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Title: How ADR Got Into the Software Products Business and Found Itself Competing Against IBM
Author: Martin A. Goetz
Created: 1998
Cataloguer:
Copyright: Martin A. Goetz

Story:

    How ADR Got Into the Software Products Business and Found Itself Competing Against IBM

    In the mid-1960s, when software was still bundled with hardware, several independent contract programming firms attempted to license a generalized program to multiple users for a standard fee. Applied Data Research (ADR) was one of those companies. I was the project manager responsible for the completion, marketing, legal protection, and success or failure of our program, called AUTOFLOW.

    It all started quite innocently. Originally ADR had no intention of marketing software products in a bundled environment. All software at that time was given away free by the hardware manufacturers. Users were freely exchanging programs through SHARE, GUIDE and the like. There was no cry from the users for priced software.

    At that time, ADR was building system software under contract to RCA, Bendix, Sperry Rand, the U.S. Government and others. Most contracts were fixed price, competitively bid and had little profit potential. We bid against Computer Science Corporation, Computer Usage, and several other companies.

    RCA was an up and coming computer manufacturer at that time and approached ADR about building an automatic flowcharting system. On speculation we designed a semi-automatic flowcharting system and submitted it to RCA in 1964. The output was crude and required a one-character code in the comments section on each line of assembly language code to be flowcharted. After RCA showed little interest, we submitted an unsolicited proposal to several manufacturers, who all showed a uniform lack of interest.

    At that time ADR had the free nighttime use of an RCA 501 and decided to develop a prototype of the design to prove the feasibility of the flowcharting system. A young programmer, Mike Guzik, who had just joined ADR from RCA, was assigned the task. Mike wrote the program in 4-6 months. In addition to producing extremely readable flowcharts, he produced several cross-reference listings that proved to be very helpful during the debugging stage. We showed the completed prototype program to RCA, and again found little interest.

    Having completed the program with perhaps a $5,000 to $10,000 investment, ADR decided to try to license it to RCA's base of about 100 RCA 501 users. We prepared some descriptive marketing literature and wrote to all 100 users. We priced the program, called AUTOFLOW, at $2,400 and licensed two copies. To protect our intellectual property rights in the program, our attorney suggested we "lease" the program for three years at a time and call the program "equipment" because contract law was very clear on the limited rights of a party when they leased equipment.

    It was now 1965. Although the IBM 360 had been announced, there were still thousands of IBM 1401s and 1410s in use. The market was ripe for a flowcharting system. We quickly decided to target the AUTOFLOW system for the IBM 1400 marketplace. Within ten months, with a team of one, we produced a 1401 autocoder version of AUTOFLOW and quickly hit the streets. There were lots of 1401 autocoder programs written by the 1401 user community. Most did not have flowcharts, which were required as documentation by most data processing organizations.

    However, our system required those one-character chart codes to trigger the flowchart box. There was a high interest in the 1401 AUTOFLOW system, but only if it could automatically process existing autocoder programs. The programmer on the ADR flowcharting project quickly concluded that the operation code could indicate to AUTOFLOW the type of flowchart box that was required. The number of flowchart symbols would be greater than those produced manually or under the control of the one-digit chart code. Nevertheless it would produce completely accurate flowcharts on a printer and was useful when the 1401 program had to be maintained and changed. Additionally, it filled a documentation need and satisfied a corporate need.

    During the marketing of AUTOFLOW for the IBM 1400s, we became aware of the IBM Flowcharter, an IBM-field developed program (FDP) that was distributed free by IBM. The IBM Flowcharter was not automatic and the flowchart it produced was based on separate input prepared by the programmer. It did not use the assembly language program as input. However, the IBM Flowcharter became one of the major reasons for a delayed or lost AUTOFLOW sale. Our prospects went to IBM and asked for improvements to the free IBM program and it was widely believed that IBM would develop a similar type of program and provide it to their customers for free.

    We wrote to IBM complaining that they were misrepresenting their product when they called it "automatic". We said they were hurting our market by giving the software away. Our efforts were to no avail.

    ADR had submitted a patent application for AUTOFLOW in 1965 so we put IBM on notice that they might be violating our patent application if they produced an automatic flowcharting program. These early skirmishes with IBM were the first of a long series of confrontations on the subject of tie-in sales, monopolies and patent protection for software.

    With some success in the 1401 marketplace and with the emergence of COBOL as the recommended commercial language, ADR embarked on a major IBM 360 effort to develop AUTOFLOW for the IBM 360 assembly, COBOL and FORTRAN language. From 1967 to 1970 ADR licensed over 2000 AUTOFLOW systems. IBM reprogrammed its flowchart program for the IBM 360 and continued to be a major competitive factor with their free program.

    Based on the success of AUTOFLOW and growing user acceptance of software products, ADR began investing in four additional products: the LIBRARIAN, ROSCOE, MetaCOBOL, and SAM. Everything looked promising. ADR's stock rose and a huge marketplace for software evolved.

    Meanwhile, having been burned by IBM's flowcharting program, ADR complained to the U.S. Justice Department that IBM was monopolizing the software industry. I remember many meetings in 1967 and 1968 with Justice Department attorneys who were concerned about IBM's dominance of the mainframe hardware field. During 1968, the Justice Department spoke to many independent software companies and, in January 1969, brought suit against IBM. The complaint, which covered IBM's dominance of hardware, also alleged that "starting in the early 1960s IBM inhibited the growth of the software products industry through its bundling of hardware and software."

    IBM, meanwhile, continued to deliver and announce products. During ADR's development of ROSCOE, IBM began delivery of CRBE, a Conversational Remote Batch Entry program, which was a direct competitor to ROSCOE. ADR's strategy was to avoid direct competition with IBM; we focused on niches in technology areas that IBM had avoided. But there was no way to know what IBM was developing for the future, or what field-developed programs might be submitted by IBM field personnel. ADR could not effectively plan for its future or compete against IBM if IBM was allowed to continue to bundle programs with its hardware.

    In April 1969, ADR sued IBM for monopolizing the software products industry. ADR was attempting to protect its future and, at the same time, collect damages for its reduced revenues in the flowchart market during the 1960s.

    In June 1969, two months after ADR's suit and six months after the Justice Department suit, IBM announced it would unbundle all of its systems software, except operating systems, starting in January 1970.

    Nevertheless, ADR refused to drop its suit. In late 1969, IBM added insult to injury by announcing TSO, a ROSCOE-competitor, which was to be free and delivered in 1971. ADR was now fighting a two-front war. Not only would TSO be free, it would not be able to be benchmarked for about 18 months.

    Although there was great interest in ROSCOE, few sales were consummated. All our prospects were contacted by IBM and told about CRJE and IBM's forthcoming TSO.

    In January 1970, ADR decided to seek a temporary restraining order against CRJE, which IBM distributed free and which was crippling ROSCOE's potential market penetration. In July 1970, ADR won a restraining order against IBM for a 60-day period.

    In August 1970, ADR settled its antitrust suit with IBM with an out-of-court settlement of $2 million. The struggle was worth it. We were well on our way to success.

    (The above anecdote was submitted to the Software History Center website by Martin A. Goetz in 1998.)


Entered By: Luanne Johnson
  March 9, 2010