Why did IBM's OS/2 project lose to Microsoft, given that IBM had much more
resources than Microsoft at that time?
Great question. I'm the founder of Team OS/2 and IBM's first OS/2 Evangelist
, so I lived through the answer to your question for a decade. There's just
no easy answer - it's like asking what makes any given startup a success or
failure - but I'm happy to share the way I see it.
First a few facts - from memory - you might find relevant that support your
question.
IBM spent more than a billion dollars developing and marketing OS/2.
It was the most advanced operating system of its time - the most secure, the
best architected, and the most powerful - without question (unless perhaps
you were a journalist defending your decision to give the nod to Windows,
perhaps in anticipation of the legendary envelopes of cash that landed
mysteriously on Microsoft-friendly reviewers' desks). One example, it had
pre-emptive multi-tasking (now a staple in multi-core systems and operating
systems) when Windows 3.1 was still running on top of DOS and context-
switching was the norm for any other desktop OS. It would run multiple DOS,
Windows, or OS/2 apps smoothly. It was reliable and almost never crashed -
something DOS and Windows was prone to do regularly. Yet Microsoft slammed
OS/2 in the press (and got the media to echo their whining) because it
needed 4MB (MB! not GB) of RAM - "too much memory" - and could be crashed by
Ballmer at trade shows using specially written code on a diskette.
IBM's Personal Software Products (PSP) - the division I worked for - had
more employees and was better funded than all of Microsoft in the early '90s
. IBM was the dominant force in that relationship, much to Gates chagrin,
but was nonetheless weak-willed in using its power aggressively. I
constantly heard "we should take the high road" in discussions about dealing
with Microsoft. I value ethics as much as anyone, but IBM's Business
Conduct Guidelines assumed perpetual dominant status in the industry and
because they handcuffed executives and employees, they were thus inadequate
to deal with foul play on the part of an underdog business partner. I once
heard from reliable sources that Gates had called executives at IBM to
complain about my violation of IBM's Business Conduct Guidelines, without
specifics. I'm pretty sure what he was talking about was how I got quoted in
PC Week as saying that "Bill Gates's gift to the industry is a win/lose
mentality." Wow, I was so guilty as charged.
So, with those facts established, from my perspective, here are the
following lessons to be learned from IBM's failure to establish OS/2 as the
"operating system of the future" - as Bill Gates once called it:
LESSON ONE. As a company, if you are going to adopt and insist on
compliance with strict Business Conduct Guidelines (as IBM and many other
company's did - similar to Google's 'don't be evil' mantra), be aware of
your strategic vulnerability to a company (such as Microsoft) willing to use
other company's scruples as both shield and weapon in their war against you
. In the words of a wise man, you need to be "wise as a serpent, and
harmless as a dove." IBM had the harmless down pat - but they were unable
to outsmart the serpent.
Gates was brilliant in negotiating deals to take advantage of other
companies' blind spots - including their ignorance of Microsoft's
willingness to bend the ethical constraints honored by other companies. For
example, Novell entered into a contract with Microsoft that allowed MS to
include Novell's networking code in Windows Version 3.1. Ever wonder why
the first version of Windows NT was Version 3.1? Now you know. When Noorda
flew to Redmond to try to work things out with Gates, after making Ray wait
for seemingly forever, Bill's response was "So sue me." No wonder when
later, the media asked Noorda why he didn't just have a heart-to-heart with
Gates, his reply was "To have a heart-to-heart, you have to have two hearts."
Everyone also knows that Microsoft encouraged other vendors to develop first
for OS/2 and then for Windows. Some have called this the "head fake" that
destroyed the ISVs (Independent Software Vendors - Lotus, WordPerfect, et al
) and allowed Microsoft and their Windows apps to take the lead. What is
forgotten is that Microsoft also developed for OS/2. What is not well-known
is that Microsoft again sabotaged whatever they shipped for OS/2. So running
Word or Excel on OS/2 was a miserable experience, especially compared to
running Word or Excel on Windows. I know - I used and tested all apps for
Windows and OS/2 available at that time rather extensively. There's no
question in my mind that Microsoft's OS/2-app crappiness was deliberate on
their part.
And not all of the evidence of Microsoft's lack of scruples came out during
their trial for violation of anti-trust laws. There was little or nothing,
for example, on their online character assassination campaigns or
manipulation of the media. As the target of one of their campaigns, I can
tell you that they didn't play nice. Strangely, they were recruiting me at
the same time they were trashing my reputation online and it wasn't a case
of the right hand not knowing what the left hand was doing. 'nuff said, I
hope.
In summary, IBM was foolish to continue to play nice with Microsoft and take
the high road and treat them as a Business Partner under the Business
Conduct Guidelines even after it was clear that Microsoft was out to destroy
OS/2 and IBM's leadership in the PC industry.
LESSON TWO. Strategic brilliance in exploiting the resources you have to
deploy against the resources your competitor has, smart marketing execution,
and cunning media relations all trump engineering genius. Microsoft had
the former. IBM had the latter.
LESSON THREE. If you want to establish a desktop OS as the standard during
the coming of age of the Internet, you had better understand how to get the
media on your side. They established perceptions, and perception became
reality.
Microsoft played many in the media like Itzhak Perlman plays a Stradivarius.
And the media created many of the myths - inconsistent with reality - that
persist to this day and can be seen in many of the answers to this question.
Microsoft succeeded in perpetuating myths like:
"OS/2 was clumsy and IBM's programmers were incompetent while Microsoft's
programmers were geniuses." Totally backwards. OS/2 was a billion-dollar
miracle of software engineering. IBM created rock-solid, reliable, flexible,
elegant, mission-critical operating systems that businesses relied on. OS/2
was in most ATMs for well over a decade. Can you imagine using Windows 3.1
or Windows 95/98 in an ATM? Hahaha. IBM was the company that was #1 in
Forbes for attracting the best and the brightest - especially engineers and
scientists including Nobel Prize winners - back then. Not Microsoft. Case
in point: the web (HTML) is modeled after IBM technology, not Microsoft's.
Yet Microsoft would talk to the media, and IBM was pretty insular. So
Microsoft's twisted version of reality won the day.
"IBM is proprietary but Microsoft is open." How the media bought this lie is
a mystery. Truth: Both were / are proprietary. When it came to enterprise
marketing, Microsoft copied a lot from IBM - just years later. Only in
hindsight is it obvious that the difference (in the consumer tech space at
least) is that Microsoft produced unreliable proprietary crap marketed well,
and IBM produced reliable proprietary quality marketed poorly.
"IBM doesn't care about consumers or the little guy." Again, totally
backwards. IBM supported its products. Microsoft did not and still does not.
IBM did the same thing then that Apple does now - create a solid
infrastructure of well-supported quality and insist that others play by
their well-designed rules. They then supported their products in order to
constantly improve them. On the other hand, Microsoft created an
opportunistic wild, wild west of anything-goes shoddiness that they crammed
down the market's throat using their ruthless disregard for anything but
their own best interests. Explorer anyone? We've just grown accustomed to
believing that software companies don't need to support their products
because that's what Microsoft pioneered.
"IBM couldn't market its way out of a paper bag." IBM didn't get to be the
biggest company in tech throughout the '60s, '70s, and '80s without knowing
how to market. Their marketing prowess in B2B was rightfully legendary.
Where they failed was in media relations and in countering Microsoft's
ruthless perfidy in establishing a monopoly for Windows. Those things had
even more to do with IBM's failure to establish OS/2 than its marketing
decline of the '90s and its poor showing in transitioning from B2B to B2C
marketing for OS/2. In other words, IBM's marketing would have been good
enough if Microsoft had played by the same ethical rules - honoring the law
and their agreements and playing fair - as most other companies of that day.
LESSON FOUR. The genius that worked to get you established and make you
successful in the first place are inadequate to defend your position at the
top. IBM was the Google of the '60s and '70s, but by the '90s was often
rightfully compared to an elephant trying to dance. Proprietary (but
elegantly designed) systems lost to cheaper, better marketed systems. What
made Microsoft and Windows successful is now working against them as Windows
becomes increasingly irrelevant to a new generation.
LESSON FIVE. When creating an infrastructure to support an OS, treat
application developers as if they were kingmakers. Because they are. IBM saw
developers (ISVs) as both business partners AND customers. Microsoft saw
them for what they were - critical partners.
LESSON SIX: Never under-estimate the willingness of the market to support an
underdog and adopt cheap but easy technology. Windows was the cheaper and
easier path for most people. Never mind that it was the low-quality path. A
market is just like water - always flowing downhill following the easiest
path it can find.
There is a lot of truth (and some myth) in the other responses as well. In
the end, the history books are written by the conquerors and not the
vanquished, so I appreciate your question and the opportunity it provided me
to share the perspective of one of the vanquished.