Silicon Cowboys (2016) Script

We never ever had any idea that this would be as explosively successful as it was.

Fastest to Fortune 500 and fastest to over a billion?

I would've just said you're blowing smoke.

Compaq is the story of how David takes on Goliath, and it's not easy, but when you do it, it fundamentally changes society.

We hope you, too, come to believe that the Compaq is an important landmark in the short history of the personal computer field.

Thank you.

Compaq was basically prying open a lock box.

It's analogous to somebody saying we're going to put Google out of business.

Are you a Mac or a PC?

The reason they don't say Mac or an IBM is because of Compaq.

You cannot get to the iPhone without the original Compaq portable.

Man, if you're looking for action.

Man, Houston's the town.

Here's the action town.

One of the first things I bought when I got a real job, which was a sacker at a grocery store making $0.45 an hour, was a '53 Ford for $350.

We'd take our cars way out to North Houston where it was deserted roads and maybe run a few races.

And I ain't jivin'.

Street drag racing, like you see in the movies where you're going around Dead Man's Curve.

Man, Houston's the town.

There weren't any video games.

That car was my computer.

I loved working on it.

I'd change spark plugs, and set the points on the distributor, and adjust the timing, and that natural inclination to try to understand how it worked and to not be afraid of taking it apart and working on it.

I got a lot of enjoyment out of it.

Speak and Spell, a revolutionary learning aid from Texas Instruments.

It almost thinks.

We were very lucky to have a high tech company, like Texas Instruments, in Houston.

The learning can go on with the Texas Instruments TI-30.

Specially designed for high school students to help them find the wonder of numbers never ends.

That's where I wanted to go, and I got the job and that really got me started in high tech electronics.

The bosses asked me to take a small team of people to develop an intelligent terminal.

It was a predecessor to the PC.

He called me up and said, Bill, would you come work for me and be my business development manager?

I came out of Texas A&M, electrical engineering degree.

Bill was the marketing guy, and he was a good one.

Jim was the engineering guy, and even though I was an engineer by background, I was really sort of the business guy, the general manager type.

While TI was a great place, as the fun became less and less over time, Rod and Bill and I would quip to each other, like, let's go do something.

We were seeing what was going on in Silicon Valley.

You wandered around, there was still a lot of fruit trees.

It was a lot of empty space.

There was no Silicon Valley as we think of it today.

It started out as purely hobbyist, not commercial.

You had to solder your own connections and build your kits.

You had the microprocessor become available in the very early 1970's, and you saw a lot of hobbyists coming up with new ways to use it.

When we were out there it was just exhilarating to be around these guys and to see their enthusiasm.

The VP of engineering of a small company would pull up in his Ferrari, which at TI you're never going to have a Ferrari.

Maybe you can rent one once.

What are we doing?

It was like, oh my goodness, this is what I would like to do.

Seeded this sense of we ought to go do something together.

Let's just go do something.

Wasn't about getting rich.

It wasn't about building a computer.

It was really about starting a company that would be a good place to work.

Bill said, why don't we come over to my house Thursday at 7:30.

And we said, let's do that.

We can at least have a beer.

We bought a thing called Entrepreneur's Manual.

Because surely that'll tell us how to put together a successful company.

We sit at a table, we each have our piece of paper with us and a pen, and we're going to start taking notes about what we say.

It's like, OK, what do we do now?

Let's talk about all the possibilities.

One of the things we did, sort of, traditionally, was we would go out and eat Mexican food.

Pepe's Tacos restaurants.

Treat yourself to the wonderful world of Mexican food and authentic Mexican atmosphere.

Bill and I always wanted to do a Mexican food restaurant, so we brought that up.

Maybe a Mexican food restaurant.

We didn't really want to do a Mexican food restaurant.

What a stupid idea that would've been.

Pepe's Tacos restaurants are the family fun place to be.

We finally decided, as you would hope, I guess, that we ought to stick with what we knew.

And we toasted the beginning of starting a company.

You're probably on your way up to the top of the ladder.

Texas Instruments, a terrific company.

And you did a silly thing like quit to try to start your own computer company.

People must have thought you were nuts.

We went to the credit unions and took out loans.

I knew that I could last 6 months after I sold my wife's car.

I had three small children, and a wife, and mortgage.

I'd actually, recently married Rhonda.

I was meeting a lot of her extended family, and it would be like, what do you do?

Well, I've actually left my job, and I want to start a company.

Oh, that's great.

What is that going to be?

Well, we hadn't decided yet.

And you quit your job?

Yes.

And you could tell they were thinking, poor Rhonda.

The success of IBM had come about through mainframe computers.

IBM was making big computers to sell to big companies.

Computers were treated as a priesthood, and only the priests could touch them, and everyone else looked through a glass wall.

Eventually, the users wanted to get hold of that computing power.

IBM wanted to maintain control over the computing industry as they had during the 60's and 70's.

Let's build something for the masses that they can buy and become a commodity.

Everyone else was struggling to get a permanent foothold.

First PCs, Apple II, Commodore, RadioShack...

It was still a tiny market.

The game changer was when IBM entered the market in '81.

IBM, International Business Machines, has entered the small computer market for the first time.

It's expected to have a major impact on what is now the fastest growing sector of the computer business.

IBM said, we're going to go from selling million dollar computers to a few thousand people, to $1,000 computers to a few million people.

IBM's personal computer is designed for office, school, or home use.

It's aimed at exactly the same market as its competitors.

It's expected to be sold very aggressively.

And the race was on.

This was going to cause that market to explode.

Sales of personal computers are so hot this Christmas, Santa Claus may have to replace his reindeer with microchips.

850,000 people bought home computers in the United States last year.

The industry expects, this year, more than 3 million will.

We're no longer on the verge of the personal computer revolution.

We're right in the midst of it with more and more people jumping aboard every day.

Osborne was being very successful with an extraordinarily ugly portable.

And Rod had purchased the IBM PC, so he could write business plans on it, and it became obvious to him that that PC, if it was portable, that would be a good product.

What popped in my head was, well, if we could take this idea for a portable, and we could make it run the software that was written for the IBM PC, ooh, that's when the chill went down my spine.

It's like, oh, man, would that sell.

Welcome to the Computer Chronicles.

I'm Stewart Cheifet and this is Gary Kildall.

And, Gary, our subject today is IBM and the dominant role they play in the computer world in general and the PC world in particular.

Matter of fact, they've taken over the phrase PC.

It doesn't mean personal computer anymore, it means an IBM personal computer.

IBM has always had this mentality that it is the king of the world.

What do you think would be the biggest threat to IBM's position in this situation?

Well, I don't think that anything is really a threat to the IBM position, and I don't anticipate that they will begin to decline.

IBM didn't care.

If you weren't Xerox, if you didn't have that massive, New York, type presence that loomed over the entire country, you didn't matter.

We weren't really good at writing business plans, but we knew that the way a product looked was important to people.

Ted Papa John was an industrial designer, and we got him, and we drove over to the House of Pies for two things.

One, a piece of pie, and the other was to convey to Ted our ideals for what the unit may look like.

We walked in, looked around, picked a booth that was kind of by itself.

Unfortunately, we hadn't thought to bring anything with us, so we turned over the placemat and borrowed a pencil from the waitress, and proceeded to describe to Ted Papa John how we wanted it to look.

What he drew was something that was very professional looking.

We knew where the monitor would go, what the size was, how the keyboard would go in.

Laid out somewhat like an Osborne but with much smoother lines, plastic molded case, keyboard just like an IBM PC.

As I saw that sketch coming together on the paper, there was an excitement.

We're going to make this work.

I didn't know how yet, but it was headed that way.

This is something we can get funding for.

Post Mark Zuckerberg inventing Facebook in high school, there is this different path which is oh, if I study this stuff and I learn computers, I can move to Palo Alto when I graduate college, and there's just money raining from the sky.

Uber growth at Uber.

Reuters has learned that the ride sharing service see its global bookings more than tripling this year to nearly $11 billion dollars.

A picture is worth a thousand words, and for Instagram, a billion dollars.

SnapChat, the barely three-year-old company, raised almost half a billion dollars in investment funding.

There's just so much venture capital.

Back then, there wasn't that much.

If you wanted to start a computer company, there was literally nobody.

You had to go get a bank loan, you had to have collateral.

If you weren't walking in, in a suit... a nice suit, and a tie, and you had this education, and you had this background, and this many decades of experience, nobody wanted to even listen to you.

We received an introduction to meet Rod, Bill, and Jim in Houston.

Their business plan had a sketch of the portable computer on the back of a placemat from the House of Pies.

And they showed for first year sales of $30 million.

Now, that was absurd.

You're taking a chance on somebody from a big company starting a new company.

It's whether it's a gut feeling or something about the discussion you have with them that you feel is going to help differentiate them from other people.

Rod obviously had some skills, but he had clear weaknesses.

He wasn't a public speaker.

He didn't have the brash, over-the-top demeanor that we now associate with tech entrepreneurs.

He was modest, he was extremely clean cut, he was thoughtful... almost like a boy scout, right.

Pretty much everybody who met him was drawn to him.

We were basically in this class B office space, and it was right next to a field full of cows.

We had no furniture.

There was one phone line.

I brought my card table and chairs.

So we put a very long cord on it.

It didn't matter who did what.

I don't even know who reported to who.

I ain't jivin' when I say Houston.

Here's the action town.

The people that I wanted to work with were the people that were coming to this company that was making a product, and I didn't know what it was.

I couldn't tell them what the product was.

It was secret.

I assumed it was in the electronics.

I didn't know if it was a toy, I don't know if it was a computer.

Was it a sewing machine?

Or a PC?

It really didn't matter.

Once I signed a nondisclosure, and I walked the halls, they showed me what the product looked like.

They showed us the picture of the Compaq computer that we were gonna build and that did it.

It was exciting.

It was like, OK, we can do this.

This is a cool thing.

I would like to own that thing.

I would love to have that, that's better than anything I've seen on the market.

Man, Houston's the town.

Here's the action town.

Get your iPhone, you look at the half million apps that each of us has on there, and you look at all of the products designed for other platforms that miraculously seem to work.

And we now take that for granted.

Before Compaq, nobody took compatibility seriously.

Gary, the subject today is the IBM clones, and the question I get asked more than anything else by people who are about to buy computers is, should I buy an IBM, or should I buy one of the IBM lookalikes?

I think I'm told there's about 50 IBM clones out there on the market now.

What's the difference, do you think, between a clone that makes it and a clone that fails?

We didn't want to do a better machine than IBM, we didn't want to technically be superior.

We wanted the software to run the same.

The keystrokes were identical, you didn't have to look at a different manual, there was no training required.

You just sat in front of it, and it worked the same.

It wasn't some vague definition of what does compatibility mean... it was very clear.

We have to run all the software, and use all the peripherals that IBM does.

Do you have any idea how expensive this thing was?

Let's turn this thing inside out.

Halt & Catch Fire is a show about the reverse engineering process of the IBM PC.

The thing that really drew us to Texas was the story of Compaq.

You've got characters that, for all intents and purposes, feel like outlaws, and they're coming in to take on IBM.

And they basically do it by robbing a bank.

Nobody ever got fired for buying an IBM, right?

You can be more.

This is your chance.

What we knew was that IBM had come out with a product that was made with off the shelf components.

A personal computer, like any other computer, is just a nothing box full of electronic switches and hardware.

They hadn't designed a new disk drive or a new processor.

Anyone can buy all this stuff off the shelf right now.

This was stuff that everybody in the industry was using some form or another.

Except the chip.

Except what's on the chip.

Without IBM code it wouldn't run.

It is the program, it is the magic.

We sent Gary Stimac to Dallas to buy some manuals.

I purchased an IBM reference manual, and it had all the listings of the IBM code in it.

He says, whoa, this isn't hard at all.

Bad news is they copyrighted it, and they own how it works.

I circled the word copyright, brought it to my lawyer, and he said, hmm...

What many of the companies were doing was they were copying IBM's code.

Guess what, IBM sued them, out of business they were.

Good news is there's a way around that, sort of.

We needed to make sure that we did not shoot ourselves in the foot from a legal standpoint.

I said, Gary, you can no longer write the code because you've looked at it.

In fact, you can't answer questions about the code.

You're going to have to find a different job here at Compaq.

You can never look, you just can never look.

If you look, and it influences your work, then you can be open to a lawsuit and you've copied it.

No one in the entire office could ever buy a tech reference manual without me removing the pages and me destroying them.

We had to basically create a functional device that would do what the IBM PC did without knowing how the IBM PC did it.

Would be similar to playing baseball blindfolded.

Very difficult, not impossible, but very difficult.

So you might strike out a couple times, and you might fall down a couple times, but eventually you're going to start to get a feel for it, and you start getting a hit.

How many of these addresses do we need to transcribe?

65,536.

We went out and got all the IBM software we could find.

Everything we could find... games, or Lotus 1-2-3, or unimportant, really important, all of it.

We got every bit we could find.

We would go through and run them until something broke, and then we'd figure out well, what broke, and why did it break.

We liked the idea of what Compaq was trying to do a lot because of the PC compatibility.

We thought it was the right idea.

We were rooting for it, but nobody really knew how it was going to come out.

We're IBM, and we've seen some very skeptical people become very enthusiastic.

And that makes us proud because we have more computers helping more small businesses than anybody.

So at IBM there was always this arrogance, this confidence, that no one could recreate what we did.

And if they did, we could just, we could just tweak something because we controlled the marketplace.

IBM entered the personal computer market two years ago and went all out unleashing its power as the sixth largest industrial corporation in the US.

Already, the computer giant has won

25% of the personal computer market, and its share is growing.

Compaq was basically... they were prying open a lock box, and they were letting the genie out of the bottle.

I was extremely excited and scared to death because I was the one that had to stand up and make this speech, which I had never done before.

Rod was not experienced in dealing with the public and the press.

Ben had made sure everybody that mattered was there.

TV cameras were there.

We're in this beautiful old room called The Library at the Helmsley Palace.

Good morning and welcome.

My name is Rod Canion, and I am the president of Compaq Computer Corporation of Houston.

The mysterious company you've been invited to come and hear about today.

I spent most of the night practicing, changing, practicing, changing.

This is an important day for us.

The public introduction of a new personal computer that has been in development for nine months.

It was the big city and we were the kids from the plains of Texas.

There's a three piece suit, and my thick glasses, and we looked out of place.

This is the Compaq Portable Computer.

The unit is laid over smoothly using its carrying handle, and the keyboard is removed by sliding two latches and lifting it out.

That's how easy it is to get it ready for operation.

It was a portable and that was something IBM had no entrant in at all, and it was 27 pounds.

Portability... people need to be able to take it anyway.

It's going to have a handle.

It was simultaneously an incredibly revolutionary idea but sounds so mundane to today's audiences.

A handle, wow.

It is the only personal computer, portable or otherwise, that is truly compatible with the IBM personal computer.

I begin to really realize, this is it.

The flag was going down, and the race was going to begin.

I repeat, Compaq is the only personal computer that is truly compatible with the IBM PC.

This was just a blip on the screen.

Who cares about a luggable?

It just doesn't matter, it's a toy.

It's a curiosity... it's nothing more.

While some software computer firms are battling to succeed, one personal computer company is more concerned with taking its hardware success forward.

Our company is real all of a sudden.

We have a name, we're on the radio.

We're getting calls from presidents, and CEOs, and engineers saying, this is a cool machine.

What I brought today is a Compaq portable computer.

It's a full functioning computer in a portable enclosure.

People were walking with portable computers down the aisles of airplanes, and the computer was hitting people in the head.

We didn't hardly have a chance to breathe...

People loved the product.

We couldn't build them fast enough.

Trying to use portable computers, which were not laptops at that point.

They were sewing machines on the meal tray of airplanes.

The company's first product was a 28 pound portable computer.

The salesman used to demonstrate how rugged it is by taking it and dropping it.

What Compaq did, because they built things so damn well, is they quickly went up to be an acceptable alternative to IBM.

Its founders decided early on to build machines compatible with those built by IBM but with new features.

Market research showed customers want it.

Sometimes people wanted to go home over the weekend and finish their work before Monday.

They grabbed a portable.

That really turned out to be important.

Product was just flying off the shelves, and the dealers loved it.

Salespeople already familiar with IBM products didn't need much training to sell Compaq computers.

We meet a Computer Land dealer in a little motel, and there's no wall receptacle.

How am I gonna plug this in? Well, the bathroom has one.

OK, so we put the computer on the toilet seat, and we plug it in, and it ran.

And they went, wow!

The challenge was building computers fast enough to meet the demand.

We had no idea that it was going to be as big as it was.

We're cutting back on advertising... we can't cut back on advertising, and Rod said, well, let me make this really clear... we're sold out.

Compaq Computer Corporation delivered its first portable personal computer in January of 1983.

By the end of the year, the firm had sold $111 million worth of the machines.

A figure that company executives say exceeded the first year sales of any firm in American business history.

That was the first time where there was a ripple at IBM.

That being said, we had seen other people come in... Amdahl, Hitachi... and they come and they rise, and then they go back down.

And we will defeat them in the end.

There was kind of a feeling that something was going on out there with respect to the PC world and somehow or other IBM wasn't getting the share that it wanted.

Now, I know IBM was getting a big share, but they wanted more.

And so people started paying a little bit of attention.

With a clone that is actually offering more portability, for example, becomes a successful notion like that, then isn't it the case that IBM would or even has gone in there and taken that market to some extent?

That's the danger of playing the IBM compatible game.

There was complete conviction among the Wall Street public and the press public.

Well, enjoy it while you can because IBM is going to have a portable and then it's sayonara.

Wall Street hit a record high again today.

One of the better performers was IBM, up more than five points this week alone.

One of the reasons is IBM's huge success in the tough home computer market, and the rumor that there is more to come.

What was IBM going to do, and when was it going to actually happen, and how successful would it be?

We were always concerned about IBM.

I think anyone else in the computer business ought to be very frightened, and I think everyone else is.

IBM was arrogant.

Some manager got PO'd at us and said, kind of like a hitman, go design a portable and take those guys out... tired of them.

The Compaq personal computer's main selling point is its high compatibility with the IBM PC.

Yet IBM is now bringing its own portable PC to the marketplace.

It's called the Fud Factor.

F-U-D for the fear, uncertainty, and doubt created among its rivals by IBM.

Will there be life for other home computers after giant IBM's product appeared?

What nobody outside the company knew is that we had no orders coming in, so this wasn't really a future hypothetical problem, this was an immediate problem that was threatening to kill us.

Compaq's stock went down because they were concerned that IBM would put Compaq out of business.

Compaq was the first one in with the luggable.

IBM put two products, essentially, in there, and it doesn't do nearly as well.

They didn't really try to make it better and try to meet Compaq's advances in technology and performance.

Their product would not run all the software...

Their IBM software, even their IBM software people did to run in their computers would not necessarily run in their portable.

But you could take that same thing, and put it in our portable, and it would run.

How could that be?

Of course IBM at the time did the only obvious thing, and they blamed the user.

You're not doing it correctly, and the user said, I may be dumb, but I'm not stupid.

Why don't you come back to me when you've got it figured.

I had heard from friends of friends inside IBM that there was a lot of discussion and turmoil within their PC ranks.

Why is this happening?

Why is this little company out-marketing us?

They've done a little growing since they began in February of '82.

They had 6 employees then.

They have 950 now.

Two years ago, they occupied the space on one floor of this building.

By spring, it'll look like this in one of their locations.

Well, production is up 1600%.

The worry now is they won't get enough workers to keep up the pace.

If you'd like to apply to Compaq, you can call this number.

Compaq is looking to add 500 people by the end of the year.

The culture that Rod created within Compaq was 20 years ahead of its time.

Tech companies today are very progressive and cool, and they create a fun environment.

Where people aren't working, they're come play in our sandbox.

If I work at Facebook, they'll do my laundry, they'll pick me up and drop me off, there's a misuse, and there's a full time chef who is trained on cordon bleu.

They basically have built a place that is so great that you never want to leave.

At a time when other computer makers are being squeezed, why is Compaq still growing?

The answer may lie beyond technology and marketing, in a corporate culture that gives employees free Cokes and puts trees in the plants.

We started out providing coffee and soft drinks for everybody when there were 10 people in the company.

Jim Harris and I would stop by the grocery store and pick up some more soft drinks for the day if we needed it.

It was a very egalitarian kind of culture, and it really owes it to Rod.

You sense that the employees appreciate the fact that you don't have a marked parking place?

How often do you get to work early to get your job done and you walk by an empty reserved parking place?

Just seemed to make sense that the people who got there first deserved to park closest to the door.

You'd see Rod Canion walking down the hall, and it was certainly more than permissible... it was hoped... that you would stop and talk with him if you had something to talk about.

The corporate culture at Compaq computer means involving employees in decision making at almost every level.

What I think, or what I say, can change things where you work... that makes a difference.

We were all very proud of what we did.

The camaraderie and the teamwork, and the ability to get things done without the red tape and without all the hassel that comes with big company bureaucracies.

IBM was the very definition of what a large American corporation was.

They don't call it Big Blue for nothing.

It's a company with more than 387,000 employees, 834,000 shareholders, and 590 million shares of common stock.

When you looked at the organization chart of IBM, it was a very hierarchical organization.

Here's the person up here and you're down here.

What came down from on top is, you better not lose and that was just in IBM's blood.

So it was a very, very competitive environment that you had to go through.

The greatest asset the IBM Corporation has happen to be its people.

If you can give an individual a given set of objectives, measure them, and then reward them, then almost any target can be achieved.

IBM was a financially driven company.

Make your numbers, make your numbers, make your numbers.

If you run a small business profits can get squeezed when inventory doesn't match up with production.

What can help is a visit to an IBM personal computer dealer.

We thought a breakthrough, kind of out-of-the-box thinking for marketing was having Charlie Chaplin sell our products.

The IBM personal computer... not only can it help you plan ahead, it'll balance your books and give you more time to make dough.

Charlie Chaplin being innovative marketing?

It was for IBM, but it wasn't for the rest of the world.

Why buy just a video game from Atari or on television.

Invest in the wonder computer of the 1980's for under $300.

Everyone was pitching computers.

You had William Shatner for Commodore.

With the Commodore VIC-20, the whole family can learn computing at home.

My personal favorite, King Kong Bundy, was selling computers.

Bundy has never used a computer before.

He's sitting down.

Wait a minute, the on screen instructions are so simple he doesn't have to wrestle with a manual.

Compaq had John Cleese.

Hello, I'm going to tell you about Compaq's new Portable II computer.

It's such a marvelous machine that it would be quite unfair to compare it with another computer, so we've decided to compare it with this fish.

A surrealistic comedian from England who was more identifiable to the geeks in the audience than to the general population.

The Compaq Portable II, however, can run all IBM's most popular software 30% faster than IBM can.

TV ads with John Cleese were a runaway best selling hit.

Inside Compaq is capacity equal to 30 diskettes.

I need a vacation.

This decision was sound.

Wrong, but sound.

Kind of makes you want to cry, huh?

I am crying.

The same year that we did the John Cleese commercials, Apple announced the Macintosh with its 1984 commercial.

And we will bury them with their own confusion.

We shall prevail.

Apple Computer officially unveiled its new Macintosh.

The new Apple that costs less than $2,500 is supposed to be one of the easiest computers to use.

What the Mac has really brought us is really affordable, high resolution graphics and that leads us to a whole new generation of software where pictures and text are both important.

What corporations had to do, because so many of their creative types wanted Apple, is they had to have a subheading.

OK, the creative types can have their Apple, but Apple was not really compatible with the rest of the world.

And Apple really didn't want that world.

Apple was not a concern to Compaq because they seemed perfectly happy with their 4% or 5% market share, and people that bought Apples weren't usually people that were going to buy Compaqs anyway.

Meet the lady.

Her name is Lisa, and she is the most exciting thing to happen in computers today.

Steve Jobs created the Lisa, an attempt to do what Compaq ultimately did successfully.

It was an attempt to enter the business market for computers and it failed miserably.

Unlimited power, Lisa, from Apple.

Despite Steve Jobs welcoming Compaq to this industry, that they had thought that they had pioneered, Steve Jobs was gone from his company within the space of three years.

Compaq basically shook Silicon Valley to its very foundations.

What Compaq did give to Apple was that it proved that you could compete against the monster and succeed.

Well, computer stocks haven't exactly been the darlings of Wall Street of late, but as Steve Young now reports, that didn't stop Compaq from promoting its latest product in gala fashion.

I wear my sunglasses at night.

I wear my sunglasses at night.

Ladies and gentlemen, David Copperfield.

Ken Price basically came up with the concept of an event to introduce a product.

There were no limits.

Ladies and gentlemen, Compaq Computer Corporation proudly presents, live, The Pointer Sisters.

I'm so excited, and I just can't hide it.

I went to some of those early Compaq product introductions, and I'm going, wow, that's like show biz.

I was doing things that I had never done before.

Ladies and gentlemen, Rod Canion.

Rod Baby Canion as we say in Hollywood, Rod Baby.

All tech CEOs need communications training.

He went from Wal-mart polyester suits and shirts to really nice woolen designer jackets.

All of us could use a little improvement, right.

He got some dental work done.

He went to speech school.

I never dreamed that it could come this far.

We went out and got contacts.

Rod was more than receptive.

We knew a lot about designing products and knew nothing about the press, and Ben took me under his wing and was a very important influence on me.

Ladies and gentlemen, Miss Irene Cara.

What a feeling.

Even believing.

Today, we would like to introduce a major addition to the Compaq family, the Compaq Plus.

Compaq Plus stores 30 times more than yours.

Does it have a handle?

Yes.

Oh, drat.

Introducing the Compaq Portable II.

Compaq's sales jumped 54% for the first three months of the year.

Apparently, I should never have mentioned Compaq's portable computer.

I should have been telling you about Compaq's DeskPro computer.

Today, we're announcing the DeskPro 286 and the Portable 286.

Congratulations for another terrific year, people of Compaq Computers.

We got to enjoy the day and then we'll get back to work well, maybe tomorrow, I guess.

Jan, this is what the fuss is all about.

The 8386 microprocessor from Intel.

Now, no real operating system, no real software, yet people are waiting in line to buy computers with 386 in it.

More talk about it than probably anything since the IBM PC came out.

Is this a lot of hype, or is this really a major development of personal computers?

Oh, this is not just hype, Stewart, this is a quantum leap in personal computers.

Right now, people are standing in line to get these systems just for the raw speed that it offers.

The 386 chips, which give PCs the power and stunning clarity of so-called workstations, are expected to become commonplace in a year or two.

IBM always had first access to the Intel computer chip, so everybody else was followers.

So IBM was always at the tip of the spear so to speak.

IBM for maybe 70 years, I don't know... however long it existed, expected exclusives.

Intel took the attitude, we're not going to work with just you, we're working with everybody.

The significance of them being willing to release a microprocessor to someone who wasn't IBM, was at a minimum, a modestly hostile act towards IBM.

Compaq Computer will announce two new personal computers today, including the world's fastest model.

A development that could make Big Blue, IBM, green with envy.

Come on, come on, come on, come on, come on, come on, come on, come on.

Today, Compaq Computer Corporation is stepping to the forefront of the personal computer industry.

The Compaq DeskPro 386 is by far the most advanced high performance personal computer available in the world today.

The 386 era is here.

Everyone at Intel is very enthused about Compaq's announcement today.

The system has a maximum RAM capacity of 14 megabytes.

This provides more than enough memory for not only today's applications, but for tomorrow's as well.

Of course, Compaq was first out of the gate with a 386 computer, but this time IBM is not in the picture.

We spent a lot of time trying to prove, absolutely beyond a shadow of a doubt, that this thing was going to work and it was going to succeed, so how better than having Bill Gates himself standing up and saying how great it was.

The original vision of Microsoft... that there would eventually be a machine on most desktops for office work, will be fulfilled by the power of this type of machine.

It's gutsy, and the industry was like, whoa.

I'm sure IBM went, they what?

We did not see it coming.

They couldn't have been happy.

And we couldn't have been happier.

Compaq insists that I tell you about their new 386 computer, which they say is the most advanced desktop ever made.

But they're still sticking to this cock and bull story about it being made from 386 chips and 32 bits of a bus.

Frankly, this is not credible.

It's an insult to your intelligence.

If I were you, I wouldn't watch this commercial.

In fact, I'll switch over for you.

That was the first time that we came out so far ahead of them that people started asking what happened to IBM.

I mean, you just follow what IBM does, right?

That was the beginning of somebody putting real chips behind IBM is vulnerable and Intel did that.

The funny thing is that certain other companies are still trying to make one of these.

So if you work for...

Remember, all you need are 386 chips and 32 bits of a bus.

We still dominated the corporate computing marketplace, and if they got too big, then we would move in.

Is it fair to characterize you, as a competitor of IBM, do you really take them on, head on?

Well, we certainly compete directly with IBM.

Our intent is not so much to compete with IBM, as to compete for customers who have an alternative of buying IBM products.

It has been a star performer.

It has grown faster than almost any other company in history in so short a period of time, but this business is fraught with danger.

Do you think they can continue this pace?

It's doubtful.

Compaq released sales predictions Wednesday saying the company will report first quarter sales of more than $200 million.

The company's two latest machines, a desktop and a portable, are pound for pound the most powerful computers ever made.

Compaq more than doubled it's sales last year and almost tripled its earnings.

It took Compaq Computer just three years to leap into the Fortune 500 list of the nation's largest industrial companies.

The press enjoyed writing about the wild Texans that came from nowhere and made a stake in the high tech industry.

The Northwest Eastern storm is being discussed around the country as one of the fastest growing companies in recent history.

We were having the time of our life.

We never stopped.

We worked hard, we played hard.

Compaq plans to announce what amounts to the Lamborghini of PCs.

As time went on you see neater and cooler cars show up in the parking lot.

I bought a 1982 Porsche 928.

He showed up at my house one morning, about 10 o'clock with a pitcher of Bloody Mary's, and he said, c'mon, let's go buy a couple cars.

I had my wife, my kids, and we went to the Corvette dealer to get me a red and white Corvette convertible.

I drove a four cylinder Tempest with a cracked windshield, so that was more or less the kind of cars that were in the parking lot before then.

Those of us who were used to eating McDonald's and drinking Budweiser beer, were suddenly eating smoked salmon and drinking Don Perignon.

I was looking out the window one day and a helicopter landed.

And this girl I worked with left the building, walked out, got in the helicopter, and then a little while later came back.

And I said, what were you doing?

She said, went to lunch.

Every once in a while we slow down enough to step back and look at it, and it's been tremendously rewarding, and it does seem like a dream at times.

Sales at the halfway stage this year were just under half a billion dollars.

Only one company in history has exceeded $1 billion in sales in his first five years.

It happened just last year, and the company was Compaq Computer Corporation.

One Wall Street analyst says sales could tap a billion and a half dollars next year.

Holy shit, what the hell's going on here, right?

I mean, I go and ask the people who've been the investment business along time, have you ever seen anything like this before?

And of course nobody had.

My name's Rod and I'm proud of us.

Setting records fast and furious.

Put some cable here, a shock mount there, put it in a box that ain't quite square.

We are Compaq's computer crew, shufflin' on down, doing it for you.

We're so phat, we know we're good.

Selling the like we knew we would.

The success of the company was tremendous, but on a personal level there were some, I'd say, difficulties.

There was a definitive gap between yourself, your spouse, sometimes your family, which caused a lot of problems.

A lot of challenges and a lot of ill feeling.

Now there were certainly some things I did miss, but I worked as hard as I could to do both.

Coaching Little League and spending time at school.

I think it's always sad when families split up.

There's nothing I can do about anybody else's, in my own case there were a lot of factors that lead to a point where ended up getting a divorce.

And I remember coming home one day, and my wife said, Chris, who's my son, mistook the gentleman working on the ice machine as you.

Wait, OK, that's a problem.

This isn't working.

And he said, I want to retire.

And that was a shock.

It's always been am I enjoying what I'm doing?

And the moment I'm not, change it.

This is what happens to all big companies.

There are none, I don't believe, that ever can keep what they had in the beginning throughout their growth.

It's impossible.

That happened during one of the toughest times... toughest periods of my leadership of the company.

While many of the IBM compatible companies have already gone under, literally, Compaq has yet to really falter.

Compaq Computer has tried to outsmart IBM.

First, Compaq took on the big boys, then became one of them, and now must fight to stay.

I knew what IBM was capable of, and I knew that they would come sooner or later.

I can't help but be reminded about that joke, how do you dance with an elephant?

Very carefully, right, exactly.

There was these industry rumors that IBM was going to sue Compaq.

Let me just say Compaq was practicing a large number of IBM's patents, large number.

They were beginning to sense that they weren't going to be able to control the PC industry and make the kind of profits they were used to, so they were looking to make money off of their patents.

Bob Jackson showed up at our door and asked to see the CEO of the company.

IBM is here.

When IBM came they brought an army of people.

I don't really know who they were.

IBM would do this thing called filling the skies with lawyers.

I got very concerned, very concerned.

Holy shit.

The idea was that lawyers would descend on you in such a huge number it felt like the airborne was parachuting into your office.

These guys could shut us down.

I mean, if they really want to go to the mat that's a distinct possibility.

I said, IBM has 9,000 patents.

OK, maybe half of them don't apply to you, but we've shown you 20.

There are hundreds more, and you can invalidate some of them, but you can't invalidate them all.

They wanted a percentage of our sales price for all of our sales.

They were at $2 billion, and we were at $2 million.

It could end a company, stop a company in its tracks.

If they misbehaved... loosely used term, but if they misbehaved we had the howitzers lined up.

I went in to Rod and told him we had to get serious about the negotiations.

They weren't going to settle for a few million dollars.

He was very serious that if we didn't take this offer, then they were going to come after us, and they weren't going to back off.

We went up to about $130 million and that closed it.

The sword hanging over our head, which was what's IBM going to do to shut you down, seemed like it had left until April the second.

Hey, everybody, the new computers are here.

New computers?

Who may I ask authorized new computers?

Yeah, who?

You did.

Who did?

I did?

IBM... of course I did.

The new IBM Personal System II, the next generation of personal computing.

It was the biggest IBM product announcement since the original PC.

IBM's Personal System II computer with the so-called microchannel, an entirely new computer system that offers lots of extra speed and capacity.

We built an excellent product.

The micro channel is, by technical specs, superior to the alternative.

Permitting computer users to perform several functions at the same time, like writing and printing.

Functions that on many computers can only be done in succession.

Another new feature is that it has a port where we can plug this mouse, this pointing device, directly into the system.

My first reaction when I saw the announcement of the PSII, was oh, shit.

IBM is introducing a new line of personal computers that will be compatible with its own software but difficult for competitors to duplicate.

Microchannel was their way of breaking the whole compatibility thing and putting it behind them forever.

IBM, it's just us, it's nobody else.

This is our operating system, it only runs on this machine.

You can't have it, you can't have it, you can't have it.

You have to buy this machine in order to run our software, end of story.

There was no doubt they were just absolutely trying to kill everybody else... kill all the clones.

IBM has come out, and in response to the market, is lean and mean.

It's the next revolution and evolution of microcomputers, and logically enough, it comes from, still, the market leader in PCs.

United was the first corporate buyer of the Personal System II computers with an order for 40,000 Model 50's.

It was the Death Star of our era.

Something designed to destroy all the competition on the planet.

IBM has developed in the shape that will set the standard for the next five years that the others will have to play against.

We had our first PSII inside Compaq within three hours of the announcement and started tearing those suckers apart.

We were very confused about this microchannel.

The drawback is that, for the most part, the new microchannel system is not compatible with the existing system most personal computer companies now use that IBM developed.

It was faster than the computer it replaced, but it made useless $12 billion worth of software already bought by business.

Will it hurt the consumer?

Well, it is a problem for a company who has a lot of existing PCs installed.

Like Metropolitan Life Insurance Company, where they have more than 8,000 personal computers.

More than half of them IBM, but while Metropolitan continues to buy PCs, none of them has the new IBM microchannel standard.

The cat's out of the bag.

The customers now realize you can buy something that's not IBM, and not get fired.

And in fact, it works better sometimes.

The ground underneath us is starting to come apart, but we're making that last ditch effort.

It's kind of like the two minute drive at the end of the game to try to get this back under control, but it's not working.

The PSII was the biggest mistake they made.

They handed us the keys to the PC city and we took them.

Now, the question is, did IBM make a mistake that's irreversible?

One that may lead to even more erosion in its share of the personal computer market.

IBM just screwed all new customers.

They walked away from compatibility, and you're going to pay the price.

If we could take that message and isolate IBM, then it became a much stronger message.

There is a revolt of the clones this morning.

The nine personal computer companies whose business has always followed IBM's design lead.

It's a case of IBM versus the rest of the personal computer industry.

Let's call them the gang of nine, a who's who of heavyweights in the computer industry.

Gunning for the increasingly disputed champion, IBM.

The little guys got together and said, that's enough.

The first one we went to was Microsoft.

Bill thought it was a great idea, but he also feared IBM.

IBM was still his largest customer, and he just invested a whole bunch with IBM.

Microsoft knows it has a market with IBM, but they recognized, relatively early on, that all of their capabilities were going to be providing to the largest number of users.

He was looking for opportunities.

He would have jumped at any opportunity to do something for Microsoft that would build their business.

If I was Bill Gates, I would see the compatible market as the reason why I am eventually going to be a multi-billionaire, and one of the most successful people on the planet.

The way you were supposed to deal with IBM was that a smile and a hand shake in one hand, and a knife to stab them in the back with the other hand.

Bill said, yep, I'll contact all the other manufacturers and give you a inroad to their CEOs.

Compaq, Tandy, Hewlett-Packard, Olivetti and NEC.

It reads like a who's who of the high tech world with the notable exception of IBM.

Now it's not only Compaq, but you've got a whole group of people that they've got with them, too.

You're thinking, wow, maybe this thing is bigger than we thought.

Can you get all the little guys together and beat Goliath?

That wasn't like a sure thing, it was not a sure thing.

Rod got a call from Lowe the day before we announced it.

There was no way I wasn't going to go forward, and there wasn't any way I was going to indicate any weakness to him.

And he said, I think you're making a big mistake by doing this.

I said, well, we'll see.

Led by Compaq Computer, IBM rivals will unveil the new machines at a major news conference in New York.

They decided to develop their own computer standards, called extended industry standard architecture.

Or EISA for short.

Challenging the very standard IBM is pushing with its highly touted Personal System II computers.

They're not afraid of IBM.

They are taking on IBM, and the tide is starting to turn now.

And the microchannel has a real threat to it.

All of the companies that gathered at the industry forum endorsed EISA because it maintains capability with the almost 20 million computers that exist in the world today.

Therefore, it protects the investment of today's millions of PC users worldwide.

While offering just as much speed and memory as microchannel, and armed with a host of heavy support.

It is important that we provide system software products which fully support EISA based machines.

This event exemplifies the industry's determination to create and to expand standards.

The industry together stood up against IBM and prevailed.

Letting the world know that Big Blue isn't calling the shots anymore.

Their ability to change the market in directions that don't make sense to a lot of people is just simply not there anymore.

Some analysts think it was a day that left Big Blue looking black and blue.

The genius of Intel and Microsoft was that they both decided to take a chance on Compaq.

Because essentially, Compaq became the canary in the coal mine for the strategy of divorcing from IBM.

And their willingness to place their future in the hands of this group from Houston was pretty brave, and in retrospect, brilliant.

One final question, and kind of a personal one, are there some mountains out there still for Rod Canion to climb?

I think my biggest challenge for the foreseeable future is to keep Compaq together.

Keep the culture, keep it rolling, and reach whatever potential's there.

Nobody really knows how fast and how far a computer company can go, and I'd like to see that.

Compaq Computer is one of the fastest growing personal computer makers.

There's a company whose sales have grown from $111 million in 1983 to more than $2 billion last year.

So what's to worry about?

It was a very different company.

How do you manage 17,000 people in the same way that you manage a hundred... it's not possible.

Every time you hire you end up, potentially, starting to dilute, and then over time you end up with an organization that isn't the same as the organization you started with.

Has the fun gone out of it now that you've built this successful company?

Will you stay with it?

What are your plans?

Oh, no, the fun is still there.

The challenge is different, that's all I can say.

There's nothing quite like starting a company and having it grow rapidly.

As we moved to a Fortune 500 status and then approaching the billion dollar level, the problems are different.

We knew we needed a leader to build a team in Europe, and through a recommendation, we contacted Eckhard Pfeiffer and very quickly he joined the company and began to build our European team.

We decided that we would go into the major markets right from the start, which were Germany, the UK and France.

And from then on expand gradually into all the other countries.

He was more accustomed to high volume manufacturing, get the cost out kinds of situations and that's exactly what Compaq needed with the new lower cost product line.

In our CEO forum this week, we take a look at the art of competing on the international scene.

American companies versus the Japanese.

Do you worry about the competition that's coming from the Far East and from Europe, particularly in the computer industry?

The Japanese certainly have a lot of strengths.

The Japanese company has major competitors in the long term.

Foreign manufacturers got to be pretty good.

Quality improved, and essentially, for someone like Compaq, they no longer could get that price advantage that they once had.

You wouldn't want to buy these things for $3,000 anymore.

Could you buy them for $1,000?

Do I hear $950?

The new notebooks like Toshiba's T-1000, Tandy's 1100-FD and Zenus Mini Sport are in the $1,000 to $2,000 range.

At the high end, about $4,000 Compaq LTE 286.

We had companies like Dell Computer actually begin to build better and better products, and they were selling them at a lower price.

Compaq, the Houston giant, has been facing an advertising assault from the much smaller Dell Computer.

The industry can't recall anything like these biting ads comparing features and price.

The Dell ad calls Dell appealing and Compaq appalling.

Dell, top of the mark.

Compaq, top of the mark-ups.

Compaq is not amused.

You can't survive, I believe, for very long at least, just by selling the same products at a lower price.

And there were people who said we need to get a low cost product out there now and take on these people.

That was primarily led by Pfeiffer.

I think it has been a little bit more difficult for them to keep up with the changing in technology.

Compaq, a darling of Wall Street that could do little wrong in the past, found itself on the market's bad side last week, Compaq's stock plunged.

On paper, combined losses to all shareholders of more than $740 million.

It certainly is a stumble in the eyes of the stockholders.

We didn't want to disappoint relative to expectations, but I think you've got to differentiate that from the actual health of the company.

Ben, with some prodding from Pfeiffer, was becoming paranoid that we would not be able to recognize, and switch, and move, from as high a quality provider as we were to low cost computers.

We certainly started seeing changes in marketing strategies, changes in the competitor base, changes in the importance of pricing.

The essential view was that Rod could not adapt to what the company needed going forward.

Ben had other concerns about it.

He was more concerned about me losing commitment to the company.

Rod was working on a low cost concept, but I don't think he was pushing it enough to satisfy the board.

The chairman of your company is a guy named Ben Rosen.

What's the chemistry between the two of you?

I'd say Ben and I are very good friends.

Ben joined Compaq at a time when we were just forming, and I think he's played a key role in helping guide us along the way.

We have a lot of mutual respect, and we bring different things to the party.

You have to give Ben credit for two things.

One, he saw that the vision was a real vision.

He got it right away because they did finance the plan, and then at each stage thereafter he encouraged and supported.

Without Ben Rosen Compaq Computer Corporation would not be where it is today.

The board did not want to take any action against Rod, but they got to the point where they felt like we had to do something.


Ben decided that he might want to create a situation where there's kind of two bosses, Pfeiffer and Rod, because of a loss of confidence in us.

There are some management changes that you make because an opportunity is created by bringing that new person in, and even at the time, there was no evidence of that at Compaq.

I don't question the motives of it.

I think Ben was genuinely concerned, I mean there's just no doubt about it.

Rod wouldn't compromise and take the dual leadership.

We were getting ready to have a board meeting and Rod told me.

He said, you know, Jim, they're going to vote today on whether to remove me.

My attitude when we started Compaq was I would be ready to move aside if that ever was necessary, and I thank the other founders of Compaq had the same attitude.

That night of the board meeting, it was 10:30, 11:00 o'clock at night.

I got a call from Jim.

I can only say there was open weeping in the hallways.

Going on without him was almost unimaginable.

I had quit Compaq that day.

It was like the heart and soul of the company being torn out.

I went ahead and turned my resignation in.

I cannot even think of being tired of what I'm doing and the opportunity that I see at Compaq in the same fault...

They are two different things.

I see so much challenge out there, a challenge that, I believe, we're capable of, and yet I really want to see it through.

Ben convinced himself that this was the right move to make.

He lost it.

He said several tears over the decision.

It was inevitable that there'd be a change.

It was a very sad time.

It sunk in, what had really happened and what it meant.

It took a very long time before it finally began to feel normal not to be there every day.

It was tough, it was tough on... it was hard on me.


Compaq's focus on portability was the beginning of mobility and mattering to the technology industry, and everything that we do today is really driven by the ethic that if you can't do it while you're moving around, it's not very valuable.

And we can thank Compaq for all of that.

My dad would always look at some of these cell phones, or some of the newer computers, and say, are you responsible for all of this stuff?

Well, yeah, it's a good thing.

I use iPhones, I use iPads, and I do know that if Compaq developed those products... now, I'm not taking anything away from those guys.

Those guys did magnificent job, and they can sell them to dead people, but if we did them they'd work better, I know that.

If anybody had tried to tell me how successful Compaq would become, I would've just said, you're blowing smoke.

That's not possible.

We never ever had any idea that this would be as explosively successful as it was, never.

I don't think we were ever trying to take down the biggest company ever.

We were trying to survive.

Here was a product and an idea for a start up that should have been in Silicon Valley, if anywhere.

But Houston?

Give me a break.

I had no idea we were going to be doing a billion dollar company...

I mean, the billion dollar baby was IBM.

How can I even conceive, or think, that we would be an IBM in that sense?

No way, not the slightest.

I would still like to have a Mexican restaurant.