Tech Nostalgia: Vertical Integration (Updated) (Premium)

UPDATE: I added a reference section I inadvertently left out at the end of the article. –Paul

Calculator maker Commodore was almost forced into bankruptcy in 1975 when Texas Instruments (TI) directly entered the market with far less expensive products. Incensed by this, co-founder Jack Tramiel discovered that vertical integration was the key to TI’s advantage: because TI owned the chips it used its own consumer products, it could aggressively lower prices in ways its competitors could not.

Tramiel was forced to go back to the well: he asked Commodore chairman Irving Gould, who had previously saved the company from bankruptcy due to financial shenanigans in the 1960s, for another cash infusion, this time to purchase chipmaker MOS Technology and secure a regular supply of inexpensive calculator chips for his company.

“You give me the money to keep going, give me the money to buy MOS Technology, and I’ll give you all of my [Commodore] stock,” he told Gould, effectively giving the financier total control of the company. “If I succeed, you give me back some of my stock. How much you give back is up to you.” Irving agreed. And so Tramiel signed over his Commodore stock, Irving gave Tramiel $3 million, Tramiel acquired MOS Technology, and Irving later returned just 8 percent of the stock back to Tramiel, ensuring that Gould, and not Tramiel, would be the final voice on any decisions at Commodore going forward.

This would come back to haunt Tramiel a decade later, but his decisive thinking had saved his company. He had also unknowingly set up Commodore for its entry into the home computer market and a period of chaotic, explosive growth. Key to this success was Tramiel’s condition that MOS Technology’s lead chip designer, Chuck Peddle, would move to Santa Clara, California and join Commodore as part of the acquisition.

Peddle had previously worked at Motorola on the 8-bit 6800 processor, which never challenged the leading microprocessors of the day—the Zilog Z80 and Intel 8080—in part because of its high price point. (The 6800’s successor, the 68000, would fare better and power several popular computer systems in the 1980s.) But when Motorola canceled his project for a lower-cost 6800, he left and joined MOS Technologies in Pennsylvania, where he created the 6501 and 6502 families of 8-bit microprocessors, the former of which was socket-compatible with the 6800, and the latter of which cost just $25, one-sixth the price of the 6800.

Peddle’s expertise, the 6502’s inexpensive versatility, and Jack Tramiel’s aggressive business tactics—plus his seething desire to one day impart revenge on TI—would drive Commodore’s next era. Here, the stories diverge.

Peddle claims that he immediately argued to Tramiel that the calculator business was a dead-end and that Commodore needed to expand into home computers. Tramiel’s version is that when Peddle told him about his 6502 processor, he said, “You know what you’ve got here? You’ve got the makings of the first low-cost personal computer!” What they both agree on is that Tramiel didn’t know anything about computers, but he assumed they were the next logical step beyond calculators. And so they considered purchasing an existing product, slapping a Commodore logo on it, and selling it at mass-market prices.

Only one viable option presented itself: a prototype of the Apple II and a follow-up to Apple’s initial product, a single-board computer, which Apple co-founders Steve Jobs and Steve Wozniak were trying to find a buyer for due to the high costs of building a self-contained computer. After being shot down by Atari, the Steves approached Peddle, who stopped by Jobs’ house to get a demo in September 1976. He loved the Apple II, which was based on his 6502 microprocessor, and he presented it to Tramiel, who decided it would be cheaper for Commodore to build its own computer. And so Peddle set up a secret Systems Engineering group separate from, but close to, Commodore’s headquarters. He was given 6 months to complete the project.

The resulting computer, called the Commodore PET (because it was to be a “pet computer,” like a pet rock, but retroactively the Personal Electronic Transactor) 2001, is widely credited as being the first self-contained and fully-packaged personal computer, meaning that it was a single-board computer encased in a (metal) case with a full keyboard (albeit one that used calculator-style keys in its first rendition), an integrated tape recorder for storing and retrieving software programs, and an integrated monochrome display. But that is debatable: it debuted at the January 1977 Consumer Electronics Show (CES) in Las Vegas, yes, but the Apple II beat it to market by four months.

(The Commodore PET 2001 would also include Microsoft (then Micro-Soft) BASIC, as discussed in Tech Nostalgia: Bill Gates, Jack Tramiel, and BASIC (Premium).)

The PET 2001 was powered by Peddle’s 6502 processor, of course, and it came with 4 KB or 8 KB of RAM, 8 KB of ROM, and four internal expansion card slots for more RAM, a parallel port (sound output), a parallel IEEE-488 port for printers and disk drives, and a second tape recorder.

Its monochrome display could display 25 lines of text, each with 40 columns. Intriguingly, the text incorporated so-called character graphics, meaning that the shape of each character could be programmed and changed to create custom shapes without taking on the RAM overhead of bitmapped graphics. The effect was surprisingly good and enabled the creation of sophisticated video games. (Key among the built-in characters were playing card suits, as Peddle loved to play Poker.)

By the time the PET 2001 debuted in October 1977, Commodore had moved its corporate headquarters to West Chester, Pennsylvania to save money and to be closer to MOS Technologies’ facilities in Valley Forge. The demand for the first fully-packaged computer was so great that customers paid the full $795 asking price in advance, knowing that they would not receive the finished product until 6 months later. (By comparison, the Apple II debuted at $1298 but did not include a display or storage.) Tramiel doubled the price when Commodore introduced the PET in Europe, but it was, in the words of Commodore marketeer Michael Tomczyk, “an instant hit” regardless.

Over time, Commodore improved its PET with a larger, typewriter-style keyboard, and it introduced its own Commodore-branded printers, disk drives, and other peripherals. Commodore was by this point a computer company, not a calculator company, and within two years it was the third largest home computer company after Apple and Tandy (Radio Shack). Peddle had plans for a supercharged PET that he called ColorPET with color capabilities, high-resolution graphics, an 80-column text display, and four-voice sound and music capabilities that would leapfrog the competition, which by then included the technically formidable Atari 400 and 800.

But Tramiel had other plans.

He had been briefed on a new MOS Technologies chipset called VIC (Video Interface Chip), whose initial version would offer only 22 columns of text but could display color graphics to a standard TV set instead of requiring an expensive monitor. It could be manufactured quickly and, more to Tramiel’s liking, cheaply. Tramiel wanted a low-cost home computer, one that would very specifically cost $300 and sell via mass-market retailers in the U.S., and Peddle admitted that he couldn’t cost-reduce his design enough to meet these needs.

Commodore would head down a different path, and it would come to dominate the home computer market in the 1980s.

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I somehow forgot to add a few reference material links, sorry. Here they are:

There probably isn’t much call for PET software emulation, but the Cloanto C64 Forever retail packages ($19.95 and up) include PET 2001 emulation.

Those who wish to know more about Commodore during this time period should read Commodore: A Company on the Edge by Brian Bagnall and, if possible, the wonderful The Home Computer Wars by Michael S. Tomczyk, which is sadly only available in paper form: the author (a former Commodore employee and Jack Tramiel insider, personalized and signed by copy almost 20 years ago. Such a nice guy.

And while Chuck Peddle sadly won’t factor into this narrative too much more, he is inarguably the key figure in 8-bit microprocessor design for the decade spanning roughly 1975 to 1985. That he is somewhat forgotten today is a tragedy, but you can learn more about this impressive man, in his own words, in the Computer History Museum’s video interview Oral History of Chuck Peddle. It’s four hours long and a must-watch.