Conversely, there is a negative spiral companies can get caught in. A company in a positive spiral has an air of destiny, while one in a negative spiral feels doomed. If a company starts to lose market share or delivers one bad product, the talk becomes “Why do you work there?” “Why would you invest in that company?” “I don’t think you should buy from them.” The press and analysts smell blood and begin telling inside stories about who’s quarreling and who’s responsible for mismanagement. Customers begin to question whether, in the future, they should continue to buy the company’s products. Within a sick company everything is questioned, including things that are being done well. Even a fine strategy can get dismissed with the argument “You are just defending the old way” and that can cause more mistakes. Then down the company spirals. Leaders such as Lee Iacocca who have been able to reverse a negative spiral deserve a lot of credit.
Throughout my youth the hot computer firm was Digital Equipment Corporation, known as DEC. For twenty years its positive spiral seemed unstoppable. Ken Olsen, the company’s founder, was a legendary hardware designer and a hero of mine, a distant god. In 1960 he had created the minicomputer industry by offering the first “small” computers. The earliest was the PDP-1, the ancestor of my high school’s PDP-8. A buyer, instead of paying the millions asked by IBM for its “Big Iron,” could get one of Olsen’s PDP-1s for $120,000. It wasn’t nearly as powerful as the big machines, but it could be used for a wide variety of applications. DEC grew to a $6.7 billion company in eight years by offering a wide range of computers in different sizes.
Two decades later, Olsen’s vision faltered. He couldn’t see the future of small desktop computers. Eventually he was forced out of DEC, and part of his legend now is that he is the man famous for repeatedly, and publicly, dismissing the personal computer as a passing fad. I am sobered by stories like Olsen’s. He was brilliant at seeing new ways of doing things, and then—after years of being an innovator—he missed a big bend in the road.
Another visionary who faltered was An Wang, the Chinese immigrant who built Wang Laboratories into the dominant supplier of electronic calculators in the 1960s. In the 1970s he ignored the advice of everyone around him and left the calculator market just before the arrival of low-cost competition that would have ruined him. It was a brilliant move. Wang reinvented his company to be the leading supplier of word-processing machines. During the 1970s, in offices around the world, Wang word-processing terminals began to replace typewriters. The machines contained a microprocessor but weren’t true personal computers, because they were designed to do only one thing—handle text.
Wang was a visionary engineer. The kind of insight that had led him to abandon calculators could have led to success in personal-computer software in the 1980s, but he failed to spot the next industry turn. Even though he developed great software, it was tied proprietarily to his word processors. His software was doomed once general-purpose personal computers appeared that could run a variety of word-processing software applications such as WordStar, WordPerfect, and MultiMate (which imitated Wang software). If Wang had recognized the importance of compatible software applications, there might not be a Microsoft today. I might be a mathematician or an attorney somewhere, and my adolescent foray into personal computing might be little more than a distant personal memory.
IBM was another major company that missed technological changes at the start of the PC revolution. The company’s leader had been a hard-driving former cash-register salesman, Thomas J. Watson. Technically, Watson wasn’t the founder of IBM, but it was thanks to his aggressive management style that by the early 1930s IBM dominated the market for accounting machines.
IBM began working on computers in the middle 1950s. It was one of many companies in the business vying for leadership in the field. Until 1964 each computer model, even from the same manufacturer, had had a unique design and required its own operating system and application software. An operating system (sometimes called a disk-operating system, or just DOS) is the fundamental software that coordinates a computer system’s components, tells them how to work together, and performs other functions. Without an operating system, a computer is useless. The operating system is a platform on which all the software programs for applications—such as accounting or payroll or word-processing or electronic-mail programs—are built.
Computers at different price levels had different designs. Some models were dedicated to scientific study, others to commerce. As I discovered when I wrote the BASIC for various personal computers, significant work was required to move software from one computer model to another. This was true even if the software was written in a standard language such as COBOL or FORTRAN. Under the direction of young Tom, as Watson’s son and successor was known, the company gambled $5 billion on the novel notion of scalable architecture—all the computers in the System/360 family, no matter what size, would respond to the same set of instructions. Models built with different technology, from the slowest to the fastest, from small machines that could fit into a normal office to water-cooled giants that sat in climate-controlled glass rooms, could run the same operating system. Customers could move their applications and peripherals, accessories such as disks, tape drives, and printers, freely from one model to the next. Scalable architecture completely reshaped the industry.
System/360 was a runaway success and made IBM the powerhouse in mainframe computers for the next thirty years. Customers made large investments in the 360, confident that their commitment to software and training would not be wasted. If they needed to move to a larger computer, they could get an IBM that ran the same system, and shared the same architecture. In 1977, DEC introduced its own scalable-architecture platform, the VAX. The VAX family of computers ultimately ranged from desktop systems to mainframe-size machine clusters and did for DEC what System/360 did for IBM. DEC became overwhelmingly the leader in the minicomputer market.
The scalable architecture of the IBM System/360 and its successor, the System/370, drove many of IBM’s competitors out of business and scared away potential newcomers. In 1970, a new competing company was founded by Eugene Amdahl, who had been a senior engineer at IBM. Amdahl had a novel business plan. His company, also called Amdahl, would build computers fully compatible with the IBM 360 software. Amdahl delivered hardware that not only ran the same operating systems and applications as IBM, but, because it took advantage of new technology, also outperformed IBM’s comparably priced systems. Soon Control Data, Hitachi, and Itel all also offered mainframes that were “plug-compatible” to IBM. By the mid-1970s, the importance of 360 compatibility was becoming obvious. The only mainframe companies doing well were those whose hardware could run IBM’s operating systems.
Before the 360, computer designs were intentionally incompatible with those from other companies because the manufacturer’s goal was to make it discouragingly difficult and expensive for customers heavily invested in one company’s computer to switch to a different brand. Once a customer committed to a machine, he or she was stuck with offerings from the computer’s manufacturer because changing the software could be done but was too difficult. Amdahl and the others ended that. Market-driven compatibility is an important lesson for the future personal-computer industry. It should also be remembered by those creating the highway. Customers choose systems that give them a choice of hardware suppliers and the widest variety of software applications.
While this was going on, I was busy enjoying school and experimenting with computers. I arrived at Harvard in the fall of 1973. In college there is a lot of posturing, and appearing to slack off was considered a great way to establish your coolness. Therefore, during my freshman year I instituted a deliberate policy of skipping most classes and then studying feverishly at the end of the term. It became a game—a not uncommon one—to see how high a grade I could pull while investing the least time possible. I filled in my leisure hours with a good deal of poker, which had its own attraction for me. In poker, a player collects different shards of information—who’s betting boldly, what cards are showing, what’s this guy’s pattern of betting and bluffing—and then crunches all that information together to devise a plan for his own hand. I got pretty good at this kind of information processing.