While IBM was crushing its competition in the mainframe space, another computer market began opening up that IBM virtually ignored. Following the success of the PDP-1, Ken Olsen and his Digital Equipment Corporation (DEC) continued their work in real-time computing and cultivated a new market for computerized control systems for scientific and engineering projects. After stumbling in its attempts to build larger systems in the IBM mold, the company decided to create machines even smaller and cheaper than low-end mainframes like the 1401 and H200. These so-called “minicomputers” could not hope to compete with mainframe systems on power and were often more difficult to program due to a comparably limited memory, but DEC’s new line of computers were also far cheaper and more interactive than any system on the market and opened up computer use to a larger swath of the population than ever before. Building on these advances, by the end of the 1960s a DEC competitor established by a disgruntled former employee was able to introduce a minicomputer that in its most basic configuration cost just under $4,000, bringing computers tantalizingly close to a mass-market product. The combination of lower prices and real-time operation offered by the minicomputer provided the final key element necessary to introduce computer entertainment programs like Spacewar! to the general public.
Note: Once again we have a historical interlude post discussing the technological breakthroughs in computing in the 1960s that culminated in the birth of the electronic entertainment industry. The material in this section is largely drawn from Computer: A History of the Information Machine by Martin Campbell-Kelly and William Aspray, A History of Modern Computing by Paul Ceruzzi, The Ultimate Entrepreneur: The Story of Ken Olsen and Digital Equipment Corporation by Glenn Rifkin and George Harrar, and oral histories conducted by the Computer History Museum with Gordon Bell, Ed de Castro, Alan Kotok, and Harlan Anderson.
Ken Olsen poses outside The Mill, DEC corporate headquarters
When last we left DEC, the company had just introduced its first computer, the PDP-1, to a favorable response. Buoyed by continuing demand for system modules and test equipment and the success of the PDP-1, DEC’s profits rose to $807,000 on sales of $6.5 million for the 1962 fiscal year. Growing financial success, however, could not compensate for serious underlying structural problems at the company. From his time serving as a liaison between Project Whirlwind and IBM, Ken Olsen had inherited an extreme loathing for bureaucracy and the trappings of corporate culture and preferred to encourage individual initiative and experimentation more in line with practices in the academic sector. This atmosphere suited most of DEC’s employees, many of them transplants from MIT and Lincoln Labs eager — like Olsen — to continue their academic work in a private setting. DEC headquarters, affectionately called “The Mill,” practically became an extension of the MIT campus as students traveled back and forth between Cambridge and Maynard to work part time or just hang out with DEC engineers and learn how the company’s computers operated. There were no set engineering teams, so employees would organically form groups around specific projects. While this freedom and lack of oversight spurred creative thinking, however, it left DEC without a coherent product strategy or well developed sales, manufacturing, and servicing organizations.
In 1963, DEC revenues soared to $10 million, while profits jumped to $1.2 million. The next year, however, revenues flattened and earnings declined, coming in at $11 million and $900,000 respectively. With little management guidance, DEC engineering teams tended to over commit and under deliver on products, while lack of communication between sales, order processing, and manufacturing resulted in difficulties delivering the company’s existing product line to customers in sufficient quantities. Clearly, DEC needed to implement a more rigorous corporate structure to remain viable. The struggle to reform DEC ultimately pitted the company’s two founders against each other as Olsen steadfastly refused to implement a rigid hierarchy, while Harlan Anderson backed Jay Forrester, the Whirlwind project leader turned MIT Sloan School of Business professor who served as a director of DEC, in his efforts to implement some of his own management theories at the company. Georges Doriot, the most important director of the company due to ARD’s large stake in DEC, remained a staunch supporter of and adviser to Olsen, but preferred to stay out of the conflict, feeling directors should not tell management what to do unless a company is in dire straits.
While struggling to operate efficiently, DEC also experienced difficulty creating a successor to the PDP-1. Initial plans to create 24- and 36-bit versions of the computer, designated the PDP-2 and PDP-3 respectively, floundered due to technical hurdles and a lack of customer interest and never entered production. Worse, PDP-1 designer Ben Gurley announced his resignation in December 1962 to join a new startup before being tragically murdered less than a year later by a former co-worker. With Gurley’s departure, DEC’s primary computer designer became a young engineer named Gordon Bell.
Gordon Bell, DEC’s principal computer designer after the departure of Ben Gurley
Born in Kirksville, Missouri, Gordon Bell exhibited an aptitude for electrical engineering at an early age and was earning $6/hour as an electrician by the time he was about twelve years old. Matriculating to MIT in 1952, Bell earned his B.S. in electrical engineering from the school in 1956 and his M.S. in the same field the next year. Originally interested in being a power engineer, Bell worked for American Electric Power and GE through a co-op program while attending MIT, but he ultimately decided not to pursue that path further. Unsure what to do after graduation, he accepted an offer to travel to Australia to set up a new computer lab in the electrical engineering department of the University of New South Wales. After a brief stint in the Speech Computation Laboratory at MIT, Bell Joined DEC in 1960 and did some work on the I/O subsystem of the PDP-1. After helping with the aborted PDP-3, which had been an attempt to enter the scientific market served by the 36-bit IBM 7090, Bell initiated a project to create a cheaper, but more limited version of the PDP-1 intended for process control. Dubbed the PDP-4, the computer sold for just $65,000 and included some updated features such as auto index registers, but a lack of compatibility with the PDP-1 coupled with reduced capabilities compared to DEC’s original computer ultimately killed interest in the product. While DEC managed to sell fifty-four PDP-4s, one more unit than the PDP-1, it was considered a commercial disappointment.
In early 1963, Olsen and Anderson decided to return to the PDP-3 concept of a large scientific computer that could challenge IBM in the mainframe space and tapped Bell for the project, who was assisted by Alan Kotok, the noted MIT hacker who joined DEC upon graduating in 1962. Dubbed the PDP-6, Bell’s computer was capable of performing 250,000 operations per second and came equipped with a core memory with a capacity of 32,768 36-bit words. While not quite on par with the industry-leading IBM 7094, the computer was capable of real-time operation and incorporated native support for time sharing unlike the IBM model, and it was also far cheaper, retailing for just $300,000. Unfortunately, the computer was poorly engineered and not thoroughly tested, leading to serious technical defects only discovered once the first computers began shipping to customers in 1964. As a result, the computer turned out to be a disaster, with only twenty-three units sold. Harlan Anderson, who had championed the computer heavily, bore the brunt of the blame for its failure from his co-founder Olsen. Combined with their on-going fight over the future direction of the company, the stigma of the PDP-6 fiasco ultimately drove Anderson from the company in 1966. The failure of the PDP-6 was the clearest indicator yet that DEC needed to reform its corporate structure to survive.
In 1965, Olsen finally hit upon a solution to the company’s organizational woes. Rather than a divisional structure, Olsen reorganized DEC along product lines. Each computer sold by the company, along with the company’s module and memory test equipment lines, would become its own business unit run by a single senior executive with full profit and loss responsibility and complete independence to define, develop, and market his product as he saw fit. To actually execute their visions, each of these senior executives would have to present his plans to a central Operations Committee composed of Olsen and his most trusted managers, where they would bid for resources from the company’s functional units such as sales, manufacturing, and marketing. In effect, each project manager became an entrepreneur and the functional managers became investors, allocating their resources based on which projects the Operations Committee felt deserved the most backing. While DEC was not the first company to try this interconnected corporate structure — which soon gained the moniker “matrix management” — the ensuing financial success of DEC caused the matrix to become closely associated with Ken Olsen in subsequent decades.
The PDP-8, the first widely sold minicomputer
One of DEC’s oldest computer customers was Atomic Energy of Canada, which had purchased one of the first PDP-1 computers for its Chalk River facility. The company proceeded to buy a PDP-4 to control the reactor at Chalk River, but the computer was not quite able to handle all the duties it had been assigned. To solve this problem, Gordon Bell proposed in early 1963 that rather than create custom circuitry to meet Atomic Energy’s needs, DEC should build a smaller computer that could serve as a front end to interface with the PDP-4 and provide the needed functionality. Rather than just create a system limited to Atomic Energy’s needs, however, Bell decided to design the machine so it could also function as an independent general-purpose computer. DEC named this new computer the PDP-5.
Bell was not the first person to create a small front-end computer: in 1960 Control Data released the Seymour Cray-designed CDC 160 to serve as an I/O device to interface with its 1604 mainframe. Soon after, CDC repurposed the machine as a stand-alone device and marketed it as the CDC 160A. The brilliant Cray employed bank switching and other techniques to allow the relatively limited 12-bit computer to address almost as much memory as a large mainframe, though not as easily or efficiently. While not as powerful as a full-scale mainframe, the 160A provided most of the same functionality — albeit scaled down at a speed of only 67,000 operations per second — at a price of only $60,000 and a footprint the size of a metal desk. CDC experienced some success with the 160A, but as the company was primarily focused on supercomputers, it paid little attention to the low-end market.
While Bell planned for the 12-bit PDP-5 to be a general purpose computer, DEC essentially treated the computer as a custom solution for Atomic Energy and not as a key part of its future product line, which was then focused around the large-scale PDP-6. As a result, DEC planned to only sell roughly ten computers, just enough to recoup its development costs. Just as IBM had underestimated demand for the relatively cheap 1401, however, DEC did not realized how interested the market would be in a fully functional computer that sold for just $27,000, by far the cheapest core-memory computer on the market. Orders soon began pouring in, and the company ultimately sold roughly 1,000 PDP-5s, making it the company’s best-selling computer by a factor of twenty. With the PDP-6 floundering, Ken Olsen decided to champion smaller computers, and the company began considering a more advanced followup to the PDP-5.
Edson de Castro, the engineer who designed the PDP-8 and later established Data General
Just as Harlan Anderson was forced out of DEC due to the failure of the PDP-6, so too did Gordon Bell decide it was time to move on. While he did not officially leave the company, he took a sabbatical in 1966 that lasted six years in which he did some work in academia and continued to serve as a DEC consultant. In his place, the task of developing a followup to the PDP-5 fell to another engineer named Edson de Castro.
Born in Plainfield, New Jersey, Ed de Castro spent the majority of his childhood in Newton, Massachusetts. The son of a chemical engineer, de Castro had a fascination with mechanical devices from a young age and always knew he wanted to be an engineer. Accepted into MIT, de Castro opted instead to attend the much smaller and less prestigious Lowell Technological Institute, where he felt he would receive more attention from the school faculty. Interested in business, de Castro applied to Harvard Business School after graduation, but the school said it would only accept him after the next academic year. He therefore needed a job in the short term and was recruited by Stan Olsen as a systems engineer for DEC in late 1960, where he worked with customers to develop applications for DEC’s systems modules. After just under a year at DEC, de Castro left to attend Harvard, but his grades were insufficient to qualify for the second year of the program, so he returned to DEC to work in the custom products division, which focused on memory test equipment.
After Gordon Bell and Alan Kotok outlined the PDP-5, de Castro became the primary engineer responsible for building it. The original design called for the machine to be a 10-bit computer, but de Castro upped this to 12 bits — multiples of 6 being the standard in the industry at the time — so it could address more memory and be more useful. When the PDP-5 became successful, de Castro went back to working as a systems engineer and helped install the computers in the field. Soon after, he turned his attention to the computer’s successor, the PDP-8.
The PDP-8 had several advantages over the small computers that preceded it. First of all, it used a transistor from Philco, the germanium micro-alloy diffused transistor, that operated particularly quickly and allowed the computer to perform 500,000 operations per second. Furthermore, DEC harnessed its expertise in core memory to lower the memory cycle time to 1.6 microseconds, slightly faster than an IBM 7090 and much faster than the CDC 160A. While the 12-bit computer could only directly address 7 bits of memory, DEC employed several techniques to allow the computer to indirectly address full 12-bit words and perform virtually any operation a larger computer could, albeit sometimes much slower. While complex calculations might take a long time, however, many simpler operations could be performed just as quickly on a PDP-8 as on a much larger and more expensive computer. The PDP-8 was also incredibly small, as de Castro employed an especially efficient board design that allowed the entire computer to fit into a case that occupied only eight cubic feet of volume, meaning it was small enough to place on top of a standard workbench.
In 1965, DEC introduced the PDP-8 with 4,000 words of memory and a teletype for user input for just $18,000. Within just a few years, the price fell to under $10,000 as DEC continued to cost reduce the computer though new technologies like integrated circuits, which were first used in the PDP-8 in 1969. Thanks to de Castro, organizations could now purchase a computer that fit on top of a desk yet provided nearly all the same functionality at nearly the same speed (for most operations, at least) as a million dollar computer taking up half a room. The limitations of the PDP-8 guaranteed it would not displace mainframes entirely, but the low price helped it become a massive success with over 50,000 units sold over a fifteen year period. Many of these machines were sold under a new business model in which DEC would act as an original equipment manufacturer (OEM) by selling a PDP-8 to another company that would add its own software and peripheral hardware. This company would then sell the package under its own name and take responsibility for service and maintenance. Before long, OEM arrangements grew to represent fifty percent of DEC’s computer sales while allowing DEC to keep its costs down by farming out labor intensive tasks like software creation. As DEC rode the success of the PDP-8, revenues climbed from $15 million in 1965 to almost $23 million in 1966 to $39 million in 1967, while profits increased sixfold between 1965 and 1967 to $4.5 million.
The Data General Nova, a minicomputer that combined an incredibly small size with an incredibly cheap price
The success of the PDP-8 opened up a whole new market for small, cheap machines that soon gained the designation “minicomputers.” With IBM and most of its competitors remaining focused on full-sized mainframes, however, this market was largely populated by newcomers to the computer industry. Hewlett-Packard, the large West Coast electronics firm, first offered to buy DEC and then went into competition with its own minicomputer line. Another west-coast electronics firm, Varian Associates, also entered the fray, as did an array of start-ups like Wang Laboratories and Computer Control Company, which was quickly purchased by Honeywell. By 1970, over seventy companies were manufacturing minicomputers, and a thriving high-technology sector had emerged along Route 128 in the suburbs of Boston. DEC continued to be the leader in the field, but soon faced some of its most serious competition from within the company itself.
Ed de Castro had brought great success to DEC by designing the PDP-8, but he was not particularly happy at the company. The Silicon Valley concept of rewarding engineering talent with generous stock options did not yet exist, so while DEC had gone public in 1966, only senior executives reaped the benefits while de Castro, for all the value he added to the company, had to make do with an engineer’s salary of around $12,000 a year. Furthermore, de Castro had hoped to be placed in charge of the PDP-8 product line, but Ken Olsen refused him. Sensing de Castro was unhappy and not wanting to lose such a talent, DEC executive Nick Mazzarese hoped to placate de Castro by giving him charge of a new project to define the company’s next-generation successor to the PDP-8.
Although the PDP-8 was only two years old by the time de Castro turned to designing a followup in 1967, the computer market had changed drastically. The integrated circuit was by now well established and promised significant increases in performance alongside simultaneous reductions in size and cost. Furthermore, the dominance of the System/360 had caused a shift from a computer architecture based on multiples of six bits to one based on multiples of the 8-bit byte, which remains the standard in the computer industry to this day. DEC’s competitors in the minicomputer space were therefore focusing on creating 16-bit machines, and the 12-bit PDP-8 looked increasingly obsolete in comparison.
In late 1967, de Castro and fellow engineers Henry Burkhardt and Dick Sogge unveiled an ambitious computer architecture designed to keep DEC on top of the minicomputer market well into the 1970s. Dubbed the PDP-X, de Castro’s system was built around medium-scale integration circuits and — like the System/360 — would offer a range of power and price options all enjoying software and peripheral compatibility. Furthermore, while the base architecture would be 16-bit, the PDP-X was designed to be easily configurable for 32-bit technology, allowing customers to upgrade as their needs grew over time without having to redo all their software or buy all new hardware. Rather than being just a replacement for the PDP-8, the PDP-X was positioned as a product that could supplant DEC’s entire existing computer line.
But the PDP-X was too ambitious for DEC. Olsen still remembered the failure of the PDP-6 project, and he was horrified when de Castro told him that the PDP-X would be an even bigger undertaking than that computer. Worse, de Castro was known for bucking DEC management practices and doing things his own way, so he had butted heads with nearly everyone on the company’s Operations Committee while simultaneously alienating nearly every product line manager by proposing to replace all of their products. Unlike Tom Watson Jr., who bet his company on an integrated product line and came to dominate the mainframe industry as a result, Olsen could not bring himself to pledge so many resources to a single project. DEC turned the PDP-X down.
This was the last straw for de Castro. He had long been interested in business — witness his brief stint at Harvard — and he had long chafed under DEC management. He had also toyed with the idea of establishing his own company in the past, and with the Route 128 tech corridor taking off, there was plenty of venture money to be had for a computer startup. Therefore, de Castro brought in his former boss in custom products, Pat Greene, to run his prospective company and a Fairchild salesman named Herb Richman that he had purchased circuits from to run marketing and began designing a new 8-bit computer with Burkhardt and Sogge before actually leaving DEC. After initially garnering little interest from venture capitalists, Richman placed de Castro in touch with George Cogar, co-founder of a company called Mohawk Data Sciences, who agreed to become the lead investor in what turned out to be $800,000 in financing.
In early 1968, the group was finally ready to leave DEC, but Pat Greene got cold feet and appeared ready to back out, uncomfortable with the work the group was doing behind Ken Olsen’s back. Therefore, de Castro, Burkhardt, and Sogge waited until April 15, when Greene was out of the country on a business trip to Japan, to resign and officially establish Data General. When Greene returned from Japan, he turned over all materials he had related to the new company to Olsen, including the plans for the 8-bit computer the three engineers had been secretly building at DEC. Olsen felt betrayed and carried an enmity for Data General for decades, convinced de Castro had stolen DEC technology when he departed. Despite this belief, however, DEC never sued.
In 1969, de Castro, Burkhardt, and Sogge released their first computer, the Data General Nova. Quickly abandoning their 8-bit plans once leaving DEC, the trio designed the Nova using medium-scale integration circuits so that the entire computer fit on just two printed circuit boards: one containing the 16-bit CPU and the other containing various support systems. By fitting all the circuitry on only two boards with minimal wiring, Data General was able to significantly undercut the PDP-8 on cost while simultaneously making the system easier to manufacture and therefore more reliable. With these savings, Data General was able to offer the Nova at the extremely low price of $3,995, though practically speaking, the computer was essentially useless without also buying a 4K core memory expansion, which pushed the price up to around $7,995. Still this was an unheard of price for a fully functional computer and spurred brisk sales. It also piqued the interest of a young engineer recently graduated from the University of Utah who thought it just might be possible to use the Nova to introduce the Spacewar! game so popular in certain university computer labs to the wider world.