IBM vs Microsoft

IBM was founded in 1911 as the Computing-Tabulating-Recording Company through the merger of four businesses making punch card tabulators, time recording equipment, and weighing scales. Thomas J. Watson Sr. took over as general manager in 1914 and renamed the company International Business Machines in 1924. Watson's management philosophy — "Think" was the company motto, displayed throughout IBM offices — and his aggressive sales culture built IBM into the dominant supplier of business machines in the United States.

IBM launched the System/360 in April 1964 — a family of compatible mainframe computers that could run the same software regardless of size. The development cost $5 billion — more than the Manhattan Project adjusted for inflation — and was the largest privately funded commercial project in history at the time. The System/360 established the concept of a computer family with compatible software across different hardware configurations. IBM's revenues doubled in the five years following the launch.

IBM launched the IBM Personal Computer in August 1981, choosing to build it from off-the-shelf components and license the operating system from Microsoft rather than developing proprietary technology. IBM's open architecture allowed other manufacturers to clone the design legally. Within years, IBM-compatible PCs from Compaq, Dell, and dozens of others dominated the market — running Microsoft's operating system. IBM had created the personal computer industry and handed its most valuable components to its competitors.

By 1993, IBM was losing $8 billion per year — the largest annual loss in corporate history at the time. The board hired Lou Gerstner — a former McKinsey consultant who knew nothing about technology — as CEO. Gerstner cancelled a planned breakup of the company, refocused IBM on services rather than hardware, and transformed it from a struggling computer manufacturer into a technology consulting giant. IBM's stock rose 800% during his nine-year tenure.

IBM reported revenues of approximately $62 billion for fiscal year 2024, with its software segment — including Red Hat, acquired for $34 billion in 2019 — driving growth. The company had divested its managed infrastructure services business (renamed Kyndryl) in 2021 to focus on hybrid cloud and AI consulting. IBM Watson Health, the medical AI platform launched with great fanfare after Jeopardy!, had been sold in 2022 after failing to commercialise its capabilities. IBM had again identified an AI inflection point and was competing aggressively for enterprise AI consulting work — this time through its WatsonX platform — against Accenture, Deloitte, and the hyperscalers themselves. The company that had nearly gone bankrupt in 1993 was still fighting for relevance in the industry it had created.

In January 1975, Paul Allen showed Bill Gates an issue of Popular Electronics featuring the Altair 8800. Neither of them had written a BASIC interpreter for it. But Gates called MITS and told them Microsoft had a working version ready. They then had eight weeks to actually build it. It worked. Gates was 19.

IBM approached Microsoft in 1980 to write an operating system for its new PC. Microsoft didn't have one. Gates bought QDOS from a Seattle programmer for $50,000, renamed it MS-DOS, and licensed it to IBM — while retaining the right to license it to other manufacturers. IBM thought hardware was the business. Gates understood it was software. The decision made Microsoft the most powerful company in computing for the next two decades.

When Satya Nadella became CEO in 2014, Microsoft was widely regarded as a company that had missed mobile, missed search, and missed social. Nadella pivoted to cloud computing, transformed Microsoft's culture from internal competition to growth mindset, and repositioned Azure as the foundation of the enterprise. The market cap tripled in his first five years. The transformation is studied in business schools as one of the greatest corporate turnarounds in history.

Microsoft invested $10 billion in OpenAI in January 2023, securing exclusive access to GPT-4. Within months, "Copilot" had been embedded in Word, Excel, Teams, GitHub, and Bing — repositioning Microsoft as the leading AI company in enterprise software. By early 2025, Microsoft's AI business had crossed $13 billion in annualised revenue, growing 175% year-over-year.

By Q3 fiscal 2026, Microsoft's AI business had surpassed $37 billion in annualised revenue — growing 123% year-over-year. Azure revenue grew 40%. Microsoft 365 Copilot had over 20 million paid seats, with the number of enterprise customers deploying more than 50,000 seats having quadrupled year-over-year. Cloud revenue crossed $50 billion in a single quarter. Microsoft had extended its OpenAI partnership, securing a 27% stake in the company and cementing its position as the most important distribution partner for large language models in enterprise software.