How the IBM PC Won, Then Lost, the Personal Computer Market
I worked at IBM, &#x27;91 - &#x27;93, in the PC Business, in the sales channel.<p>We had a couple of problems that IBM&#x27;s competitors didn&#x27;t have. For one thing, we couldn&#x27;t make too powerful a PC that might cannibalize the minicomputer sales (AS&#x2F;400). IBM made much more money on an AS&#x2F;400 than a PS&#x2F;2 model 95.<p>Our cost structure was too high. How high? We lost $1 for every $100 we sold.<p>Part of the reason the cost structure was high were the number of IBM&#x27;ers: I worked in an office of about 15 people supporting the NY&#x2F;Long Island region. Four years later, it was down to 1 person.<p>Another reason was our physical costs were high. For example, we couldn&#x27;t buy RAM from Intel; we had to buy RAM from IBM (which was fabbed in Kingston, NY, not to be confused with the Kingston RAM mfr).<p>Also, we were struggling to get the correct mix of sales channels. For example, we couldn&#x27;t sell PCs directly through the IBM sales force (too expensive, IIRC it added 36% to the sales cost). Instead, the IBM sales force would partner with dealerships (which added 21% to the sales cost).
The web didn&#x27;t exist yet, not really, so we couldn&#x27;t sell through there. We could have done direct-response (an 800 number, like Dell &amp; Gateway were doing), but that took a while to spin up. And it was similar in cost to selling through dealerships. Also we didn&#x27;t sell through distributors, which was the least-expensive channel (16% IIRC).<p>I remember looking at the price list. We had two levels of dealers: those who bought large volumes, which typically purchased equipment at 30% off list, and those who worked in smaller quantities, which would get ~20% off list.<p>As the PC Market became more competitive, we couldn&#x27;t afford high list prices (we were too expensive), so one of the ways we brought down our list prices was to shrink the discount we gave to the dealers.<p>The dealer was not allowed to sell online or via computer magazines: there had to be in-person contact. That helped prevent the Atlanta dealers from poaching the NYC dealers&#x27; business.<p>It&#x27;s easy to armchair-quarterback the decisions IBM made, but a lot of those decisions were nuanced. For example, you could say, &quot;Why didn&#x27;t IBM have an 800 number to buy PCs?&quot;. And the answer is that a lot of our biggest customers were corporations, not individual consumers, and they felt more comfortable purchasing through a dealer they trusted.