Original URL: http://www.theregister.co.uk/2011/06/16/ibm_100_years/

Can Big Blue survive another century?

100 down, 100 to go

By Timothy Prickett Morgan

Posted in Servers, 16th June 2011 15:37 GMT

Big Blue, which more than any other company defined the modern IT industry, turns 100 today. Such longevity is an accomplishment that most corporations can only aspire to, and there is no guarantee, as IBM's near-death experience in the early 1990s aptly demonstrated, that it will be relevant, much less viable, for the next century.

A hundred years ago, on June 16, 1911, Charles Flint, also known as the "father of trusts" because of rubber and chewing gum conglomerates he created in the late 1890s, did a mashup of a bunch of hardware companies that sold meat scales and cheese slicers, time recording equipment (the punch clock), and Hollerith tabulating and punch-card equipment that had been created to automate the tabulation of statistics for the 1890 US Census. Data from the Census was punched on stiff paper cards by human operators and then run through mechanical tabulators that were a derivative of programmable looms; the Electric Tabulating System, which Herman Hollerith patented after writing his PhD thesis on the machine design at Columbia University, is the foundation of what would eventually become data processing and then turn itself into information technology.

Flint may have put the Computing Tabulating and Recording Company together, but chairman George Fairchild ran it for him and perhaps the most important other founding element that gave what would become IBM longevity was the hiring of Thomas Watson, the top salesman at National Cash Register who left that company under a cloud after being convicted of felony charges relating to dubious business practices against other makers of cash registers. It was Watson's second chance at the big time, and he did not blow it. CTR went public in 1916 and when Fairchild died in 1924, Watson took control of the company and changed its name to International Business Machines.

CTR IBM ad

Early business machines, somewhat international, from CTR

At the time, a meat scale, a time clock, and a card-thwacking tabulator were business machines; so were cash registers, but IBM didn't get into that racket, with Watson already having seen how rough that business could be. IBM got rid of the meat scales from its product line in 1933 and sold off the time clocks in 1958, long after the punch-card tabulators had become its dominant product.

During the Depression and World War II, IBM was the dominant supplier of punch-card equipment used for early government and business accounting systems. Because of predatory technology and pricing practices that yielded IBM profits that even Microsoft and Google cannot match today with their Windows and search/ad-serving monopolies, Big Blue grew to have about 95 percent of that tabulating equipment market. And as the Computer Age dawned, IBM was sued by the Department of Justice on antitrust grounds. The company had always leased its equipment, which gave it tremendous control over pricing, but also gave customers the option of unplugging their gear with 30 days' notice.

Intended consequences

That 1952 lawsuit by Uncle Sam, and the 1956 consent decree that IBM signed to settle it, set the stage for the modern computer industry in a number of ways, even though it initially only applied to punch card machinery, not electronic computers. (The decree was subsequently extended to computers). This consent decree did a lot of things, including opening up specifications on IBM machinery so third-party peripherals could plug into them and, eventually, so third-party software could run on them without prejudice. (Think of this as an early version of open source APIs, only compelled by law, not generosity.) The decree also required IBM to sell its machinery at a reasonable price that bore some relationship to the lease price, and fostered the leasing of IBM equipment and their support by third parties. But ironically, given all the yammering about the high capital expenses in the data center, more than anything, the consent decree set the conditions for acquiring rather than renting IT equipment, moving it from the OpEx to the CapEx side of the corporate ledger.

IBM Global Services has spent the past 20 years trying to put that genie back in the bottle, and with all this talk about cloud computing, 20 years hence it may be unusual to own a computer at all.

The IBM of the 1960s and 1970s had a hard time coping with that antitrust settlement, which coincided with the rise of the System/360 mainframe and its adoption as the primary platform for business applications in the world at the time. Over its century of life, IBM has generally played it very safe, doing what is necessary to generate the most profits with the least amount of work – precisely what a company should do, and only what it should do, if you adhere to the code of behavior espoused by Wall Street.

By the time IBM had inked the Consent Decree, Tom Watson Jr was ready to take the helm at Big Blue, and only a few years later, the company made the biggest bet in its history. At a time when IBM was only raking in $3bn a year in revenues, it committed $5bn to create the System/360 mainframe, the world's first "write once, run anywhere" system architecture.

IBM logos

IBM's true genius was always with electromechanical devices, with its punch-card driven mainframes and midrange gear as well as its Selectric typewriter, various printers, and disk drives being good examples but by no means an exhaustive list. IBM was very good at building and, equally important, maintaining these devices, and its sales force was properly motivated, from the first day when Tom Watson Sr took over at CTR, to clean up their act and make sales. The current crop of IBM top brass can barely remember this Big Blue, of course, but they are experts at financial engineering and rather than making big bets that shape the future of computing, as the System/360 combined with the Consent Decree surely did, they chart the safest course possible to the most profits in a turbulent IT market.

And current IBMers are quite proud of this, starting right at the top.

"For IBMers, long-term thinking means continually moving to the future," said Sam Palmisano, IBM's president, CEO, and chairman, in a statement marking the company's 100th birthday. "IBM has survived and thrived for 100 years by remaining true to our core values, while being ready to change everything else. This has allowed us to transform technology, business and society through our first century, and we believe it will enable us to achieve even more in our second."

I have my doubts. The IBM that many of us respect set the standard with punch cards and mainframes in the data center and did the same on the desktop with the Personal Computer, despite its own best efforts to not acknowledge there was a place in the world for personal computing. That IBM never quite recovered psychologically from its near-death experience when the mainframe business collapsed in the early 1990s and Unix systems swarmed the data center and PCs kicked dumb terminals off the desktops. It did recover financially, obviously, thanks in large part to former CEO and chairman Lou Gerstner, the first and probably not the last CEO from outside the IBM Company.

Cloudy thinking

IBM may be growing fast and throwing off giant bags of cash that it can use to buy back its own shares, but that is not making a big bet on the future of computing, like it did back in 1964 with the launch of the System/360 or even little bets like launching midrange System/3 machines in 1969 or the original PC back in 1981. IBM has been playing it careful since 1956, and has been playing it safe since 1993; it only bets on sure things and only places small bets.

IBM controls its legacy environments with an iron price list and is a tough competitor in Unix, Windows, and Linux systems, but much of the hardware and software in its systems come from elsewhere. Google and Microsoft absolutely control their environments in ways that IBM used to. While I was impressed earlier this year with the Watson question-answer machine that beat humans playing Jeopardy!, IBM has not put a stake in the ground and said it would be building the world's largest cloud and convincing customers that it was time to get back to timesharing for economic as well as technical reasons.

Given how any company running such a large cloud might be tempted to abuse this position, perhaps we should all be grateful that Big Blue is busy living quarter to quarter, counting its money and being smugly satisfied with itself. Bigger Blue could be so much more dangerous than Big Blue ever was, if Palmisano ever got the idea of building a legacy for himself instead of just being somewhat rich and powerful. ®