In 2020 Americans look to companies like Google (GOOGL) - Get Report and Apple (AAPL) - Get Report for next-generation computer technology. We expect Amazon (AMZN) - Get Report to innovate monopolies in the retail space and Twitter (TWTR) - Get Report to push bold experiments in self-indulgent rage.
Facebook (FB) - Get Report continues to keep its contract with America, one in which they inhale the most talented software engineers and we receive a mind-bending alternative reality where loudmouths, foreign operatives and trolls have the same credibility as trained journalists.
These are the current companies of the future. But 50 years ago, before Apple started in its garage and Mark Zuckerberg hadn't even been born, another company owned the tech space. For decades IBM (IBM) - Get Report was the go-to company for invention. And they earned that reputation.
The Founding of IBM
International Business Machines, or IBM, launched in 1911. Then they were called the Computing-Tabulating-Recording Company.
Founder Charles Ranlett Flint did not create the C-T-R Company out of nothing. Instead it was formed by the merger of three companies that had existed since the late 1800s: the Computing Scale Company, the Tabulating Machine Company, and the Time Recording Company. The newly merged firm was based in New York City with about 1,300 total employees. (By comparison, today IBM employs around 350,000 people.)
In these early years the C-T-R Company focused on products such as accounting and calculating machines, time recorders for businesses and mechanical punch card systems. It focused on standard office products rather than being the invention-driven company it later became.
In 1924, Thomas Watson took charge of the company and renamed it International Business Machines, or IBM. In his first several years Watson built IBM’s success through business and marketing strategies, creating products built around individual customers’ needs and investing heavily in the company’s sales force.
In the 1920s and 1930s IBM began its growth into a household name. It launched the public address system used by schools, which quickly became a staple in the American classroom. The Social Security Administration adopted the company’s punch card machines to help build its new network of Social Security numbers for all citizens. And in 1928 it invented the first calculator that could directly subtract.
IBM and the Computer
Despite an impressive business record, IBM is most notable for its technical achievements.
In 1943 the company developed the first completely electronic computing machine, the Vacuum Tube Multiplier. This led to the 1944 Automatic Sequence Controlled Calculator, or the “Mark I,” which IBM developed along with Harvard. This was the first device that we would recognize as a modern computer. It filled a small room, at 50 feet long and eight feet tall, and performed electromechanical calculations automatically. The U.S. Navy used the Mark I to calculate gun trajectories on its ships.
However, the company did not push this business until the 1950s when Thomas Watson’s son, Thomas Watson Jr., took over. In this era IBM’s computer business moved away from the mechanical switches of the Mark I and back to the vacuum tubes of the Vacuum Tube Multiplier, as these were easier to maintain and replace.
Over the course of the 1950s and 1960s, IBM invented many of the core technologies that allowed computers to become staples of the business world. It developed the working vacuum tube computer, which became the basis for all computers until the invention of the microchip. IBM also invented the hard drive, creating the first computer that stored data on spinning platters and retrieved that data with a magnetic arm. It also developed FORTRAN, the precursor to most modern computer coding languages.
In this era, IBM’s dominance of the computer market was almost complete, with the company making 60% to 70% of all business computers worldwide.
The modern era of IBM arguably began in 1981 with the Personal Computer 5150, or the “PC.” This was one of the first computers intended for consumer use rather than dedicated to business or the government. IBM partnered with Microsoft (MSFT) - Get Report, a relatively new company, to run MS-DOS as the operating system on these machines.
In that same era, IBM invented the architecture for “local area networks.” This would become first the office networks that users came to rely on, then the basis for the global networks that connect users on the internet, and finally the home networks that most households use today. It also created one of the modern benchmarks for artificial intelligence with its Deep Blue thinking system. This AI became most famous for its series of chess games against world champion Garry Kasparov in the 1990s, culminating with Kasparov’s defeat in 1997.
Yet at the same time, as the 1980s and 1990s saw IBM pioneer desktop computing, the company also lost its status as the market leader. Clones of the IBM machine and business model quickly sprang up throughout the consumer market, with numerous other companies selling PC machines running Microsoft’s operating system. Although for several years IBM’s cultural presence was strong enough that these machines were known as “IBM clones,” eventually the company became just another competitor in a crowded market.
At the same time, its historic dominance in market for large, installed mainframes began to hurt IBM as computing got smaller and faster. The company was ill-equipped to respond to an era in which mainframes were replaced by small servers. Over the course of the 1990s, IBM’s core business model and profit centers moved away from technology. By the end of the decade the firm saw much, if not most, of its growth in business services, such as helping clients build networks and install servers.
In 2005, Lenovo bought IBM’s personal computing division, shifting its business model even more toward business services and away from hardware. Yet while IBM does not have the cultural reputation for innovation that it once did, it has continued to invest heavily in this area. The company’s supercomputer research arm continues to produce some of the most powerful machines in the world, and IBM continues to license new designs to businesses, government and the military to this day.
- 1911 – IBM is founded as the Computing-Tabulating-Recording Company. It is created out of the merger of three companies: the Computing Scale Company, the Tabulating Machine Company, and the Time Recording Company.
- 1942 – Thomas Watson takes over the company and changes its name to International Business Machines, or IBM.
- 1928 – IBM invents the first public address system for schools. The morning announcement becomes a feature of American childhood.
- 1933 – IBM begins to produce electric typewriters, a distant precursor of the personal computer business they would someday create.
- 1935 – The Social Security Administration selects IBM to build its data management machines for the new Social Security program.
- 1943 – IBM invents the first completely electronic computing machine, the Vacuum Tube Multiplier.
- 1944 – In partnership with Harvard, IBM invents the Automatic Sequence Controlled Calculator, or the “Mark I.” This is the first fully functional computer and is based on electromechanical switches.
- 1952 – Under the leadership of Thomas Watson Jr., IBM begins to grow its business computing business. It sells mainframe computers based on its vacuum tube design, and quickly becomes the dominant company in that market.
- 1956 – IBM invents its RAMAC line of products. These are the first machines to use magnetic data storage in the form of a series of spinning magnetic discs. This architecture would become the dominant model for data storage until the 2010s.
- 1957 – IBM invents FORTRAN, a computer coding language that would form the basis for most other modern coding languages.
- 1981 – IBM launches its first desktop computer aimed at consumers. The PC quickly becomes a model for modern computing, one which is copied by numerous competitors.
- 1991 – Facing a declining mainframe market and heavy competition in the personal computer market, IBM decides to focus on its business services division.
- 1996/1997 – Deep Blue, IBM’s artificial intelligence, plays world chess champion Garry Kasparov. Kasparov wins the first match, but loses the second—the first time a computer has ever beaten a world champion in a traditional match.
- 2005 – IBM sells its personal computing division to Lenovo, shifting its focus toward the business services model that still makes up the majority of the company’s profits today.