How IBM Lost the PC to Compaq, Intel & Microsoft
This video analyzes the strategic failures and miscalculations that led to IBM losing control of the Personal Computer (PC) market standard they created. In 1981, IBM launched the IBM PC by outsourcing key components (Intel CPU, Microsoft MS-DOS) and adopting an "open" architecture to quickly bypass its internal bureaucracy. This openness, combined with IBM's marketing power, immediately established the PC as the de facto industry standard. However, the open design left a crucial vulnerability: competitors could create "IBM-compatible" clones. The video details how Compaq and other clone-makers exploited this by legally reverse-engineering the BIOS (the core proprietary component) to achieve 100% compatibility. IBM's subsequent attempts to regain control—by moving to the proprietary Micro Channel Architecture (MCA) with the PS/2 computers in 1987 and partnering with Microsoft on the failing OS/2 operating system—backfired. This aggressive, closed approach alienated partners and customers, leading major players like Compaq, Intel, and Microsoft to unite as the "Gang of Nine" to establish the open, competing EISA standard, permanently commoditizing the PC hardware market and eroding IBM's power. 5 Key Moments and Timestamps 0:03:07: The Decision for "Open" Architecture - In July 1980, IBM management approved the PC proposal by William Lowe, agreeing to build the PC using off-the-shelf, outside components (Intel CPU, Microsoft OS) to side-step IBM's massive bureaucracy and enter the fast-moving microcomputer market quickly. 0:06:04: The Threat of the Clone-Makers - The "open" ecosystem and published technical specs, combined with the IBM PC's immediate market success, made it the de facto standard and the #1 target for "IBM-compatible" clone-makers. IBM tried to deter this by asserting copyright over the BIOS (Basic Input/Output System). 0:11:00: Compaq’s Founding Idea - Rod Canion and his co-founders realized the IBM PC's strength was its software ecosystem, not its hardware. Their idea was to build a portable computer (the Compaq Portable) that could run "all" of the IBM PC's software, including the flagship Lotus 1-2-3, right out of the box. 0:12:41: The "Clean Room" Reverse-Engineering - To achieve full compatibility without violating IBM's copyright on the BIOS code, the Gateway/Compaq team used a "clean room" process. One team read the IBM code to document its specifications, and a separate team wrote equivalent code from scratch based only on those specs. 0:35:19: The "Gang of Nine" Revolt - In response to IBM's proprietary PS/2 and its closed Micro Channel Architecture (MCA), Compaq rallied competitors and partners (including Microsoft and Intel) to create the Extended Industry Standard Architecture (EISA). This 1988 "revolt of the clones" established a truly open standard, permanently wresting control of the PC market away from IBM.
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