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The collapse, for example, of IBM’s legendary 80-year-old hardware business in the 1990s sounds like a classic P-type story. New technology (personal computers) displaces old (mainframes) and wipes out incumbent (IBM). But it wasn’t. IBM, unlike all its mainframe competitors, mastered the new technology. Within three years of launching its first PC, in 1981, IBM achieved $5 billion in sales and the #1 position, with everyone else either far behind or out of the business entirely (Apple, Tandy, Commodore, DEC, Honeywell, Sperry, etc.). For decades, IBM dominated computers like Pan Am dominated international travel. Its $13 billion in sales in 1981 was more than its next seven competitors combined (the computer industry was referred to as “IBM and the Seven Dwarfs”). IBM jumped on the new PC like Trippe jumped on the new jet engines. IBM owned the computer world, so it outsourced two of the PC components, software and microprocessors, to two tiny companies: Microsoft and Intel. Microsoft had all of 32 employees. Intel desperately needed a cash infusion to survive. IBM soon discovered, however, that individual buyers care more about exchanging files with friends than the brand of their box. And to exchange files easily, what matters is the software and the microprocessor inside that box, not the logo of the company that assembled the box. IBM missed an S-type shift—a change in what customers care about. PC clones using Intel chips and Microsoft software drained IBM’s market share. In 1993, IBM lost $8.1 billion, its largest-ever loss. That year it let go over 100,000 employees, the largest layoff in corporate history. Ten years later, IBM sold what was left of its PC business to Lenovo. Today, the combined market value of Microsoft and Intel, the two tiny vendors IBM hired, is close to $1.5 trillion, more than ten times the value of IBM. IBM correctly anticipated a P-type loonshot and won the battle. But it missed a critical S-type loonshot, a software standard, and lost the war.
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Safi Bahcall (Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries)