Not Again! IBM back in Antitrust Crosshairs

ibm pc

Sources cited by The New York Times indicate the U.S. Justice Department has once again opened an antitrust investigation against IBM.

Remember IBM?

The new investigation concerns allegations that the company has refused to license mainframe software products to third parties.  A refusal to license isn’t necessarily an illegal form of competition, but may be if coupled with other anticompetitive practices.

IBM has come under the gun from anticompetition regulators throughout its history.

Ironically, the case that it won did the most damage.  In 1983, the government dropped an investigation that started in 1969.   But by then IBM had already made significant and possibly life-altering modifications to its operations.

By the late 1970’s, for example, IBM had divided itself into three main divisions, one for mainframes, one for minicomputers, and one for copiers and typewriters.  The groups were kept apart in significant ways.  Indeed, in the event of a breakup of the company (similar to what did occur at AT&T during the same period), the divisions prepared to compete against each other.

The minicomputer division, for example, fully developed a visionary design known as Future Systems that was considered too radical for the mainframe group.  The FS architecture, realized in the IBM System/38 (1981), included virtual memory, built-in relational database management, scalability, security attached at the object level and other features still not fully realized in many computing environments.  FS was intended to compete directly with IBM mainframes in the event of a break-up.

When the government dropped its case, the company was badly splintered.   It found itself unable to move quickly as rapid technological improvements signaled a new computing revolution moving from large businesses to consumers.  The mainframe division ensured that the System/38 remained artificially undersized, for example, depriving the company of the full potential value of FS.

Another unintended consequence was even more disastrous.  When the IBM PC was introduced in 1983, it was marketed by a group that was part of neither the mainframe nor the minicomputer group.  The PC initially had no IBM operating system, but instead ran Microsoft’s DOS operating system (and others).  The computing divisions had no expectation of integrating PCs within networks of IBM mainframe and minicomputer installations, and no design features were included to accommodate that integration.

So, as PCs became more powerful and users demanded more processing capability on the desktop, IBM floundered badly, barely surviving the shift from mainframe-dumb terminal configurations to client-server computing.  IBM’s late-entry in the PC operating system market, OS/2, failed miserably.  What should have been tremendous advantage for the company in technology was undone by the company’s focus on litigation.  Even though it won its case, it nearly lost everything in trying to appease a government that couldn’t have understood the revolution in computing just over the horizon.

It is too soon to say what if any consequences will follow from the Justice Department’s new investigation.  But regulators and even IBM competitors would be wise to review the history in some detail.

The bottom line:  In conflicts between Moore’s Law and Antitrust Law, Moore’s Law always wins in the end.

But a lot of wasted effort and unnecessary carnage usually happens in the interim.