Many people are familiar with International Business Machines (IBM 0.06%) and its wide variety of mainframe computers, business servers, and consulting services. Investors are probably also familiar with its more recent forays into data analytics, cloud computing, and cognitive computing solutions, represented by its AI-based Watson supercomputer.
There are, however, a number of innovations that forever changed the technological landscape and paved the way for the larger societal and demographic shifts that followed.
IBM has a long and fascinating history of innovation. Image source: Getty Images.
1. An icon is born
IBM began life in June 1911, as CTR -- The Computing-Tabulating-Recording Company. Charles Flint, a financier in New York, arranged for the merger of several companies that developed time clocks, computing scales, and tabulating machines. In 1914, Thomas Watson Sr. was brought in to run the company, and the combined entity was renamed International Business Machines in 1924.
Coming to IBM as part of the merger, the tabulating machine captured data on holes punched into a 3-by-7-inch card, which revolutionized data and tabulated results from the 1890 Census. It was one of the very first instances of data processing. This use of electromechanical counters continued to be widely used until the arrival of the first computers in the 1950s. Punched cards continued to feed instructions to computers until the early 1970s.
The tabulating machine revolutionized the capturing of census data. Image source: IBM.
2. The magnetic stripe
In the early 1970s, the looming popularity of credit cards and airline travel caused traffic jams at ticket counters and checkout lines. At the time, use of a credit card required several labor- and time-intensive steps (by today's standards) that included making a phone call to authorize the transaction, then placing the card on a metal tray, and imprinting the card numbers on a carbon receipt for the customer's signature. Both banks and airlines were looking for a way expedite customer transactions.
A team at IBM developed a machine-readable magnetic strip that's still used on most credit and debit cards today. It could store the necessary information that could then be transmitted via phone lines to a computer for approval. This led to the development of bank ATMs and self-serve airline kiosks to dispense boarding passes.
3. The UPC Code
The first patent for the UPC code was issued in the early 1950s, but it wasn't until 20 years later, with the advent of lasers to read them, that they found practical application. The grocery industry, seeking ways to speed up checkout lines and automate inventory, looked to computer companies for solutions. IBM applied the UPC, or bar code, to the problem, as well as developing the scanner to read it.
In June 1974, a pack of Wrigley's Juicy Fruit chewing gum was the first item to be "swiped" using the new system, in Troy, Ohio. The process soon became the grocery industry standard, and the technology formed the basis for the point-of-sale systems that are still in use today.
IBM's UPC code and scanners revolutionized the grocery industry. Image source: IBM.
4. The floppy disk
In 1967, an IBM team was working on a method to feed instructions into its massive mainframe computers. To install updates or perform data entry, legacy punched cards or magnetic tape transmitted the data. The team developed an inexpensive 8-inch Mylar disk that could be inserted into a slot in the computer, and a magnetic coating on the disk carried the instructions. Problems with dust led to encasing the disks in a durable envelope that wiped the disk as it spun.
This early innovation proved useful, if impractical, with the advent of personal computers in the early 1980s, which in turn led to the development of the 5 1/4-inch, and eventually the 3 1/2-inch, floppy disk drive. This was effectively the birth of the software industry, because programs could be written, packaged, and sold to users, who could install them on their own.
The floppy disk gave rise to the birth of the software industry. Image source: Getty Images.
5. LASIK eye surgery
Laser-assisted in-situ keratomileusis eye surgery, better known as LASIK, was developed as the result of a test on leftover Thanksgiving turkey. In the early 1980s, the excimer laser, which produces pulses of ultraviolet light, was commonly used to etch plastic. When tested on the turkey, it disrupted the molecular bonds on a thin layer of the surface flesh without burning the surrounding tissue.
After years of research, and with U.S. Food and Drug Administration approval in 1995, LASIK has become the most popular form of vision-correction surgery worldwide. By reshaping the cornea, vision is improved, with the use of the laser offering a combination of rapid healing and minimal pain.
6. The Deep Blue chess champion
In 1997, an IBM computer dubbed Deep Blue was the first computer in history to defeat a world champion in a chess match. In a six-game match, the supercomputer beat Garry Kasparov, the previously undefeated Russian grandmaster. Using a technique called brute force, the computer was able to evaluate 200 million chess positions per second to determine its next move. The process was largely one of mathematics and processing speed. The pieces were assigned point values, and Deep Blue was programmed with 100 years of games played by grandmasters.
At a seminal moment in the match, Kasparov was unnerved by a move he considered too sophisticated for a computer to make. Years later, one of Deep Blue's designers revealed that the computer was unable to determine its next move, so the pivotal move was one it chose at random.
The legacy continues
In a nod to Foolish long-term buy-and-hold investing, here's another thing about IBM you probably didn't know: One IBM share in 1915, adjusted for all splits and stock dividends, would be equal to 11,880 shares today.
IBM continues at the forefront of innovation, applying a combination of data analytics, cognitive computing, and cloud solutions to a variety of business applications. Since its 2011 win on Jeopardy!, IBM's artificial-intelligence supercomputer, Watson, has become the public face of the company's cognitive computing efforts and a key focus of the company's strategic growth initiatives. These have been applied to everything from medicine to cybersecurity.
IBM has reinvented itself many times over the past century, and while the market and even famed investor Warren Buffett are beginning to doubt the company's ability to remake itself once again, I wouldn't bet against Big Blue.
