IBM PC Marks First Decade, But Parents Quarrel Over Future

August 8, 1991

Redmond, Washington -- The venerable IBM personal computer celebrates its 10th birthday next week. But its parents are hardly on speaking terms and the industry is squabbling over who will carry on its legacy.

The IBM PC, unveiled on August 12, 1981, quickly became an industry standard, largely because International Business Machines Corp elected to use Microsoft Corp software and off-the-shelf components, allowing scores of companies to produce compatible "clones".

IBM-compatible PCs and their successors rapidly eclipsed sales of machines made by pioneers Apple Computer Inc and others. They now account for nearly 90 per cent of the desktop computer market, with 70 million machines installed worldwide, including some that are 20 times faster and have 15 times as much memory as the original PC.

By last year, some 50 million people used personal computers, compared with about one million a decade earlier, before a single standard had been established.

But after 10 years of close development collaboration, during which Microsoft grew to become the world's largest software company, the marriage has dissolved into a bitter fight over what software system to use on ever-faster PCs.

The dispute arose from the failure of the OS/2 operating system to catch on in the marketplace since it was introduced by Microsoft and IBM in 1987. Only about 600,000 copies have been sold since it was first shipped.

"We lost a lot of money doing OS/2 and we thought that IBM could sort of jam it down people's throats, and that turned out to be wrong," Microsoft chairman William Gates told Reuters in an interview recently.

Gates, who was 25 when IBM chose Microsoft to produce DOS, now owns Microsoft stock worth $4 billion.

With OS/2 languishing, Microsoft last year unveiled Windows 3.0, a program designed to make MS-DOS easier to use and to make users more comfortable with their PCs.

The program was an instant success, selling four million copies in its first year.

"I think we've got the momentum. Nobody would disagree with that," said Gates, who envisions Windows being used for a wide range of products from high-definition televisions to "smart" telephone systems.

The success of Windows has certainly caught the attention of other players in the field, including Apple, which has charged in a lawsuit that the Microsoft program improperly mimics ease-of-use features for which Apple's Macintosh computers are known.

IBM meanwhile set out to teach Microsoft a lesson by working on a new version of OS/2, which it claims will also run "a better DOS than DOS and a better Windows than Windows".

Relations between IBM and Microsoft have deteriorated to the point that each company has been demonstrating programs that point out faults in the other's system.

Last month, IBM agreed to a stunning, wide-ranging deal with Apple under which the two companies will work together to develop next-generation technology.

Joe Guglielmi, an IBM vice president and a general manager in its personal systems unit, told Reuters in an interview the company expects to "compete vigorously" in operating systems as well as the computers on which it runs.

"About one year ago we found it very difficult to develop OS/2 in common (with Microsoft)," he said. "We just weren't getting the kind of cooperation we were looking for."

Microsoft's lock on the basic operating software for the PC, based on a program it bought from a Seattle developer for $50,000 in 1981, also has meanwhile drawn the attention of a Federal Trade Commission probe into alleged anti-competitive practices. Microsoft has said it is cooperating in the study.

And while IBM seems bent on developing a new system, it has hedged its bets by spending $50 million or more for rights to the next version of Microsoft's Windows. In fact, IBM is using Windows features in its new version of OS/2, for which Microsoft may demand premium royalty income.

Guglielmi said he expects OS/2 to top one million units sold by year-end and have a "substantial" sales rate in 1992 and beyond, adding that IBM is incorporating capabilities from Microsoft rivals Novell Inc. and Lotus Development Corp.

He said IBM will price OS/2 aggresively, but aims to make a profit and that it could take two to three years before it is a significant factor. "I don't think we'll go out and find 80 million DOS (machines) and make them convert," he said.

And IBM officials have said they have no regrets about going outside the company and allowing its PC to be widely copied. "Would we have done anything different back then? Absolutely not," said Dean Kline, an IBM spokesman.

As operating systems slug it out, most PC makers continue to post poor earnings caused by erosion of name-brand price premiums, low-cost manufacturing and mergers in retailing.

Neither Microsoft nor IBM plans any major gala event to celebrate the P C. Major industry figures have been invited to a private benefit cruise in New York on Monday to support a scholarship honouring Don Estridge, the leader of the IBM team that put together the first personal computer. Estridge died in a plane crash in 1985.

(c) 1991 Reuters Limited