An Interview With Compaq Co-Founder and CEO Rod Canion
This Sunday, AMC is premiering a new original series called Halt And Catch Fire. Set in the early 1980s, it tells the story of a band of cowboy entrepreneurs and engineers who join the PC Wars by cloning an IBM machine and taking on Big Blue for control of the nascent personal computer industry.
AMC’s show is fictional, but it turns out, there is a true life story that is similar to this course of events, and it led to the creation of one of the greatest technology companies of all time, Compaq Computers.
Rod Canion was one of the co-founders of Compaq back in the early 80s, and he was there for the real world PC wars. He’s written a book about the time period, Open: How Compaq Ended IBM’s PC Domination and Helped Invent Modern Computing. In the interview below, I spoke to Rod about the book, the process of taking on Big Blue and cloning the IBM-PC, and how a series of incredible calculated gambles paid off to eventually build one of history’s most successful technology companies.
You can listen to the whole interview at the bottom of this post, or just read this lightly edited (and heavily compressed) summation of the story below.
Back in 1981…
Rod Canion, Jim Harris and Bill Murto were mid-level managers at Texas Instruments. Converts to the still nascent personal computer revolution, the trio decided to strike off on their own and form a company to produce a product in an entirely new category of PC: the portable. Portable PC’s were not laptops because the technology did not exist yet to make computers that small and light. Portables were designed to be moved from desk to desk easily, were rugged enough to travel with, and at around 30 pounds or so, had the form factor of a large-ish suitcase.
The first mass-produced portable computer was the Osbourne 1, which had come out earlier in the year. The Kaypro was also an early pioneer in this category, but both systems had their own unique and proprietary architecture, which limited their popularity and adoption. The computer industry had been transformed by the introduction of the IBM-PC in August of 1981. The imprimatur of the IBM brand was enough to convince millions of people to join the micro-computer revolution and the IBM-PC soon became the best-selling computer in the world.
And so, the trio from Texas Instruments had decided that their big idea would be to create the first portable that was compatible with the IBM-PC.
Rod Canion, from the interview:
It was one of those things that I literally felt a chill down my spine. The idea came together because it was really a combination of things that made it work. The idea for a portable computer–there were a number of those already in the market–the only reason we were actually even looking into that area was because (…) the first idea we had had, the venture capitalists decided not to fund it.
The morning of January the 8th, 1982 (…) I was going over the idea of a portable computer. How could we make one that was differentiated enough to make it worthwhile? (…) Not being able to get software developed for it was a killer. (…) Every computer ran different software. There were literally somewhere close to 300 different computer companies making new computers at the time. (…) That morning, the idea hit me that, what if we could make our computer run software that already was out there? That is, run the software for the product that was getting the most software and always getting the software first when the new one came out, and that was the IBM-PC.
Because the IBM-PC was so popular, most developers programmed for the PC first, and all the best applications and programs could be found on the PC. But because IBM had famously rushed the PC to market, its system was made up of off-the-shelf components and software. Anyone could purchase the same off-the-shelf hardware and software and “clone” an IBM-PC.
Again, Rod Canion:
Because IBM had done something they had never done before, which was bring a computer to market that wasn’t just totally protected from the copying standpoint. We didn’t want to copy their computer! We wanted to have access to the software that was written for their computer by other people.
The idea was to create a computer that was mostly like IBM-PC and mostly ran all the same software, but sold at a cheaper price point. The first company to pursue this strategy was Columbia Data Products, followed by Eagle Computer. But soon, most of the big names in the young computer industry (Xerox, Hewlett-Packard, Digital Equipment Corporation, Texas Instruments, and Wang) were all producing PC clones.
But all of these machines were only mostly PC-compatible. So, at best, they were DOS compatible. But there was no guarantee that each and every program or peripheral that ran on the IBM-PC could run on a clone. The key innovation that Canion, Harris and Murto planned to bring to market under the name Compaq Computer Corporation would be a no-compromises, 100% IBM-PC compatibility. This way, their portable computer would be able to run every single piece of software developed for the IBM-PC. They would be able to launch their machine into the largest and most vibrant software ecosystem of the time, and users would be able to use all their favorite programs on the road.
We couldn’t have done it if IBM hadn’t done exactly what they did because nobody else… Apple certainly wouldn’t have stood for us to make a product that ran their software. They had enough protection on it to prevent that, as did all the others. IBM–the best one to pick–also happened to be the only one that wasn’t protected and it was because of this sort of strange thing. They didn’t believe much in the market, they just rushed a one-year project to get to market.
Compaq lined up venture financing–most famously from a young John Doerr at Kleiner Perkins. With this money, they quickly hired as many young programmers and engineers as they could, being careful not to poach from or anger their former employer. The key to cloning the IBM-PC was to reverse engineer the BIOS, which was the one piece of the machine that was proprietary IBM technology. But that was a tricky proposition. The BIOS had been published in the user manual, but anyone who had even looked at the BIOS code couldn’t work on rewriting it for fear of tainting the project. Running afoul of IBM’s intellectual property would doom the project.
There were actually a few companies that went in and just started copying out of the manual and they ended up getting sued and shut down.
We knew there was a way to do it. We believed we could do it legally. We didn’t just assume things. We hired the best intellectual property attorneys we could find and used their strict guidance to help us do the reverse engineering very carefully.
What our lawyers told us was that, not only can you not use it [the copyrighted code] anybody that’s even looked at it–glanced at it–could taint the whole project. (…) We had two software people. One guy read the code and generated the functional specifications. So, it was like, reading hieroglyphics. Figuring out what it does, then writing the specification for what it does. Then, once he’s got that specification completed, he sort of hands it through a doorway or a window to another person who’s never seen IBM’s code, and he takes that spec and starts from scratch and writes our own code to be able to do the exact same function.
With a small team and a budget that was an infinitesimal fraction of IBM’s yearly revenues, the Compaq team succeeded in their task in 9 short months.
In November of 1982, the Compaq Portable was launched as the first 100% PC compatible machine in the world. Compaq’s machine was so good, in fact, that it proved to be more compatible–especially more backwards-compatible with older software and peripherals–than IBM’s own machines were. One reviewer said that Compaq was more IBM compatible than even IBM was.
[We had] just a bull-headed commitment to making all the software run. We were shocked when we found out none of our competitors had done it to the same degree. We could speculate on why they had stopped short of complete compatibility: It was hard. It took a long time. And there was a natural rush to get to market. People wanted to be first. There was only one thing for us: we didn’t have a product if we couldn’t run the IBM-PC software. And if you didn’t run all of it, how would anyone be confident enough to buy your computer, if they didn’t know they were always going to be able to run new software? We took it very, very seriously.
The Compaq Portable was immediately and wildly successful. In its first year of sales, Compaq sold 53,000 machines, generating sales of $111 million and making Compaq the fastest start-up to hit the $100 million mark, that quickly in its existence. IBM eventually launched a portable of it’s own, but again, the Compaq models proved to be more compatible, as well as more rugged and reliable. Compaq machines eventually outsold IBM portables 10-to-1.
Flush with this success, Compaq attacked IBM on its own turf, launching a range of full-functioning desktop computers. When IBM was slow to embrace Intel’s next generation 386 chip, Compaq seized the moment and launched the first 386 system, thereby leaping to the head of the technological pack. Building off its cloning strategy, Compaq was a leader in moving the computer industry to a new standard, based upon the original IBM-PC paradigm, but no-longer led by IBM. When IBM retrenched and tried to enact a closed, proprietary system with the PS/2 line, Compaq led the way in defending the clone model that IBM was attempting to eradicate. Instead of the “IBM standard” computers moved toward the “industry standard” that became the PC we remember from the late 80s and early 90s. This standard is largely remembered as the “Wintel” duopoly (for Windows software and Intel chips) but a forgotten third leg of this stool is Compaq, which did more than any other manufacturer to ensure the survival and dominance of the industry standard model that had grown out of the IBM-PC, but was no longer beholden to it.
We were really almost the magician in the back room guiding it [the industry]. (…) Backward-compatibility, that was the key technology to begin to stop IBM’s advance with their new PS/2. I mean, they sold millions of those. People look back now and say, “Oh, that was a bad idea.” Well, it was viewed as a great idea at the time! And was about to succeed. (…) All the other computer companies were buying licenses from IBM and beginning to build PS/2 compatibles. (…) It [was] gonna be an IBM-dominated and controlled ballgame. We couldn’t accept that.
Heck, as Rod points out, it’s a little known fact that the version of DOS that was eventually used on most 100% IBM compatible computers was a version that Compaq licensed back to Microsoft after reverse engineering that as well. So, it can be argued that Compaq played a forgotten but key role in Microsoft’s eventual rise to world domination.
It’s one of those strange things. We kept it secret because it seemed like it would just muddy the water for our competitors… for Microsoft. (…) There was a lot of interest in, well, let’s give this version back to Microsoft, and let it become their standard. From Microsoft’s standpoint, all of their computer companies that were using MS-DOS wanted a compatible version. (…) We were recognized as by-far the most compatible. So, we were giving Microsoft something their customers were asking for. So, we were able to license back to them… Microsoft does whatever they do with it and gets it ready to become their standard version of Microsoft [sic] and then begins to sell it to all the other computer companies.
It’s somewhat forgotten today, but Compaq was perhaps the biggest winner of the original PC wars. By 1986, it became the the youngest-ever firm to break into the Fortune 500. In 1987, Compaq hit the $1 billion revenue mark, becoming the fastest ever company to reach that milestone. By the late 90s and early 2000s, Compaq was the largest PC manufacturer in the world, before it was absorbed by Hewlett Packard. Today the Compaq brand is the lower-end representative of HP’s computer business. And IBM is no longer even a PC manufacturer.
Everybody always thinks of intellectual property as building an immovable wall that your competitors can’t come in. And that just wasn’t the way it worked in an industry standard environment. (…) When the industry standard began to develop, it threw a twist into it that nobody really got for a long time. Fortunately for Compaq, we “got it” because we were at the heart of it being created. (…) We were driving [the industry] instead of trying to figure out what was going on around us. And IBM never got that part of it.
One part of the history that AMC’s new show gets right is that in the early 80s, Texas really was a hub for technology innovation, especially in the PC manufacturing realm. Silicon Prairie is the cute branding term. How exactly did that happen?
You know, a lot of people have asked that question, and it’s hard to put your finger on it. (…) It dawned on me one day that, at the time, of the five companies that at one time had been in the top two or three PC companies… of the top five, three had been from Texas! Apple was from the west coast. IBM from the east coast. But the first one had been Tandy. They were the leader for a while before IBM came along. And then, Compaq came along. (…) And then Dell came along behind us, using the foundation we had built. (…) There’s a certain risk-taking gene almost that runs through a lot of Texans.
Is Rod planning on watching Halt And Catch Fire?
I have not looked at the whole episode. I’ve seen the trailer for it. I am gonna watch it. It looks pretty exciting. It may actually be as exciting as the real thing.
Listen To The Interview:
Listen Right Here On Web
Listen on iTunes
Trailer For Halt And Catch Fire
(Note: Since some have asked, just wanted to make it clear that I have not been paid or given consideration or in any way encouraged by AMC, Rod Canion or anyone else to do this episode and post. Just found it interesting and timely.)