Teaming Up Against Big Blue

By Gordon Bock

Since IBM's first personal computers reached retail stores seven years ago, the industry giant and most of its competitors have adhered to a follow-the- leader tradition. IBM's product line has set the basic standards, while the smaller companies -- at least those that were not following Apple Computer's lead -- have manufactured compatible versions offering advantages like greater speed or lower cost. The copycats, though they have snared some of Big Blue's potential sales, have actually helped sustain the company's PC system as the industry standard by expanding the market for IBM-compatible machines and encouraging software companies to write thousands of programs for them.

Suddenly IBM is faltering as a standard setter, and the copycats are breaking away. Last week officers of nine leading computer companies -- among them Tandy, Compaq and Hewlett-Packard -- gathered in a Times Square hotel ballroom to declare their independence. The computer makers, who collectively sold 50% more personal machines last year than IBM did, plan to join ranks with 55 other manufacturers and suppliers to develop their own standards for the equipment's inner workings. By creating their new system, dubbed Extended Industry Standard Architecture, the renegades are betting that the $39 billion personal-computer business has grown large enough to support yet another distinct standard, in addition to IBM's and Apple's.

The so-called Gang of Nine has seized the opportunity to part with IBM because they believe the computer maker took a wrong turn in its evolution of the PC when the company introduced its new line of Personal System/2 computers in April 1987. For the more powerful machines in the PS/2 series, the company drastically revamped the wiring, known as a bus, through which bits of data travel to various parts of the computer. The new bus, which IBM calls the Micro Channel, enables a computer user to perform such functions as writing and printing simultaneously instead of having to perform each task in succession.

IBM's strategy, in part, was to cripple the clones; the company even began demanding a 5% licensing fee from companies that sought to copy the PS/2. But the Micro Channel has proved too distinctive for its own good. Because it does not fully mesh with the old PC standard, the 34.8 million users of the original IBM PCs and IBM-compatible machines cannot use their peripheral equipment with the new PS/2 computers.

IBM has sold more than 3 million PS/2 computers worldwide in the past 18 months, but the company is lagging behind its rivals in growth. While competitors are expected to sell 11.6 million machines this year, 26% more than in 1987, IBM's unit sales are likely to grow 18%. Even though minicomputers and mainframes account for the bulk of IBM's total revenues ($54.2 billion in 1987) and PCs for only 10%, the desktop market has become a high-prestige field of competition.

The dissident group hopes to attract IBM's disaffected customers by offering a new system that will be compatible with the old standard but faster and more powerful. However, the Gang of Nine has not yet finished designing its new circuitry, and is not expected to bring any products on the market for at least a year. Says William Lowe, head of the IBM unit that produces its PCs: "All they're showing now is a set of charts."

On the same day that IBM's rivals held their big bash, the company counterattacked, introducing a low-end PS/2 machine (base price: $1,995) that is compatible with the old system. IBM has slashed prices of some other PS/2 machines as much as 18% and has extended a program of sales bonuses for dealers. To bolster its workstation, the RT, the company reportedly plans to buy rights to some of the software for a computer due to be unveiled next month by a onetime IBM nemesis: Steven Jobs, the brash Apple co-founder who now runs a company called Next.

Many experts believe IBM's Micro Channel was a breakthrough that computer users will find invaluable in the future. But, for the moment, "customers are saying, 'Show me the benefits,' " says Analyst William Lempesis of Dataquest. Until IBM does, the buying public will be a ripe audience for the offerings of the rebellious clones.

With reporting by Scott Brown/Los Angeles and Thomas McCarroll/New York