President of IBM John R. Opel became CEO in 1981.[158] IBM was one of the world's largest companies and had a 62% share of the mainframe computer market that year. While frequently relocated employees and families still joked that IBM stood for "I've Been Moved", and employees of acquisitions feared that formal IBM employees would change the culture of their more casual offices,[159] IBM no longer required white shirts for male employees, who still wore conservative suits when meeting customers. Former employees such as Gene Amdahl used their training to found and lead many competitors and suppliers.
Expecting Japanese competition, IBM in the late 1970s began investing in manufacturing to lower costs, offering volume discounts and lower prices to large customers, and introducing new products more frequently. The company also sometimes used non-IBM components in products,[160] and sometimes resold others' products as its own.[161] In 1980 it introduced its first computer terminal compatible with non-IBM equipment, and Displaywriter was the first new product less expensive than the competition. IBM's share of the overall computer market, however, declined from 60% in 1970 to 32% in 1980.[162] Perhaps distracted by the long-running antitrust lawsuit, the "Colossus of Armonk" missed the fast-growing minicomputer market during the 1970s,[163][164] and was behind rivals such as Wang, Hewlett-Packard (HP), and Control Data in other areas.
In 1979, BusinessWeek asked, "Is IBM just another stodgy, mature company?" By 1981 its stock price had declined by 22%; that year Financial World wondered "What Ails IBM?", and The Wall Street Journal described the company as a "dull performer".[165] IBM's earnings for the first half of 1981 grew by 5.3% – one third of the inflation rate – while those of Digital Equipment Corporation (DEC) grew by more than 35%.[166] Although IBM began selling minicomputers,[167] in January 1982 the Justice Department ended the antitrust suit, after IBM unbundled services[168] and, as The New York Times reported, experts concluded that IBM no longer dominated the computer industry.[169]
IBM wished to avoid the same outcome with the new personal computer industry.[170] The company studied the market for years and, as with UNIVAC, others like Apple Computer entered it first; IBM did not want a product with a rival's logo on corporate customers' desks. The company opened its first Product Center retail store in November 1980,[171] and a team in the Boca Raton, Florida, office built the IBM PC using commercial off-the-shelf components. The new computer debuted on August 12, 1981 from the Entry Systems Division led by Don Estridge. IBM immediately became more of a presence in the consumer marketplace, thanks to the memorable Little Tramp advertising campaign. Though not a spectacular machine by technological standards of the day, the IBM PC brought together all of the most desirable features of a computer into one small machine. It had 128 kilobytes of memory (expandable to 256 kilobytes), one or two floppy disks and an optional color monitor. And it had the prestige of the IBM brand. Although not inexpensive, with a base price of US$1,565 it was affordable for businesses – and many businesses purchased PCs. Reassured by the IBM name, they began buying these microcomputers on their own budgets aimed at numerous applications that corporate computer departments did not, and in many cases could not, accommodate. Typically, these purchases were not by corporate computer departments, as the PC was not seen as a "proper" computer. Purchases were often instigated by middle managers and senior staff who saw the potential – once the revolutionary VisiCalc spreadsheet, the killer app, had been surpassed by a far more powerful and stable product,
The PC improved IBM's reputation with investors, customers, and the general public. IBM's dominance of the mainframe market in Europe and the US encouraged existing customers to buy the PC,[172] and vice versa; as sales of what had been an experiment in a new market became a substantial part of IBM's financials, the company found that customers also bought larger IBM computers.[173] Unlike the BUNCH and other rivals IBM quickly adjusted to the retail market,[174] with its own sales force competing with outside retailers for the first time. By 1985 IBM was the world's most profitable industrial company, and its sales of personal computers were larger than that of minicomputers despite having been in the latter market since the early 1970s.
By 1983 industry analyst Gideon Gartner warned that IBM "is creating a dangerous situation for competitors in the marketplace". The company helped others by defining technical standards and creating large new software markets, but the new aggressiveness that began in the late 1970s helped it dominate areas like computer leasing and computer-aided design. Free from the antitrust case, IBM was present in every computer market other than supercomputers, and entered communications[175] by purchasing Rolm – the first acquisition in 18 years – and 18% of MCI. The company was so important to component suppliers that it urged them to diversify. When IBM (61% of revenue) abruptly reduced orders from Miniscribe shares of not only Miniscribe but that of uninvolved companies that sold to IBM fell, as investors feared their vulnerability.[176] IBM was also vulnerable when suppliers could not fulfill orders,[177] and customers and dealers also feared becoming overdependent;[178] the PC was so popular in 1983 that dealers only received 60% or less of the inventory they wanted.[179]
The IBM PC AT's 1984 debut startled the industry. Rivals admitted that they did not expect the low price of the sophisticated product. IBM's attack on every area of the computer industry and entry into communications caused competitors, analysts, and the press to speculate that it would again be sued for antitrust.[180][181] Datamation and others said that the company's continued growth might hurt the United States, by suppressing startups with new technology. Gartner Group estimated in 1985 that of the 100 largest data-processing companies, IBM had 41% of all revenue and 69% of profit. Its computer revenue was about nine times that of second-place DEC, and larger than that of IBM's six largest Japanese competitors combined. The 22% profit margin was three times the 6.7% average for the other 99 companies. Competitors complained to Congress, ADAPSO discussed the company with the Justice Department, and European governments worried about IBM's influence but feared affecting its more than 100,000 employees there at 19 facilities.[182]
However, the company soon lost its lead in both PC hardware and software, thanks in part to its unprecedented (for IBM) decision to contract PC components to outside companies like Microsoft and Intel. Up to this point in its history, IBM relied on a vertically integrated strategy, building most key components of its systems itself, including processors, operating systems, peripherals, databases and the like. In an attempt to accelerate the time-to-market for the PC, IBM chose not to build a proprietary operating system and microprocessor. Instead, it sourced these vital components from Microsoft and Intel respectively. Ironically, in a decade which marked the end of IBM's monopoly, it was this fateful decision by IBM that passed the sources of its monopolistic power (operating system and processor architecture) to Microsoft and Intel, paving the way for rise of PC compatibles and the creation of hundreds of billions of dollars of market value outside of IBM.
John Akers became IBM's CEO in 1985. During the 1980s, IBM's investment in building its research organization produced four Nobel Prize winners in physics, achieving breakthroughs in mathematics, memory storage and telecommunications, and expanded computing capabilities. In 1980, IBM researcher John Cocke introduced Reduced Instruction Set Computing (RISC). Cocke received both the National Medal of Technology and the National Medal of Science for his innovation, but IBM itself failed to recognize the importance of RISC, and lost the lead in RISC technology to Sun Microsystems.
In 1984 the company partnered with Sears to develop a pioneering online home banking and shopping service for home PCs that launched in 1988 as Prodigy. Despite a strong reputation and anticipating many of the features, functions, and technology that characterize the online experience of today, the venture was plagued by overly conservative management decisions, and was eventually sold in the mid-1990s.
The IBM token-ring local area network, introduced in 1985, permitted personal computer users to exchange information and share printers and files within a building or complex. In 1988, IBM partnered with the University of Michigan and MCI Communications to create the National Science Foundation Network (NSFNet), an important step in the creation of the Internet. But within five years the company backed away from this early lead in Internet protocols and router technologies in order to support its existing SNA revenue stream, thereby missing a boom market of the 1990s. Still, IBM investments and advances in microprocessors, disk drives, network technologies, software applications, and online commerce in the 1980s set the stage for the emergence of the connected world in the 1990s.
However, by the end of the decade, IBM was in trouble. It was a bloated organization of some 400,000 employees that was heavily invested in too many low margin, transactional, commodity businesses. Technologies IBM invented and or commercialized – DRAM, hard disk drives, the PC, electric typewriters – were starting to erode. The company had a massive international organization characterized by redundant processes and functions – its cost structure couldn't compete with smaller, less diversified competitors. Additionally, the back-to-back revolutions – the PC and the client-server – combined to undermine IBM's core mainframe business. The PC revolution placed computers directly in the hands of millions of people. It was followed by the client/server revolution, which sought to link PCs (the "clients") with larger computers that labored in the background (the "servers" that served data and applications to client machines). Both revolutions transformed the way customers viewed, used and bought technology. And both fundamentally rocked IBM and its mainframe competitors. Businesses' purchasing decisions were put in the hands of individuals and departments – not the places where IBM had long-standing customer relationships. Piece-part technologies took precedence over integrated solutions. The focus was on the desktop and personal productivity, not on business applications across the enterprise. As a result, earnings – which had been at or above US$5 billion since the early 1980s, dropped by more than a third to US$3 billion in 1989. A brief spike in earnings in 1990 did not last as corporate spending continued to shift from high-profit margin mainframes to lower margin microprocessor-based systems. In addition, corporate downsizing was in full swing.
Radical changes were considered and implemented. As IBM assessed the situation, it was clear that competition and innovation in the computer industry were now taking place along segmented, versus vertically integrated lines, where computer industry leaders emerged in their respective domains. Examples included Intel in microprocessors, Microsoft in desktop software, Novell in networking, HP in printers, Seagate in disk drives and Oracle Corporation in database software. IBM's dominance in personal computers was challenged by the likes of Compaq and later Dell. Recognizing this trend, management, with the support of the Board of Directors, began to implement a plan to split IBM into increasingly autonomous business units (e.g. processors, storage, software, services, printers, etc.) to compete more effectively with competitors that were more focused and nimble and had lower cost structures.
IBM also began spinning off its many divisions into autonomous subsidiaries (so-called "Baby Blues") in an attempt to make the company more manageable and to streamline IBM by having other investors finance those companies.[183][184] These included AdStar, dedicated to disk drives and other data storage products (on creation the largest data storage business in the world);[185] IBM Application Business Systems, dedicated to mid-range computers; IBM Enterprise Systems, dedicated to mainframes; Pennant Systems, dedicated to mid-range and large printers; Lexmark, dedicated to small printers, keyboards, and typewriters (such as the Selectric); and more.[186] Lexmark was acquired by Clayton & Dubilier in a leveraged buyout shortly after its formation.[187]
In September 1992, IBM combined and spun off their various non-mainframe and non-midrange, personal computer manufacturing divisions into an autonomous wholly owned subsidiary known as the IBM Personal Computer Company (IBM PC Co.).[188][189] This corporate restructuring came after IBM reported a sharp drop in profit margins during the second quarter of fiscal year 1992; market analysts attributed the drop to a fierce price war in the personal computer market over the summer of 1992.[190] The corporate restructuring was one of the largest and most expensive in history up to that point.[191] By the summer of 1993, the IBM PC Co. had divided into multiple business units itself, including Ambra Computer Corporation and the IBM Power Personal Systems Group, the former an attempt to design and market "clone" computers of IBM's own architecture and the latter responsible for IBM's PowerPC-based workstations.[192]
These efforts failed to halt the slide. A decade of steady acceptance and widening corporate growth of local area networking technology, a trend headed by Novell Inc. and other vendors, and its logical counterpart, the ensuing decline of mainframe sales, brought about a wake-up call for IBM. After two consecutive years of reporting losses in excess of $1 billion, on January 19, 1993, IBM announced a US$8.10 billion loss for the 1992 financial year, which was then the largest single-year corporate loss in U.S. history.[194] All told, between 1991 and 1993, the company posted net losses of nearly $16 billion. IBM's three-decade-long Golden Age, triggered by Watson Jr. in the 1950s, was over. The computer industry now viewed IBM as no longer relevant, an organizational dinosaur. And hundreds of thousands of IBMers lost their jobs, including CEO John Akers.
Key events
Mid-1970s
- IBM VNET: The VNET international computer networking system is deployed in the mid-1970s, providing email and file-transfer for IBM. By September 1979, the network had grown to include 285 mainframe nodes in Europe, Asia, and North America.
1975
- Fractals: IBM researcher Benoit Mandelbrot conceives fractal geometry – the concept that seemingly irregular shapes can have identical structure at all scales. This new geometry makes it possible to describe mathematically the kinds of irregularities existing in nature. Fractals later make a great impact on engineering, economics, metallurgy, art, and health sciences, and are also applied in the field of computer graphics and animation.[195]
- IBM 5100: IBM introduces the 5100 Portable Computer, a 50 lb. desktop machine that put computer capabilities at the fingertips of engineers, analysts, statisticians, and other problem-solvers. More "luggable" than portable, the 5100 can serve as a terminal for the System/370 and costs from $9000 to $20,000.
