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The Story of the IBM PC Strategy –
A Twenty Year Journey…or How to Build a Market, and get your Competition to Pay you for
every sale I’ve told this story a thousand times to my closest associates, but was only recently persuaded by a friend to share it with the world. This is all about strategy, vision and building your industry This story begins some 23 years ago, when I was a Sales
Engineer/Super-tech for Martin Marietta Data Systems on the east coast (yeah,
the ones who developed laser-guided missile systems also). Back then we were the largest PC
re-marketer for Vector Graphics, selling into the business markets (ex: TRW)
and universities of New York City and scientific centers of Princeton, and NE
universities. In addition, our
internal usage was significant as a scientific and major government
contractor (we also owned Mathematica – ‘brainiac’ center of Princeton –
RAMAS for IBM mainframes). As such,
when IBM announced general availability of the IBM PC (micro), we received
~200 of their first shipped units (greymarket days). During a thorough inspection and testing of those first
PCs, I noticed something very odd.
Each machine, though similar on the outside case, was quite different
inside. Not that the components were
laid out any different between units, but aside from the central processor,
chip manufacturers and component manufacturers varied greatly unit to
unit. As I recall there were not any
two units with consistent manufacturers for all component….hmmm And then it dawned on me – what a scheme ! … could it
really be ?… and does that mean ? ….. what??? IBM at the time, though mainly known for their mainframes
and SEs’, made (and still does make) a significant percentage of their
overall revenues from licensing technology – a large percentage of
which are used in chips… tied to a certain extent to silicon…. Wow… Now if you were the one of the largest licensors of technology that went into chips, and you wanted to build a bigger market… what if….. You first build a product that was a wild market success that used extensively your own licensed rights (sort of like getting a discount after someone fabricated your idea). You may recall the original build order was for like 25,000 units that ended up requiring some 2 million units? It doesn’t matter even if you lose a little if your scheme works. You hope that the mass market acceptance actually stimulates
the rapid growth of your competitive market… actually your ‘friendly’
competitive market – as each competitor ‘basically cloning’ the technology
and somewhat ‘forced’ to use similar components (though manufacturer
loyalties vary) essentially are getting you paid by the chip manufacturers
for the royalties (that grow) of all that licensing by the competitive
computer assemblers. As the competitive market forces margins even smaller, you
refocus on more of the services surrounding the hardware, and maybe, some oh
twenty (20) years down the line, you drop the whole public side of the
product in general (not Fortune business alliances) and just continue to
collect on the licensing royalties for the enormous market you’ve built. Wow… twenty years later…. Isn’t that what happened… who
knew? ++++++++++++++++++++++++++++++ That’s certainly a departure from their earlier lack of
vision. As it was almost too painful
to remember, some of us still recall when IBM turned down the opportunity to
acquire Xerox, in the early days when it was struggling to grow the
industry. A significant team at IBM was
assigned the task of determining the viability of the copy market. Their best analysts concluded that the
technology did not have a near term future, as the standard accepted market
practice of getting something copied was mimeograph or carbon paper and the
market needs seemed satisfied with that.
What a blooper that they did not yet have the vision. |