After Hours

Ten catastrophes: All-time worst tech industry executive decisions

By · September 6, 2011, 10:41 PM PST

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  • John Opel, IBM: Not buying Microsoft during the PC-DOS/MS-DOS negotiations / Gary Kildall, Digital Research, not licensing CP/M to IBM

    Information Technology, software and computer companies are certainly not without their share of poor executive decisions and mismanagement.  While dozens of notable examples could have made our list, these were by far the top top 10 worst in the history of the technology industry, causing many billions of dollars of lost revenue or resulted in the downfall of entire companies.

     
    In the late 1970's, a small team within IBM began development of its legendary 5150 PC, which recently had its 30th anniversary. But to run this PC, IBM needed an operating system.
     
    At the time, there was only one serious contender, Digital Research's CP/M, which ran on a number of early personal computers including the Apple ][, The Osborne and the Kaypro, all of which had substantial market share in a small but quickly growing industry.
     
    In 1980, Under the direction of CEO John Opel, IBM attempted to contact Digital Research's founder and CEO, Gary Kildall, to license CP/M for use on the 5150 and other future PCs, but when negotiations failed, IBM went looking for another suitor.
     
    Bill Gates, Steve Ballmer and Paul Allen at Microsoft, seeing an opportunity in the making, approached a tiny software company, Seattle Computer Products, which had an x86-compatible OS which used a similar command interpreter to CP/M called 86-DOS. Microsoft purchased the OS and perpetual usage rights, which they then re-christened as "DOS", for a mere $75,000.
     
    After negotiating an almost unheard of non-exclusive licensing agreement with IBM, the company would be established as the leader in personal computer software for decades to come. 
     
    Microsoft's MS-DOS would go on to sell tens of millions of licenses, and the software business for Windows and related follow-on products that Microsoft would generate which would build upon it would turn the company into an industry giant.
     
    Digital Research could very well have had the same licensing deal and IBM could have imposed stricter licensing terms on MS-DOS, or could have purchased either of the two companies outright, giving the company an exclusive. But it was not to be. 
     
    Digital Research's CP/M became an also-ran and the company eventually attempted to produce it's own DOS clone, DR-DOS, which although having a number of technical improvements over Microsoft's OS, was a dud. It was eventually sold to Novell, then Caldera and then later on became the property of SCO.
     
    Eventually, the highly competitive MS-DOS based PC clone business made Digital Research's CP/M irrelevant and also would eventually force IBM to exit their own PC business in the late 1990s and early 2000's.  
     

  • Adam Osborne, pre-announcement of next Osborne computer

    The year was 1982. British computer pioneer Dr. Adam Osborne, a man who has been universally credited with creating the portable computer industry announces the “Executive” OCC-2, the the successor to his current shipping product, the CP/M-based Osborne 1. In fact, over the next year, he also publicly discusses a second, smaller model, the “Vixen”, one which would follow on after that.

     
    Not many people will remember Adam Osborne and the significant contributions he made to help establish the personal computer industry. Many people reading this article weren’t even born when the Osborne 1, let alone the Vixen was shipped.
     
    However, there is one particular event in computer history in which Mr. Osborne’s name will forever be associated with:The Osborne Effect.
     
    What happened to the Osborne Computer Company after the announcements of the “Executive” and the “Vixen” is now classic business school material. Due to the pre-announcement of the newer, better products while the current inventory in the reseller channel was still full, buyers were no longer interested in current products.
     
    Despite the fact that the company had a number of advantages, one of those being that it bundled application and OS software with its computers, Osborne was also facing heavy competition from companies like Kaypro, Apple and IBM, so the timing couldn’t possibly have been worse.
     
    By November of 1983, the company went bankrupt, and Osborne Computer Corporation was no more.

  • Lew Platt, Hewlett-Packard: Entering Itanium Partnership with Intel and discontinuing processor fabrication operations for PA-RISC and Michael Capellas, Killing off the DEC Alpha

    In the late 1980's, HP determined that their PA-RISC systems architecture for enterprise-class servers was going to hit a performance scaling threshold and began to investigate a new systems architecture, VLIW (Very Long Instruction Word). 

     
    In 1994, under the direction of CEO Lewis E. Platt, believing that it was no longer cost-effective for HP to have its own microprocessor foundry, the company ceased production and development of PA-RISC, shut down its own foundries and instead partnered with Intel to produce this new VLIW 64-bit enterprise chip, which came to be known as the IA-64.
     
    Released by Intel and HP as the "Itanium" in 2001 after seven years of development and billions of dollars of R&D invested, the chip earned the early nickname of "Itanic" due to its low performance compared to less expensive, commodity x86 chips in most regular business applications. IA-64 also proved to be horribly slow when executing x86 instructions, which it had to do using software emulation.
     
    Eventually, both AMD and Intel would produce 64-bit x86 systems, which when clustered in HPC configurations would easily outperform equivalent IA-64 systems for significantly less money.
     
    IBM and Sun would continue to develop their POWER and SPARC architectures for their high-end servers, which eroded most of HP's high-end market share.
     
    While other vendors such as Dell and IBM briefly introduced and sold Itanium-based systems, they shortly discontinued them. An executive at Dell publicly referred to the product as an "Albatross".
     
    As if this wasn't awful enough, in 2002 HP merged with Compaq, which had only just acquired Digital Equipment Corporation (DEC) four years before, along with its powerful 64-bit Alpha RISC chip and Windows NT/Digital UNIX servers that had seen some moderate success in High-Performance Computing environments.
     
    Seen by both executives at HP and Compaq as a redundant overlapping product under the new merged company and with Intel's IA-64 efforts underway, the Alpha -- arguably a much more mature, better supported and more desirable platform was phased out.
     
    Third-party OS development for Itanium other than HP's HP/UX UNIX derivative is now practically non-existent, as Microsoft no longer produces an IA-64 version of Windows Server. Itanium is considered to be a deprecated and legacy architecture by the Linux Kernel Project and is no longer actively supported by mainstream Linux distributions such as Red Hat, SuSE, Debian and Ubuntu. 
     
    HP is now the only company to sell Itanium-based servers under their Integrity brand, and Oracle recently announced that it would no longer be developing software for the chip.    
     

  • Carly Fiorina, Hewlett-Packard: Compaq Merger

    While the Itanium partnership with Intel surely started HP down the road to hell, it was accelerated in 2001 when HP, under the guidance of CEO Carly Fiorina decided to merge with Compaq in a $25 billion dollar deal.

     
    Many large shareholders opposed the merger, including Walter Hewlett, the company's outspoken director and son of the company's co-founder, who engaged in a proxy battle in an attempt to prevent it. The prime objection was that Compaq had many overlapping product lines and would get the company involved in the low-margin PC business that its main competitor, IBM, was already in the process of exiting.
     
    Under Carly Fiorina's reign, the merged "New" HP lost half of its market value and the company incurred heavy job losses. Fiorina stepped down in 2005.
     
    Since the Compaq merger, HP has endured numerous problems with failed initiatives, dubious acquisitions (3COM, EDS) and has been plagued with ineffective management, including two major ethics scandals that have forced Chairwoman Patricia Dunn and CEO Mark Hurd to resign.
     
    The PC business that HP gained from the Compaq merger is now in the process of being spun off, after losing money in the face of tremendous low-margin industry competition. 

     

  • Steve Ballmer: Windows Vista Project Mismanaged

    Mention the name "Windows Vista" in most circles, you'll probably get a mixture of reactions. Groans, snickers, and utter disgust.

     
    Windows XP wasn’t supposed to last as long as it did. As soon as XP shipped in 2001, work got under way for the next version, code-named “Longhorn.” The feature list got bigger and more ambitious as time went on, and Longhorn was shown off with great fanfare at Microsoft’s Professional Developers Conference in 2003.
     
    Those plans were tossed aside completely in August 2004, with what later became infamous as the “Longhorn reset.” In September 2005, Windows boss Jim Allchin publicly acknowledged the do-over, acknowledging that Longhorn had been “crashing into the ground.”
     
    The design goals of what was eventually named Windows Vista were admirable: improve Windows' security model, introduce widespread 64-bit technology into the desktop OS, improve networking performance, refine the user interface, and better integrate search capabilities. Unfortunately, the unwieldy and disorganized project took more than five years to deliver unsatisfactory results.
     
    Windows Vista was released to manufacturing in November 2006, with a consumer debut in January 2007. Vista got mostly negative reviews, thanks to significantly higher resource requirements, incompatibilities with some popular hardware and software programs, and a controversial security feature called User Account Control (UAC) that was derided as overly intrusive. Service Packs would later resolve many of Vista's issues, but its reputation as a slow, buggy failure was sealed.
     
    Eventually, the technologies that were created for Windows Vista were refined and re-engineered. Vista’s successor, Windows 7, was released a little less than three years after Vista's introduction to much better reviews.
     
    Nobody knows how much the Vista debacle really cost Microsoft, but it damaged the company's reputation and almost certainly amounted to billions of dollars of stalled upgrades and a significant exodus of users to Apple’s Mac platform.
     

  • John Sculley, Apple Computer: Throwing out Steve Jobs

     

    In 1985, Apple Computer was in the midst of a technology transition. In the previous year, the company had just launched its first Macintosh computer, which had replaced the Apple ][ and Apple III line it had been selling successfully for the last several years.
     
    Founder Steve Jobs had recruited former Pepsi-Cola executive John Sculley to act as Apple's CEO, in order to help grow the company. While Jobs was considered to be a charismatic and dynamic employee at Apple and at the Macintosh division which was under his direct leadership, he was also erratic, difficult to work with and temperamental, and it was beginning to put a strain on his relationship with his team members as well as on the Board of Directors of the company.
     
    Facing a sales slump due to overwhelming competition from companies like IBM and Compaq that were selling PCs and clones, Jobs' relationship with Sculley deteriorated which resulted in his ouster from the company he and Steve Wozniak founded.
     
    The 11-year period that Apple continued on without Steve Jobs is universally considered to be a major low point for the company. Without Jobs' vision and guidance, innovation slowed and Apple underwent several leadership changes. Revenue and stock valuation plummeted, the company was on the verge of financial oblivion, and by the mid 1990's the company was in desperate need for a replacement to the aging Macintosh OS. 
     
    In 1996, Apple purchased Steve Jobs' NeXT, which would serve as the foundation for what would become OS X and later on the iOS which powers the iPhone and iPad. Gil Amelio, the current CEO, was ousted in 1997 in a boardroom coup and Steve Jobs returned as Chairman and CEO.
     
    Jobs would guide the company into the release of the iMac, the iPod, OSX and and x86-based Macs, and then later the iPhone, iPad and Apple TV, ushering in a new golden age for Apple.
     

  • Darl McBride, SCO: Attacking Linux

     

    Once a prosperous, medium-sized and laid-back Northern California software company that produced successful and reliable vertical market UNIX operating systems for x86-based servers throughout the 1980s through the early 2000's, the Santa Cruz Operation (SCO) began its demise shortly after being acquired by Caldera, Inc., based out of Provo, Utah.
     
    Part of the Nay Noorda-backed family of companies known as the Canopy Group, the company re-named itself  "The SCO Group" and soon began to find itself in a bit of an identity crisis. SCO Group's first incoming CEO and former CEO of Caldera Ransom Love wanted to merge Caldera and SCO's Linux and UNIX product lines, and create a best of breed OS.
     
    SCO had partnered with Intel, IBM and Sequent briefly during the mid-1990s on "Project Monterrey", an attempt to unify, merge and port the best aspects of the company's UNIXWare OS and IBM's AIX to the new Intel Itanium as well as IBM's POWER processor.
     
    With the rise in popularity of Linux and 64-bit x86 chips, interest in Itanium waned and the effort to market the completed IA-64 variant was scuttled.
     
    SCO's failure to market the IA-64 version of Monterey resulted in Ransom Love being pushed aside and succeeded by Darl Mcbride. With McBride at the helm of SCO, the company became entirely focused on litigation as opposed to product development. 
     
    SCO not only sued IBM for alleged contributions of Monterey code to the Open Source Linux kernel, but also large customers, end-users and vendors of various Linux OSes, including Red Hat and Novell.
     
    This turned the company into a pariah not only among the legion of Open Source and Linux developers but SCO's own customers and the entire technology industry. The litigation debacle went on for years, chronicled in gory detail on sites such as Groklaw.
     
    SCO's sales of UNIX products went down the toilet, and was forced to lay off virtually all of its employees to focus entirely on its lawsuits. 
     
    In 2007, SCO filed for Chapter 11 bankruptcy protection. In 2009, Darl Mcbride was fired. Early in 2011, UnXis Inc purchased SCO's remaining UNIX software assets. 
     
    As of August 2001, SCO Group remained active only as a shell in order to continue its appeals processes on litigation against Novell regarding transfer of UNIX copyrights during its UNIXWare sale in 1995.
     
    This appeal found in favor of Novell (which is now a fully-owned subsidiary of Attachmate, Inc.) as exclusive holder of the UNIX copyrights on August 30, 2011 by the United States Court of Appeals for the Tenth Circuit.
     

  • Steve Case and Gerald M. Levin: AOL / Time Warner Merger

     

    Facing challenges from the growing Internet/Web and broadband industry in the late 1990s that was encroaching on its bread and butter dialup services and "walled garden" of content, on-line services provider America Online pursued a strategy of re-invention as a content and broadband giant by purchasing Time Warner in the year 2000 for a whopping $164 billion.
     
    The merger, executed by AOL CEO Steve Case and Time Warner CEO Gerald M Levin, turned out to be a total fiasco, with the new company unable to capitalize on Time Warner's strengths. Total subscribers of AOL went from an estimated 30 million at the height of its popularity to less than just over 5 million in 2007, with no significant quarterly growth since 2002.
     
    The company's market valuation has plunged significantly from a high of $240 billion to $1.66 billion as of August of 2011.
     
    In 2009, shortly after appointing a new CEO, Tim Armstrong, AOL announced it would spin off Time Warner into a separate public company, ending a fruitless eight year relationship.
     
    AOL has since gone on a New Media purchasing spree, including Patch, Techcrunch and The Huffington Post, which joins their other New Media properties such as Engdaget which it acquired as a result of its Weblogs, Inc. purchase in 2005.

  • Jerry Yang,Yahoo!: Refusal of Microsoft Acquisition Offer

     

    Yahoo! grew rapidly during the early 1990's as one of the first search engine companies and went on a steady path of acquiring smaller Web companies and offering other Internet portal services such as financial news, web and image hosting (such as Flickr) but its failure to adapt to competitive forces, notably the rise of Google and FaceBook, caused the company's revenue to go into decline as it was unable to monetize these properties effectively.  
     
    Looking to expand its online presence, Microsoft made an unsolicited offer to purchase Yahoo! Inc. In February 2008 for approximately $47 billion. CEO and co-founder Jerry Yang, playing hard-to-get, formally rejected the bid, stating that it "substantially undervalued" the company and was not in the interest of shareholders. 
     
    Weeks of back-and-forth of highly publicized  meetings between the two companies resulted in a standoff.
     
    Shareholder and Yahoo! investor Carl Icahn attempted to patch things up in a last ditch attempt to get the Redmond-based software giant to come back to the table and attempted to force Yang out via a board room coup, but Microsoft CEO Steve Ballmer had enough and walked away completely exasperated, directing his company to create its own search engine and web properties under the Bing and Windows Live brands.
     
    As of August 2011, the market capitalization of Yahoo! Inc. has plunged to a low of $17.8 Billion, a far cry from Microsoft's original offer of $47 Billion. Jerry Yang eventually found himself ousted and replaced with CEO Carol Bartz in 2009, who ironically ended up entering a partnership agreement with Microsoft in a 10-year deal to use Bing as the search engine for Yahoo!. 
     
    While Steve Ballmer and Microsoft's investors are probably quite happy in retrospect that they walked away, for Yahoo, it will always permanently scar the company for what might have been because Jerry Yang decided to play hard-to-get.

  • Mark Hurd: Penile Priorities mixing with company business/Leo Apotheker: TouchPad development and Infanticide, Hewlett-Packard

     

    In September of 2006, When Hewlett-Packard Chairwoman Patricia Dunn resigned after being involved a highly-publicized ethics controversy, the company sought to rebuild its reputation with the media and with stockholders. Mark Hurd, a member of HP's board of directors was selected to take Dunn's place. 
     
    With over 25 years of industry experience at NCR and two years spent as the company's CEO marked by strong leadership and improving the company's efficiency and net income, Hurd was thought to be HP's white knight.
     
    Up until August of 2010, Hurd's tenure at HP was indeed a model one -- it remained the #1 vendor of desktop PCs and laptops, as well as maintaining its lead in consumer and enterprise printer market share. Hurd was also a major cost cutter, but this came at the expense of at 10% workforce reduction at the company, arguably a difficult decision for any CEO to have to make.
     
    Under his leadership, the company also acquired EDS, a large IT services player, which would make HP on par if not a larger company than IBM, its largest competitor.
     
    Additionally, with Hurd at the helm, HP also acquired Palm Computing for $1.2 Billion, which would enable the company to compete with Apple and Google in smartphones and tablets.
     
    Things were looking up. At least until Hurd started prioritizing his activities as CEO with his other head.
     
    Following an internal investigation of sexual harassment and misconduct with an HP contract employee, former reality TV actress Jodie Fisher, Hurd resigned in disgrace, only to land a job at Oracle, run by his close friend Larry Ellison, where he now leads what remains of Sun Microsystems.
     
    Thrown into complete disarray, in September of 2010, HP's board of directors decided to recruit an outsider to run the company, Leo Apotheker, a former SAP executive. 
     
    During the July 4th holiday weekend of 2011, HP's TouchPad tablet computer, the first product of the Palm acquisition engineered by Mark Hurd (who had resigned just under a year before) was finally released for $499 to highly unfavorable reviews. HP quickly attempted to price adjust by discounting the product $100, in the hopes that consumers would latch on.
     
    Weeks went by without any news of the product's sell-through, until Mid-August, when it was reported that Best Buy had only sold about 10 percent of its inventory. 
     
    During HP's 3rd-quarter earnings call, and less than two months after the TouchPad's launch, Apotheker dropped a bombshell -- that it would be scuttling HP's mobile hardware division which produced the TouchPad, Pre and Veer WebOS devices, and would be looking for an alternative strategy for the mobile OS. 
     
    In addition, HP was announcing its intention to leave the PC hardware business, in hopes of becoming a more streamlined enterprise software and services company like IBM. 
     
    Whether it was Apotheker's intention all along to scuttle the last remaining vestiges of Mark Hurd's legacy is unknown, but many have speculated that HP's chief executive has wanted to clean house since he started, and has been attempting to reverse over a decade of the company's mismanagement, starting with the Compaq merger completed by Carly Fiorina in 2002.
     
     

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John Opel, IBM: Not buying Microsoft during the PC-DOS/MS-DOS negotiations / Gary Kildall, Digital Research, not licensing CP/M to IBM

Information Technology, software and computer companies are certainly not without their share of poor executive decisions and mismanagement.  While dozens of notable examples could have made our list, these were by far the top top 10 worst in the history of the technology industry, causing many billions of dollars of lost revenue or resulted in the downfall of entire companies.

 
In the late 1970's, a small team within IBM began development of its legendary 5150 PC, which recently had its 30th anniversary. But to run this PC, IBM needed an operating system.
 
At the time, there was only one serious contender, Digital Research's CP/M, which ran on a number of early personal computers including the Apple ][, The Osborne and the Kaypro, all of which had substantial market share in a small but quickly growing industry.
 
In 1980, Under the direction of CEO John Opel, IBM attempted to contact Digital Research's founder and CEO, Gary Kildall, to license CP/M for use on the 5150 and other future PCs, but when negotiations failed, IBM went looking for another suitor.
 
Bill Gates, Steve Ballmer and Paul Allen at Microsoft, seeing an opportunity in the making, approached a tiny software company, Seattle Computer Products, which had an x86-compatible OS which used a similar command interpreter to CP/M called 86-DOS. Microsoft purchased the OS and perpetual usage rights, which they then re-christened as "DOS", for a mere $75,000.
 
After negotiating an almost unheard of non-exclusive licensing agreement with IBM, the company would be established as the leader in personal computer software for decades to come. 
 
Microsoft's MS-DOS would go on to sell tens of millions of licenses, and the software business for Windows and related follow-on products that Microsoft would generate which would build upon it would turn the company into an industry giant.
 
Digital Research could very well have had the same licensing deal and IBM could have imposed stricter licensing terms on MS-DOS, or could have purchased either of the two companies outright, giving the company an exclusive. But it was not to be. 
 
Digital Research's CP/M became an also-ran and the company eventually attempted to produce it's own DOS clone, DR-DOS, which although having a number of technical improvements over Microsoft's OS, was a dud. It was eventually sold to Novell, then Caldera and then later on became the property of SCO.
 
Eventually, the highly competitive MS-DOS based PC clone business made Digital Research's CP/M irrelevant and also would eventually force IBM to exit their own PC business in the late 1990s and early 2000's.  
 

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