A Timelapse of the Tech Sector (Part 1: Before the Internet — Technology as a Physical Space)
It starts with IBM.
There are many “snapshots” in time. They usually happen in the moment, looking at where things are right now and speculating about where things are going. What I’m doing here is a series of snapshots intended to make a long-term timelapse, because I find it helpful to examine the strategies and conditions that made businesses successful in the past. It’s also a useful reminder to calm down and look at the long-term.
“The tech sector” (as it traditionally existed) is a broad business category that, on a very basic level, comes from a reliance on silicon. This series is a brief review of how the tech sector has changed over time, with a light touch on the major advancements, in both technology and business, which facilitated these changes — the first mover in the market is not always the winner, and the largest company is not always the most successful. Even the best innovators can be burned by new technology.
Before the Internet
(Technology as a Physical Space)
Before the Internet, changes in technology were primarily physical. As time passed, computing devices became smaller, cheaper, and easier to use. A summary of the different computer categories describes this change: from mainframe, to minicomputer, to microcomputer (personal computer), to “pocket computer” (and mobile phone).1 The company that forced the move to the next market was almost always a startup, but the previous market leaders were not always left behind. Their influence on the research for these new markets helped to set the standard.
It starts with IBM.
The Mainframe Era (1950s to 1980s)
From the early 1900s to the early 1990s, IBM was the premier tech company.2 It started with paper punch card technology, developed all the way back in the 1880s, which remained the standard for almost 100 years, when magnetic tape finally made it fully obsolete. But these punch card systems were not computers, and they could never become real computers. It was only a preview for something better.
Research supported by the U.S. government through WWII led to the development of the “mainframe” computer. Mainframes were the iconic massive computers that filled an entire room. They still used punch cards to submit programs, but the processing was now done by vacuum tubes. These were later replaced by faster machines that used transistors. During this time, computers were mostly used by trained specialists, and even the programmers would never see the actual machine. It was expensive and slow, but much better than what could be done before.
Only a small number of very large companies could build mainframes, and the research needed to produce them was supported by contracts with the government, primarily for the military. IBM did not build the first mainframe, but it dominated this market as it had dominated the market for punch card systems. Through the 1960s and 1970s, the company held a 70% market share.3 IBM was unique in its ability to secure government contracts for massive research and development projects, and it was one of the few companies large enough to commit resources into building the type of systems the government needed (other major customers included railroads and insurance businesses).
IBM was so influential that it became the target of an antitrust lawsuit that started in 1969 and lasted through the 1970s into the early 1980s. The charge against IBM was that it was using its dominant position in the market for computer hardware (the mainframes) to force customers to buy its computer software (the programs that ran on the mainframes). IBM eventually won the case, but it revealed an industry of layers:
At the bottom layer is the physical computer hardware. In the mainframe era, these were the mainframes. IBM had control of this market with a 70% market share.
The top layer is the software programs that make the computer useful. In the mainframe era, this layer could be directed by the companies that made the computers. Controlling the hardware platform allowed IBM to set the standards for the software that ran on its systems.
Other companies with fewer resources did not have the ability to compete with IBM’s mainframes, so they didn’t try. Instead, they focused on a newer, smaller type of computer: a minicomputer. A startup company called Digital Equipment Corporation (DEC) — a name that intentionally avoided including the word “computer” to stay away from IBM — began developing and selling minicomputers.
The new, smaller computers (still the size of a refrigerator) were introduced at a time when computer terminals became more common. A larger computer could take care of processing while end users interacted with a terminal that behaved a lot like today’s personal computers. The main difference was that the large computer did the work and the small one just asked it for the answers. It was on one of these terminals where Bill Gates famously learned how to code.
Connections between these large computers also gradually introduced the concept of the Internet, an idea that had been considered impossible before it was demonstrated and proven in 1969. Computers were becoming better at using the same systems, but they were still vastly different for each generation.
From Mainframe, to Mini, to Micro (1970s)
It was the introduction of the integrated circuit that allowed computers to continue to become smaller and more powerful. Using silicon, engineers could print transistors right on to the circuit board. This was the beginning of Moore’s Law, which says that the number of transistors on an integrated circuit will double about every two years. This is also when the tech sector slowly began to burst into thousands of pieces. Another layer became the focus of the industry.
The bottom layer of computer hardware is the components that go inside a computer. These are the integrated circuits.
The top layer of computer hardware is the entire physical computers. These were the mainframes and minicomputers produced by IBM and DEC.
Above the hardware are the software programs that make the computer useful.
Texas Instruments, Motorola, and Fairchild Semiconductor were the leaders in integrated circuits, supplying the internal components for both mainframes and the new minicomputers. As a signal of the region’s burgeoning startup culture, the engineering talent within Fairchild Semiconductor drained into Silicon Valley in the form of many new startups. One, Intel, was formed by Gordon Moore (known for Moore’s Law), and Robert Noyce (the inventor of the integrated circuit) in 1968.4 The next year, AMD, which became Intel’s primary competitor, was also founded by a group of colleagues that defected from Fairchild Semiconductor.5
Intel developed a new memory chip that quickly replaced a major computer component with a much smaller version. Then, with Japanese firms eating up the memory business, Intel shifted to something new. In 1973, the company revealed a new component called a microprocessor. It was essentially an entire computer within one tiny silicon chip.
In hindsight, the microprocessor made personal computers virtually inevitable. With a microprocessor, a minicomputer could become dramatically cheaper, and a computer the size of a modern desktop could be made useful. It was a microcomputer that could become a “personal computer.” It may not have been as powerful, but it was cheaper and smaller, and opened up the market for amateur programmers.
These more complex computers required more complex programs to make them run properly. The most important program is the operating system. An operating system links the individual programs to the computer’s hardware, and a modern computer cannot function without one. This is the last layer we need to get the full picture.
The bottom layer of computer hardware is the components that go inside a computer. The most important are the microprocessors made by Intel and AMD.
The top layer of computer hardware is the entire physical computers. These were the mainframes and minicomputers produced by IBM and DEC, but now they also included the microcomputer, also known as the personal computer.
The bottom layer of computer software (on top of the physical hardware layers) is the operating system that links the physical computer with computer programs.
The top layer of computer software is the programs that make the computer useful.
Up to this point, the companies building the computers were also generating almost all of the software to make the hardware useful, including the operating systems. Now they were starting to build computers and allow others to do the programming. The more programmers making useful programs for a computer, the more people would buy it…
The technical changes and challenges that came with new computing standards are well-documented in two great books by Paul Ceruzzi. A History of Modern Computing covers them in detail, while Computing offers a much shorter summary of these major innovations.
A good description of IBM’s early years can be found in the biography of Thomas J. Watson Sr., covered in one chapter of the book, The Giants of Enterprise, by Richard Tedlow.
Robert Noyce is also profiled in The Giants of Enterprise.
Fairchild Semiconductor, ironically, was also formed by a group of defectors. They came from a company called Shockley Semiconductor. Gordon Moore and Robert Noyce were also among the “traitorous eight” that left Shockley Semiconductor in 1957 to form Fairchild Semiconductor. Silicon Valley startup culture has never been big on loyalty.