A ‘David and Goliath’ Story for Personal Computers
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.”
Jason Cohen is a filmmaker and the director of “Silicon Cowboys.” He’s based in Berkeley, California.
Rod Canion is co-founder of Compaq Computers, based in Houston, Texas.
IRA FLATOW: This is Science Friday. I’m Ira Flatow. In the early 1980s, if you remember back then, IBM dominated the market for personal computers, to the point where Intel was giving them priority– software made for one company’s computers which wouldn’t run on others. And the only portable computer on the market had some frustrating shortcomings because of that.
But all of that was about to change because in 1982, three friends met in an industrial designer– met with an industrial designer in a Houston House of Pies, a restaurant still there. And they walked away with a design for the first IBM compatible portable computer. They sketched it on the back of a placemat.
And from there, Compaq became the fastest company to enter the Fortune 500. And within five years, they were making a billion dollars in sales per year. Compaq, eventually joined by other small computer makers, led the charge in pushing software compatibility and portability. And they eventually put giant IBM out of the PC business.
Silicon Cowboys is a new documentary film about this real life David versus Goliath tale. And after its premier at South by Southwest this spring, it opens in select theaters nationwide today. Director Jason Cohen is here in New York to talk about it. Welcome to Science Friday.
JASON COHEN: Thank you so much for having me.
IRA FLATOW: Great, great film.
JASON COHEN: Thank you.
IRA FLATOW: I loved it. It starts out as the story of these three friends. You have Rod Canion– you tell us who they are.
JASON COHEN: Sure. Rod Canion, Bill Murto, and Jim Harris are the three founders. And as you said, they did draw up the first sketch on the back of a placement in the House of Pies diner in Houston.
IRA FLATOW: And they’re three engineers, who they quit their jobs at Texas Instruments to start this company.
JASON COHEN: Correct. They quit with not even having another job or even an idea yet of what they were going to do.
IRA FLATOW: All right. Well, we actually tracked down Rod Canion. He couldn’t be here with us today, but he did sit down and share some of the stories with us yesterday in New York.
ROD CANION: We had gone over to Bill’s house– I guess, if you go back to September of ’81– with just the idea of, OK, let’s start a company. Now, how do we do that? And we really didn’t know. Nobody that we were with knew how to do it. So we bought an Entrepreneur’s Manual to try to figure out what the basics were.
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, well, we ought to go do a Mexican restaurant. Fortunately, that was really kind of kidding and we quickly got past that and began to try to decide what we were going to do.
We knew it needed to be something in the personal computer arena because it was IBM entering that market that caused the market to explode and we knew that’s where the opportunity was. So let’s figure out something.
Now, to be fair, we never thought we would build a personal computer. That was too big a thing. We’re just three guys starting up. We needed to do something small. But after a while, the idea for this portable computer that ran IBM software came up. It was like, wow, that that’s too good to pass up. Let’s go see if we can figure out how to do that.
So we started down that path. And that was really like stepping onto a rocket platform.
IRA FLATOW: That was Rod Canion. What made this story so interesting to you?
JASON COHEN: It’s a great narrative. I mean, it’s– as you said– it’s a David versus Goliath story. And yes, it’s about computers, and I know not everyone can follow the language of computers. I can’t follow a lot of it, to be perfectly honest, although I certainly am a bit more educated than I used to be.
But it’s just it’s a story that anyone can relate to, of the little guy taking on the big guy and succeeding and sort of stopping the bully. And it affects us all today.
IRA FLATOW: And Silicon Cowboys, as a name?
JASON COHEN: Yeah. You know, I do have to give credit to Ross Dinerstein, our producer, who came up with that title in the middle of the night. And he emailed us and we all loved it– or texted in the middle of the night when he came up with it, because we had been searching for a title.
But yeah, for us, cowboys– obviously, these guys were from Houston and we wanted to get that across. But they were also– they’re mavericks. They quit their jobs. They started this company with nothing, took a chance, and they had that spirit. And that is a Texas spirit. So the cowboy sort of pertains to that as well.
IRA FLATOW: In fact, Rod Canion told us that he liked this label quite a lot.
ROD CANION: We really were cowboys, in the sense of it was the Wild West of the PC industry. It was just getting going. Anything went, as long as you were willing to stand behind it. And there was a lot of risk involved. So you had to be willing to take risk if you were going to get anywhere. So it truly was a cowboy kind of situation.
IRA FLATOW: How were they treated when they came up with this idea, by the industry? Did being an outsider help them actually succeed?
JASON COHEN: Yeah and we talked about that. They were sort of overlooked. They were down in Houston. Everything was going on in Silicon Valley and then you had IBM out here in New York. And particularly, IBM– and we have a couple voices from IBM in the film– that said, this was just a blip on the screen. And that’s after they had sold $100 million the first year.
IBM was not paying attention. They were just this little company from Houston and IBM had put so many other companies out of business by suing them, coming in with big lawsuits because they had copied the code, which Compaq was very careful not to do and did it well. But yeah, they were sort of overlooked and it worked to their advantage.
IRA FLATOW: And as you mentioned, the first sketch of their product was in the back of a menu from the House of Pies.
JASON COHEN: A placemat, yes.
IRA FLATOW: A placemat. And you actually went back to the same place to film?
JASON COHEN: Yeah. I have to say, it was one of the most gratifying scenes, for me, in the film. We went back there. The lovely people at the House of Pies sort of let us take over for a day. And fortunately for us, it’s sort of a snapshot in time there. It looks identical to what it looked like 40 years ago. It was just perfect.
And we just had so much fun filming in there. And we filmed the reenactment of them sketching the placement, and it’s one of my favorite scenes in the movie.
IRA FLATOW: There were many companies out there that were also compatibles. But as you say, they had copied the IBM code used to run their software. But one of the monumental feats of Compaq’s first year was reverse engineering this and Microsoft’s IBM compatible operating system so they did not violate the copyright. How did they do that?
JASON COHEN: It was laborious. I mean, it was a huge undertaking and they really made sure they did it right. Because if they didn’t, they would have been sued and they would have been put out of business. And they basically– 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. If they had looked at it, then they would have been sued. And so they had to do it all from– just basically kind of figure it out by trial and error.
IRA FLATOW: And Rod Canion told us that this gave them an edge on IBM in later competition.
ROD CANION: When we found out that we couldn’t get a version of MS-DOS from Microsoft that was compatible with IBM, that was actually an assumption in our business plan when we got our original funding. And it was about a month later that we met with Bill Gates in sort of a back room in San Francisco and told him what we wanted.
And he actually didn’t know at the time for sure so he went away and talked to his people. And we found out later that, no, they can’t do that. They can’t sell us what they sell IBM. That belongs to them.
And as IBM is their biggest customer, they’re not going to go and reverse engineer it. And the realization that we had to go do it, it seemed like almost an insurmountable task. But we decided, no, if that’s the only way we can get there, we’ve got to go do it. So we went and just plowed forward and actually got it done.
Now that turned out to be– it seemed like this is one little step here. But learning how to reverse engineer it ourselves was a technology that later on separated us from everybody else. So even down at the end of the decade, when we came out with a backward compatible, high speed bus, we were able to do that because we knew how to make things run all the software.
IBM didn’t. Their bus was incompatible. And it was that difference really that led to the success of the industry standard over IBM.
IRA FLATOW: And that industry standard was Compaq’s response to IBM’s attempt to dodge compatibility entirely with something they called the micro channel, which allowed its computers to do much more and do it faster, but which other computer makers would have to reverse engineer if they wanted to keep up, right?
JASON COHEN: Yeah. You know, the PS/2, which is what they put out, was basically IBM’s way to squash everybody. That was going to be it.
IRA FLATOW: That’s what they did.
JASON COHEN: This is what they wanted to do. You had to use– everything had to be IBM and you couldn’t use anything else with this new system. And they were hoping that was going to catch on, but it actually ended up failing pretty miserably.
IRA FLATOW: Why? What was the defect in IBM’s micro channel?
JASON COHEN: It wasn’t necessarily a defect in the actual computer. But the fatal mistake they made was that it rendered useless all of the previous software and peripherals that all their customers had already bought. So every company was going to be forced to buy everything new again. Billions of dollars of equipment. And they’re selling to huge companies. So I think that was the fatal flaw, I think.
IRA FLATOW: So here’s Compaq saying, hey, you don’t have to buy the new IBM stuff to run the micro channel. We’ve got stuff that will run on it.
JASON COHEN: Yeah. And they teamed up– it was called the Gang of Nine– they teamed up with nine other big companies, including Microsoft and Intel, and they got together and had a press conference. And they offered this for free. They offered this new standard for free to the whole industry to combat this. And it caught fire and now that’s what we are– that’s what we use.
IRA FLATOW: What about the machine itself? What made the Compaq better than– I mean, I had a Kaypro at that time. There was an Osborne. There were these luggables, as we used to call them, like carrying a sewing machine around. What made their machine so much better?
JASON COHEN: So theirs was a luggable. It was 28 pounds. It had a nice leather handle on the top. It looked like a sewing machine. We purchased a few for the filming and had fun playing around.
IRA FLATOW: It’s still around?
JASON COHEN: Yeah. We found them on eBay. I’ll be honest, the shipping cost more than the computer. Like three times as much, I think. But the reason why it really caught on was it was made well, it was revolutionary in its design at the time– and when you look at it, when you look at an iPhone and you look at that, it’s mind boggling. But it was.
The Osborne was the only one that had made a little bit of a dent but this took it a step further. And then the IBM compatibility. They were the first ones to ever do this, where you could take IBM software and run it in this computer. The dealers they took it to loved that.
IRA FLATOW: And was that the big backbreaker for IBM? What forced IBM out of the PC industry?
JASON COHEN: No, no. That was just the beginning, the portable. And there were a few times where– and that’s what our story tells. It’s sort of this up and down over a decade, where there’s these sort of near fatal blows by IBM to Compaq. And they somehow dodge it each time. But there’s a few times where they get pretty close to potentially putting them under. But they’re able to kind of move around it.
IRA FLATOW: Did they ever make mistakes, Compaq? Missteps?
JASON COHEN: Oh, yeah. And we do talk a little bit in the film. You know, this was a 10 year window that we looked at. And it goes up until the time when Rod was ousted from the company– the company that he founded– as well as the other founder–
IRA FLATOW: It’s like. Steve Jobs.
JASON COHEN: Yeah. Well that this was happening in the ’80s, when Jobs was forced out of Apple. Apple was sort of a much smaller player in the PC market, back then. But yeah. So we tried to look at some of the pitfalls and some of the moments that didn’t go so well for them as well in the film.
IRA FLATOW: The documentary also covers some of the unique work culture that Compaq had, reminiscent of some of the perks of working at Google and other modern companies, as Rod Canion told us.
ROD CANION: You know, the movie mentions the free Cokes and the no reserved parking space. But to me, those are sort of almost trivial. They flow from the basic idea of, well, whoever gets here first, they ought to get the best parking place. And if we can provide Coke so people don’t have to worry about having the right change at any point in time, then why not keep doing it when we’re 10,000 people?
IRA FLATOW: But of course, all good things must come to an end.
JASON COHEN: Yeah. And I think, again, part of what we wanted to tell in the story was this start up that started with these three guys eventually became a little– appeared a little bit closer to what they had railed against, which was large corporate company with thousands of employees. And you lose some of that culture. And that’s just something you can’t sustain.
IRA FLATOW: Talking with the director Jason Cohen, director of a Silicon Cowboys, which is a new documentary opening in selected theaters nationwide today on Science Friday from PRI, Public Radio International. What cities? What cities?
JASON COHEN: So it’s playing in– I think we’re up to about 14 cities. New York, LA, Chicago, Houston, of course, San Francisco, Miami. I think, Boston, outside of Dallas. And the other thing which we didn’t mention is it’s available on VOD now.
IRA FLATOW: On demand?
JASON COHEN: On demand. On iTunes, Amazon, Google. You can log on right now and you’ll see it on there.
IRA FLATOW: Do you see any things there that might not have happened without Compaq? If Compaq had not come along?
JASON COHEN: Yeah. We talk a lot in the film about the impact they had on the mobile industry because that portable was the first time people actually recognized that you can live in something closer to a mobile world and being able to take your work home and out of the office. So we talked a lot about, with the iPhone– you know, some people, even one of our people the film says, you cannot get to the iPhone without the Compaq portable.
IRA FLATOW: In fact, we have Rod Canion talking about how he pictured a world in which Compaq had not been successful. And he did, he drew a line straight to the iPhone.
ROD CANION: All of the clones would have ended up under IBM’s thumb and most of them would have gone out of business. And Compaq would’ve been acquired or gone out of business somewhere along the way. But more importantly to what we do today is because the industry standard stayed in place and actually strengthened, the technology advanced so rapidly during the ’90s and the early 2000s. 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.
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 five or 10 years later, but Steve didn’t last that long. He died in 2011. And so I almost think we would have missed that whole era.
Now, we had lots of smartphones and we had PDAs. But it was the breakthrough that his vision created that led to everything we have today.
IRA FLATOW: You know, I was reminded of The Soul of a New Machine, the book, when I was watching the film. What makes this a more compelling story than just another story about a computer company?
JASON COHEN: Well, honestly, a big part of it for me was it’s a story that people don’t know. We all obviously know the Jobs story, and we know the Gates story, and we now know the Zuckerberg story. And this is a story that, as Rod just said, it had an impact. Things would have looked drastically different. And I don’t think people realize that and I don’t think people knew about this story. And it’s just a great underdog story and how they did this.
IRA FLATOW: Did they all land on their feet?
JASON COHEN: Yeah, yeah. They all left the company and you know–
IRA FLATOW: Rich?
JASON COHEN: They all did– they all did well. I mean, at its peak, they were up to about $3 billion by the end of the 1980s, just before they left. And they’ve all gone on to do some consulting and things like that.
IRA FLATOW: Well, it’s a great story, and I highly recommend Silicon Cowboys, the documentary about the Compaq computer. And it premiered at South by Southwest and it’s opening in select theaters nationwide and on demand.
JASON COHEN: Yep, you can just go to siliconcowboysmovie.com.
IRA FLATOW: There you have it. Jason Cohen, director of the new documentary.