The early 1960s saw computer manufacturers maintaining two distinct product lines. One the one hand were the highly mathematical, scientific computers and on the other side were the character-oriented, commercial computers. It was expensive maintaining two product lines and hard for customers to upgrade to more powerful computers, because they had to have all their programs rewritten. This caused IBM to develop a range of computers that could satisfy the needs of all its customers. The IBM System/360 series of computers all could run the same software and had the same operating system. It is still in widespread use today by companies who cannot afford to loose computing time by changing their system. To make the operating system good for all sizes of machine, it had to be incredibly complex and needless to say was full of bugs.
The operating system OS/360 introduced many important features of modern operating systems. The most important of which was probably multiprogramming, often mistakenly called multitasking. This allowed the system to run another program, while the first program was waiting for some I/O to complete. For this to work memory was partitioned into several pieces and special hardware was needed to protect other programs from misbehaving programs.
Multiprogramming made possible a second feature which enabled punched cards to be directly read onto disk by the computer while it was processing other programs. These systems were still essentially batch systems, which had a very slow response time. This lead to the development of a system which allowed time-sharing of the CPU , a variant of multiprogramming, in which every user has a on-line terminal on his desk and can use the system whenever he ants to. This lead to the development of MULTICS (MULTiplexed Information and Computing Service), a very powerful operating system, which laid down much operating systems theory, but was too big and complex to become widespread.
Another major development during this phase was the proliferation of minicomputers and the invention of the microprocessor by Intel in 1971. One of the members of the MULTICS team Ken Thompson wrote a stripped down, single user version of MULTICS for a small minicomputer PDP-7 , that no one was using at Bell Labs. Brian Kernighan jokingly called this system UNICS (UNiplexed Information and Computing Service). The system worked so well that Bell Labs invested in a larger minicomputer and Thompson teamed up with Dennis Ritchie, to rewrite the operating system in C, which had been designed by Kernighan and Ritchie. This new operating system was called UNIX and allowed multiple users time-sharing. Bell licensed it to Universities almost for free. Bell gave away the source code to be studied by all licensees, which lead to UNIX being moved or ported to more types of computer than any other operating system.