The computer industry started with John Presper Eckert and John W. Mauchly, who designed two of the earliest electronic computers, ENIAC and EDVAC, at the University of Pennsylvania during World War II. In 1946 they left to start the Electronic Control Company, the first computer manufacturer, and their Univac (Universal Automatic Computer) was the first commercially successful computer. Other pioneering commercial ventures included two British machines: the Ferranti Mark I, based on Manchester University’s Mark I prototype; and LEO, the Lyons Electronic Office, developed by the Lyons tea shop company from Cambridge University’s EDSAC computer. Indeed, the first commercially built Mark I was installed at Manchester University in February 1951, a month before the first Univac was delivered to the United States Census bureau. However, it was the Univac that proved there was a market for computers, and that encouraged other companies to begin manufacturing them.
The computer represented a new way of doing things, but most of the things that needed doing were already being done using electromechanical devices. At IBM, the computer was mainly seen as a faster way of tabulating punched cards, which had been the basis of data processing since 1890. IBM was thus able to convert its domination of the data processing business into a corresponding domination of the computer industry. In his autobiography, Tom Watson Jr., IBM’s chief executive from 1956 to 1971, pointed out that only IBM had the “large field force of salesmen, repairmen, and servicemen” who understood how to install automated bookkeeping systems. “The invention [of the computer] was important,” he wrote, “but the knowledge of how to put a great big system online, how to make it run, and solve problems was probably four times as important.”
The industry started to change dramatically when silicon chips became available in quantity. The microprocessor, or “computer on a chip”, developed by Intel in 1971, made computer power a mass-market commodity. Computers had been huge, complicated machines that only large companies, governments, and a few universities could afford, and they were often kept behind glass walls where they could be seen but not touched. (Many firms had visitors’ galleries for people who had never seen a computer.) Microprocessors made computers available in ordinary homes and offices. When Eckert and Mauchly started, they struggled to win orders for their first six Univacs. By comparison, sales of personal computers passed 60 million a year in 1996.
Small, cheap, programmable microprocessors also made it relatively simple for small companies to build computers. Between 1975 and 1985, hundreds of firms entered the business. Some started in garages (such as Apple Computer, Inc.), university computer departments (such as Sun Microsystems, Inc.), and college dormitories (such as Dell). Only a handful became successful global corporations: most died. While it was comparatively easy to design a personal computer, other aspects of the business—manufacturing, advertising, telephone support, maintenance, and so on—were beyond most of the hobbyists and enthusiasts involved.
New computer manufacturers also discovered that software was another major problem. Users who bought a cheap computer required cheap software as well, and—unlike large companies using minicomputers and mainframes—were not willing or equipped to write it themselves. Customers therefore tended to buy the computers for which most software was available, while software houses preferred to write programs for the best-selling computers. This created a “virtuous circle” for a few manufacturers who came to dominate the market, but a vicious circle for the rest.
The market was particularly unkind to small European manufacturers: they were rarely able to compete with American rivals, whose larger home market provided greater economies of scale. Dozens of small firms entered the British microcomputer market in the late 1970s and early 1980s, including Acorn, Amstrad, Apricot, Camputers, Dragon Data, Enterprise, Grundy, Jupiter Cantab, Memotech, Oric, Positron, Sinclair Research (the creation of Sir Clive Sinclair), and Torch. Most struggled to attract software, and few survived.
The market needed a standard, and IBM, the industry’s dominant supplier, was best placed to create it. The company did that when it launched its first personal computer, the IBM PC, in 1981. Since then, “PC-compatibles”, or “clones” of the PC, have gradually taken over more and more of the market, displacing proprietary designs such as the Atari ST, Commodore Amiga, and Apple Macintosh.
However, the personal computer market has become different from the older minicomputer and mainframe markets, because IBM did not take its usual approach of creating the PC’s hardware and software itself. Instead, it went to outside suppliers for parts. Most importantly, it went to Intel for the 8088 microprocessor and to Microsoft for the MS-DOS disk operating system. Intel and Microsoft retained the ability to supply these parts (and their successors) to IBM’s rivals, creating an intensely competitive and relatively open market, while making immense profits.
OPEN SYSTEMS
Intel’s microprocessors and Microsoft’s MS-DOS and Windows programs have become de facto standards because their sales dominate the personal computer market. However, they are still owned by Intel and Microsoft, which gives these companies an advantage. There is an alternative, the open-systems approach, in which standards are specified independently of particular manufacturers by industry committees. Suppliers compete by trying to produce the best implementation of an agreed standard. In theory, this should lead to better products at lower prices. It is certainly less risky for manufacturers to support an agreed standard than for each company to develop a different proprietary system: probably only one or two such systems would be successful, and the rest would fail. For this reason, computer industry suppliers invest a great deal of time and energy in efforts to agree standards. Companies will even “give away” their technologies to recognized industry bodies to encourage their adoption as standards.
In the mid-1980s several European companies, encouraged by the European Commission began to agree open-systems standards for computers, and they were soon joined by the leading American and Japanese suppliers. These standards were based on a portable (not machine-specific) operating specification called Posix, which was ultimately derived from AT&T’s UNIX operating system, and on Open Systems Interconnection (OSI) networking, as ratified by the International Standards Organization. Following a Commission directive, many governments mandated public bodies to buy open-systems computers whenever possible, and the United States government and some others took similar actions. Leading manufacturers such as IBM, Digital Equipment, and the British company ICL changed their proprietary operating systems and networks to comply with the required standards.
However, the open-systems approach was not successful in capturing the mass market, and the effort exposed several problems with it. Because the specifications had to satisfy many participants in the standards-making process, they often proved to be complex and expensive to implement. Some standards provided too many options, or allowed different interpretations, so that even when different firms implemented the same standards, their systems remained incompatible. The standards-setting process often proved to be too slow for the fast-moving computer market.
As a result, computer industry suppliers now participate in numerous shifting alliances formed around various technologies. These alliances constantly generate publicity in an attempt to sway the market, producing an often spurious impression that the computer industry is continually at war with itself.
Since 1994 the Internet has had an increasing influence on the development of the computer industry. Most suppliers are now adopting Internet standards that have been developed in universities and research institutes over the past 25 years. In particular, the Internet’s method of connecting computers, which is called TCP/IP (Transmission Control Protocol/Internet Protocol), is displacing commercial alternatives produced by companies such as IBM and Novell, Inc., as well as the open-systems standard, OSI.
THE GLOBAL NATURE OF THE COMPUTER INDUSTRY
Although its heart is in California’s Silicon Valley, the computer industry is a global enterprise. Intel’s Pentium processor, for example, was designed in the United States, but a particular example might be manufactured in Ireland from a Japanese semiconductor wafer, packaged in its protective housing in Malaysia, inserted into a printed circuit board in Taiwan, and assembled into a product that is sold in England by a German manufacturer. Many of the parts used in personal computers are now manufactured in Asian countries, including Korea, Hong Kong, and Japan. Many industry suppliers expect China and India to become large markets for computers in the future, and to develop large computer-manufacturing and software industries.
The software industry is also global. However, because programs have not yet been “componentized” (split into reusable modules that can be created separately), it is not as diverse as the computer hardware industry. All the best-selling operating systems and most of the leading applications programs have been written in the United States, then converted for use elsewhere. There are exceptions, such as accounting packages that meet local needs, but these tend not to be exportable. Nonetheless, the large pool of computer science graduates and the relatively low wages in countries such as India and China have started to create custom-programming industries outside the United States and Europe. Further globalization can be expected, thanks to the Internet’s tendency to make national boundaries invisible, and its ability to deliver software at little or no cost, without the need for packaging or printed manuals.
In the 1950s and 1960s large companies used relatively small numbers of computers to automate internal processes such as payroll and stock control, and computers are still performing these mundane tasks. However, the industry’s emphasis has shifted towards personal use, for “productivity applications” such as word processor programs, for communications, or for entertainment. Tens of millions of people now use personal computers in their daily lives, and tens of millions use their computers to communicate over the Internet with companies, organizations, and other individuals. Few industries have changed so much in such a short time, and the pace of change shows no signs of slowing.