IBM, AT&T, and Microsoft logos

Microsoft, IBM, and AT&T: History Comes Around

IBM, AT&T, and Microsoft logos

In his post “Why the Wheels Are Falling Off at Microsoft,” John Kirk paints a bleak picture of the company’s future. It got me thinking about a relevant bit of history about how rich companies handle existential challenges. Around 1990, IBM and AT&T found themselves in similar, difficult positions. The iconic companies had been among the dominant forces of the 20th century, but their world was changing in very unpleasant ways. Each had been through a long and wrenching antitrust battle with the government; AT&T’s loss cost it the local phone business in a breakup, IBM’s victory cost it more than a decade of heavy distraction. Each was seeing its core business eroded by technological change: Satellites and new networking technologies were lowering the barriers to entry into AT&T’s lucrative long distance business, while minicomputers and PCs were eating away at IBM’s mainframe dominance. But each company also had a tremendous advantage–the enormous cash flow from its legacy businesses could buy the time needed for reinvention. It’s what happened next that is important for the future of Microsoft.

IBM turned to new leadership, hiring Louis Gerstner, who had earned his stripes at RJR Nabisco and American Express. He put IBM through a meat grinder that included the dumping of whole divisions and massive layoffs of employees, many of whom had been with the company for years. But the IBM that emerged was fierce  and focused, ready to take advantage of a booming technology market. Today IBM is again one of the country’s most successful companies.

AT&T , by contrast, used its money for what turned out to be a calamitous series of acquisitions. The post-breakup AT&T desperately wanted to get into the computer business  and in 1991, it bought NCR Corp. for $33 billion. The company launched an unsuccessful series of minicomputers and lost billions getting into, then out of, the PC business. NCR was spun out in 1997. In 1994, AT&T bought the two-thirds of McCaw Wireless it didn’t already own for $11.5 billion.  This acquisition, too, withered under new ownership and AT&T ended up spinning the wireless business out as an independent company that eventually became Cingular.

In the most humiliating deal of all, AT&T in 1998 bought Tele-Communications Inc., the country’s second-largest cable operator, for $48 billion. After spending many billions to upgrade the network, AT&T sold its cable operations to Comcast for $45 billion. These failed attempts to get into new businesses left AT&T an empty husk with a proud history, a valuable brand, and an aging backbone network. In 2005, SBC, a company born of the merger of AT&T Bell System subsidiaries, bought what was left of its former corporate parent and assumed its name. The AT&T name and its T stock symbol lived on, but the company founded by Alexander Graham Bell was gone.

Like AT&T and IBM, Microsoft was battered by a long antitrust battle with the government. Like them, it is having serious problems coming up with an adequate response to technological and competitive change eating away at its core businesses. And like them, it still has a lot of money coming in that will make a transition possible.

The question is, which model will Microsoft follow, AT&T or IBM? Will it emerge as a chastened, perhaps smaller, but very competitive company? Or will it just slowly fade away? The money gives it time to fix things, but it has to make key decisions about what sort of future it wants soon, and whether the leadership the company now has can get it there.

Published by

Steve Wildstrom

Steve Wildstrom is veteran technology reporter, writer, and analyst based in the Washington, D.C. area. He created and wrote BusinessWeek’s Technology & You column for 15 years. Since leaving BusinessWeek in the fall of 2009, he has written his own blog, Wildstrom on Tech and has contributed to corporate blogs, including those of Cisco and AMD and also consults for major technology companies.

24 thoughts on “Microsoft, IBM, and AT&T: History Comes Around”

  1. This is a great article, Steve. Lots of historical examples. Lots of insight.

    I think you’ve hit the nail on the head. Like IBM and AT&T, Microsoft is about to transform itself. Its Windows model – thought to be unassailable just six years ago – is being assailed from all sides.

    I think Windows as we know it is going to go away. Windows may continue, but the Windows monopoly is over. Most just haven’t recognized that reality yet.

    How Microsoft handles the changeover may determine whether it is the next IBM or the next AT&T.

    1. “Its Windows model – thought to be unassailable just six years ago – is being assailed from all sides.”

      What is even crazier is it isn’t even being assailed in the industry segment it (arguably) serves best still (PCs), but by an industry increasing in scope and complexity.


  2. Microsoft should focus on enterprise. Consumers are an unstable business.
    Remember, today the “hot thing” is the iphone 5, yesterday it was the n-series, and before that it was the Razr. When I saw the surface ad, I was faceplaming, why the hell would you chase the hipsters in starbucks?
    IBM proved that an enterprise heavy focus can work, IBM is consistently one of the world’s most profitable tech companies. Whereas consumer focused companies rise and fall. Remember when everyone lined up for a Wii? Well the Wii-U is not nearly as successful.
    Microsoft is assaulting the enterprise beaches this fall. Hyper-V, SQL Server, Windows 2012, their whole enterprise lineup is being refreshed. And from what I can see, they are already having much better success in the enterprise business compared to the consumer side.

    1. If you could break Microsoft’s profits down between enterprise and consumer, I’m sure that at least 75% of profits are derived from enterprise. The danger in concentrating only on the enterprise is what happened to RIM. They were gobsmacked by a massive movement of consumer technology into the enterprise, something they thought could not happen, IBM was able to avoid such risks because Gerstner rebuilt the company around enterprise services so that all the operating groups understood it was their function to drive the dominance of IBM Global Services. Microsoft has no real services organization and no practical hope of building one (in fact, IBMGS is one of Microsoft’s biggest customers.)

      Microsoft could survive on enterprise business, but they have to be able to defend it from consumerisation.

  3. Another way of saying it is that Microsoft needs to lose the serious confusion that advancing technology threw the company into. And with the market rushing ahead it would be good to do this soon.

  4. Another great article that informs, explains and gives perspective. So much more comes to understanding when knowing background, so succinctly outlined, that otherwise would have taken hours of study. A keeper article.

    1. Thanks. While having been around the industry for as long as I have can make you jaded and cynical, it does give some valuable perspective.

  5. Just a small correction. “…AT&T ended up spinning the wireless business out as an independent company that eventually became Cingular.” MISLEADING! Should have said “…eventually swallowed by Cingular.” Check your facts – ALL your facts.

    1. I know those facts, but deliberately short-handed them. The history of how what was once McCaw Wireless ended up as part of today’s AT&T is a long story and of little relevance to the tale I was trying to tell, which was how the old AT&T lost tens of billions on failed acquisitions.

  6. Steve, your analysis is very insightful. A respectable futurist, Alvin Toffler, accurate predict the information society by studying a vast amount of historical information. Unfortunately, probably shown by the small number of comments below, many people tend to get instant analysis by short-term phenomenon, rather than long term trend.

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