and an effective marketing campaign, the IBM PC would become the industry standard. However, its open design, while allowing it to flourish, eventually relegated IBM to attack by innumerable IBM PC-compatible "clones". The clone industry would give rise to the likes of today's Compaq, Dell, and Gateway, all of which would use Microsoft's OS and Intel's processors but few of which would use IBM's hardware.

Beyond MITS

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