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OS/2 a quarter century on: Why IBM lost out and how Microsoft won

Let's pile into the DeLorean to see what might have been

Internet Security Threat Report 2014

Divorce

Microsoft had been hawking Windows 3.0 for many months before its summer 1990 launch, and everyone in the industry, it seemed, had a copy. It was clear that Microsoft saw Windows as more than a flower on the grave of DOS, a valedictory to the pre-OS/2 world we were all leaving behind. Far from it. Microsoft had done a lot of work to make Windows attractive, and was hyperactively promoting Windows to developers. It was a "quasi-platform", not a new OS at all, but it was one that finally allowed developers to run a GUI. And developers who were fed up with poor sales of OS/2 products were responding positively. At the same time, Microsoft was obliged to continue to show demos of the 32bit OS/2 to the press, and these were everything that the 16-bit version was not.

Microsoft’s mutant "quasi-platform" Windows 3.0 was launched with a splash and started to sell well. It was now evident that all the way through 1989, at least some of the developers who had swotted up for OS/2 Presentation Manager had - in the absence of any action - turned their talents to Windows. Windows had provided them with plenty of opportunities and appeared to have a glimmer of a chance of a market, albeit perhaps a temporary and modest one. But something was better than nothing. Soon there was a increasing supply of attractive new Windows applications followed by a stampede of acquisitions as the major application vendors looked to plug up a hole in their portfolios. In just one month, Microsoft had sold more copies of Windows than IBM had shifted copies of OS/2 in two years.

IBM tried to persuade Microsoft to give up on Windows on several occasions in 1988 and 1989, but Gates refused. It wouldn’t go away. Then, unknowingly, IBM’s PC boss Jim Cannavino made a catastrophic error. Aware of Microsoft’s growing enthusiasm for Windows, he was unwilling to concede an inch and give it any credibility – but couldn’t bring himself to rip up the agreement with Microsoft either. He ended up giving Windows a tepid endorsement - a vital blessing - and breathing space. Windows was positioned as a kind of "training wheels" for OS/2, even though the APIs weren’t compatible. IBM had many opportunities to fire Microsoft, and ditch OS/2 – but this would be the single most disastrous error it made.

That was in September 1989. IBM's second most catastrophic error was not ripping up the joint development agreement - and dumping and/or outflanking Microsoft. Relations disintegrated as Windows sold in huge numbers.

Suddenly, the ecosystem advantage enjoyed by Ashton Tate and Lotus began to evaporate overnight. Windows provided the device drivers. The new skills base would need to know how to use Windows. Eccentric keystroke sequences were no longer an advantage. WordPerfect tried awkwardly to bridge the divide, retaining old DOS keystrokes for its first Windows version of the software, but it was not successful.

March on the enterprise

In business, Windows PCs began to be used for running Noddy forms based front end applications. Microsoft launched Visual Basic in May 1991 – a crude, graphical scripting language – but one that was able to call routines in compiled libraries. Windows also gave Microsoft’s application division a huge boost. Microsoft's Multiplan and Word had a respectable but tiny market share in the DOS world. Its Windows counterparts, Excel and Word 2.0, were much stronger. Microsoft also began to bundle in its office applications, with Access database and office Mail software, undercutting the established rivals significantly. It was possible to pick up "Office for Windows" for little more than the price of dBase or Lotus 1-2-3.

For almost two years the battle between IBM and Microsoft became a PR war of attrition. IBM had failed to kill Windows or walk away from Microsoft. The inevitable divorce took place in April 1991. The contractual settlement saw IBM take sole responsibility for developing 32bit OS/2, and bundle a licence to bundle Microsoft's Windows code with the product. Microsoft canned its own 16bit development of OS/2 almost immediately, although it would continue to sell "Microsoft OS/2 LAN Manager" for a few more years – the name OS/2 was written progressively smaller on the box.

Author Paul Carroll relates in his Big Blues: The Unmaking of IBM that by the time the divorce was public, Microsoft had sold 13 million copies of Windows 3.0 in under a year, and IBM had moved just 600,000 copies of OS/2 in over three years - of which 300,000 were "real" sales - far fewer were actually in use. On the back of Windows sales, and the demand for Microsoft Windows-based applications, Microsoft had grown from a small company of 1,800 staffers to an organisation with 10,000 employees.

Yet even then, the odds were against Microsoft. As Gates later described it:

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'.

What made it even scarier was that the 32bit version of OS/2 was everything that the 16bit wasn’t. It was a quite stunning system. It just wasn’t ready yet...

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