Programming Windows: Microsoft OS/2 (Premium)

While the IBM PC and its follow-up, the hard drive-based PC XT, were huge successes, the firm stumbled with subsequent models. The IBM PCjr, an ill-fated attempt to capitalize on the home market, was an outright disaster. And the IBM AT, IBM’s first non-8088-based PC, shipped in 1984 with an Intel 80286, a chip that Bill Gates had called “brain-dead.” He had advised IBM to wait for the more powerful and 32-bit 80386, which wouldn’t even be announced until a year later.

Worse, MS-DOS—or, PC-DOS, as IBM called it—had been quickly released to accommodate IBM’s rush schedule for the first PC in 1981 and the limitations imposed by its 16/8-bit Intel 8088 processor and its weird segmented memory model in which only the first 640 KB of system RAM was easily accessible. And just a few years later, DOS was having a hard time keeping up with the changes coming in subsequent 16- and 32-bit Intel chipsets.

So, in June 1985, IBM and Microsoft signed a long-term Joint Development Agreement (JDA) in which the two firms agreed to create a new operating system, based on MS-DOS/PC-DOS, that could better take advantage of the coming wave of 32-bit microprocessors. The move elevated Microsoft from its role of software supplier to being a true partner with IBM, creating an OS duopoly that would span both IBM’s PCs and the many clones that had sprung up in its wake.

“’It’s by far the biggest contract we’ve ever signed,” Gates told The New York Times at the time. The publication also noted that Microsoft was “already working on future versions of its operating systems, known as versions 4.0 and 5.0, that will take advantage of more powerful computers now being built.”

Originally called CP/DOS and then Advanced DOS, this new system was viewed within IBM as a way to link up all of its computing products, from its mainframes to its personal computers. But for Microsoft, the JDA and Advanced DOS simply represented a way to keep its biggest customer happy. And besides, the JDA specified that Microsoft could continue selling Advanced DOS to third-parties, just as it had been doing with MS-DOS. Gates’ master strategy could continue.

The two firms immediately began squabbling over the design of the new OS, partially due to the different corporate cultures and partially because neither was particularly interested in ceding any more control to the other. The big break came when Gates wanted Advanced DOS to target only the 80386 and newer chipsets, but IBM wanted to support the “brain-dead” 286 as well; it wouldn’t abandon its PC AT customers. Worse, IBM never even ordered any 80386 chips when they shipped in 1986, and clone-maker Compaq beat IBM to market with the first PC to feature the new 32-bit design.

There were also arguments over Windows, the graphical operating environment for DOS that Microsoft had first released in 1985. The JDA suggested that Windows and an IBM-made PC-DOS-based windowing environment called TopView would someday “converge into a common one,” the NYT reported. “But an IBM spokesman said today that will not happen and that the two products will continue to compete.” As with MS-DOS, IBM felt that Windows was not technically proficient enough for the coming generation of PCs.

Then the bomb fell.

In March 1987, IBM informed Microsoft that its coming new generation of Personal Computers (PCs) would be rebranded to PS/2. More important to Gates and company, IBM’s version of DOS would similarly be called OS/2 going forward, and not PC-DOS as before. Worse still, the OS/2 graphical user interface (GUI) wouldn’t be called Windows. It would be called Presentation Manager (PM). And it would not be Windows compatible, so developers would need to rewrite their apps to work in the new environment.

What IBM didn’t tell Microsoft outright was that these moves were all about taking back control of its own destiny. When the firm entered the personal computer market several years earlier, it had used an open architecture that others could easily copy. The PC’s only truly proprietary hardware, the BIOS, had been successfully reverse-engineered, creating the PC market we know today. And IBM had handed Gates and Microsoft the keys to the kingdom when it allowed the firm to resell PC-DOS to the growing horde of PC clone makers under the name MS-DOS.

To fix these issues, the IBM PS/2 would feature a new, harder to crack Advanced BIOS (ABIOS) and a proprietary new Micro-Channel Architecture (MCA) system bus that clone makers would have to pay for to use. And while IBM wasn’t cutting out Microsoft entirely on the software side, it would co-develop OS/2 and Presentation Manager with the firm, with IBM, and not Microsoft, taking the lead. IBM was also taking the biggest revenues for itself: While both companies would market the Standard Edition of OS/2, the Extended Edition would only be sold by IBM and would only run on IBM’s PS/2 computers.

And then IBM dropped another bomb. PM would be late, so OS/2 1.0 would ship with just a DOS-like command line environment.

“Microsoft howled,” the book Gates says of this meeting. “The names were lame. And IBM’s crack marketeers had somehow managed a stunning preemptive strike—against themselves! Preannouncing the version with built-in graphical support would all but guarantee that the initial character-only edition would fall on its butt.”

Internally, however, Microsoft had to fall into line. IBM wasn’t just its biggest customer, it was bigger than all of its other customers combined. And so Gates decided that Microsoft would continue two separate development paths, with MS-DOS and Windows internally and OS/2 and PM in partnership with IBM. Windows would adopt an almost identical look and feel to PM, and both environments would run DOS and maybe Windows applications, if Microsoft could figure that out. Microsoft would hedge its bets and position Windows as a steppingstone to some OS/2 future, creating an image of compatibility and roadmap that didn’t really exist.

But the differences between the two systems—DOS/Windows and OS/2/PM—were stark, especially for developers. The OS/2 PM development environment was similar to, but not identical to, that for Windows. And they diverged more and more over time as IBM exerted more control. And, IBM being IBM, the release date for OS/2 kept slipping until it was finally delayed to early 1988.

In the interim, Microsoft announced Windows 2.0, a new version of its MS-DOS operating environment that would offer both overlapping application windows—take that, Macintosh!—and “visual fidelity” with OS/2 PM. “This was a handy way of pretending that Windows and PM were still almost the same things,” Gates notes. But they weren’t “and never would be … By this time, the links between Windows and PM had been irrevocably broken.”

By that time, there were over 10 million PCs running MS-DOS and Bill Gates had just been crowned the youngest self-made billionaire in history. And IBM’s moves indicated that the firm was jealous of Microsoft’s success, which it felt came largely, and gift-like, from IBM. But that’s not really true: Microsoft’s success came from Bill Gates correctly predicting the future and demanding that it be able to license MS-DOS to all comers. Regardless, IBM’s changes threatened to flip Microsoft’s business model.

Gates rejected internal calls for the firm to kill Windows, which was still unpopular and technically inept. But he did cut the team down to the bare bones so that the best and brightest could focus on OS/2 and keep IBM happy: The Windows team dropped from over 30 developers to just “a handful of people,” according to Hard Drive: Bill Gates and the Making of the Microsoft Empire. “The emphasis at Microsoft clearly had shifted to OS/2 and Presentation Manager.”

IBM announced its PS/2 line of personal computers in April 1987. Amazingly, given the timing, all but one model featured a then-outdated 80286 processor, a further sign to Gates that IBM was out of touch with the marketplace. It also unveiled OS/2, which would run on both 80286 and 80386 processors. “The development of OS/2 will open up a whole new class of applications,” Microsoft president Jon Shirley said vaguely at the time. But that would need to wait for PM, which wouldn’t ship until later that year.

IBM further hamstrung OS/2 by overpricing it. When the system finally arrived in 1988, the computer giant priced it at $325, over double the cost of PC-DOS. It required expensive new PCs with modern chipsets and components. And there were very few native applications.

“No one will really use OS/2 1.0,” IBM’s Bill Lowe said to the press in a strange bit of marketing. “I view it as a tool for large-account customers or software developers who want to begin writing OS/2 applications.”

Lowe was right about one thing: No one used OS/2 1.0.

This was a problem Gates didn’t have: Around this time, Microsoft surpassed Lotus to become the world’s biggest maker of software by revenues, profits, and units sold. Borland’s Philippe Kahn, a personal hero, described OS/2 as “BS/2.” Internally, Gates described OS/2 as “building the world’s heaviest airplane.”

“By the time OS/2 was introduced, DOS was in use on more than 20 million personal computers,” Hard Drive notes. “It accounted for 38 percent of Microsoft’s sales and nearly half its profits during the fiscal year that ended in June 1987.”

And then something happened, as we say in Microsoft-land.

The tiny team working on Windows had made a breakthrough, and had figured out how to contort Windows to support Extended Memory on the 80286 and the flat memory model provided by the 80386. Sensing an opportunity, the firm began bringing developers back to Windows, shipped Windows/286 and Windows/386, the latter of which was developed with Compaq, was particularly sophisticated, and it would form the basis for Windows 3.0, the blockbuster release that would arrive in 1990. Gates was still hedging his bets, but by this time, the emphasis internally was on Windows, not OS/2 and PM.

Publicly, the firms voiced their support of each other, but the relationship was collapsing. Not helping matters, Jim Cannavino was brought in to take over IBM’s PC division and he despised Gates and was suspicious of Microsoft. The two even public sparred over Windows, furthering the division. So, Gates pulled the plug. He shifted even more programmers off OS/2 and onto Windows.

Ultimately, Microsoft’s marketing mantra—that Windows was a “bridge” to OS/2—really paid off … for Microsoft. That line was completely untrue, as Windows and OS/2 were incompatible. But by convincing developers and customers to adopt Windows first as if it were a stepping stone to some other future, what Microsoft had really done was get developers and customers to adopt Windows, period. Many simply took a wait-and-see approach on OS/2.

IBM did ship OS/2 1.1 with Presentation Manager in 1988 as promised, but in classic, inept IBM fashion, the product was launched on Halloween. Boo! It also shipped without a single third-party PM application, which should have been a warning. What also should have been a warning is that Microsoft had hired ex-DEC OS whiz Dave Cutler that same day. His job? Create a next-generation operating system first called NT (for “New Technology”) that would run on next-generation hardware. He had already decreed that OS/2 was “a loser.”

IBM and Microsoft lurched uncertainly towards OS/2 1.3 (“Tiger”) and 2.0 (“Cruiser”), the latter of which would target 32-bit chipsets if it were ever finished. And despite a Comdex-timed joint press release in which Microsoft again affirmed its love of OS/2 and its belief that IBM’s platform was the future, Gates and company had already made up their minds otherwise.

Helping matters, OS/2 accounted for less than one percent of all PC operating systems sold worldwide by the end of 1989, compared to 66 percent for MS-DOS. And while Windows was hardly successful to date—having “sold” about 3 million copies over four years, most of which were “gather dust,” according to Hard Drive—Microsoft was ready to ship version 3.0. Gates was pinning everything on Windows 3.0, and he plotted Microsoft’s first-ever major launch event for the product. Which would run on MS-DOS, and not OS/2.

And he was finally starting to tell people outside of Microsoft the truth.

“Six months after Windows 3 ships, it will have a greater market share than PM will EVER have,” Gates infamously told a group from Lotus in early 1990. “OS/2 applications won’t have a chance … Microsoft is dragging its feet on OS/2 [2.0] … What incentive does Microsoft have to get it out the door before Windows 3?” Microsoft finally announced publicly, in April 1990, that OS/2 2.0 would not ship until March 1992, and that it would actually run Windows applications. It was, in the words of Microsoft’s Peter Neupert, a “kind of Windows Plus.”

But OS/2 was now positioned against UNIX, not DOS and Windows. That was the new marketing message from a Microsoft that knew what was on the horizon. “There will be a DOS 5, 6, and 7, and a Windows 3, 4, and 5,” Microsoft’s Steve Ballmer said publicly that same month.

And then Microsoft launched Windows 3.0. The product was an immediate blockbuster, selling 380,000 copies in five weeks at a rate of nearly 11,000 units per day; it reached one million units sold in four months. It wasn’t as technically sophisticated as OS/2, but thanks to Microsoft’s breakthrough, it now supported all of the advanced features of the 80386 and newer processors. Microsoft’s oft-quoted ability to finally get it right on version 3 was born. (And in an interesting twist, Windows 3.0 could run multiple DOS apps simultaneously in windows on a 386; OS/2 could only run one.)

“May 22, 1990 will mark the first day of the second era of IBM-compatible PCs,” PC Computing wrote exuberantly of the release of Windows 3.0. “On that day, the IBM-compatible PC, a machine hobbled by an outmoded, character-based operating system and seventies-style programs, was transformed into a computer that could soar in a decade of multitasking graphical operating environments and powerful new applications.”

“Windows is simply an endorsement of what we’ve been doing all along,” an Apple marketer said sourly of the same event.

He wasn’t the only one souring on Microsoft. IBM finally dropped another bomb. It asked for—and received—a divorce from Microsoft.

“Microsoft Corp. to Scrap OS/2, Refine Windows,” a Wall Street Journal headline from January 1991 read. Microsoft denied the report publicly, but it also announced Win32, a 32-bit version of its Windows APIs that would bring a flat address space, true preemptive multitasking with multithreading, integrated networking, interprocess communications, multiprocessor support, and other features, to Windows. These features were, Gates notes, “virtually everything that had been [previously] reserved for OS/2.”

In 1992, Microsoft shipped Windows 3.1, adding support for TrueType fonts, and IBM shipped OS/2 2.0, adding support for the 80386 processor. By this time, Microsoft had sold several million copies of Windows, and IBM had sold a grand total of 700,000 OS/2 units.

As momentous, the two firms had finally come to divorce terms. Naturally, they highlighted their so-called agreements when discussing the divorce with the press.

“IBM and Microsoft can now provide leadership based on different business strategies,” IBM’s Lee Reiswig said at the time. “We will continue to carry forward our separate strategies, and we will be able to work together where it makes sense. But we’re not joined at the hip.”

“We’ve agreed to disagree on OS/2 and Windows,” a Microsoft spokesperson said. “But the agreement certainly gives us the opportunity to continue working together in other areas where there is mutual agreement for our customers.”

Under terms of the divorce, Microsoft and IBM would exchange code through September 1993, giving IBM the ability to run DOS and Windows applications under OS/2. It gave Microsoft broad usage rights for many IBM patents, and, more important, allowed each to continue using and enhancing the OSes they had previously worked on together.

That September 1993 date wasn’t arbitrary: That was when Microsoft expected to ship the first version of NT, which by that time had been redesigned to look like Windows and run Windows and DOS apps. It had also been renamed. To Windows NT.

“As part of the overall agreement, IBM decided not to use its rights to Microsoft’s Windows NT operating system,” The New York Times reported. “That program, which the Redmond, Wash., software publisher is now completing, was originally begun under a joint development program, and Microsoft is now readying it for introduction next year. It has many of the same features as I.B.M.’s OS/2.”

Windows NT. Now that’s an interesting story. For another day.