Ready for an underdog story?
In the early 1980s, personal computing was a winner-take-all industry, and IBM was king — to the point where Intel gave Big Blue early access to its newest processors. And in the highly proprietary market, software made for one company’s computers wouldn’t even run on others’.
But in 1982, three friends — Rod Canion, Jim Harris and Bill Muerto — met at a House of Pies in Houston and walked away with a design for the first fully IBM-compatible portable computer, sketched on the back of a placemat. Their business became Compaq, and within five years, they were generating a billion dollars in sales per year.
Rod Canion, one of Compaq’s co-founders, says the story starts pretty simply. He and two friends had quit their jobs at Texas Instruments, and had nothing lined up.
“We bought an entrepreneur’s manual to try to figure out what the basics were,” Canion says. “And then we started trying to figure out, well, what do we really want to do now? The idea for a Mexican restaurant came up, because we had always joked about when we ought to go into a Mexican restaurant.”
Fortunately for everyone involved, Rod Canion, Jim Harris, and Bill Muerto did not go into the restaurant business. They knew the market for personal computers had expanded — and that there must be other opportunities in the field.
“We started down that path and that was really like stepping onto a rocket platform,” Canion says.
Other companies had already tried to snag a slice of IBM’s pie by building computers that were compatible with its software. But these competitors had all made a fatal mistake: Copying IBM’s code, at which point IBM would sue. Compaq, which was based in Houston instead of Silicon Valley or New York, flew under the radar. And instead of copying IBM’s code, they laboriously reverse-engineered it, avoiding copyright infringement.
Jason Cohen, who directed the new documentary about Compaq’s rise, “Silicon Cowboys,” calls it “a David versus Goliath story.”
“In the film, one of the guys says it was like playing baseball blindfolded, because they couldn't even look at the manual from IBM that had the code,” Cohen says. “If they had looked at it, then they would have been sued.”
That fall, Compaq released the Compaq Portable. Weighing 28 pounds, it came in its own handsome briefcase, sold for $2,995, and ran any software an IBM user might need — essentially founding the modern, open-architecture PC. In the first year, Compaq sold 53,000 units. The personal computing race was on.
The rivalry with IBM was far from over, however. In 1987, IBM released the PS/2 personal computer, which used a fast new data communication system called the Micro Channel. But the Micro Channel was incompatible with IBM’s previous software.
“Every company was going to be forced to buy everything new again,” Cohen says. “Billions of dollars of equipment, and they were selling to huge companies.”
That’s where Compaq, its reverse-engineering experience, and the “industry standard” system come in. Compaq teamed up with eight other companies to create a new data system that would maintain IBM compatibility.
“They offered this new standard for free to the whole industry,” Cohen says. “And it caught fire.”
As the '80s wore on, Cohen says the three-man startup that Canion, Harris and Muerto had nurtured grew closer to what they had earlier railed against: a large corporation with thousands of employees.
“You lose some of that [startup] culture,” Cohen says. “That's just something you can't sustain.”
But other aspects of Compaq’s compatibility-first business model live on. Take a closer look at your iPhone, if you have one.
“That portable was the first time people actually recognized that you could live in something closer to a mobile world,” Cohen says.
Rod Canion says because the accessible industry standard that Compaq helped develop stayed in place, other computing companies had room to iterate and innovate.
“If it had been controlled by IBM, they would not have allowed the technology to come out nearly as fast, because that's part of what they did — they brought it out when it was on their schedule, not whenever anybody else wanted to,” Canion says. “And so I'm absolutely sure that the technology would not have advanced as rapidly, and I don't think we would have had the technology needed for Steve Jobs to develop the iPhone in ‘07. Maybe it would have come 5 or 10 years later, but Steve didn't last that long. ... We had lots of smart phones, and we had PDAs. But it was the breakthrough that his vision created that led to everything we have today.”
Jason Cohen agrees. “This is a story that had an impact,” he says. “Things would look drastically different. And I don't think people realize that. I don't think people knew about this story. And it is just a great underdog story.”