The IBM PC transformed the computer industry. The microcomputer market—which gained steam after the releases of Commodore’s PET, Radio Shack’s TRS-80, and the Apple II in 1977—reached $1 billion in total sales by 1980; large enough for industry giant IBM to take notice.
In many respects, the “Acorn” (as the IBM PC was called during the development) was unlike anything IBM had produced. IBM had a strong history of strict, proprietary control over its systems: every piece of hardware was designed by IBM engineers, every line of code was written IBM programmers, and every system was sold (or more often leased) by a sales force steeped in the IBM way. The Acorn would be different. Bob Lowe, lab director for Entry Level Systems at IBM’s Boca Raton, FL, argued that the path to IBM’s entry into the market made up of small companies was to behave like a small company. The IBM team was kept to just a dozen engineers, and the Acorn would be assembled using third-party hardware and software, be ready to ship in a year and, an IBM first, be sold through retail chains. It was revolutionary for IBM.
For software, IBM enlisted Microsoft to supply the BASIC programming language, some productivity applications, and—after IBM failed to reach terms with Gary Kildall’s Digital Research, maker of the widely-used CP/M—the operating system.
The IBM PC, announced in August 1981, far outsold even the most optimistic forecasts: 50,000 by years end; 750,000 by the end of 1983. And with a growing library of available software, the IBM PC created a new standard for what computer customers wanted. The decision to build the IBM PC from third-party software and hardware sped the system to market, but it also created opportunities for PC-compatibles—which ranged from MS-DOS compatibles all the way up to “operationally compatible” clones that ran IBM-PC software seamlessly. Within a few years, hardware was transformed into commodity and software became the most lucrative part of the computer business.