When the IBM PC Came to Town
In retrospect, it is clear that the arrival of the IBM PC was a pivotal event in microcomputer history. But what did people think back then?
From day one, Scotty and I sat down and said, “We have to grow at an astounding rate and get large enough so that when IBM enters the market, they don’t just squash us like a bug”.
Mike Markkula1
The announcement of the IBM Personal Computer 5150 on August 12, 1981, is nowadays considered a pivotal event in the history of the microcomputer industry.
But what expectations did IBM and industry leaders have for the new machine when it was released?
IBM
Many who wrote about the IBM PC at the beginning said that there was nothing technologically new in this machine. That was the best news we could have had; we actually had done what we had set out to do.
Philip Don Estridge2
In 1980, IBM was the undisputed leader in mainframe computing and had been facing an antitrust suit for over a decade.
IBM’s first personal computer model, the 5100, was innovative but expensive and unfamiliar to computer enthusiasts. After years of internal advocacy, Bill Lowe, laboratory director of IBM’s Entry-Level Systems unit in Boca Raton, FL, convinced the Corporate Management Committee to try something different: to form a small team isolated from IBM’s bureaucracy and give it a mandate to design a personal microcomputer from off-the-shelf parts with third-party software.
What they ended up with was an unexciting but solid machine, based around Intel’s 8088 microprocessor3. The base model cost $1,5654 (approximately $5,500 in 2025) and included a system unit, keyboard, and color graphics card. Users could set it up as a home computer using cassette tapes for storage and a television as the display. Most buyers were looking for a business machine with a monitor, disk drive, more memory, and software; options that quickly raised the price to around $3,000.
IBM expected to sell 1,000 units in the first six months after the release; instead, it sold 60,000. By late 1983 it was selling 45,000 units per month!5 And then the clones came…
Bill Gates
Bill and I were willing to forgo per-copy royalties if we could freely license the DOS software to other manufacturers, our old strategy for Altair BASIC. Already enmeshed in antitrust litigation, IBM readily bought this nonexclusive arrangement. They’d later be slammed for giving away the store, but few people at the time discerned how quickly the industry was changing. And no one, including us, foresaw that the IBM deal would ultimately make Microsoft the largest tech company of its day, or that Bill and I would become wealthy beyond our imagining.
Paul Allen6
In 1980, Microsoft was a small company with around 40 employees. By that time, Microsoft had developed several microcomputer software products, including compilers, but its bread and butter remained the BASIC interpreter originally written in 1975 for the Intel 8080 processor. As hard as it is to imagine today, a BASIC interpreter was considered the most important software for the early personal computers7 - more so than an operating system. Microsoft’s BASIC ran on some of the most popular personal computers at the time, including the Apple II, Commodore PET, and TRS-80. It was for this reason8 that IBM’s Jack Sams who was in charge of software for IBM’s new personal computer approached Microsoft: initially in July for consultations, and then on August 21 to discuss licensing all Microsoft products9.
Sams believed he could also license a disk operating system from Microsoft, but at that time, Microsoft did not sell any OS10. Gates directed the IBM team to Digital Research Inc. to negotiate porting and licensing of CP/M, the de facto OS standard for 8-bit business microcomputers. After talks between IBM and DRI stalled11, Gates feared the entire project would be abandoned. Paul Allen informed him of an operating system called 86-DOS, which already ran on the 8086 processor and had been developed by SCP12, a small Seattle firm. Bill Gates was at first hesitant to rely on an unknown product for the IBM deal but eventually agreed. Microsoft first licensed and later bought 86-DOS. This tiny and simplistic operating system, renamed MS-DOS, powered PCs worldwide for the next fifteen years.
Gary Kildall
Gary had such a deep-rooted dislike basically for IBM, almost wishing their failure, in a sense, and his take of it was, you know, let’s take our money and run.
Tom Rolander13
The saga of Digital Research’s failure to secure the IBM contract includes of a number of entertaining and mostly improbable stories. Instead of repeating them here, this chapter examines Gary Kildall’s attitude toward IBM’s new personal computer model.
Kildall resented IBM as a company; he witnessed its questionable sales practices while working at the University of Washington14 . He was unimpressed with IBM’s culture and technology and believed the company stood little chance of succeeding in the rapidly evolving world of microcomputers. He was correct, but he could not imagine that IBM executives felt the same; they had entrusted the new personal computer to a team operating under different rules than the rest of the company.
Another reason he did not have much faith in the IBM’s new venture was related to the software they were planning to use. CP/M, the operating system Kildall originally wrote in 1973/74 dominated business microcomputers in the early 1980s, but it was showing its age. Gary Kildall rightly believed the time had come to introduce multitasking systems, such as MP/M, but IBM insisted on a single-user, single-tasking disk operating system like CP/M. His attempts to convince the IBM representatives that it made little sense to run a simplistic OS on 16-bit hardware with plenty of memory went nowhere15. IBM wanted something familiar to the existing users of microcomputers and that was CP/M, or something very similar to it like MS-DOS.
Ironically, it was DR-DOS, an MS-DOS compatible operating system that saved Digital Research from bankruptcy in the late 1980s. The company was sold to Novell for $120 million in 1991, and three years later, Gary Kildall passed away at the age of 52.
Steve Jobs
Steve bought one of the IBM PCs and tested it out. He looked over its hardware and software and then, in true Steve fashion, proclaimed that the entire thing was an absolute “piece of shit”.
John Couch16
Steve Jobs had little patience for nuance: things were either “insanely great” or “a piece of shit.” As we have seen, the IBM PC was not “insanely great,” but it was a fine machine, at least from a hardware standpoint. Compared with the Apple II, it offered a far more powerful CPU and better graphics capabilities. IBM’s legendary “Model F” was arguably superior to any keyboard Apple ever made.
Apple was busy developing next-generation computers with a graphical user interface powered by Motorola’s excellent 68000 CPU. In Jobs’ mind, IBM’s new computer belonged to the previous decade.
Technical characteristics aside, Jobs recognized the marketing power of the IBM logo. Apple responded with the famous “Welcome IBM. Seriously.” ad in which it presented itself as the inventor of the first personal computer and envisioning a future in which IBM and Apple would compete head-to-head to the benefit of consumers.
By 1985, Apple had produced a couple of “insanely great” (or at least highly innovative) computers, but that was barely enough to survive the IBM PC and its clones. Yet Apple managed to outlast IBM as a personal-computer manufacturer, and by the time Steve Jobs passed away in 2011, Apple had become the world’s most valuable company.
Markkula, Mike (Armas Clifford, Jr.) oral history. Markkula was Apple’s original investor and its first chairman. “Scotty,” mentioned in the quote, refers to Michael Scott, Apple’s first CEO.
IBM's Estridge, Byte magazine Volume 08, Number 11. Don Estridge, known as “the Father of the PC,” was the project manager for Project Chess and later served as IBM’s vice president of Manufacturing.
Intel 8088 is the same chip as the fully 16-bit 8086, but with an 8-bit data bus. 8086 designer Stephen Morse called it “a castrated version of the 8086”. According to Don Estridge, it was an ideal solution, as they wanted to introduce the power of 16-bit computing while keeping the affordability of the 8-bit IO architecture.
The birth of the IBM PC from the IBM Archives.
An interesting analysis of IBM PC sales numbers: How many IBM PCs were sold
Idea Man. Paul Allen, co-founder of Microsoft, remained involved with the company at the time of the IBM PC release and worked closely with Bill Gates.
In The Curious Case of Jupiter Ace, I tried explaining the role of BASIC interpreters in early personal computers.
Stories about Bill Gates’ mother Mary Gates influencing that decision are amusing but baseless. In 1980, any company needing a BASIC interpreter had two options: develop one internally or license one from Microsoft. IBM’s policy for the new personal computer was to use third party software.
Paul Allen dates the first meeting in August and the second one in “late September”.
By August 1980, Microsoft had already announced Xenix, based on the code licensed from AT&T, but it was too big for the original IBM PC. Another operating system, developed by Microsoft in 1979 but never released was M-DOS.
My favorite story about the event is that Gary Kildall left the IBM representatives waiting on the ground while he circled overhead in his plane for hours. Though I almost wish it were true, no one who actually witnessed the initial IBM - DRI meeting has ever mentioned anything like that happening.
My article Birth of 86-DOS is a description of the development of 86-DOS, better known by its code name QDOS - “quick and dirty OS”.
Rolander, Tom oral history. Tom Rolander, one of Digital Research’s first employees, developed the MP/M and CP/NET operating systems and was a close friend of Gary Kildall.
According to Tom Rolander, IBM “wined and dined” the University of Washington’s board of directors, which led them to select an IBM 360 over the technically superior CDC 6400.
They Made America: From the Steam Engine to the Search Engine: Two Centuries of Innovators contains a chapter on Gary Kildall. The authors had access to the un-published part of his memoires.
My Life at Apple: And the Steve I Knew. John Couch, an early Apple executive and friend of Steve Jobs, is perhaps best known as the general manager who led development of the Apple Lisa.