PC Turns 20

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It has been two decades since the first personal computer was introduced. When IBM came out with the first model on August 12, 1981, it had no mouse, no hard drive and no modem.

Yet, still the PC 5150 carried a base price of nearly $1,600.

The company faced a problem by late 1979: Computers were getting smaller and cheaper, increasingly finding a home in businesses where Big Blue was supplying everything from typewriters to mainframes.

After years as primarily gadgets for geeks, computers designed for desktop use were proving themselves capable of supplanting typewriters and calculators and doing just about anything that programming enabled.

In short, the general purpose personal office machine was coming.

While the nation grappled with gas shortages and double-digit inflation, IBM chief Frank Cary and other executives decided the company would not forfeit the game to early players such as Apple Computer, Commodore and Radio Shack.

Big Blue took a big leap. And fast.

A dozen or so engineers secretly began work in July 1980 at a company plant in steamy Boca Raton, Florida, and were told to break some rules and circumvent IBM's formidable new product bureaucracy.

Thirteen months later, International Business Machines Corp. unveiled the result: the IBM 5150 Personal Computer.

Nobody realized it at the time, but the boxy desktop machine would change the world.

Decisions that went into the first IBM PC would create new industries, turn parts suppliers such as Intel and Microsoft into the mainstays of the information economy, and make their founders multimillionaires or better.

With IBM's size and influence, personal computing reached critical mass. Other companies soon were able to buy off-the-shelf hardware and software created for IBM and make compatible clones. PCs based on proprietary hardware and software were left to niche markets or disappeared entirely.

Over the ensuing 20 years, the PC revolutionized business, education and entertainment. Once connected to the Internet, it became the foundation for the 1990s economic boom.

"The idea of the PC as a tool for individuals was the key element for everything that came afterward," Microsoft co-founder Bill Gates wrote in an e-mail interview. "The Internet moved out of the universities after 25 years because of the huge installed base of PCs."

IBM's name gave respectability to the fledgling industry. The $1,565 base price -$3,039 in today's dollars - attracted buyers, both businesses and consumers. Developers saw profit potential and time savings in writing programs for one popular machine instead of dozens of less popular and incompatible systems.

"It was a situation where the world's leading manufacturer was defining standards for the industry and was legitimizing the product," said Charles Smulders, an analyst for Gartner Dataquest.

But few, including Microsoft, Intel and even IBM, envisioned this future.

IBM executives wanted to get an early jup on a market, one that analysts predicted could result in 80 million units in use by 2000. Only 327,000 desktop computers - mostly by Radio Shack, Apple and Commodore - were sold in 1980.

"Nobody had a clue that it would be so successful," said Mark Dean, one of the IBM PC's original engineers. "We thought if we sold 200,000 for the life of the PC that it would be just tremendous."

IBM says it sold about 3 million PCs during the first model's life span. This year, the industry expects sales of 140 million units, or $174 billion in hardware alone, according to Gartner Dataquest.

IBM hoped to capture the "heart and soul" of users who would see Big Blue's familiar logo on the front, said David Bradley, another of the first engineers. A quick jump into the market was critical and IBM flexed its marketing muscle to the hilt, pitching the machine with a Charlie Chaplin lookalike in TV ads.

IBM executives remembered the company's slow start with minicomputers, which were smaller than mainframes yet powerful enough to handle the computing chores of small and medium businesses. Digital Equipment Corp., with its PDP and VAX minicomputers, ended up dominating that market for years thanks to an early start.

For the 5150, IBM decided to save time and keep costs low by turning to outside vendors for microprocessors, the operating system and other software. For its brains, the team turned to the chipmaker Intel Corp., which primarily sold memory chips.

A decade earlier, Intel had created the first commercial microprocessor, which at first found a use in traffic controllers and later in typesetters and data terminals.

Though some early microcomputers such as the MITS Altair incorporated an Intel microprocessor, executives at the chip-making company did not actively pursue the standalone PC market, said Andrew Grove, who became Intel's president in 1979 and its chief executive in 1987.

"I don't remember paying a whole lot of attention to it," Grove, now chairman of the world's largest chipmaker, said of the order.

The future, Grove thought, was in IBM's $7,895 Displaywriter, an office machine that could perform only one task: word processing.

"I was quite sure that this was going to be the evolution of the IBM typewriter line," he said. "I could envision Displaywriters in every office sooner than I could envision IBM PCs in every office."

Intel's revenue was $854.6 million in 1980. In 2000, it was $33.7 billion.

IBM also turned to Microsoft, which at the time had only about 100 employees, for its basic programming language and related software. Another company, Digital Research Inc., was approached for its then well-known operating system, CP/M.

"We actually sent IBM down to meet with DRI," Gates wrote.

But the company balked first at IBM's long nondisclosure agreement and then at terms of a potential deal. Eventually, IBM returned to Gates, though Microsoft had no operating system.

The future billionaire bought the ights to the "Quick and Dirty Operating System" from another company. The name became MS-DOS, and Gates insisted on one critical detail:

"A key point in our negotiation with IBM was making sure that we could license to other manufacturers," Gates wrote.

In the end, IBM would offer other operating systems with its PC, including CP/M. But DOS was sold at a lower price and quickly caught on with businesses and consumers.

A little over a year after IBM's 1981 introduction, a group of former Texas Instrument managers started their own computer company and bought hardware from Intel and software from Microsoft.

The first Compaq Computer Corp. PC, however, was marketed at IBM PC users who wanted a portable machine. The Compaq Portable - affectionately nicknamed the "luggable" because of its bulk - sold 53,000 units in 1983, and Compaq's revenues went from zero to $111 million in a year. Its first desktop clone appeared in 1984.

"If we couldn't have purchased the key components, we would never have been successful" said Steven Flannigan, vice president of software and one of the first Compaq employees.

Ten years later, IBM would lose its top spot in the PC market to Compaq.

In the second quarter of 2001, Big Blue sold the third most worldwide, after Dell Computer Corp. and Compaq.

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