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VIDEOCompanies That Almost Weren't: IBM
By
John F Kelly Dec 11, 2009 8:45 am
From a maker of meat grinders, a computing giant was born.
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In the late 1800s, at the height of the Industrial Revolution, the US Census Bureau found that its traditional means of counting the population were insufficient to effectively capture the waves of arriving immigrants. A hobbyist inventor by nature, Hollerith embarked on a series of experiments that would eventually evolve into what would be known as the electronic Punch Card Tabulating Machine.
The machine reduced what was then a 10-year process of collecting data in to 2.5 years, creating a savings of $5 million.
Initially used in New York, the device used electric currents to sense holes in punched cards and keep a running tally of data. Hollerith soon patented the tool, forming the Tabulating Machine Company, and began leasing out the system to census bureaus in other states.
In 1911, Hollerith sold the business for $2.3 million to financier Charles Flint, who merged it with two other companies, the Computing Scale Corporation and the Time Recording Company. The new venture was rechristened the Computing Tabulating Recording Corporation, or CTR.
Three years later, Thomas J. Watson Sr. became General Manager of CTR. And in 1917, the company entered the Canadian market using the name International Business Machines Co., Limited.
Watson would go on to play a key role in creating what would later be known as IBM (IBM). His remarkable salesmanship, leadership, and technological insight allowed the company to create a virtual monopoly of the rapidly growing punched-card equipment business.
Not all of this technology was put to good use, however. During World War II, IBM partnered with the Nazis to refine the punch card into a means of cataloguing and dispatching their millions of Jewish victims.
In his 1991 book, IBM and the Holocaust: The Strategic Alliance Between Nazi Germany and America's Most Powerful Corporation (Dialog Press, 2008), author Edwin Black argues that IBM didn't merely vend its products to Hitler, as American companies did, but that it maintained a strategic alliance with the Third Reich in which it licensed, maintained, and custom-designed its products for use in the machinery of the Holocaust.
IBM’s punch card technology was also sold to the US military.
Following the war, the company’s leadership was handed down to Watson’s oldest son, Thomas J. Watson Jr., and IBM it began its domination of the computer industry.
While he brought the company through an era of unprecedented technological expansion, the younger Watson’s crowning achievement was the creation of the IBM 360 line of computers in the 1960s, which remained the industry standard until the 1980s.
At the start of that decade the company introduced the IBM Personal Computer, or PC, which brought computer technology to schools, homes, and small businesses. But in doing so, IBM for the first time in its history outsourced the production of components to other companies.
The PC’s processing chip was developed by Intel (INTC) and its operating system, called DOS (Disk Operating System), was made by a small Seattle-based company called Microsoft (MSFT).
This decision proved to be nearly fateful, as it began the first steps of the development of PC compatibles, which essentially ended IBM’s industry dominance and virtually crippled what had become an over-segmented and bloated organization.
With the appointment in 1993 of Louis Gerstner as its CEO, IBM embarked upon yet another transformation, shifting from selling desktop boxes to selling IT services in the areas of consulting, hosting, and infrastructure development. IBM went from being a company on the
verge of collapse to a thriving and innovative industry leader, now worth $170 billion.
In an interesting echo of its early military history, the firm recently announced that it landed a $20 million contract with the US Special Operations Command. As BusinessWeek asks, “Can
the analytic science that powers operations at Walmart (WMT) and Federal Express (FDX) make inroads against terrorists?”
IBM is going to give it a try.
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No positions in stocks mentioned.
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