IBM and the PC
In a modular system, value concentrates in the layer that can't be swapped out — IBM ended up owning PC assembly (a commodity) while Intel (chip) and Microsoft (OS) owned the bottlenecks.
By the 1970s, IBM was built around the mainframe: an integrated, ultra-reliable hardware-plus-software-plus-service system for institutional, on-prem computing — big, expensive, and dependable.
When the personal-computing wave hit, IBM underrated it. It didn’t foresee that PCs would overtake institutional computing, so it ran the PC as a skunkworks side project, spun out in about a year to compete with Apple.
To move fast, IBM built the PC from off-the-shelf parts and took non-exclusive licenses from Intel (the chip) and Microsoft (the OS). It could have built its own chip and OS, but licensing was the fastest, lowest-stakes way to ship.
That decision turned the PC into an open, cloneable standard. Openness is what made the PC win — but it also commoditized the hardware IBM made (anyone could assemble the same parts) and concentrated the profits in the two layers that couldn’t be swapped out: Intel’s x86 chips and Microsoft’s OS.
The lesson: IBM didn’t just give away favorable rights — it misjudged which layer of a modular system would hold the value, and ended up owning the commodity layer (assembly) instead of a bottleneck (chip or OS). That’s why Intel and Microsoft became worth so much more.