In 1957 Bell Labs computer researchers created an Operating System for their inhouse computer center. This Operating System, known as BESYS, needed to be robust enough to be able to handle a large number of short batch jobs. BESYS was a very early time-sharing OS, and was not a product that Bell Labs shipped. They shared the OS with other interested parties, but provided no support for its use (technical or otherwise).
Later, in the mid-1960s, Bell Labs began to have a need for a more advanced OS to run on their newer generation machines. They collaborated with General Electric and MIT to create Multics (Multiplexed Information and Computing Service), which was a mainframe time-sharing OS more scalable than the original BESYS. Multics was a very influential OS which you have undoubtedly heard about, and had been in use from it's inception in 1965 through 2000 (there were even some web-sites running it). Multics provided a number of crucial features that no OS before it had
Convenient remote terminal use.
Continuous operation analogous to power & telephone services.
A wide range of system configurations, changeable without system or user program reorganization.
A high reliability internal file system.
Support for selective information sharing.
Hierarchical structures of information for system administration and decentralization of user activities.
Support for a wide range of applications.
Support for multiple programming environments & human interfaces.
The ability to evolve the system with changes in technology and in user aspirations.
Multics eventually became a commercial product sold by Honeywell, but it's days to be used internally at Bell Labs (and soon to be AT&T) were numbered...
In 1969, AT&T decided to move from the Multics OS. Regarding this decision,
Victor Vyssotsky, who had been involved the techanical head of the Multics project at Bell Labs and later Executive Director of Research in the Information Systems Division of AT&T Bell Labs, explains,
"It turned out that from our point of view the Multics effort simply went awry..... It turned out that under the stress of slipping schedules and the increasing realization that we had difficulty agreeing on a common course of action, we ended up simply pulling out of Multics."
Meanwhile, two researchers at AT&T, Ken Thompson and Dennis Ritchie, had a DEC PDP-7 (Programmed Data Processor) with 4K memory for user programs and wanted very much to continue to play a computer game they had previously been playing under Multics. Dennis Ritchie had been developing a platform-independent high-level computer language known as B. Thompson and Ritchie set out to create a Multics-inspired OS built with the same goals in mind that would allow them to continue to play their computer game. The result was a system which a punning colleague called UNICS (UNiplexed Information and Computing Service)--an 'emasculated Multics'.
One of the advantages of B was that it can directly access the hardware architecture of the computer with an abstract set of programming functions. Previously, all computer OSes had been built specifically for a particular piece of hardware. This 'UNIX' that Thompson and Ritchie created, however, was sufficiently abstracted away from the hardware to make it very portable. It could be recompiled to run on a variety of hardware with trivial or no changes to the code.
Soon, UNIX became widely used at AT&T, and in 1971 the first publically accessable edition of UNIX was released. This version had over 60 commands and already had much of the functionality of Multics. The one thing this version of UNIX lacked that later became one of its key strengths was pipes.
B was eventually reworked from the ground up and became "C", which is the most widely used computer language today.