Data Communications: Emergence 1956-1968
Modems and Multiplexers
1.3 The Remarkable Growth in the Use of Computers
By the time the Carterfone case had irked AT&T executives,
a more serious challenge had emerged. Corporations were beginning to use
computers on a scale never imagined, increasingly involving communications
over the telephone network. AT&T management’s instinctual reaction
was to resist any use of the telephone network that they did not control.
Only these new uses also represented a potential source of revenue growth
if AT&T could exercise its regulatory powers. Extending the reach of
regulation into the competitive computer market set AT&T against IBM
and likely every one of their corporate customers, and created problems
vastly more complex than squashing some pesky entrepreneur from Texas.
By the mid-1960’s, computers had become a fast growing
business because they were desperately needed and were finally becoming
usable and affordable. This compelling combination of need and solution
propelled the sales of computers from $600 million in 1960 to $7 billion
in 1968 -- a compounded growth rate of 36 percent a year. No wonder AT&T executives contemplated
how to grab a piece of the action.
Corporate executives needed computers to cope with an
increasingly complex world. In part that complexity was being driven by
technology. As H. Igor Ansoff wrote in the Harvard Business Review in 1965:
"The 20-year period since World War II has
seen a continuing acceleration of product change. Triggered by accumulated
technology and pent-up consumer demand, product innovation has become an
increasingly important tool of competition and growth. To the business
manager it has brought both opportunities and problems."
The rapid proliferation of products, shorter product life
cycles, emergence of entirely new markets, slowing growth in more traditional
markets, and potential globalization of everything, all contributed to
the felt need by executives for not only computers, but computers capable
of providing information both “real-time” and “on-line.” The needs that earlier had driven development
of the SAGE air defense system now permeated the language of corporate
management. Indicative of how important the computer had become,
a 1967 survey by the management consulting firm Booz, Allen & Hamilton
"The day may not be far distant when those
who analyze annual businessfailures can add another category to their list
of causes -- failure to exploit the computer."
Corporate America did not have a computer that was truly
usable and affordable until roughly 1966. That computer, announced in grand
style on April 7, 1964, by Thomas Watson Jr. and the management of IBM,
was the Sytem/360 series of computers. Costing an estimated $5 billion
to develop, the System/360 represents the beginning of the third generation
of mainframe computers. IBM sold an unbelievable 1,000 System/360’s
in the first thirty days. The System/360 consumed IBM management’s
attention for years before becoming the product they announced
that proud day, traumatized their customers into the future, and
sent IBM's competitors scrambling for survival. The effect was
back to top
System/360 might never have happened if not for military
funding motivated by the Korean War. In 1950, Thomas J. Watson, President
and CEO, and father of the Watson Jr. who announced the System/360,
managed an IBM that controlled 90% of the office machinery market.
As for the prospects of computers, Watson Jr., remembers his father
believing"the electronic computer would have no impact on
the way IBM did business, because to him punch-card machines and
giant computers belonged in totally separate realms."
When the Korean War broke out, Watson "put
" at President Truman's disposal. After studying how
best IBM might help, James Birkenstock, manager of the IBM Future Demands department,
and scientist Cuthbert Hurd recommended IBM build a "general-purpose
scientific" computer. The new computer -- code named the Defense
Calculator -- became the most expensive investment in the company's then history. It would become the basis for their
commercial computers introduced in 1952. Watson Jr. remembers
the subsequent confusion: "Our engineers and production
mangers weren't sure how to proceed."
Understanding IBM’s deficiencies, Watson Jr. made it a
priority to win a contract being let by MIT and the Air Force to develop
a computer for the SAGE air defense system. Jay Forrester, the MIT scientist
responsible for procurement, held serious discussions with Remington Rand,
RCA, Raytheon, Sylvania, and IBM. In October 1952, he selected IBM to be
the subcontractor assisting MIT’s Lincoln Laboratories finalize the SAGE
computer design. For IBM, SAGE represented the opportunity to learn state-of-the-art
computer technologies from the most advanced computer development laboratory
in the world. But while IBM learned, staff at Lincoln Labs felt burdened.
Norman Taylor, one of Forrester's most trusted managers, remembers: "IBM
seemed awful stupid to us. They were still designing circuits like radio
and TV circuits."
In the summer of 1955, IBM completed the SAGE computer
prototype. The AN/FSQ-7, or Q7, weighed 300 tons and occupied twenty thousand
feet of floor space.
The SAGE air defense system became obsolete, however,
before its full implementation: it had not been designed to track incoming
missiles. Even so, it catapulted IBM from "stodgy
company" to technological leader. In 1954, a year before completing the
SAGE prototype, IBM would introduce improvements - in part learned
from designing SAGE - into its languishing 702 computer (the one
based on the Defense Calculator) and reintroduced it as the 704. Acclaimed a "creative
masterpiece," the 704 established IBM as the market leader.
The benefits of designing and building an advanced computer for the government
were not lost on IBM management. After they lost a bid in 1955 to build
a super fast computer for the University of California Radiation Laboratory,
they sold a more aggressive design to Los Alamos National Laboratory. Although ultimately a failure, it contributed
to the knowledge and skill needed to design and build the System/360.
IBM rode the System/360 to great success and an estimated
70% of the mainframe computer market. Revenue soared from $2 billion in
1964 to $6.9 billion in 1968. Competing against only seven firms, known
as the “Seven Dwarfs” (Burroughs, Control Data Corporation, General Electric,
Honeywell, RCA, National Cash Register, and Sperry Rand's Univac division),
IBM, cast as “Snow White,” dictated what peripherals could be connected
to its computers and even what software could be used. Competing against
IBM proved crushingly difficult and prohibitively expensive.
A 1968 Business Week article assessed the growth of IBM:
"Since it entered the computer business 15
years ago, IBM's volume has increased 17 times (to $5.3 billion last year
) and its net income has gone up 20 times (to $651.5-million). Last
year, IBM zoomed past Texaco and U.S. Steel to become the nation's eighth
largest industrial company when it added $1.1-billion in revenues. That
is like creating another Coca-Cola or another Celanese in just one year. In
Wall Street's assessment, IBM is now the most valuable corporation around.
Early this week, IBM's common shares were worth $41.5-billion. The common
shares of AT&T, with assets eight times larger, were worth $26.3-billion.
The stock market appraises IBM stock as worth at least as much as the combined
shares of 21 of the 30 companies that go to make up the Dow-Jones industrial
IBM did not always get everything right. In failing to
follow the government’s lead into time-sharing, IBM had left a window of
opportunity open to its competitors.
back to top
Time-sharing first surfaced as an idea in 1959, when Christopher
Strachey, a British mathematician, gave a paper on time-sharing at a UNESCO
congress. Near the same time, and working independently, Professor John
McCarthy distributed an internal memo about time-sharing at MIT. Under
the leadership of professor F.J. Corbato, the MIT Computational Center
first demonstrated time-sharing in November 1961
Time-sharing differed significantly from the batch-processing
paradigm of computing embodied in IBM products, including the System/360.
In time-sharing, many simultaneous users believe they have exclusive control
of the computer; a sleight of hand made possible by the enormous speed
of computers compared to the finger-pecking slowness of humans. In batch
processing, one user, normally an operator processing users’ programs,
had sole control of the computer, one job at a time.
Time-sharing next benefited from the visionary leadership
of Dr. Joesph Carl Robnett (J.C.R.) Licklider and his power to invest government
funds. In October 1962, when Jack P. Ruina, the third director of ARPA,
needed to hire a director of a newly created Information Processing Techniques
Office (IPTO), he made as insightful and inspired a hire as one can make
when recruiting Licklider.
Licklider, or simply “Lick” to all who knew him, espoused
a radical new concept of computing. He saw the computer as more than just
a fast numerical calculator. "Man-computer
symbiosis,” as Licklider envisioned it, meant computers would participate
as tightly coupled partners with humans, exploiting cooperative decision-making,
enabling interactions not possible within the prevailing paradigm of computing,
batch processing. Such “interactive computing” demanded significant
advances in the state of computing, which was what made Licklider
such an ideal person to head up an office dedicated to funding
advanced information technologies.
Licklider, a psychologist, began his journey into the
world of computers after he joined the electrical engineering department
at MIT. In the summer of 1951 he became a member of Project Charles, the
summer study group that contributed so significantly to the SAGE Project
and the creation of Lincoln Laboratory. He subsequently employed analog computers
for his psyco-acoustic research and modeling. Then one late night
in 1956, as he hovered over his paperwork, lost in thought, Licklider
was interrupted by a curious Wesley Clark, one of Lincoln Labs
most prominent computer designers who had played leading roles
in the design of three of the first "small" computers,
the TX-0, TX-2 and LINC. Clark remembers wandering into Lick’s
"I found this fellow, and I introduced myself,
and that turned out to be Lick, and he was clearly a very interesting guy.
He was doing some psycho-physical experiments and we got to talking and
explained to one another what we were up to. I invited him to come down
to the TX-2."
Big ideas can seed in the most unexpected places. Two
scientists on chance meeting shared their professional enthusiasms and
the words of one fractures implicit understandings of the other, creating
space for new ideas to form and grow. Such was the case when Clark showed
Licklider the TX-2. Licklider immediately understood digital computers
would one day be small and personal. More than a tool to calculate, they
would become a medium to transform the experience of living. In the flash
of a moment, Licklider’s career switched course and, in time, so would
the history of computers.
In 1957, Licklider left MIT to join the small Cambridge
firm of Bolt Beranek and Newman (BBN) to pursue his passion for human-computer
interactions. He convinced BBN to buy the first PDP-1 minicomputer from
the start-up firm Digital Equipment Company (DEC) He then attracted talent,
such as Marvin Minsky and John McCarthy, two of the future founders of
artificial intelligence, and others, all drawn to his, Licklider’s, efforts
to realize interactive computing. In 1960, he published his seminal paper:
“Man-Computer Symbiosis,” describing a vastly grander vision of what computers
could be than current conventional wisdom.
On joining ARPA in October 1962, Licklider had his vision
of computing, a small office, a very large budget, and his knowledge and
instincts of which individuals at what institutions were doing interesting
research. In choosing projects advancing the state of computers and communications
to fund, Licklider formalized his existing social network, transforming
it into a network of individuals and institutions that would revolutionize
computing and computer communications. Licklider remembers:
“When I went to ARPA there was the assumption that
I was going to run a command and control project, and it was my conviction
that you can't really do command and control with batch processing. So
I got agreement and we were off and running."
Strategically, Licklider focused his investments on thirteen
different research projects, primarily at MIT; the University(s) of California
at Berkeley, Santa Barbara and Los Angeles; University of Southern California
(USC); Carnegie-Mellon University; the University of Utah; the RAND Institute;
Stanford Research Institute (to become SRI International (SRI)); and Systems
Development Corporation (SDC). He selected projects on the basis of
the talents of a few individuals at each organization, individuals
who he personally knew. Licklider's initial choice of projects,
combined with his commitment to long-term funding, proved essential
to his success.
One of his most successful projects was Project MAC (Multiple-Access
Computer). At the time, the Office of Naval Research had been funding research
on time-sharing at MIT in the Information Processing Center. Licklider, desiring change, proposed
that MIT create an inter-disciplinary, inter-departmental lab to
build a time-sharing computer under the direction of Robert Fano.
Fano, encouraged by Licklider, and with MIT’s agreement, submitted
a proposal to ARPA, and in 1963 Project MAC received $2.2 million. Project MAC would become the most
influential organization and research effort in time-sharing.
(Project Multics, another very influential time-sharing project,
succeeded Project MAC.) By 1967, IPTO would be providing over
$12 million to a dozen time-sharing projects, both at universities
and at research organizations.The first computer company to emphasize time-sharing was General Electric (GE). In May 1964, a GE computer was used in a time-sharing demonstration at Dartmouth College.
That summer, GE announced all its 600 series computers would support time-sharing using software developed with Dartmouth. That fall, MIT surprised everyone with the announcement that it
would buy a GE computer for its time-sharing operations. IBM scrambled.
It would take two years before IBM announced their System
360/67 time-sharing computer in 1966. Recognizing the importance of time-sharing,
IBM stated it would represent 30% of the computer market. GE projected
that by 1970, 75% of all computers would support time-sharing.
Business Week projected a $2.5 billion time-sharing market in five
years up from only $20 million in 1968.
Time-sharing became increasingly popular as the Computer
Utility. In 1966, the resident computer expert at the FCC, Dr. Manley R.
Irwin wrote in an article titled “The Computer Utility” for Datamation:
"Within the next
decade electronic data centers are expected to sell computational power
to the general public in a way somewhat analogous to today's distribution
The Computer Utility seemed a perfect metaphor in a time
when computers were expensive, difficult to program, and required trained
personnel who were in very short supply. If computers were going to be used by
most, if not all companies, then sharing made sense, especially
given the success of the utility concept in both electricity and
The explosion in growth of computer service bureaus seemed
to validate the Computer Utility concept. Service bureaus, as either independent
organizations or operations of computer manufacturers, sold computer time
and services to other companies. Existing since the earliest days of commercial
computing, it was not until time-sharing that service bureaus could
support real-time access to many users at the same time. By 1966,
an estimated 800 service bureaus generated $650 million in revenues – thought
to be growing at 40% per year. IBM, even though restricted as to
how they could compete in the service bureau business by their
1956 Consent Decree with the Justice Department, ran two nationwide
The concept of Computer Utilities galvanized the logic
of many users employing the telephone network to connect to distant computers.
Customers required modems to transmit computer data, digital information,
over the analog telephone network. Faster modems than those available from
AT&T. This power of AT&T to restrict the right of attachment of
equipment to the telephone network was what made the Carterfone case so