Their entry into the home computer market needed to be competitively priced. IBM had previously produced microcomputers, such as 1975's IBM 5100, but targeted them towards businesses the 5100 had a price tag as high as $20,000. As with other large computer companies, its new products typically required about four to five years for development, and a well publicized quote from an industry analyst was, 'IBM bringing out a personal computer would be like teaching an elephant to tap dance.' The public responded to these rumors with skepticism, owing to IBM's tendency towards slow-moving, bureaucratic business practices tailored towards the production of large, sophisticated and expensive business systems.

Īs early as 1980 there were rumors of IBM developing a personal computer, possibly a miniaturized version of the IBM System/370, and Matsushita acknowledged publicly that it had discussed with IBM the possibility of manufacturing a personal computer in partnership, although this project was abandoned. Other large technology companies had entered it, such as Hewlett-Packard, Texas Instruments and Data General, and some large IBM customers were buying Apples. The microcomputer market was large enough for IBM's attention, with $15 billion in sales by 1979 and projected annual growth of more than 40% during the early 1980s.

The market for personal computers was dominated at the time by Tandy, Commodore, and Apple, whose machines sold for several hundred dollars each and had become very popular.

As the 1980s opened, their market share in the growing minicomputer market failed to keep up with competitors, while other manufacturers were beginning to see impressive profits in the microcomputer space. Prior to the 1980s, IBM had largely been known as a provider of business computer systems.

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