IBM's computers eaten up by clones

By Bart Ziegler
Associated Press
The Sunday Patriot-News Harrisburg

August 11, 1991

New York -- Ten years ago this week IBM unveiled its personal computer, a machine that has transformed the way millions of people work, spawned new industries and made computer technology less mysterious.

Though IBM's personal computer was not the first, it legitimized the machines in the computer market. IBM's PC went on to establish the worldwide personal computer standard.

The PC has freed computer users from the control of the "glass house," the sealed-off computer room that dictated who got access to computing power and on what terms.

The PC created the home computer movement, allowing people to work out of their living room and "commute" by sending reports to the office over the phone.

The PC also contributed to an information explosion, providing instant access to thousands of newspapers, wire services and magazines via electronic databases. In addition, electronic mail gives PC users a new way to communicate, and computer games provide a new form of recreation.

"I think the world changed with the announcement of the IBM PC," said David Carlson, the chief computer executive for K mart Corp.

But despite the PC's success, the 10th birthday party at International Business Machines Corp. is a bittersweet affair.

Six years ago, IBM's PC commanded 27 percent of the U.S. market. Since then, its market has been eaten away by clones, or lower-cost copies. IBM's market had fallen to 17 percent by last year, according to the high-tech research firm International Data Corp.

At the same time, the annual growth rate in PC sales worldwide has slowed, from about 37 percent in 1987 to a projected 15 percent this year, according to market researcher InfoCorp.

The clones and declining growth have forced IBM to slash prices, making its PCs less profitable. They also have compelled IBM to come up with reasons for major corporations to continue to buy its models instead of copies - a battle many experts say IBM is losing.

According to a recent survey by the consulting firm Forrester Research Inc., 54 major U.S. corporations said clones would account for 47 percent of their PC purchases this year on average, up from 34 percent last year.

"It is increasingly difficult for IBM to retain market share with the aggressive pricing of high-quality clones," said Carlson, who has stopped buying IBM PCs for K mart in favor of the copies.

IBM set the stage for the clones a decade ago by deciding not to block other companies from providing software or accessories for its PC. It reasoned that if the technology was "open," or non-proprietary, the market for the machines would grow faster.

But that decision soon led to the creation of clones of the entire computer, which was not IBM's intent, said Rob Baker, one of the engineers who helped design the IBM PC.

"We didn't really figure that a lot of people would jump out and copy the machine," Baker said.

Today, every nation from Hong Kong to Hungary has a local industry cranking out inexpensive clones.

But the rise of the clone market is an ironic tribute to the influence of IBM. Of the world's estimated 109 million PCs in use last year, 71 million were built to the IBM standard, according to reports. That means they can use the same software and accessories, for the most part.

Though Apple Computer Inc. introduced its pioneering PC in 1977, and other makes were on the market, the entrance of the world's largest computer company on Aug. 12, 1981, was a turning point for personal computers, which some regarded as toys.

"IBM's entry crystalized something that some of us knew was going to happen and gave the blessing to the PC revolution," said Philippe Kahn, chairman of software maker Borland International Inc.

By today's standards, the first IBM PCs were crude. The base model was so stripped it needed to be attached to a TV set and used a tape recorder to store data. It cost $1,565. A version that included a monitor and internal data storage went for $2,665.

By comparison, IBM's PS-1 home computer including a monitor sells today for under $1,000 and is vastly more powerful.

But despite the state of the art at the time, IBM's PC sales skyrocketed. Baker, the IBM engineer, said the company's marketing experts at first estimated demand at tens of thousands of PCs over the first five years. But then interest from retailers and others mushroomed.

"The number doubled and doubled again, and all of a sudden we were talking about hundreds of thousands," said Baker.

Even these projections were wrong. IBM ended up selling more than 500,000 PCs in the first year and a half alone, according to the company.

The success of the PC - and IBM's decision to open up the technology and use outside parts suppliers - led to the creation of new industries and high-growth companies.

Chief among them is Microsoft Corp., the leader in the $6 billion PC software industry.

IBM chose Microsoft to develop operating system software for its PC. That means every IBM PC - and every clone - needs the Microsoft system to run. An operating system is the base layer of software that controls a computer's internal functions.

Microsoft's meteoric rise - and the wealth of its multibillionaire chairman, Bill Gates - can be traced directly to the IBM PC, analysts say.

So can much of the success of semiconductor maker Intel Corp. Nearly every IBM PC and clone has as its "brains" a microprocessor made by Intel, although in recent years several successful copies of Intel's chip have been produced. IBM's open-technology decision also allowed the rise of such fast-growing clone makers as Compaq Computer Corp.

But while these companies benefited, IBM has been hurt.

"It's almost a total commodity market at this point. It's going to be very tough for IBM," said Bruce Stephen, an analyst with International Data Corp. He said PC customers increasingly are questioning whether it's worth paying more for the IBM label.

That has compelled IBM to take what many consider a drastic step. Last month, it announced a startling technology alliance with Apple.

Under the agreement, IBM will share a speedy microprocessor it developed and Apple will give IBM access to its next-generation operating system. The intent is to create a new PC standard that will be more tightly controlled by the two partners than today's PC technology.

The loser appears to be Microsoft. The software company has all but ended its decade-long alliance with IBM as it promotes its own Windows software in place of an operating system called OS-2 it jointly developed with IBM. Windows gives IBM PCs and clones a graphics-based operating system similar to that popularized by Apple's Macintosh.

As for the future of the PC, it appears to be smaller - in size.

Technologies such as handwriting and speech recognition and flat color screens could one day merge in a hand-held device that will respond to spoken commands, allow users to take notes on the screen, place phone calls and receive messages sent by other computer users.

"People will be able to interact with computers in different ways," said Borland's Kahn.

PC timeline - Here is a brief chronology of IBM's personal computer and the PC industry:

1977: Apple Computer Inc. introduces the Apple II, one of the first successful personal computers.

1981: IBM unveils its personal computer.

1983: IBM introduces the PCjr home computer. Critics say it's underpowered and its keyboard toylike. It was withdrawn 1 1/2 years later due to poor sales.

1984: IBM introduces its first portable PC. It also announces the PC AT, which contains a more powerful microprocessor than the original PC.

1984: Apple unveils its Macintosh computer, featuring a breakthrough graphics-based operating system.

1986: IBM announces its PC Convertible, a laptop model. Critics call it too bulky.

1987: IBM launches PS-2 line of personal computers, designed to thwart the PC clones by containing a proprietary internal wiring system.

1990: IBM introduces the PS-1, its second attempt at the home computer market. Analysts say it appears to be a hit.

1990: Microsoft Corp. unveils its Windows 3.0 software, which makes IBM PCs almost as easy to use as a Macintosh.

1991: IBM announces another laptop model, which analysts call promising compared with the earlier flop.

1991: IBM's alliance with Microsoft sours. Apple and IBM announce a technology-sharing agreement aimed at creating the next-generation PC, based on non-Microsoft software.

WIRE PHOTO;GRAPH; Credit: AP