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An Interview with Watts Humphrey, Part 13: The IBM PC and International Business

In this transcript of an oral history, Grady Booch interviews SEI Fellow Watts Humphrey. In Part 13, they discuss the early development of the IBM PC in the 1970s, and IBM's international challenges.

This interview was provided courtesy of the Computer History Museum.

See the entire interview.

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The IBM PC Story

Humphrey: It was in the '70s. I remember there was great push, and it must have been in '77, '78, '76, right along in there anyway, that the personal computer was beginning to rear its head, a lot of this little homemade stuff, and things popping up. There was a great pressure that IBM had to have a personal computer. And Frank Cary was, at that point, CEO. This was before Opel came in. Frank Cary was still CEO, so it must have been earlier than '78, but it was in there somewhere. In any event, Frank Cary said, "We're going to develop a PC.” So he pushed the divisions and he got no response. And everybody was sort of looking at it, but they didn't do anything. So he set up a brand new group whose job was just to develop the personal computer.

And he broke them out and he said, "They are reporting to me." And basically they reported directly up through to Frank Cary, a direct pipe. They were in one of the labs, but they had a direct pipe to Frank. And he said, "You can do anything you want. I want a PC on the market in a year." And so that's what they did. And they got the hardware going, they were moving at a great speed, they did a great job, but they didn't have any programming. And they needed about 20 people to start putting together a basic operating system and get something going. If you remember, they had broken up programming. If I had had 4,000 people working for me, I could have put 20 people on the PC in a minute.

But the programmers were all distributed to all the different hardware groups. And there wasn't any operating system group or anybody that would pay any attention to these guys, so they couldn't get a nickel. And it was like what I ran into with the TSS thing. I don't know if I mentioned this, but when I was doing the TSS, doing that programming, I couldn't get any programmers out of IBM at all. We got the guys out of the Advance Systems Development Division, and then we hired a whole lot of guys from CDC and CSC to do it. No, it was CSC and another one of the big programming contractors. So we had contractor developers developing the TSS. This was the case here with the PC, and so they literally had to go talk to somebody to acquire the software. There were a lot of us objecting to this, but Frank basically said, "No, we're going to break any rules to do it the way we want." And so they didn't put any constraints on ownership on the chips or on the programming.

Booch: Was there a lot of push-back from that notion?

Humphrey: Oh yeah, a few of us objected, but we knew that Frank was behind it so no one objected very loudly. They were giving away the Crown Jewels, but we couldn't get an ear. Frank was not in the least bit interested in listening to whatever we were saying, so that's just the way it worked. So it went out and basically the business went with it.

International Business

Humphrey: Let me tell you the last story on the corporate staff job, and then we'll come back in 1979.

Booch: You have the Iran and China thing around that time as well, too.

Humphrey: Let me hit that right now.

Booch: Okay.

Humphrey: As part of my job as Director of Policy Development, I was also on a council they had on dealing with overseas sales. I mean, marketing to all kinds of countries. And we had lots of problems. I mean, how do you deal with people in the Middle East, for instance? it was a real tough problem, because a lot of these countries, there's the baksheesh [bribe], as you know, you've got to pay stuff. And IBM absolutely refused to do that, and in a lot of the countries, though, that was absolutely required. You literally couldn't do business without it. We typically worked through agents, and so we didn't do it. We basically had agents that would handle it. It was sort of transparent, because they were doing it all under the table. Iran was a tough one to deal with. We actually had an IBM business in Iran.

Booch: The Shah was still in power then, is that correct?

Humphrey: He was in power and you had to deal with his cohorts. The business was just terrible. It was extremely hard. We weren’t making any money. The guys were going through it in a meeting with Frank Cary. This was in the boardroom, and I was there. The European marketing people were presenting the story about the problems we were having in Iran and what the guys were doing to us. They had these special rules and they were doing all kinds of stuff to us. So Frank kind of slammed his fist on the table and said, “Dammit, let’s just get out.” He said, “It’s become a place where we don’t want to do business.” So we did, we got out.

We literally got out of Iran. It was before the Shah was dumped, before any of that stuff. We got out in time. It was amazing. So that was something. About that same time, the Chinese -- of course there was no real interaction, -- but Nixon had been to China and so things were sort of opening up a little, but we really had no business in China at all. It was done through Hong Kong. One of the things that no one had really cottoned onto was that IBM’s prices were different in different countries. So we were basically pricing to the market, not the cost. There were all kinds of different tariffs and all kinds of shipping costs. So the whole thing about how things work internationally was extraordinarily complicated. The Chinese appeared from behind the bamboo curtain. They wanted to place some enormous orders, big disk files and computers and all kinds of stuff, millions of dollars of stuff for the Bank of China.

Booch: Who was the premier of China at that time?

Humphrey: I don’t remember.

Booch: I’ll have to dig that one up.

Humphrey: It was probably Mao. Mao was still in, I think. I think it was before the thousand flowers bloom and all of that stuff. In any event, the Chinese appeared and I couldn’t believe it. We got the call from the AFSEA (Africa, South East Asia, I think) people. What the order was they had given us was just extraordinary. When you really sat down and went through it, they had taken and they knew the prices in all of these different countries and they were buying different products in different countries and shipping them and doing stuff. They optimized their costs at our expense.

It was just unbelievable what they did. We couldn’t do anything about it, because it was all standard stuff. They could order it and they could do what they wanted. But I was just amazed by what they had done. They had sort of figured out how to get around essentially all of this stuff that IBM had, our strange pricing to make a bundle of money. They figured it out and they had just taken it. They cleaned our clock. It was just amazing. Also about the same time, we were dumped out of India. We had been in India and we had our own business there, and they basically concluded that we couldn’t be there and be wholly owned. We had to be majority owned by Indians. IBM just basically got out of India as well.

Booch: So this was pressure from the Indian government itself?

Humphrey: Oh yes. They had their own rules. They would not allow you to be wholly owned. We were running into that in all kinds of places. So I got involved in all of those things. We had a lot of stuff going on.

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