THE TELEVISION PROGRAM TRANSCRIPTS: PART II
The story so far.... In 1975, Ed Roberts invented the Altair personal
computer. It was a pain to use until 19 year-old pre-billionaire Bill
Gates wrote the first personal computer language. Still, the public didn't care.
Then two young hackers -- Steve Jobs and Steve Wozniak -- built the Apple
computer to impress their friends. We were all impressed and Apple was a
stunning success. By 1980, the PC market was worth a billion dollars. Now,
On to Part 3...
We are nerds.
Most of the people in the industry were young because the guys who had any
real experience were too smart to get involved in all these crazy little
It really wasn't that we were going to build billion dollar businesses. We
were having a good time.
I thought this was the most fun you could possibly have with your clothes on.
When the personal computer was invented twenty years it was just that - an
invention - it wasn't a business. These were hobbyists who built these machines
and wrote this software to have fun but that has really changed and now this
is a business this is a big business. It just goes to show you that people can
be bought. How the personal computer industry grew from zero to 100 million
units is an amazing story. And it wasn't just those early funky companies of
nerds and hackers, like Apple, that made it happen. It took the intervention
of a company that was trusted by the corporate world. Big business wasn't
interested in the personal computer. In the boardrooms of corporate America a
computer still meant something the size of a room that cost at least a hundred
thousand dollars. Executives would brag that my mainframe is bigger than your
mainframe. The idea of a $2,000 computer that sat on your desk in a plastic box
was laughable that is until that plastic box had three letters stamped on it - IBM.
IBM was, and is, an American business phenomenon. Over 60 years, Tom Watson and his
son, Tom Jr., built what their workers called Big Blue into the top computer
company in the world. But IBM made mainframe computers for large companies,
not personal computers -- at least not yet. For the PC to be taken seriously
by big business, the nerds of Silicon Valley had to meet the suits of corporate
America. IBM never fired anyone, requiring only that undying loyalty to the
company and a strict dress code. IBM hired conservative hard-workers straight
from school. Few IBM'ers were at the summer of love. Their turn-ons were giant
mainframes and corporate responsibility. They worked nine to five and on Saturdays
washed the car. This is intergalactic HQ for IBM - the largest computer company
in the world...but in many ways IBM is really more a country than it is a company.
It has hundreds of thousands of citizens, it has a bureaucracy, it has an entire
culture everything in fact but an army. OK Sam we're ready to visit IBM country,
obviously we're dressed for the part. Now when you were in sales training in 1959
for IBM did you sing company songs?
Former IBM Executive
BOB: Well just to get us in the mood let's sing one right here.
SAM: You're kidding.
BOB: I have the IBM - the songs of the IBM and we're going to try for number
74, our IBM salesmen sung to the tune of Jingle Bells.
Bob & Sam singing
'IBM, happy men, smiling all the way, oh what fun it is to sell our products our
pruducts night and day. IBM Watson men, partners of TJ. In his service to
mankind - that's why we are so gay.'
Now gay didn't mean what it means today then remember that OK?
BOB: Right ok let's go.
SAM: I guess that was OK.
When I started at IBM there was a dress code, that was an informal oral code
of white shirts. You couldn't wear anything but a white shirt, generally with
a starched collar. I remember attending my first class, and a gentleman said
to me as we were entering the building, are you an IBMer, and I said yes. He
had a three piece suit on, vests were of the vogue, and he said could you just
lift your pants leg please. I said what, and before I knew it he had lifted my
pants leg and he said you're not wearing any garters. I said what?! He said your
socks, they're not pulled tight to the top, you need garters. And sure enough I
had to go get garters.
IBM is like Switzerland -- conservative, a little dull, yet prosperous. It has
committees to verify each decision. The safety net is so big that it is hard to
make a bad decision - or any decision at all. Rich Seidner, computer programmer
and wannabe Paul Simon, spent twenty-five years marching in lockstep at IBM.
He feels better now.
Former IBM Programmer
I mean it's like getting four hundred thousand people to agree what they want to
have for lunch. You know, I mean it's just not going to happen - it's going to be
lowest common denominator you know, it's going to be you know hot dogs and
beans. So ahm so what are you going to do? So IBM had created this process and it
absolutely made sure that quality would be preserved throughout the process, that
you actually were doing what you set out to do and what you thought the customer
wanted. At one point somebody kind of looked at the process to see well, you know,
what's it doing and what's the overhead built into it, what they found is that
it would take at least nine months to ship an empty box.
By the late seventies, even IBM had begun to notice the explosive growth of
personal computer companies like Apple.
The Apple 2 - small inexpensive and simple to use the first computer.....
What's more, it was a computer business they didn't control. In 1980, IBM decided
they wanted a piece of this action.
Former IBM Executive
There were suddenly tens of thousands of people buying machines of that class
and they loved them. They were very happy with them and they were showing up in
the engineering departments of our clients as machines that were brought in because
you can't do the job on your mainframe kind of thing.
JB wanted to know why I'm doing better than all the other managers...it's no
secret...I have an Apple - sure there's a big computer three flights down
but it won't test my options, do my charts or edit my reports like my Apple.
The people who had gotten it were religious fanatics about them. So the concern
was we were losing the hearts and minds and give me a machine to win back the
hearts and minds.
In business, as in comedy, timing is everything, and time looked like it might
be running out for an IBM PC. I'm visiting an IBMer who took up the challenge.
In August 1979, as IBM's top management met to discuss their PC crisis,
Bill Lowe ran a small lab in Boca Raton Florida.
Hello Bob nice to see you.
BOB: Nice to see you again. I tried to match the IBM dress code how did I do?
BILL: That's terrific, that's terrific.
He knew the company was in a quandary. Wait another year and the PC industry
would be too big even for IBM to take on. Chairman Frank Carey turned to the
department heads and said HELP!!!
Head, IBM IBM PC Development Team 1980
He kind of said well, what should we do, and I said well, we think we know
what we would like to do if we were going to proceed with our own product
and he said no, he said at IBM it would take four years and three hundred people
to do anything, I mean it's just a fact of life. And I said no sir,
we can provide with product in a year. And he abruptly ended the meeting, he
said you're on Lowe, come back in two weeks and tell me what you need.
An IBM product in a year! Ridiculous! Down in the basement Bill still has the
plan. To save time, instead of building a computer from scratch, they would buy
components off the shelf and assemble them -- what in IBM speak was called
'open architecture.' IBM never did this. Two weeks later Bill proposed
his heresy to the Chairman.
And frankly this is it. The key decisions were to go with an open architecture,
non IBM technology, non IBM software, non IBM sales and non IBM service. And
we probably spent a full half of the presentation carrying the corporate
management committee into this concept. Because this was a new concept for IBM
at that point.
BOB: Was it a hard sell?
BILL: Mr. Carey bought it. And as result of him buying it, we got through it.
With the backing of the chairman, Bill and his team then set out to break all
the IBM rules and go for a record.
We'll put it in the IBM section.
Once IBM decided to do a personal computer and to do it in a year - they
couldn't really design anything, they just had to slap it together, so that's what
we'll do. You have a central processing unit and eh let's see you need a monitor
or display and a keyboard. OK a PC, except it's not, there's something missing.
Time for the Cringely crash course in elementary computing. A PC is a boxful of
electronic switches, a piece of hardware. It's useless until you tell it
what to do. It requires a program of instructions...that's software. Every PC
requires at least two essential bits of software in order to work at all.
First it requires a computer language. That's what you type in to give instructions
to the computer. To tell it what to do. Remember it was a computer language called
BASIC that Paul Allen and Bill Gates adapted to the Altair...the first PC. The
other bit of software that's required is called an operating system and that's the
internal traffic cop that tells the computer itself how the keyboard is connected
to the screen or how to store files on a floppy disk instead of just losing them
when you turn off the PC at the end of the day. Operating systems tend to have
boring unfriendly names like UNIX and CPM and MS-DOS but though they may
be boring it's an operating system that made Bill Gates the richest man in the
world. And the story of how that came about is, well, pretty interesting. So the
contest begins. Who would IBM buy their software from? Let's meet the two
contenders -- the late Gary Kildall, then aged 39, a computer Ph.D., and a 24
year old Harvard drop-out - Bill Gates. By the time IBM came calling in 1980,
Bill Gates and his small company Microsoft was the biggest supplier of computer
languages in the fledgling PC industry.
'Many different computer manufacturers are making the CPM Operating System
standard on most models.'
For their operating system, though, the logical guy for the IBMers to see was
Gary Kildall. He ran a company modestly called Interglactic Digital Research.
Gary had invented the PC's first operating system called CP/M. He had already
sold 600,000 of them, so he was the big cheese of operating systems.
Founder Digital Research
Speaking in 1983
In the early 70s I had a need for an operating system myself and eh it was a
very natural thing to write and it turns out other people had a need for an
operating system like that and so eh it was a very natural thing
I wrote it for my own use and then started selling it.
In Gary's mind it was the dominant thing and it would always be the dominant of
course Bill did languages and Gary did operating systems and he really honestly
believed that would never change.
But what would change the balance of power in this young industry was the
characters of the two protagonists.
Founder West Coast Computer Faire 1978
So I knew Gary back when he was an assistant professor at Monterrey Post Grad
School and I was simply a grad student. And went down, sat in his hot tub, smoked
dope with him and thoroughly enjoyed it all, and commiserated and talked nerd stuff.
He liked playing with gadgets, just like Woz did and does, just like I did and do.
He wasn't really interested in how you drive the business, he worked on projects,
things that interested him.
He didn't go rushing off to the patent office and patent CPM and patent every line
of code he could, he didn't try to just squeeze the last dollar out of it.
Gary was not a fighter, Gary avoided conflict, Gary hated conflict. Bill I don't
think anyone could say backed away from conflict.
Nobody said future billionaires have to be nice guys. Here, at the Microsoft
Museum, is a shrine to Bill's legacy. Bill Gates hardly fought his way up from
the gutter. Raised in a prosperous Seattle household, his mother a homemaker who
did charity work, his father was a successful lawyer. But beneath the affluence
and comfort of a perfect American family, a competitive spirit ran deep.
President, The Paul Allen Group
I ended up spending Memorial Day Weekend with him out at his grandmother's
house on Hood Canal. She turned everything in to a game. It was a very very very
competitive environment, and if you spent the weekend there, you were part of the
competition, and it didn't matter whether it was hearts or pickleball or swimming
to the dock. And you know and there was always a reward for winning and there was
always a penalty for losing.
CEO Corporate Computing Intl.
One time, it was funny. I went to Bill's house and he really wanted to show me
his jigsaw puzzle that he was working on, and he really wanted to talk
about how he did this jigsaw puzzle in like four minutes, and like on the box
it said, if you're a genius you will do the jigsaw puzzle in like seven. And he
was into it. He was like I can do it. And I said don't, you know, I believe you.
You don't need to break it up and do it for me. You know.
Bill Gates can be so focused that the small things in life get overlooked.
Former VP, Corporate Comms, Microsoft
If he was busy he didn't bathe, he didn't change clothes. We were in New York
and the demo that we had crashed the evening before the announcement, and Bill
worked all night with some other engineers to fix it. Well it didn't occur to him
to take ten minutes for a shower after that, it just didn't occur to him that that
was important, and he badly needed a shower that day.
The scene is set in California...laid back Gary Kildall already making the best
selling PC operating system CPM. In Seattle Bill Gates maker of BASIC the best
selling PC language but always prepared to seize an opportunity. So IBM had to
choose one of these guys to write the operating system for its new personal computer.
One would hit the jackpot the other would be forgotten...a footnote in the history
of the personal computer and it all starts with a telephone call to an eighth floor
office in that building the headquarters of Microsoft in 1980.
At about noon I guess I called Bill Gates on Monday and said I would like to come
out and talk with him about his products.
Bill said well, how's next week, and they said we're on an airplane, we're
leaving in an hour, we'd like to be there tomorrow. Well, hallelujah. Right oh.
Steve Ballmer was a Harvard roommate of Gates. He'd just joined Microsoft and
would end up its third billionaire. Back then he was the only guy in the company
with business training. Both Ballmer and Gates instantly saw the importance of
the IBM visit.
You know IBM was the dominant force in computing. A lot of these computer fairs
discussions would get around to, you know, I.. most people thought the
big computer companies wouldn't recognise the small computers, and it might be
their downfall. But now to have one of the big computer companies coming in and
saying at least the - the people who were visiting with us that they were going
to invest in it, that - that was er, amazing.
And Bill said Steve, you'd better come to the meeting, you're the only other guy
here who can wear a suit. So we figure the two of us will put on suits, we'll
put on suits and we'll go to this meeting.
We got there at roughly two o'clock and we were waiting in the front, and this
young fella came out to take us back to Mr. Gates office. I thought he was the
office boy, and of course it was Bill. He was quite decisive, we popped out the
non-disclosure agreement - the letter that said he wouldn't tell anybody we were
there and that we wouldn't hear any secrets and so forth. He signed it immediately.
IBM didn't make it easy. You had to sign all these funny agreements that sort
of said I...IBM could do whatever they wanted, whenever they wanted, and use your
secrets however they - they felt. But so it took a little bit of faith.
Jack Sams was looking for a package from Microsoft containing both the BASIC computer
language and an Operating System. But IBM hadn't done their homework.
They thought we had an operating system. Because we had this Soft Card product
that had CPM on it, they thought we could licence them CPM for this new personal
computer they told us they wanted to do, and we said well, no, we're not in that
When we discovered we didn't have - he didn't have the rights to do that and that
it was not...he said but I think it's ready, I think that Gary's got it ready to
go. So I said well, there's no time like the present, call up Gary.
And so Bill right there with them in the room called Gary Kildall at Digital
Research and said Gary, I'm sending some guys down. They're going to be on
the phone. Treat them right, they're important guys.
The men from IBM came to this Victorian House in Pacific Grove California,
headquarters of Digital Research, headed by Gary and Dorothy Kildall. Just
imagine what its like having IBM come to visit - its like having the Queen drop
by for tea, its like having the Pope come by looking for advice, its like a visit
from God himself. And what did Gary and Dorothy do? They sent them away.
Gary had some other plans and so he said well, Dorothy will see you. So we went
down the three of us...
Former Head of Language Division, Digital Research
IBM showed up with an IBM non-disclosure and Dorothy made what I...a decision
which I think it's easy in retrospect to say was dumb.
We popped out our letter that said please don't tell anybody we're here, and we
don't want to hear anything confidential. And she read it and said and I can't
She did what her job was, she got the lawyer to look at the nondisclosure.
The lawyer, Gerry Davis who's still in Monterey threw up on this non-disclosure.
It was uncomfortable for IBM, they weren't used to waiting. And it was unfortunate
situation - here you are in a tiny Victorian House, its overrun with people,
So we spent the whole day in Pacific Grove debating with them and with our
attorneys and her attorneys and everybody else about whether or not she could
even talk to us about talking to us, and we left.
This is the moment Digital Research dropped the ball. IBM, distinctly unimpressed
with their reception, went back to Microsoft.
BOB: It seems to me that Digital Research really screwed up.
STEVE BALLMER: I think so - I think that's spot on. They made a big mistake. We
referred IBM to them and they failed to execute.
Bill Gates isn't the man to give a rival a second chance. He saw the opportunity
of a lifetime.
Digital research didn't seize that, and we knew it was essential, if somebody
didn't do it, the project was going to fall apart.
We just got carried away and said look, we can't afford to lose the language
business. That was the initial thought - we can't afford to have IBM not go
forward. This is the most exciting thing that's going to happen in PCs.
And we were already out on a limb, because we had licensed them not only Basic,
but Fortran, Cobol Assembler er, typing tutor and Venture. And basically every -
every product the company had we had committed to do for IBM in a very short
But there was a problem. IBM needed an operating system fast and Microsoft
didn't have one. What they had was a stroke of luck - the ingredient everyone
needs to be a billionaire. Unbelievably, the solution was just across town. Paul
Allen, Gates's programming partner since high school, had found another operating
There's a local company here in CL called CL Computer Products by a guy named
Tim Patterson and he had done an operating system a very rudimentary operating
system that was kind of like CPM.
And we just told IBM look, we'll go and get this operating system from this small
local company, we'll take care of it, we'll fix it up, and you can still do a PC.
Tim Patterson's operating system, which saved the deal with IBM, was, well, adapted
from Gary Kildall's CPM.
So I took a CPM manual that I'd gotten from the Retail Computer Store five
dollars in 1976 or something, and used that as the basis for what would be the
application program interface, the API for my operating system. And so using these
ideas that came from different places I started in April and it was about half
time for four months before I had my first working version.
This is it, the operating system Tim Patterson wrote. He called in QDOS the
quick and dirty operating system. Microsoft and IBM called it PC DOS 1.0 and under
any name it looks an awful lot like CPM. On this computer here I have running a
PC DOS and CPM 86 and frankly itÍs very hard to tell the difference between the two.
The command structures are the same, so are the directories, in fact the only
obvious external difference is the floppy dirive is labelled A in PC DOS and and
C in CPM. Some difference and yet one generated billions in revenue and the other
disappeared. As usual in the PC business the prize didn't go to the inventor but
to the exploiter of the invention. In this case that wasn't Gary Kildall it wasn't
even Tim Paterson.
There was still one problem. Tim Patterson worked for Seattle Computer Products,
or SCP. They still owned the rights to QDOS - rights that Microsoft had to have.
Former Vice-President Microsoft
But then we went back and said to them look, you know, we want to buy this
thing, and SCP was like most little companies, you know. They always needed cash
and so that was when they went in to the negotiation.
And so ended up working out a deal to buy the operating system from him for
whatever usage we wanted for fifty thousand dollars.
Hey, let's pause there. To savour an historic moment.
For whatever usage we wanted for fifty thousand dollars.
It had to be the deal of the century if not the millenium it was certainly the
deal that made Bill Gates and Paul Allen multi billionaires and allowed Paul Allen
to buy toys like these, his own NBA basketball team and arena. Microsoft bought
outright for fifty thousand dollars the operating system they needed and they
turned around and licensed it to the world for up to fifty dollars per PC. Think
of it - one hundred million personal computers running MS DOS software funnelling
billions into Microsoft - a company that back then was fifty kids managed by a
twenty-five year old who needed to wash his hair. Nice work if you can get it
and Microsoft got it. There are no two places further apart in the USA than south
eastern Florida and Washington State where Microsoft is based. This - this is
Florida, Boca Raton and this building right here is where the IBM PC was developed.
Here the nerds from Seattle joined forces with the suits of corporate and in that
first honeymoon year they pulled off a fantastic achievement.
After we got a package in the mail from the people down in Florida...
As August 1981 approached, the deadline for the launch of the IBM Acorn, the PC
industry held its breath.
Supposedly, maybe at this very moment eh, IBM is announcing the personal computer.
We don't know that yet.
Software writers like Dan Bricklin, the creator of the first spreadsheet
VisiCalc waited by the phones for news of the announcement. This is a moment of PC
history. IBM secrecy had codenamed the PC 'The Floridian Project.' Everyone in
the PC business knew IBM would change their world forever. They also knew that
if their software was on the IBM PC, they would make fortunes.
Please note that the attached information is not to be disclosed prior to any
public announcement. (It's on the ticker) It's on the ticker OK so now you can
What we're watching are the first few seconds of a $100 billion industry.
After years of thinking big today IBM came up with something small. Big Blue
is looking for a slice of Apple's market share. Bits and Bytes mean nothing try
this one. Now they're going to sell $1,000 computers to millions of customers.
I have seen the future said one analyst and it computes.
Today an IBM computer has reached a personal......
Nobody was ever fired for buying IBM. Now companies could put PCs with the name
they trusted on desks from Wisconsin to Wall Street.
When the IBM PC came and the PC became a serious business tool, a lot of them,
the first of them went into those buildings over there and that was the real
ehm when the PC industry started taking off, it happened there too.
Can learn to use it with ease...
Former IBM Executive
What IBM said was it's okay corporate America for you to now start buying and
using PCs. And if it's okay for corporate America, it's got to be okay for
For all the hype, the IBM PC wasn't much better than what came before. So
while the IBM name could create immense demand, it took a killer application
to sustain it. The killer app for the IBM PC was yet another spreadsheet. Based
on Visicalc, but called Lotus 1-2-3, its creators were the first of many to
get rich on IBM's success. Within a year Lotus was worth $150 million bucks. Wham!
Bam! Thank you IBM!
Time to rock time for code...
IBM had forecast sales of half a million computers by 1984. In those 3 years,
they sold 2 million.
Euphoric I guess is the right word. Everybody was believed that they were not
going to... At that point two million or three million, you know, they were now
thinking in terms of a hundred million and they were probably off the scale in
the other direction.
What did all this mean to Bill Gates, whose operating system, DOS, was at the
heart of every IBM PC sold? Initially, not much, because of the deal with IBM.
But it did give him a vital bridgehead to other players in the PC marketplace,
which meant trouble in the long run for Big Blue.
The key to our...the structure of our deal was that IBM had no control over...over
our licensing to other people. In a lesson on the computer industry in mainframes
was that er, over time, people built compatible machines or clones, whatever term
you want to use, and so really, the primary upside on the deal we had with IBM,
because they had a fixed fee er, we got about $80,000 - we got some other money
for some special work we did er, but no royalty from them. And that's the DOS
and Basic as well. And so we were hoping a lot of other people would come along
and do compatible machines. We were expecting that that would happen because we
knew Intel wanted to vend the chip to a lot more than just than just IBM and so
it was great when people did start showing up and ehm having an interest in the
IBM now had fifty per cent market share and was defining what a PC meant. There
were other PCs that were sorta like the IBM PC, kinda like it. But what the
public wanted was IBM PCs. So to be successful other manufacturers would have to
build computers exactly like the IBM. They wanted to copy the IBM PC, to clone it.
How could they do that legally, well welcome to the world of reverse engineering.
This is what reverse engineering can get you if you do it right. It's the modest
Aspen, Colorado ski shack of Rod Canion, one of the founders of Compaq, the company
set up to compete head-on with the IBM PC. Back in 1982, Rod and three fellow
engineers from Texas Instruments sketched out a computer design on a place mat at
the House of Pies restaurant in Houston, Texas. They decided to manufacture and
market a portable version of the IBM PC using the curious technique of reverse
Reverse engineering is figuring out after something has already been created
how it ticks, what makes it work, usually for the purpose of creating something
that works the same way or at least does something like the thing you're trying
to reverse engineer.
Here's how you clone a PC. IBM had made it easy to copy. The microprocessor was
available off the shelf from Intel and the other parts came from many sources.
Only one part was IBM's alone, a vital chip that connected the hardware with the
software. Called the ROM-BIOS, this was IBM's own design, protected by copyright
and Big Blue's army of lawyers. Compaq had to somehow copy the chip without
breaking the law.
First you have to decide how the ROM works, so what we had to do was have an
engineer sit down with that code and through trial and error write a specification
that said here's how the BIOS ROM needs to work. It couldn't be close it had to
be exact so there was a lot of detailed testing that went on.
You test how that all-important chip behaves, and make a list of what it has to
do - now it's time to meet my lawyer, Claude.
Silicon Valley Attorney
BOB: I've examined the internals of the ROM BIOS and written this book of
specifications now I need some help because I've done as much as I can do, and
you need to explain what's next.
CLAUDE: Well,the first thing I'm going to do is I'm going to go through the
book of specifications myself, but the first thing I can tell you Robert is that
you're out of it now. You are contaminated, you are dirty. You've seen the
product that's the original work of authorship, you've seen the target product,
so now from here on in we're going to be working with people who are not dirty.
We're going to be working with so called virgins, who are going to be operating
in the clean room.
BOB: I certainly don't qualify there.
CLAUDE: I imagine you don't. So what we're going to do is this. We're going to hire
a group of engineers who have never seen the IBM ROM BIOS. They have never seen it,
they have never operated it, they know nothing about it.
Claude interrogates Mark
CLAUDE: Have you ever before attempted to disassemble decompile or to in any
way shape or form reverse engineer any IBM equipment?
MARK: Oh no.
CLAUDE: And have you ever tried to disassemble....
This is the Silicon Valley virginity test. And good virgins are hard to find.
CLAUDE: You understand that in the event that we discover that the information
you are providing us is inaccurate you are subject to discipline by the company
and that can include but not limited to termination immediately do you
MARK: Yes I do.
After the virgins are deemed intact, they are forbidden contact with the outside
world while they build a new chip -- one that behaves exactly like the one in the
specifications. In Compaq's case, it took l5 senior programmers several months
and cost $1 million to do the reverse engineering. In November 1982, Rod Canion
unveiled the result.
What IÍve brought today is a Compaq portable computer.
When Bill Murto, another Compaq founder got a plug on a cable TV show their
selling point was clear 100 percent IBM compatibility.
It turns out that all major popular software runs on the IBM personal computer
or the Compaq portable computer.
Q: That extends through all software written for IBM?
A: Eh Yes.
Q: It all works on the Compaq?
The Compaq was an instant hit. In their first year, on the strength of being exactly
like IBM but a little cheaper, they sold 47,000 PCs.
In our first year of sales we set an American business record. I guess maybe a
world business record. Largest first year sales in history. It was a hundred and
eleven million dollars.
So Rod Canion ends up in Aspen, famous for having the most expensive real estate
in America and I try not to look envious while Rod tells me which executive jet
he plans to buy next.
ROD: And finally I picked the Lear 31.
BOB: Oh really?
ROD: Now thart was a fun airplane.
BOB: Oh yeh.
Poor Big Blue! Suddenly everybody was cashing in on IBM's success. The most
obvious winner at first was Intel, maker of the PCs microprocessor chip.
Intel was selling chips like hotcakes to clonemakers -- and making them smaller,
quicker and cheaper. This was unheard of! What kind of an industry had Big Blue
gotten themselves into?
Former Head, IBM PC Division
Things get less expensive every year. People aren't used to that in general. I
mean, you buy a new car, you buy one now and four years later you go and buy one
it costs more than the one you bought before. Here is this magical piece of an
industry - you go buy one later it costs less and it does more. What a wonderful
thing. But it causes some funny things to occur when you think about an industry.
An industry where prices are coming down, where you have to sell it and use it
right now, because if you wait later it's worth less.
Where Compaq led, others soon followed. IBM was now facing dozens of rivals - soon
to be familiar names began to appear, like AST, Northgate and Dell. It was getting
spectacularly easy to build a clone. You could get everything off the shelf,
including a guaranteed-virgin ROM BIOS chip. Every Tom, Dick & Bob could now make
an IBM compatible PC and take another bite out of Big Blue's business. OK we're at
Dominos Computers at Los Altos California, Silicon Valley and this is Yukio and
we're going to set up the Bob and Yukio Personal Computer Company making IBM PC
clones. You're the expert, I of course brought all the money so what is it that
we're going to do.
OK first of all we need a motherboard.
BOB: What's a motherboard?
YUKIO: That's where the CPU is set in...that's the central processor unit.
YUKIO: In fact I have one right here. OK so this is the video board...
BOB: That drives the monitor.
BILL LOWE: Oh, of course. I mean we were able to sell a lot of products but it
was getting difficult to make money.
YUKIO: And this is the controller card which would control the hard drive and
the floppy drive.
And the way we did it was by having low overhead. IBM had low cost of product
but a lot of overhead - they were a very big company.
YUKIO: Right this is a high density recorder.
BOB: So this is a hard disk drive.
And by keeping our overhead low even though our margins were low we were able
to make a profit.
YUKIO: OK I have one right here.
BOB: Hey...OK we have a keyboard which plugs in right over here.
BOB: People build them themselves - how long does it take?
YUKIO: About an hour.
BOB: About an hour.
And where did every two-bit clone-maker buy his operating system? Microsoft, of
course. IBM never iniagined Bill Gates would sell DOS to anyone else. Who was
there? But by the mid 80's it was boom time for Bill. The teenage entrepreneur
had predicted a PC on every desk and in every home, running Microsoft software.
It was actually coming true. As Microsoft mushroomed there was no way that Bill
Gates could personally dominate thousands of employees but that didn't stop him.
He still had a need to be both industry titan and top programmer. So he had to
come up with a whole new corporate culture for Microsoft. He had to find a way
to satisfy both his adolescent need to dominate and his adult need to inspire.
The average Microsoftee is male and about 25. When he's not working, well he's
always working. All his friends are Microsoft programmers too. He has no life
outside the office but all the sodas are free. From the beginning, Microsoft
recruited straight out of college. They chose people who had no experience of
life in other companies. In time they'd be called Microserfs.
Chief Programmer, Microsoft
It was easier to to to create a new culture with people who are fresh out of
school rather than people who came from, from from eh other companies and and
and other cultures. You can rely on it you can predict it you can measure it
you can optimise it you can make a machine out of it.
I mean everyone like lived together, ate together dated each other you know.
Went to the movies together it was just you know very much a it was like a frat
or a dorm.
Everybody's just push push push - is it right, is it right, do we have it right
keep on it - no that's not right ugh and you're very frank about that - you
loved it and it wasn't very formal and hierarchical because you were just so
desirous to do the right thing and get it right. Why - it reflects Bill's
And so a lot of young, I say people, but mostly it was young men, who just were
out of school saw him as this incredible role model or leader, almost a guru I
guess. And they could spend hours with him and he valued their contributions and
there was just a wonderful camaraderie that seemed to exist between all these
young men and Bill, and this strength that he has and his will and his desire to
be the best and to be the winner - he is just like a cult leader, really.
As the frenzied 80's came to a close IBM reached a watershed - they had created
an open PC architecture that anyone could copy. This was intentional but IBM
always thought their inside track would keep them ahead - wrong. IBM's glacial
pace and high overhead put them at a disadvantage to the leaner clone makers -
everything was turning into a nightmare as IBM lost its dominant market share.
So in a big gamble they staked their PC future to a new system a new line of
computers with proprietary closed hardware and their very own operating
system. It was war.
Start planning for operating system 2 today.
IBM planned to steal the market from Gates with a brand new operating system,
called - drum roll please - OS/2. IBM would design OS/2. Yet they asked Microsoft
to write the code. Why would Microsoft help create what was intended to be the
instrument of their own destruction? Because Microsoft knew IBM was was the source
of their success and they would tolerate almost anything to stay close to Big
It was just part of, as we used to call it, the time riding the bear. You just
had to try to stay on the bear's back and the bear would twist and turn and try to
buck you and throw you, but darn, we were going to ride the bear because the
bear was the biggest, the most important you just had to be with the bear,
otherwise you would be under the bear in the computer industry, and IBM was the
bear, and we were going to ride the back of the bear.
It's easy for people to forget how pervasive IBM's influence over this industry
was. When you talked to people who've come in to the industry recently there's
no way you can get that in to their - in to their head, that was the
The relationship between IBM and Microsoft was always a culture clash. IBMers
were buttoned-up organization men. Microsoftees were obsessive hackers. With
the development of OS/2 the strains really began to show.
In IBM there's a religion in software that says you have to count K-LOCs, and
a K-LOC is a thousand line of code. How big a project is it? Oh, it's sort of a
10K-LOC project. This is a 20K-LOCer. And this is 5OK-LOCs. And IBM wanted to
sort of make it the religion about how we got paid. How much money we made off OS 2,
how much they did. How many K-LOCs did you do? And we kept trying to convince
them - hey, if we have - a developer's got a good idea and he can get something
done in 4K-LOCs instead of 20K-LOCs, should we make less money? Because he's
made something smaller and faster, less KLOC. K-LOCs, K-LOCs, that's the
methodology. Ugh anyway, that always makes my back just crinkle up at the thought
of the whole thing.
When I took over in '89 there was an enormous amount of resources working on
OS 2, both in Microsoft and the IBM company. Bill Gates and I met on that several
times. And we pretty quickly came to the conclusion together that that was not
going to be a success, the way it was being managed. It was also pretty clear that
the negotiating and the contracts had given most of that control to Microsoft.
It was no longer just a question of styles. There was now a clear conflict of
business interest. OS/2 was planned to undermine the clone market, where DOS was
still Microsoft's major money-maker. Microsoft was DOS. But Microsoft was helping
develop the opposition? Bad idea. To keep DOS competitive, Gates had been pouring
resources into a new programme called Windows. It was designed to provide a nice
user-friendly facade to boring old DOS. Selling it was another job for shy,
retiring Steve Ballmer.
Steve Ballmer (Commercial)
How much do you think this advanced operating environment is worth - wait just
one minute before you answer - watch as Windows integrates Lotus 1, 2, 3 with
Miami Vice. Now we can take this...
Just as Bill Gates saw OS/2 as a threat, IBM regarded Windows as another attempt
by Microsoft to hold on to the operating system business.
We created Windows in parallel. We kept saying to IBM, hey, Windows is the way
to go, graphics is the way to go, and we got virtually everyone else, enthused
about Windows. So that was a divergence that we kept thinking we could get
IBM to - to come around on.
It was clear that IBM had a different vision of its relationship with Microsoft
than Microsoft had of its vision with IBM. Was that Microsoft's fault? You know,
maybe some, but IBM's not blameless there either. So I don't view any of that as
anything but just poor business on IBM's part.
Bill Gates is a very disciplined guy. He puts aside everything he wants to read
and twice a year goes away for secluded reading weeks - the decisive moment in
the Microsoft/IBM relationship came during just such a retreat. In front of a
log fire Bill concluded that it was no longer in Microsoft's long term interests
to blindly follow IBM. If Bill had to choose between OS2, IBM's new operating
system and Windows, he'd choose Windows.
We said ooh, IBM's probably not going to like this. This is going to threaten
OS 2. Now we told them about it, right away we told them about it, but we still
did it. They didn't like it, we told em about it, we told em about it, we offered
to licence it to em.
We always thought the best thing to do is to try and combine IBM promoting the
software with us doing the engineering. And so it was only when they broke off
communication and decided to go their own way that we thought, okay, we're on
our own, and that was definitely very, very scary.
We were in a major negotiation in early 1990, right before the Windows launch.
We wanted to have IBM on stage with us to launch Windows 3.0, but they wouldn't do
the kind of deal that would allow us to profit it would allow them essentially to
take over Windows from us, and we walked away from the deal.
Jack Sams, who started IBM's relationship with Microsoft with that first call to
Bill Gates in 1980, could only look on as the partnership disintegrated.
Then they at that point I think they agreed to disagree on the future progress
of OS 2 and Windows. And internally we were told thou shalt not ship any more
products on Windows. And about that time I got the opportunity to take early
retirement so I did.
Bill's decison by the fireplace ended the ten year IBM/Microsoft partnership
and turned IBM into an also-ran in the PC business. Did David beat Goliath? The
Boca Raton, Florida birthplace of the IBM's PC is deserted - a casualty of
diminishing market share. Today, IBM is again what it was before - a profitable,
dominant mainframe computer company. For awhile IBM dominated the PC market.
They legitimised the PC business, created the standards most of us now use, and
introduced the PC to the corporate world. But in the end they lost out. Maybe
it was to a faster, more flexible business culture. Or maybe they just threw
it away. That's the view of a guy who's been competing with IBM for 20 years,
Silicon Valley's most outspoken software billionaire, Larry Ellison.
I think IBM made the single worst mistake in the history of enterprise on earth.
Q: Which was?
LARRY: Which was the manufacture - being the first manufacturer and distributor
of the Microsoft/Intel PC which they mistakenly called the IBM PC. I mean they
were the first manufacturer and distributor of that technology I mean it's just
simply astounding that they could ah basically give a third of their market value
to Intel and a third of their market value to Microsoft by accident - I mean no-one,
no-one I mean those two companies today are worth close to you know approaching a
hundred billion dollars I mean not many of us get a chance to make a $100 billion
As fast as IBM abandons its buildings, Microsoft builds new ones. In 1980 IBM was
3000 times the size of Microsoft. Though still a smaller company, today Wall
Street says Microsoft is worth more. Both have faced anti-trust investigations
about their monopoly positions. For years IBM defined successful American corporate
culture - as a machine of ordered bureaucracy. Here in the corridors of Microsoft
it's a different style, it's personal. This company - in its drive, its hunger to
succeed - is a reflection of one man, its founder, Bill Gates.
Bill wanted to win. Incredible desire to win and to beat other people. At Microsoft
we, the whole idea was that we would put people under, you know. Unfortunately
that's happened a lot.
Computer Industry Analyst
Bill Gates is special. You wouldn't have had a Microsoft with take a random other
person like Gary Kildall. On the other hand, Bill Gates was also lucky. But Bill
Gates knows that, unlike a lot of other people in the industry, and he's paranoid.
Every morning he gets up and he doesn't feel secure, he feels nervous about this.
They're trying hard, they're not relaxing, and that's why they're so successful.
And I remember, I was talking to Bill once and I asked him what he feared, and
he said that he feared growing old because you know, once you're beyond thirty,
this was his belief at the time, you know once you're beyond thirty, you know, you
don't have as many good ideas anymore. You're not as smart anymore.
If you just slow down a little bit who knows who it'll be, probably some company
that may not even exist yet, but eh someone else can come in and take the lead.
And I said well, you know, you're going to age, it's going to happen, it's kind
of inevitable, what are you going to do about it? And he said I'm just going to
hire the smartest people and I'm going to surround myself with all these smart
people, you know. And I thought that was kind of interesting. It was almost - it
was like he was like oh, I can't be immortal, but like maybe this is the second
best and I can buy that, you know.
If you miss what's happening then the same kind of thing that happened to IBM or
many other companies could happen to Microsoft very easily. So no-one's got a
guaranteed position in the high technology business, and the more you think
about, you know, how could we move faster, what could we do better, are there
good ideas out there that we should be going beyond, it's important. And I wouldn't
trade places with anyone, but the reason I like my job so much is that we have
to constantly stay on top of those things.
The Windows software system that ended the alliance between Microsoft and IBM
pushed Gates past all his rivals. Microsoft had been working on the software for
years, but it wasn't until 1990 that they finally came up with a version that not
only worked properly, it blew their rivals away and where did the idea for this
software come from? Well not from Microsoft, of course. It came from the hippies
at Apple. Lights! Camera! Boot up! In 1984, they made a famous TV commercial.
Apple had set out to create the first user friendly PC just as IBM and Microsoft
were starting to make a machine for businesses. When the TV commercial aired,
Apple launched the Macintosh.
Glorious anniversary of the information...
The computer and the commercial were aimed directly at IBM - which the kids in
Cupertino thought of as Big Brother. But Apple had targeted the wrong people. It
wasn't Big Brother they should have been worrying about, it was big Bill Gates.
We are one people....
To find out why, join me for the concluding episode of Triumph of the Nerds.
...........we shall prevail.
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