The February 1985 issue of Playboy magazine featured a fascinating interview with Steve Jobs. At that time, the personal computer market was crowded with competitors—Sinclair, Atari, and Commodore 64, among others. However, two brands dominated: IBM and Apple.
IBM’s Fatal Strategic Mistake
IBM made a crucial decision that would ultimately undermine its dominance in personal computing. Unlike Apple, which maintained strict control over its hardware and software ecosystem, IBM took a different approach. Coming from a mainframe background, they didn’t fully grasp the home computer market’s potential—or perhaps underestimated its longevity.
IBM built their personal computers using off-the-shelf components: Intel CPUs, Microsoft DOS, third-party memory, and other publicly available parts. They didn’t manufacture every component in-house. This architecture made it remarkably easy for competitors to create “clones”—IBM-compatible computers that could run the same software at lower prices.
Apple never opened their system this way. You could only get an Apple computer directly from Apple.
The PC Market Takes Off
Despite this architectural vulnerability, IBM PCs initially became dominant through aggressive sales and service. Early IBM-compatible computers were modest by today’s standards—machines with two 5¼-inch floppy disk drives, green monochrome monitors, and no hard drives. One drive ran the program; the other stored data.
The market evolved rapidly from machines like the Commodore 64 to competitors such as the Atari ST. JS&A Sales Corporation (owned by the creator of Blue Blocker sunglasses) even marketed the Atari ST as “the Mac killer,” claiming it matched or exceeded the Mac’s capabilities with superior hardware. Yet it never gained traction.
Jobs’ Frito-Lay Comparison
In the interview, Jobs drew an interesting comparison between Frito-Lay and IBM—a segment worth examining for insights into his thinking about market dominance and business strategy during this pivotal era in computing history.
Here is a small excerpt from that 1985 interview
Frito-Lay is a very interesting company. They call on more than half a million accounts a week. There’s a Frito-Lay rack in each store, and the chips are all there, and every store’s got the identical rack and the big ones have multiples. For Frito-Lay, the biggest problem is stale product—bad chips, so to speak. For Frito-Lay’s service, they’ve got, like, 10,000 guys who run around and take out the stale product and replace it with good product. They talk to the manager of that department and they make sure everything’s fine. Because of that service and support, they now have more than an 80 percent share of every segment of chips that they’re in. Nobody else can break into that. As long as they keep doing what they do well, nobody else can get 80 percent of the market share, because they can’t get the sales and support staff. They can’t get it because they can’t afford it. They can’t afford it because they don’t have 80 percent of the market share. It’s catch-22. Nobody will ever be able to break into their franchise. Frito-Lay doesn’t have to innovate very much. They just watch all the little chip companies come out with something new, study it for a year, and a year or two years later they come out with their own, service and support it to death, and they’ve got 80 percent of the market share of the new product a year later. IBM is playing exactly the same game. If you look at the mainframe market place, there’s been virtually zero innovation since IBM got dominant control of that market place 15 years ago. They are going to do the same thing in every other sector of the computer market place if they can get away with it. The IBM PC fundamentally brought no new technology to the industry at all. It was just repackaging and slight extension of Apple II technology, and they want it all. They absolutely want it all. This market place is coming down to the two of us, whether we like it or not. I don’t particularly like it, but it’s coming down to Apple and IBM.
We’ll see you next Wednesday.