How Brit computer maker beat IBM's S/360 - and Soviet spies
'We are the biggest', crafty biz told Iron Curtain prospects
IBM announced the System 360 in 1964 and started selling its family of modern mainframes 12 months later. But how do you outsell a problem like IBM?
The S/360 cost IBM $5bn to develop, overshooting its estimated budget in 1962 by more than $4bn. Yet IBM need not have worried.
Such was rate of sales for the S/360 family that between 1966 and 1970 IBM’s annual revenue nearly doubled to $7bn, thereby recouping the S/360’s costs.
By 1970, IBM had 70 per cent of the mainframe market.
The technology is one thing, but can't sell itself. What was the business and sales argument IBM used on customers to buy rather than go with the competition?
“IBM had a simple argument: ‘We are by far the biggest. It’s a safe decision to come to us’,” says Ralph Land from one of IBM’s competitors and who reckons his company possessed machines actually more powerful than the S/360.
“Where ever we were, we faced that and there was no way you could beat it.”
Land sold the LEO III and 4, the KDF8 and KDF9. The LEOs were descendants of first Lyons Electronic Office, based on the Electronic Delay Storage Automatic Calculator (EDSAC) from Sir Maurice Wilkes. It came from LEO Computers, a spin out from J. Lyons & Company.
The KDF9 and KDF9 followed LEO Computers' merger with English Electric to form English Electric LEO and later English Electric Leo Marconi.
Land was export manager Eastern for Europe and the USSR, with offices in various countries. He had 120 staff, with 30 living in hotels in the Soviet Union with their families, but was out-gunned by IBM with 250 bodies mustered at its offices, in Vienna, Austria.
According to Land, IBM with the S/360 became something of a self-fulfilling prophecy: the more customers it signed up, the more persuasive its basic argument of siding with the biggest became.
“If you go to a big organisation and say ‘I’ve got super equipment’ but then IBM comes in and says ‘we’ve got five companies using similar equipment,’ it’s that argument that makes a powerful marketing company like IBM even more powerful,” Land told The Reg.
IBM was helped by the growing reputation of the S/360.
The S/360 was a break-through in computers of the day for a number of reasons: its speed and scale performance, ability to run the same app on different size S/360s and relatively low cost – both of purchase to the customer and manufacturer to IBM.
It was so good that the Soviets coveted the S/360 and are reputed to have smuggled 11 IBM mainframes into the USSR via East Germany to try and build their own.
This was the time of the Cold War, and exporting computers to Communist countries was forbidden as the West and the Soviet Bloc countries tiptoed around nuclear war.
The Soviets succeeded in building an S/360 clone – the ES EVM – but, according to Land, they could never get the software to run properly.
Both IBM and English Electric were targeted by the Communists, who tried pilfering trade and technology secrets while they engaged with various ministries, departments, trade bodies and institutions.
Land reckons that he actually did outsell IBM behind the Iron Curtain, and that his business could have been bigger had it not been for IBM’s "buy from the biggest" shtick. He claims to have landed "heavy users" like the planning and the statistics ministries.
"I always argued that if we withheld spares we could bring their economies down and so in a sense they became dependent on us," Land told The Reg.
Just how did he sell against IBM with a product that set the standard for modern computers?
The answer: counter-trade. He capitalised on the Reds' lack of hard currency to pay for new computers by dealing with them creatively.
That meant investments and a kind of bartering. Land set up a counter-trade bureau specifically tasked with running deals. “My attitude was: if we’re going to do counter trade, let’s do it properly,” he said.
English Electric financed a Czechoslovak film, accepted ball bearings from Romania and took hanging baskets from Bulgaria as payment for machines, which the firm swiftly sold on.
Land also proposed technical co-operation. This amounted to limited assembly, within the limits of the western export regulations.
The stuffed shirts at IBM were more reluctant to dirty their starched blue sleeves with such deals.
"Our tactics were whenever possible to try to understand their systems requirements, so that we could configure equipment that met their needs and where possible to help them design the systems," Land said.
"Commercially, we needed to understand that they needed us to help them obtain permission to import the computers by funding the foreign currency to make the purchase and so we agreed to engage in counter trade."
“We helped them do the counter trade in an aggressive and willing way instead of unwillingly,” Land said. “They wanted technology cooperation, so we offered a program that let them assemble our machines but under strict controls.”
Could it have just worked?
We'll never know. English Electric was forced into a marriage by the British government of the time that led to the creation of ICL, as masterminded by then-government minister Tony Benn. All ICL could muster was fourth-largest technology company in Europe, while IBM springboarded off the S/360 to become one of the biggest technology firms and brands in the world. ®