Thank You Ibm! Next Edition: The Completed Story of How Ibm Helped Today's Technology Millionaires and Billionaires Gain Vast Fortunes.

By Brian W. Kelly

I began to write this book over twenty years ago. My purpose was to tell the true story about how IBM made too many companies successful by standing down rather than competing. As a Senior IBM Systems Engineer, I saw it all happen. The $ Trillion dollar PC marketplace is the biggest example of IBM's major losses. Yet, the PC was just one of many industry sub-segments over the years in which IBM failed miserably. We need more than ten fingers to count them all. This book tells all the great stories about how industries came into being and entrepreneurs often in their early twenties became billionaires. This book tells you which companies did the best; which regular guys became industry moguls; and who has the money today. Among other things, it tells us all who owes IBM the biggest thank you’s. This book in many ways is about Big Blue’s misgivings about being too successful in too many IT product areas. IBM Executives over the years from the CEO on down were all paid very well to manage all aspects of the company’s business. Unfortunately each and every CEO after the Watsons and T. Vincent Learson, focused on just one aspect of IBM – its mainframe business. So the IBM Chieftains lost just about every other opportunity including the PC. They simply handed very crafty “entrepreneurs,” the whole game. IBM created many industry billionaires simply by not watching its assets. Microsoft alone has four documented billionaires on its list which is topped by Bill Gates, the richest man in the world at $102 billion. Additionally, there are over 12,000 other Microsoft employees on the millionaire’s list. IBM paid for all of the zillionaires. In Chapter 1, I show each and every billionaire and a number of millionaires. I then go on in sixty-nine chapters to tell you the essence of the full Microsoft / IBM story along with many other stories of IBM squandering many other real business opportunities. These are enjoyable to read but hard to believe. You are going to love this book, designed by an IBM insider and told with respect for IBM and with the truth that all of these great stories deserve. You will not want to put this book down. Kelly not only gives the facts about the new billionaires; he also provides a history lesson about the entire industry that will capture your imagination. You’ll learn how all these billionaires got their money. The book begins with the introduction of the first computer and it takes you on a ride through all of the major events that occurred during each IBM CEO’s tenure. The story thus begins with Thomas Watson Sr, as CEO and continues chapter by chapter to the state of the computer industry today. Kelly does it all in 69 easy-to-read enjoyable chapters. Few books are must-read but Thank You IBM! will quickly be at the top of your list and America’s most read list.

• Language: English
• Publisher: Xlibris US
• Release date: Oct 26, 2022
• ISBN: 9781669852834

Brian W. Kelly

Brian Kelly is a retired Assistant Professor in the Business Information Technology program at Marywood University. The author of 309 books, Kelly has also written hundreds of magazine articles. He has been a frequent speaker at National meetings such as COMMON and IBM Technical Conference.

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Copyright © 2022 by Brian W. Kelly.

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Rev. date: 10/26/2022

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CONTENTS

Dedication

Acknowledgments

Preface

About the Author

Section1:      Introduction to the Book & Section I

Chapter 1:     IBM’s Many Opportunities & Many Disappointments

Chapter 2:     Fast Forward to Today… Has IBM improved? Will IBM Succeed?

Chapter 3:     Can IBM Continue to Say No to Opportunities and Still Survive?

Chapter 4:     The IBM Story Continues

Chapter 5:     IBM Was Destined for Fortune.

Section2:      The Watson Years

Chapter 6:     IBM’s Thomas Watson Sr.: In Search of Continuous Excellence

Chapter 7:     The Early IBM Product Line of Electromechanical Devices

Chapter 8:     IBM’s Early Efforts with Real Computers

Chapter 9:     Thomas Watson Jr. Assumes the IBM Presidency and the Chair

Chapter 10:   The Mainframe Era Begins!

Chapter 11:   Modern Mainframes

Chapter 12:   IBM Small Business Computers

Chapter 13:   IBM System/3 Starts a New Age

Chapter 14:   The IBM System/38—the Most Advanced Computing System Ever

Chapter 15:   The AS/400 Comes Invited to the System/38 Party

Chapter 16:   IBM merges System i and System p computer lines (AS/400 & RS/6000)

Chapter 17:   Thomas Watson Jr. Steps Down as Chairman and CEO

Section3:      T. Vincent Learson and Frank T. Cary Move IBM Past the Watsons

Chapter 18:   Starting with Learson

Chapter 19:   Frank Cary, the Mainframe, Mini, and Micro CEO

Chapter 20:   Digital Equipment Corporation Invents the Minicomputer

Chapter 21:   Hewlett-Packard Enters Minicomputer Arena

Chapter 22:   Data General Formed as a Minicomputer Company

Chapter 23:   EMC Buys DG; Enters the Minicomputer Marketplace

Chapter 24:   IBM’s Non-Minicomputer Minicomputers

Chapter 25:   IBM Introduces the Series/1 as Bona Fide Mini

Chapter 26:   MIT, IBM and the Early Development of Unix

Chapter 27:   What is Unix and Why Does It Matter?

Chapter 28:   Among Many Unix’s, Another Unix—Linux

Chapter 29:   The Microcomputer Revolution

Chapter 30:   Texas Instruments—a Micro Tech Pioneer and Eternal Innovator

Chapter 31:   Shockley & Fairchild Semiconductor—the Pioneers

Chapter 32:   Motorola the Chip Maker with Different Roots

Chapter 33:   The Founding of Intel

Chapter 34:   Zilog: Great Microcomputer Pioneer

Chapter 35:   MOS Technologies / Commodore

Chapter 36:   Radio Shack – First Personal Computer Company

Chapter 37:   Apple Piqued Home Computer Aficionado in Us All

Chapter 38:   A Key IBM Software Invention: Relational Database (RDBMS)

Chapter 39:   Oracle Announces the First Commercial Relational Database

Chapter 40:   IBM & Data Communications: Why Big Blue Failed?

Chapter 41:   Teleprocessing: the Next Step beyond Card Readers and Printers

Chapter 42:   IBM and Local Area Networks

Chapter 43:   Cisco Soundly Defeats IBM in Networking

Section4:      CEOs John Opel & John Akers Together Almost Sunk IBM

Chapter 44:   John Opel—A Chairman with Lots of Spirit, Opportunity & Failure

Chapter 45:   A Deeper Look at John Akers’ Years

Chapter 46:   IBM Invented RISC Technology in 1974

Chapter 47:   Sun Microsystems Makes It Big With RISC

Chapter 48:   IBM RISC System 6000 (RS/6000) – A Great RISC/UNIX System

Chapter 49:   RISC Power Architecture Has Produced the World’s Fastest Supercomputers

Chapter 50:   IBM PC Introduced in Opel Years

Chapter 51:   Appendix The PC Story Is a Story of IBM at Its Worst

Chapter 52:   Compaq Beats IBM BIOS to Become Top PC Company

Chapter 53:   Gateway Computer Company – 2000

Chapter 54:   Dell Computer still on top

Chapter 55:   IBM Says Good-By to the PC Industry

Chapter 56:   Microsoft Becomes Champion of PC / x86 Software

Section5:      Application Software: From Watson to Rometty

Chapter 57:   What is Application Software?

Chapter 58:   Business Application Software, Service Bureaus, & Clouds

Chapter 59:   IBM Was Once the Application Software Leader

Chapter 60:   Impact of Catamore Lawsuit on IBM Application Software Strategy

Chapter 61:   IBM’s Post S/3 Systems -- Formal Application Software Packages

Chapter 62:   IBM Failed in the Application Software Industry

Chapter 63:   Shared Medical Systems (SMS)

Chapter 64:   A Quick Look at IBM’s MAPICS Application and SAP

Chapter 65:   SAP—The Best in ERP Software

Chapter 66:   Small Companies — Application Software Millionaires

Chapter 67:   Large Software Companies—Many Rich Entrepreneurs

Section6:      Lou Gerstner, Ginni Rometty & Arvind Krishna—IBM’s Latest CEOs

Chapter 68:   Lou Gerstner, The First CEO Not Bred in IBM’s Culture

Chapter 69:   IBM’s Sam Palmisano and Ginni Rometty

Chapter 70:   The Last IBM CEO—Arvind Krishna

DEDICATION

This book is dedicated to my immediate family.

My wife Pat makes everything work

My son, Brian has the gifts of goodness and magic

My son, Michael has the gifts of love and humor and decisiveness

My daughter, Kathleen has the gift of sweetness and she shares her gift in song for all to enjoy

My family is always supportive of my efforts in everything. Thank you.

You are the most precious people in life.

ACKNOWLEDGMENTS

I appreciate all the help that I have received in putting this book together as well as all of the other 308 books from the past.

My printed acknowledgments had been so large that book readers complained about going through too many pages to get to page one of the text.

And, so to permit me more flexibility, I put my acknowledgment list online, and it continues to grow. Believe it or not, it costs about a dollar less to print each book.

Thank you and God bless you all for your help.

Please check out www.letsgopublish.com to read the latest version of my heartfelt acknowledgments updated for this book. Click the bottom of the Main menu!

Thank you all!

PREFACE

By special request of my good friend Paul Harkins, author of the best-selling book, How to Become a Highly Paid Corporate Programmer, about six years ago, converted the original small size of this book to 8.5 X 11 so that I could make the book available to more people at a lower cost. By the way, Mr. Harkins is featured in this book as the author of the patented Real Time program Audit Software which is used in Forensic Accounting and Analytics. We could all use good friends such as Paul Harkins.

Since the 1950’s, IBM has been synonymous with innovation, cutting-edge technology, and major league research and development. IBM pushed the boundaries of what computers were capable of doing with technology. As of the last several years, some of the parts of that storied legacy may be ending as IBM is sorting out its future as a company in the IT industry. IBM thinks its future, as clear as they can see it; is quite cloudy!

It would take a crowd of people to come up with the right number of fingers to match the number of marketing opportunities that your author saw the IBM Company turn over to its competitors over the years. It is inexplicable and as a stockholder, I feel it is unforgivable. Yet, IBM still turns a profit.

At a worldwide level, hypothetically until the Red Hat acquisition of which the new CEO Arvind Krishna (2021) was very instrumental, if IBM were ever again to become the leader in a given IT industry sub-segment, for example, based on its track record from having problems with many sub-industries over the years, experts could all predict with reasonable accuracy the final outcome. First, after bleeding cash from the entity, Big Blue would claim that profits were not up to the company’s expectations. Then, IBM would make a quick exit to conserve the company’s cash reserve. The company would then bail and sell out the entire sub-industry business to whomever it could as quickly as it could. They would then express shock as the business they shed became a leader in the industry. Arvind Krishna is in place today because of that sorry history.

To show you what I mean, before Krishna was put in place, in 2014, IBM again executed this formula for failure. It first sold its PC x86 powerful server business to Lenovo for $2.1 billion. This is the typical IBM modus operandi. But, then Big Blue pulled a surprise in what goes down as an industry first in enabling a purchase. IBM "sold" its highly advanced Power Chip foundries for a negative $1.5 billion payable over three years.

Yes, that is correct and confirmed by IBM. You read that correctly. IBM payed GlobalFoundries $1.5 billion in cash to take the loss-making unit off its hands. In the deal, IBM promises to buy its chips exclusively from GlobalFoundries and the foundry promises to make the chips for IBM’s needs for the next ten years.

Who knows what the cost would be if IBM ever decided to leave the mainframe business; sell it off; and exit hardware completely?

Right now, TSMC, GlobalFoundries, Intel, and Samsung are the only companies in the chip industry with cutting-edge deployments. Once again, it is an industry that IBM created. Despite the head start, the IBM Company could not compete, and others will definitely prosper.

Is it not fascinating how one company can thrive off the product line leavings that another throws away. There are always companies that can run profitably what others cannot. One can legitimately ask if IBM just recently has become the company that can’t or perhaps Big Blue really has been this way for a long time. Perhaps all the easy cash sources have just now dried up?

Even when the company was tops in innovation and product excellence, IBM could not hold on to a number of major subindustries—those that it created and even those acquired such as Rolm and Satellite Business System. The IBM Company inevitably lost money in these industries, and had to sell off divisions and companies. I have concluded that IBM does everything right except for one thing: It simply does not know how to run a business in which there is both opportunity and competition.

If IBM had no mainframe product line, its staple for revenue over the many years, there would not have been enough profits to sustain the company through 2015? With CEO Rometty having placed a big X (target) on hardware for dissolution within IBM, industry analysts are not sure how long even the mainframe would continue to last. Why trust Rometty? Rometty is gone and one thing we now know: The mainframes is positioned to be part of the IT landscape for the foreseeable future. In fact, IBM in 2022 is the mainframe champion again.

Let us pause to say greetings over the career of Virginia Rometty as CEO of the computing behemoth IBM. It’s been just two years. Her retirement from that post after eight years meant among other things the end of a decline in the company’s share price of roughly 26%. During her lackluster career as reported by many, as an investor, IBM had been dead money: The shares closed on Jan. 1, 2012, the day she took over, at $138.54 and closed her last day at $136.77. Today, October 20, 2022 as I am dusting off this book for the next version, the stock, with no splits in the recent past has regressed even further to $127.68. i

Rometty was not known for a strong stock market. In fact here reign included one stretch of 22 straight quarters of declining revenue. That run finally ended in the fourth quarter of 2017, but the company’s annual results continued to be dismal. It was not fun at IBM for Ginny Rometty and investoers looking for something at IBM were not displeased when she moved on.

I picked this book up again to update it just the other day and because as an IBMer and afterwards as a consultant and a professor, I watched IBM squander away more fortunes than all of the technical computer giants of yore ever amassed—and till survive, I actually asked myself just now if IBM was still in the mainframe business.

When most people think of mainframes, more than likely, they have a mental picture from an old movie, with punch cards and a computer that takes up an entire large room. But the mainframe still lives, and is a viable product. Without the mainframe in IBM history, IBM itself would no longer be. IBM would be nothing more than a dust bunny blowing out of a big office building in Redmond, Washington. That is how it seemed it would be just a few years ago but IBM survived. IBM does exist at about ½ of its one time expected potential but it is much sleeker and more powerful, and it helps run data-intensive workloads for the world’s biggest industries, with use cases that might not be quite ready for the cloud. But anything is possible since the mainframe has been saved.

In 2022, IBM unveiled the latest mainframe in its storied history,. In a nutshell it is called the z16 and it runs on the IBM Telium processor, which the company released last summer. This IBM designed chip has been optimized to run massive workloads, processing 300 billion high-value financial transactions per day with just one millisecond of latency, according to the company. IBM was always good at speed contests.

IBM is still the go-to-company for banking, insurance, public sector, government, healthcare, retail — anywhere where you really have high transaction throughput, where you need security, reliability and the world’s best transaction processing. In this ballgame, IBM research is the only game in town.

The companies who use IBM’s big iron are the largest companies in the world, including two-thirds of the Fortune 100, 45 of the world’s top 50 banks, eight of the top 10 insurers, seven of the top 10 global retailers and eight out of the top 10 telcos. Just about all those machines come from IBM. Think about it, so few companies come anywhere close to the technical capabilities of IBM today, the risk of saving a dime simply is not worth it. To bring you back to what you may be familiar, this is picture below, care of IBM, is what those old movies from the 1950’s or 1960’s would show you.

image%201.jpg

Circa 1955, a female office worker sorts punch cards as two men talk near the console of an IBM 705 III mainframe computer, owned by the US Army, 1950s. (Photo by Getty Images/Getty Images)

IBM is still a leader in Cloud Computing even though it did not coin the term. There was a time when people would say that everything is going to end up in the cloud, and I think what you’re seeing more recently is people believing data is everywhere. It’s not all going to be in the cloud. And really the evolution of the whole compute landscape is more towards specialized infrastructure."

In its formative years, IBM owned whatever IT sub marketplaces in which it chose to compete. Things were literally too good as it was so easy, IBM forgot how to compete. The magnitude of IBM’s financial opportunity loss in many such instances has been staggering.

When IBM ignored obvious high potential sub-marketplaces such as the PC area, for its own reasons, more often than not, the revenues ballooned. But, the revenue was collected by other companies such as Microsoft, Intel, Phoenix Technologies, and Dell. The combined revenues of these newly formed companies became several times larger than the IBM Corporation itself.

Just looking at Intel and Microsoft for the last year—just two of many companies in the huge PC industry, the total is a staggering $240 billion and growing rapidly. Compare this with IBM’s declining revenue now slipping downwards to $57 Billion. Apple tops the charts at over $200 Billion.

Without Intel, Microsoft alone pulled ahead of IBM in 2015 with about $94 billion, up from $77 billion in 2013. Somebody is making money—lots of money—but it is not IBM. Intel pulled in about $54 billion up slightly from 2013.

For IBM, nothing seems right. Sales have been down for many quarters in a row. Big Blue brought in $6 billion less in 2014 than in 2013 and the company was down $14 billion from 2012. Thankfully for stockholders, IBM’s bottom line is not yet in the red. But marketing tricks cannot promise anything sustainable for IBM’s future. It looks like if Red Hat helps as expected, IBM may have hit bottom at $57 Billion.

The PC industry sub-segment is the one area that most industry-watchers understand. It became IBM’s worst loss ever from bad management decisions and neglect.

Historically, many programmers are fully aware that in 1980, IBM took a pile of bugs, and rewrote the Microsoft DOS PC operating system that Gates tried to say was ready to go. IBM cleaned up 300 bugs before giving it back to Bill Gates for no charge whatsoever. Gates is now the richest man in the world. Meanwhile IBM is selling off once profitable segments faster than the industry is creating new opportunities. IBM’s stockholders have been shortchanged for a long time.

IBM also got snookered by Intel. Big Blue could have tied Intel up with an exclusive contract on its 8088 microprocessor for the IBM PC but again IBM executives chose to permit Intel to call the shots. Intel would not have been so greedy if IBM controlled the marketplace. Instead, they would have literally done anything to maintain the IBM contract.

IBM asked for nothing. Unbelievable! Worse than that, Big Blue gave Intel the tacit OK to sell the 8088 to all comers with no restrictions knowing IBM’s PC would be the direct competitors of the newly established clone PCs. Clone company entrepreneurs were carrying loads of IBM cash to their banks.

The clone makers of course owed IBM nothing and soon learned how to out-IBM, IBM. The leader in the IT Industry had forgotten how to protect its intellectual property, its assets, and its future profits. IBM forgot how to sell; or it chose not to sell. Either way, IBM lost one major product line sales opportunity after another.

During this time, clearly IBM was not paying attention to the needs of its stockholders as its biggest sin was not protecting future stockholder opportunity for profits. Ironically, IBM showed more respect for Microsoft and Intel than for its own investors and employees.

IBM wrote many other operating systems between 1964 and 1980 and it could have written the 4,000 lines of assembler code turned over by Microsoft, in its sleep. IBM’s OS/360 operating system built in 1964 checked in initially with 1 million lines of code and before it was replaced, it had grown to 10 million lines. IBM knows operating system.

Big Blue chose to ignore the prospects for substantial revenue from operating systems by making it so easy for Microsoft to win the day. The net loss for IBM for not knowing how to run its PC business, is over a trillion dollars. Think about that for a while. Let it set in.

That is what this book is all about. Think of what IBM could have been. Think of how successful IBM made IT industry technology pioneers. The stories are phenomenal because they are real and truthfully told. You won’t believe how rich everybody else in sub-industry after sub-industry has become, and I am not highlighting just the $1trillion PC area. There are many others.

From RISC computers to telecommunications, to disk drives and tape drives, to networking, to microprocessors, to minicomputers, to storage systems, to Unix, to relational database, to clones and to BIOS vendors and to various sized PCs and x86 PC servers, and on and on, IBM stockholders seem to have been the only losers while others became billionaires.

When I began to write this book over twenty five years ago, I knew that I wanted to tell the true story about how IBM made a lot of brand new IT companies successful by choosing not to compete against them in the PC arena and other marketplaces. I knew there was a lot more than just the PC industry that IBM’s style precluded the company from dominating. I saw it when I was an employee.

I began to write about those stories twenty-five years ago. But until about six years ago, I had not closed them all out. The stories were easy to find and easy to finish. I had written the facts down from the 1990’s and then in the summer of 2015, I proved or disproved my suppositions and ideas through research at many levels. This book version came together quickly.

Nobody can deny that the PC marketplace continues to be a $1 trillion loss to IBM’s annual revenue—each and every year. It is IBM’s biggest blunder but few know that it is just one of many. In industry sub-segment after sub-segment over the years, IBM failed miserably and sold-out. Ironically, IBM did so well in managing its earnings that it rarely came close to hurting itself for all of its bad decisions.

In this second edition, I added software opportunities to the list of IBM’s squandering’s. IBM owned the application software industry when the computer industry was in its infancy. It had little foresight into what application software would become. The prognosis for IBM by industry analysts is not promising. Without a major revenue improvement from its current $7 billion level in cloud computing revenue, the new IBM future is not going to carry the day. IBM gave up on application software years ago and does not even have a small share of this $200 Billion market. We discuss this in the new Section V in this book.

When IBM almost died at the time in the 1990’s that John Akers was selling off plants and businesses, Lou Gerstner immediately realized the way IBM ran its hardware business was not the answer. He arrived at IBM after multi-billion dollar annual losses. Gerstner was very smart. He cleverly picked software and was able to move the company forward while reducing expenses by 60,000 employee cuts.

Gerstner saw the obvious. However, he picked middleware and expensive services, not customer application software such as IUPs, SAP, or the packages acquired by Microsoft and Oracle. Gerstner’s IBM did not think that it needed to engage in the application software business at all. In fact, in his biggest mistake, Gerstner pulled the plug on a revived application software business, the linchpin of cloud computing. This huge mistake is now coming home to roost big time as companies in the cloud do not need middleware.

That’s why this book has a lot of great stories to tell you and why there is lots of interesting stuff that you can learn. Who made out the best? Who has the money? Who does not and who does owe IBM a big thank you for Big Blue’s misgivings about being too successful.

IBM executives over the years from the CEO on down were all paid very well; but they seemed to understand just one aspect of IBM—its mainframe business. So they lost in just about all other marketplaces. They simply handed very crafty entrepreneurs, the whole game. In Microsoft internal meetings, they openly mocked IBM and laughed about how gullible IBM was as a company.

In many cases, IBM executives simply gave it all away because they thought they were giving away nothing. They did not understand the opportunities, which they completely controlled. So, they held nothing back for IBM and its stockholders. IBM got no requisite share of its own successful innovations in tons of industry sub-segments. Instead, the Company unwittingly created many industry tycoons by not properly watching its assets.

The tycoons went on to become multimillionaires or billionaires. Microsoft alone has four documented billionaires on its list which is topped by Bill Gates, the richest man in the world at $79 billion. Additionally, there are over 12,000 other Microsoft employees who became millionaires. IBM paid for all of these millionaires’ good fortunes out of what would have been stockholder dividends.

Considering that IBM’s relationship with Microsoft started by IBM accepting a dirty OS that Microsoft had not even written itself, and then IBM rewrote this operating system to remove over 300 bugs for Bill Gates and Big Blue took nothing in return, one can see what a major disservice IBM executives of this era did for the company’s future and the stockholders share value.

In Chapter 1, your author presents the list of most of the billionaires and millionaires who benefitted from IBM’s lack of prudence. It is a very long list. I wonder if any of these folks have ever called up the IBM Company just to say thank you.

Has IBM Been a Poorly Run Company?

The biggest story is about Microsoft and IBM and the PC. But there are many other stories. There are so many that IBM should be embarrassed. Your author tells the essence of the full Microsoft / IBM story along with many other stories of IBM squandering real opportunities. You will enjoy the intrigue in these stories and the stories themselves. It may even cross your mind that no company executives could have consistently made such poor decisions without being part of a conspiracy to defraud the IBM Company. Could this have been? I do not think so. But it would make a good movie.

Industry analysts, however, who have never loved IBM, and have never been employed by IBM are making noises to suggest that perhaps IBM is simply a poorly run company, and that makes the analysis very simple. This surely shines a negative light on IBM’s current management and past management back to the Watson era.

In January, 2015 a group known as 24/7 Wall Street declared IBM as the worst run company in America. This is the criteria they used. You make the call:

In order to be considered truly poorly run, a company must have a track record of missed opportunities, mismanaged risks, poor operational decisions or executive malfeasance. In short, a company must demonstrate a pattern of decision-making that calls into question the ability of its management and directors to adequately provide returns to shareholders.

What would 24/7 Wall Street think about a company whose shareholders benefitted very little while the employees of its competitors—as many as 15,000, became millionaires and multimillionaires—and the executives of its competitors—as many as 90—became billionaires and multibillionaires.

These lucky people gained their fortunes as a direct result of IBM’s poor executive decision making in dealing with non-mainframe sub-industries.

If IBM were not so poorly run over the past thirty-five years with the exception of the Gerstner years, one might even accuse executives at Big Blue of malfeasance. How else can we explain stockholders being shortchanged a trillion dollars a year in lost PC sub-industry revenue?

But, to be fair, nobody has ever suggested IBMers on the front line or at the top desks ever took bribes from Microsoft or Intel or Compaq or Phoenix Technologies or anybody. There are no reports of IBM executives shortchanging the company for their own enrichment. The simple truth appears to be that IBM just blew it.

You’ll love this book.

Where we have taken the reader in this Preface is more of a primer than a peek, I hope that we have proven that you are going to love this book. It is designed by an IBM insider and told with respect for IBM and with the truth that all of these great stories deserve. You will not want to put this book down.

Brian W. Kelly, my dad, not only gives the facts about how these billionaire entrepreneurs made their fortunes; he shows which IBM executives gave way the store. Kelly lived through these days and saw it unfold at IBM and in the industry. He knows what he is talking about. Kelly also provides a rich history lesson about the entire computer industry that will capture your imagination.

The book begins with the introduction of the first computer and it takes you on a ride through all of the major events that occurred during each IBM CEO’s tenure. The story thus begins with Thomas Watson Sr, as CEO and continues with son, Thomas Jr. as CEO. The book then progresses section by section and chapter by chapter to the state of the computer industry today. Kelly does it all in 57 easy-to-read, highly enjoyable chapters.

Few books are a must-read but Thank You,IBM. will quickly be at the top of your list and America’s most read list.

Who is Brian W. Kelly?

Brian Kelly is one of the leading non-fiction authors in America with this new version as his 92nd published book. He continues to be an outspoken and eloquent expert on IT topics. Of his 62 books, Kelly has written over thirty books and several hundred articles on IT topics that either teach technology or they tell a story about technology.

Brian has been writing books and articles for more than thirty years and he has many great books to his credit.

He also writes patriotic books and some of these include: Saving America; Taxation without Representation; Jobs! Jobs! Jobs!; The Constitution 4 Dummmies!; America 4 Dummmies!, Truth Justice & The American Way! -- as well as many others. Kelly’s books are highlighted at many web site sales sites including www.letsgopublish.com. They have been on sale at many fine booksellers over the years including www.bookhawkers.com and Barnes & Noble.

Enjoy and please tell others about your enjoyment!

The best!

Sincerely,

Brian P. Kelly, Editor in Chief

ABOUT THE AUTHOR

author%20photo.jpg

Brian W. Kelly retired as an Assistant Professor in the Business Information Technology (BIT) program at Marywood University, where he also served as the IBM i and Midrange Systems Technical Advisor to the IT Faculty. Kelly designed, developed, and taught many college and professional courses. He continues as a contributing technical editor to a number of IT industry magazines, including The Four Hundred and Four Hundred Guru, published by IT Jungle.

Kelly is a former IBM Senior Systems Engineer and IBM Mid Atlantic Area Specialist. His specialty was designing applications for customers as well as implementing advanced IBM operating systems and software facilities on their machines.

He has an active information technology consultancy. He is the author of 308 books and numerous technical articles. Kelly has been a frequent speaker at COMMON, IBM conferences, and other technical conferences.

Brian was a candidate for the US Congress from Pennsylvania in 2010 and 2022

SECTION I

Introduction to the

Book & Section I

This is the first of six separate and distinct sections in this book. In the chapters within this section, we discuss IBM’s lost opportunities throughout its corporate life. We also introduce the fact that IBM’s performance pleased its stockholders. There were very few complaints about how IBM management steered the Big Ship IBM. Yet, history as scribed in detail in this book is not kind to IBM. It shows that when IBM lost an industry, somebody with no IBM affiliation often stepped in, succeeded, and within just a few years, became a millionaire or billionaire. Meanwhile IBM received no compensation for the hard work and innovations that enabled so many other entrepreneurs.

IBM mainframes always made lots of money for the Company and because of this, IBM stockholders never saw the true value of the non-mainframe parts of the business, which IBM executives frittered away. The opportunity loss can be measured in $trillions. Look at the value of Apple, Microsoft, Intel, Oracle, and others and their billionaire founders to see just how much IBM stockholders lost by IBM’s poor management of the non-mainframe parts of the Company.

In this section, following Chapter 1, which sets the stage for IBM’s lost chances, we take you right to the present time to see where the IBM Company is right now. We also ask some important questions to get us all thinking about the essence of this book. We then look at a number of the opportunities that IBM missed by examining the companies that took those opportunities and ran with them.

Moving right along, we look at the IBM Company and its groundbreaking products. IBM may have squandered its opportunities along the way but the Company created all of those opportunities for itself. Nobody gave IBM anything. Finally we take a look at the future of IBM.

IBM really knows how to make great computer systems and the accoutrements that differentiate their great products. If only IBM’s marketing and its corporate management were as good as its research, development, and product support.

Get ready for an interesting and eventful ride. The five chapters in Section I are as follows:

1. IBM’s many opportunities and many disappointments

2. Fast forward to today. Has IBM improved? Will IBM succeed?

3. Can a company pass on opportunities and survive

4. The IBM story continues

5. IBM was destined for fortune.

Following Section 1, we move into the five other sections of the book. Each of these sections coincides with products and or events that occurred during a particular IBM CEO’s time at the helm: The five sections of the book are as follows:

Section I: Introduction to the Book and Section I

Section II: The Watson years

Section III: T. Vincent Learson and Frank T. Cary move IBM past the Watsons

Section IV: CEOs John J. Opel & John Akers together almost sunk IBM

Section V: Application Software: From Watson to Rometty

Section VI: Lou Gerstner, Sam Palmisano, & Ginni Rometty bring us to today

CHAPTER 1

IBM’s Many Opportunities

& Many Disappointments

IBM’s failings made a lot of one-time little guys very rich

This book is the story of the many opportunities which have been presented to IBM over the years and how the Company managed to fritter away a disproportionate share of those opportunities. In addition to bungling phenomenally big chances over the years, there were other times in which IBM actually won; but the odds of winning were so poor, and the risks were so great, that most other companies would not have taken the gamble.

In some instances, such as the $5 Billion gamble with the System/360, no perfectly sane person would have ever put so much on the line for any size potential chance of success. That IBM achieved success in such instances may be attributed to fate or manifest destiny as much as to excellent planning and execution. IBM defined computing in the early days when just about everything worked the way IBM dictated.

There is no question that IBM’s mark on the world has been its major computing innovations and its original ability to sell such solutions to the business masses. We discuss these aspects of IBM in this book.

However, in a pop-culture world, IBM’s modern legacy may very well be that it lent more than a helping hand to create so many technology billionaires and multi-millionaires—starting with the richest man in the world, Bill Gates. The list is enormous and in this book we tell the story behind each name on the list.

Thank You IBM!

Before we move on with the stories, let’s take a look at a list of most of the billionaires and multi-millionaires that IBM helped create over the years. By not capitalizing on its own innovations, IBM turned over a large share of IBM stockholder wealth to anybody that cared to take it.

Besides IBM’s founders and other CEOs, which are not on the list, only one person on this list, the late Ted Codd hails from IBM. Codd invented relational database while an employee at IBM. Yet, he made his money as do all entrepreneurs, by creating his own Company and working hard after his IBM career.

The major players on this list are from companies you will recognize, and you will also recognize many of the names. Some of their pictures are on the book’s cover. They are on this list because of their own motivation for sure. However, their chances for success were multiplied as IBM was paying attention to other matters, and was not concerned with minding its core business. IBM forgot about making money the old fashioned way—by accepting new challenges and winning new opportunities.

This list is not 100% complete but it is close. IN subsequent book revisions, we’ll make it better. It contains the names of prominent people and their companies in the IT industry. The names on this list benefitted most from IBM’s belief that it was a mainframe-only company and everything else was secondary.

If you are unfamiliar with IBM as you go through the stories in this book, you will be amazed that the Corporation’s board of directors waited so long to take action against the many top executives in IBM that compromised the stockholders’ good fortune. The companies behind the billionaires took what would have been IBM earnings for IBM stockholders and profited in industries in which IBM somehow once led in many cases and then somehow could not compete. IBM created more millionaires than most would ever believe.

IBM after the Watsons had a basic unwillingness to protect its business assets, its inventions, and its many opportunities. The Watsons who first managed IBM did very well in this regard, but when they were gone. IBM managers focused on the low-lying fruit and short-changed stockholders by their shortsightedness. They ignored huge industries in which Big IBM had the upper hand in controlling and realizing substantial profits. This book is about all of that.

To whet your appetite for the stories behind the list, I present the list of the many billionaires, multimillionaires and plain old millionaires below. All of these entrepreneurs owe IBM a huge thank you in one way or another for making them so successful:

Please note that this list is in sequence of net worth. This list is more current than text notions of net worth. This list was updated right before printing whereas text notions remained as they were. As most already know at the very top of the list is Microsoft’s former Chairman, Bill Gates with a net worth of $84 Billion even after having given over $30 Billion to charity over the years. As of 2016, Gates had been at the top for 17 of the last 22 years. More than anybody else on the list, Mr. Gates owes his great fortune to IBM for IBM’s gullibility at a time that it should have been very watchful and cautious in picking its partners and friends.

Technology Billionaires & Millionaires – Thank you IBM!

IBM’s Thomas Watson, Sr.

In many ways Thomas Watson Sr., IBM’s founder, was blessed in the same fashion as Apple’s founder—the late Steven Jobs. Everything the senior Watson touched was successful. His only real historical faux pas was that he chose to resist computers until it was almost too late. But, again fortune came his way, as his son Thomas Jr. was able to put a team together quickly in the 1950’s, to gain back the lost ground in the computer industry.

Watson Sr. gave IBM a proud legacy and a loyal constituency. Watson Sr. created an environment for employees that encouraged their best, and best efforts were always rewarded. The Company was family first and for this, Watson Sr. received the full loyalty of all of his employees. The Company had been profitable for over forty years when Tom Sr. turned the reins over to Tom Jr. Tom Sr. had accumulated lots of cash. I mean lots of cash. He was an astute businessman.

IBM has been well known through most of its recent history as one of the world’s largest computer companies and systems integrators. The Company has well over 400,000 employees worldwide. At one time, I was included within the ranks.

Big Blue has always been one of the largest and most profitable information technology employers in the world. IBM has a history of inventing things—even things that it could not sell as completed products. And so the Company today brings in a lot of revenue selling the rights to its many patents.

Big Blue holds more patents than any other U.S. based technology company. It has eleven research laboratories worldwide. Each and every year IBM files more patents than any other corporation by a wide margin.

Patents are something IBM pursues and a major area in which it excels. One can argue that IBM today continues to be the most innovative corporation in existence—even compared to Apple. in IBM’s case, it takes a very long-term view of the value of innovation. This book in many ways reflects the big difference about how very innovative they are; versus how poor they are at actually bringing their innovations to market and making a big splash with them. IBM has struck out so many times in the latter, I was compelled to write this book.

Besides production workers, IBM employs knowledge workers and marketers. The Company has many scientists, engineers, consultants, and sales professionals working in over 170 countries. IBM is recognized as a great technological company as its employees have earned five Nobel Prizes, four Turing Awards, five National Medals of Technology, and five National Medals of Science. And, folks, IBM even today still spends tons of money on pure research and development. It pays off.

For example, on January 12, 2015, IBM announced that it had received a record 7,534 patents in 2014 -- marking the 22nd consecutive year that the Company topped the annual list of U.S. patent recipients. No US company has ever received more than 7,000 patents in one year. Congratulations, IBM.

IBM has deep roots

IBM’s roots go back even further than Thomas J. Watson, Sr. but the IBM that most of us know began when Watson Sr. took the helm. You have to go back to the 1880s, long before electronic computers to find the first IBM employee.

The IBM structure which we see today was formed long ago by the merger of three companies: (1) The Tabulating Machine Company of Washington, D.C., a firm which began in the 1880’s; (2) The International Time Recording Company, a 1900 era company founded in Endicott, and (3) The Computing Scale Company, which began in 1901 in Dayton, Ohio.

Going back to a 1911 stock prospectus states, we can see that actually four companies were consolidated to form IBM--the three described by IBM and another known as the Bundy Manufacturing Company, which was begun in 1889. Reading this history tells us that the reports of a merger were not true either as the IBM predecessor Company that emerged—the Computing-Tabulating-Recording Company (CTR), was in fact a holding company.

In other words, the individual separate companies continued to operate using their particular names until the holding company itself was brought to an end in 1933. CTR had been incorporated on June 16, 1911 in Endicott, New York, U.S.A.

Tom Watson Sr. was hired to run IBM

The man who had engineered the merger and the creation of the Computing-Tabulating-Recording Company (CTR) was Charles Ranlett Flint. Mr. Flint was not as good at managing companies as he was at putting deals together. So, he naturally found it difficult keeping the operation going. He looked to the NCR Corporation and specifically to one of their best and brightest—Thomas J. Watson Sr. Flint hired Watson to manage the new company.

T. J. Watson, Sr. became general manager of C-T-R on May 1, 1914 when the Company had just about 1300 employees. Eleven months later as the tale goes, Watson became president of CTR and four years after that, this superior businessman doubled its revenues to $9 million. Watson ran C-T-R like it was his own company and in fact, in many ways, it was. The Watsons made billions at IBM.

IBM stock at one time was increasing at a blistering pace. In discussing Watson Sr. and IBM’s stock prowess in 1982, the NY Times recorded the following:

"It would have cost $2,750 to buy 100 shares of the Company’s stock in 1914, the year Mr. Watson took over. Anyone exercising rights accruing to those shares through 1925 would have increased his cash investment to $6,364 for 153 shares.

"Such a person would now (1982) hold 3,990 shares, and would have obtained a value of $2,164,000 based on market prices this year and cash dividends of $209,000 paid thus far.

In 1924, Watson, Sr. renamed the Company International Business Machines Corporation (IBM). Considering that the On to Europe campaign had not yet started, it was a brash move including the word International in the Company name. Watson made IBM into the Company he viewed with the name change.

IBM’s Consent Decrees

IBM was destined for the stars from its inception and the rest was just the proper story playing out. The government was very concerned that IBM might be using its muscle unfairly and so it decided to keep closer tabs on the Company. When that did not do enough for their blood thirst, the Government decided to do a little more. They asked IBM to police itself through a series of deals with the government with the prize being that the government would not bring an anti-trust suit against Big IBM. The first decree was in 1936 and they came after IBM for another one for 1956. Now, with the massive cadre of microcomputer industry companies dominating technology since the 1990’s, today IBM is not all that powerful a company today and it certainly is not all that it could have been. There would be no need for IBM for example, to check on itself in today 2023. Nobody actually seems to care.

1936 Consent Decree

In 1932 U.S. Government prosecutors asserted some of IBM’s practices could be described as somewhat shady. Specifically, they were called anti-competitive. It was actually what a smart business man would call it a smart practice. IBM had a habit of tying in sales. In other words, IBM’s practice of requiring customers who leased its tabulating equipment to be required to purchase blank punched card stock from the company for use on the leased equipment was a bit too much for the government to attribute to good-will.

IBM lost the case, and in the resulting 1936 consent decree, Big Blue agreed to no longer require only IBM cards and agreed to assist alternative suppliers of cards in starting production facilities that would compete with IBM’s; thereby create a separate market for the punched cards. In effect this action also opened up another separate market for subsequent computer supplies such as tapes and disk packs. It was worth a lot of money but IBM was in essence being accused of being a monopoly and there were hints that the company was too big and perhaps should be broken up.

1956 Consent Decree

On January 21, 1952 the U.S. Government filed another lawsuit which resulted in a consent decree entered as a final judgment on January 25, 1956. I can recall as an IBM employee, management would boast that the company’s biggest competition was from the government. Without government interference the IBM company sincerely believed its sales would hit the moon. The government did not care what IBM thought. Its goal was single fold—to increase competition in the data processing industry. This goal was achieved through several provisions in the decree The decree was in effect from 1956 through 1969, the year I joined the company and it continued through May 1, 1997 forty years after the government brought its case. The stipulations of the 1956 decree were as follows

• IBM was required to sell equipment on terms that would place purchasers at a disadvantage with respect to customers leasing the same equipment from IBM. Prior to this decree, IBM had only rented its equipment. This created markets both for used IBM equipment and enabled lease financing of IBM equipment by third parties (leasing companies).

• IBM was required to provide parts and information to independent maintainers of purchased IBM equipment, enabling and creating a demand for such hardware maintenance services.

• IBM was required to sell data processing services through a subsidiary that could be treated no differently than any company independent of IBM, enabling competition in the data processing services business.

IBM was required to grant non-exclusive, non-transferable, worldwide licenses for any and all patents at reasonable royalty rates to anyone, provided the licensee cross-licensed its patents to IBM on similar terms. This removed IBM patents as a barrier to competition in the data processing industry and enabled the emergence of manufacturers of equipment that was plug compatible to IBM equipment.

While the decree did little to limit IBM’s future dominance of the then-budding computer industry, it did enable competition in segments such as leasing, services, maintenance, and equipment attachable to IBM systems and reduced barriers to entry through mandatory reasonable patent cross-licensing.

The decree’s terms remained in effect until 1996; they were phased out over the next five years.

Justice Department Ends IBM Antitrust Regulation

Just as the Consent Decrees were big news, when the Bill Clinton Administration dropped the case in 1997, there was a similar reaction. In many ways, it signaled the end of IBM mattering in the IT industry for the future. IBM has stumbled since as we will show in this book. s

The Justice Department officially ended its 40-year-old antitrust regulation of IBM in the beginning of May 1997. The government already had discarded portions of the antitrust consent decree, but On May 1, it stopped regulating the mini-computer and mainframe markets. The Justice Department yesterday lifted those restrictions in a phase-out plan that was to extend over five years.

For those watching it seemed like it would last forever. After 40 years, the Justice Department finally decided to stop regulating IBM mini-computers and mainframes. It was greeted with amazement. By May 1, 1997, The federal government already had discarded portions of the antitrust consent decree, but for its own reasons, had maintained regulation of the mini-computer and mainframe markets. The Justice in this action lifted those restrictions in a phase-out plan that will extend over five years.

From 1968–1984 IBM Was a HOT Target

In 1968 the first of a series of antitrust suits against IBM was filed by Control Data Corp (CDC). It was followed in 1969 by the US government’s antitrust complaint, then by 19 private US antitrust complaints and one European complaint. In the end IBM settled some of these matters but mainly won. The US government’s case sustained by four US Presidents and their Attorneys General was dropped as without merit in 1982 by William Baxter, US President Reagans’ Assistant Attorney General in charge of the Antitrust Division of the Department of Justice.

IBM as run by Watson, was such a dominant company in whatever areas it touched that the federal government did not hesitate to regulate however it felt necessary. It filed a civil antitrust suit against it in 1952. IBM was king of business data processing at the time, even before many of its fine computers had ever seen the light of day from its research laboratories.

During this period before mainframe computers, IBM owned and rented to its customers more than 90 percent of all of the heavy electromechanical tabulating machines in the United States at the time. When Watson died in 1956, IBM was still making a killing every year on gear that had been recycled many times, and each time the customer found benefits.

Figure 1-1 Early Hollerith Tabulator

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IBM’s annual revenues were $897 million, and the Company had grown from 1300 to 72,500 employees. Thomas Watson Sr. was personally responsible for this success. He knew success and he demanded success from all his employees. IBMers delivered success in all areas for Watson Sr.

Thomas Watson Sr. had this thing about renting machines from which businesses could continually gain value. He justified machines based on the salaries of a number of future bookkeeping employees a given company could save by not having to hire them in the first place. He also sold the companies on being able to process more orders in the future with fewer people. Their salaries were justification for the data processing machines.

If Watson had sold instead of rented the machines, he would have to sell something new and better every five years but by renting them, he could merely increase the rental every now and then and sell more customers on the idea of getting more efficient.

And, so in Watson’s C-T-R, and then Watson’s IBM, not only was there lots of money continually streaming in from long-term rentals of tired old equipment, written off many times, Mr. Watson also inspired a crackerjack field sales force to keep selling more and more and even more stuff.

Spare parts fix broken machines

Much of what IBM sold and rented cost companies a good penny per month but the companies saved even more in expenses by deploying Watson’s data processing technology. Ironically, if it had not been for a business model that put old machines back in inventory for long periods of time until they were rented again, TJ Watson Sr.’s rental business would have had no value at all.

IBM built more than enough spare parts for its aging rental electromechanical behemoths and the machines often lasted more than thirty years before reaching their discard point.

IBM’s year to year financial sustenance and growth was always assured through its rentals. Even if nobody sold anything new for a long, long time, with Tom Sr.’s cherished rentals, there would still be a big wad of cash coming into the Company’s coffers. But, of course that was not the objective. Watson played the game of business to grow IBM’s revenue each and every year.

IBM loved to get new accounts

Watson loved to win new business, and so he kept hiring the best and the sharpest sales personnel. His son, Thomas Jr. used the same model. In later years, the sales personnel Marketing Representatives to differentiate IBM’s talented few from the run of the mill pitch men.

The Watson objective was always to make a buck... but not at all costs. Both Watson Sr. & Watson Jr. believed that If you take care of the people (the employees in the business), the people will take care of the business. The Company thrived on