History of IBM - Chronology - 1969: Antitrust, The Unbundling of Software and Services

1969: Antitrust, The Unbundling of Software and Services

IBM's dominant market share in the mid-1960s led to antitrust inquiries by the U.S. Department of Justice, which filed a complaint for the case U.S. v. IBM in the United States District Court for the Southern District of New York, on January 17, 1969. The suit alleged that IBM violated the Section 2 of the Sherman Act by monopolizing or attempting to monopolize the general purpose electronic digital computer system market, specifically computers designed primarily for business. The case dragged out for 13 years, turning into a resource-sapping war of attrition. In 1982, the Justice Department finally concluded that the case was “without merit” and dropped it, but having to operate under the pall of antitrust litigation significantly impacted IBM's business decisions and operations during all of the 1970s and a good portion of the 1980s.

In 1969 IBM "unbundled" software and services from hardware sales. Until this time customers did not pay for software or services separately from the very high price for leasing the hardware. Software was provided at no additional charge, generally in source code form; services (systems engineering, education and training, system installation) were provided free of charge at the discretion of the IBM Branch office. This practice existed throughout the industry. Quoting from the abstract to a widely-read IEEE paper on the topic:

At the time, the unbundling of services was perhaps the most contentious point, involving antitrust issues that had recently been widely debated in the press and the courts. However, IBM's unbundling of software had long-term impact. After the unbundling, IBM software was divided into two main categories: System Control Programming (SCP), which remained free to customers, and Program Products (PP), which were charged for. This transformed the customer's value proposition for computer solutions, giving a significant monetary value to something that had hitherto essentially been free. This helped enable the creation of a software industry.

Similarly, IBM services were divided into two categories: general information, which remained free and provided at the discretion of IBM, and on-the-job assistance and training of customer personnel, which were subject to a separate charge and were open to non-IBM customers. This decision vastly expanded the market for independent computing services companies.