The American Spectator

By 1979 several operating systems were in use. The two most popular were Apple DOS (disk operating system), exclusive to Apple, and “Control Program for Microcomputers” (CP/M) written by Gary Kildall, founder of a small company called Digital Research (shortened from “Intergalactic Digital Research”) in Monterey, California. Kildall had licensed CP/M to many manufacturers, most of whom had created incompatible versions, making it difficult if not impossible to transport data between systems.

Apple took what might be called the traditional business approach to the burgeoning computer market. The company refused to license its hardware, preventing anyone from building compatible systems. If you wanted to use Apple software, you had to buy Apple hardware. Dan Bricklin’s VisiCalc, the first spreadsheet, was written in 1979 for the Apple II, but most Apple software was written in-house. Independent programmers trying to write software for general use had great difficulty because they often had to write a different version for each operating system and each manufacturer.

Then in 1980, IBM, the 800-pound gorilla of the computer industry, secretly decided to enter the personal computer market. Working on a breakneck one-year schedule, IBM decided for the first time in its history to farm out portions of a project. The hardware would be developed at a top-secret plant in Boca Raton. In search of a machine language and an operating system, IBM executives wandered into what was then largely unknown territory, the West Coast. In July of 1980, a three-man team of IBM executives headed by Jack Sams found themselves in the Seattle offices of a young man who had already made his name in the fledgling industry — William H. Gates III.

GATES WAS STILL ONLY 24 years old and looked 19. He never combed his hair, worked obsessively, often slept in his office and did not change his clothes for days. On her first day of work, a new secretary had gone running into the hallways complaining that “a little kid” had gotten into “Mister Gates’s” office and was playing with the computer. In Hard Drive, James Wallace and Jim Erickson recounted Sams’s recollection of his first trip to Redmond:

I knew Bill was young, but I had never seen him before. When someone came out to take us back to his office, I thought the guy who came out was the office boy. It was Bill. Well, I’ll tell you or anybody else, and I told IBM executives this the next week, that by the time you were with Bill for fifteen minutes, you no longer thought about how old he was or what he looked like. He had the most brilliant mind that I had ever dealt with.

What happened when IBM first visited Redmond has become one of the legends of the early days of computing — and perhaps the reason why Silicon Valley still resents Gates to this day.

Gates said he could provide a machine language written in BASIC but didn’t have an operating system. He recommended Gary Kildall, an old acquaintance from Seattle. Microsoft’s BASIC and Digital’s CP/M dovetailed nicely and they had often talked merger. Sams made an appointment to meet with Kildall in Monterey.

When the IBM team arrived, however, Kildall wasn’t there. He was out flying his airplane. Kildall would insist later that he was on a business trip — not just skylarking — but the image would prevail. His wife, who was running the business, was deeply suspicious of IBM’s non-disclosure agreements and refused to let Sams in the door. Both sides ended up feeling offended. A week later, Kildall made an attempt to reestablish communications with IBM but nothing materialized. As a result, Kildall probably threw away the opportunity of a century. (He died in a barroom brawl in 1994.)

Now IBM was back in Redmond, still without an operating system. Seizing the opportunity, Gates said he might be able to come up with one. Only twenty minutes away at Seattle Computer Products, a 24-year-old programmer named Tim Paterson had written a program he called QDOS (“quick and dirty operating system”), which his company had been shipping for about a year. Gates bought the rights for $50,000, eventually hiring Paterson as well. IBM quickly agreed to license MS-DOS with the understanding that Microsoft would retain ownership. And so, the sixth-largest corporation in the country, already under an 11-year investigation for monopolizing the computer industry, put its future into the hands of a small Seattle software firm headed by a 24-year-old college dropout.

The IBM-PC’s immediate success was the result of a stunning new strategy — “open architecture.” Whereas Apple had hoarded the rights to its hardware, IBM licensed its specifications cheaply, inviting other firms to build “IBM clones.” The bet was that by setting the PC industry standard, IBM would create such a large market that even a proportional share would produce huge earnings. As Virginia Postrel, editor of Reason, writes: “Apple in fact acted like the ultimate monopolist.” When the PC hit the market at almost half Apple’s price, Apple refused to cut its own prices, betting that its loyal users would not desert it. The strategy proved disastrous. Today, Apple holds only 4 percent of the PC market, while IBM clones hold 96 percent. Of this 96 percent, however, IBM’s share is only 7.3 percent. The clones hold the other 88.3 percent. The big winner, it turned out, was Microsoft, whose operating system became the industry standard.

After successfully piggybacking aboard the PC, Microsoft began expanding into software applications. Mitch Kapor’s Lotus 1-2-3 had become the standard spreadsheet after Kapor guessed right and wrote the program for the PC. Microsoft tried to challenge it with an office suite called “Odyssey,” but the imitation never got off the ground.

Oddly enough, Microsoft’s first successful software was written for Apple. In 1984, Apple had introduced the graphic user interface (GUI) for Macintosh — a “point-and-click” environment originally developed (but never successfully marketed) by Xerox. Microsoft Excel, developed specifically for the Mac, was a huge success, even though it was not dependent on the MS-DOS operating system. Word and Multiplan were also developed originally for the Mac.

DURING THE 1980’s Microsoft began to earn its reputation as a “silicon bully.” Gates is, first of all, incredibly competitive. In the early days, he worked for days at a time without sleep, and for weeks and months he hardly left his office. Even now he keeps a Herculean work schedule, yet makes time to water-ski, play tennis, drive fast cars, and ice skate. He is forever challenging himself and others with logical puzzles and memory games, a Gates family pastime that has become a Microsoft tradition. Gates demands that employees show the same spirit. (Douglas Coupland’s novel, Microserfs, satirized this perpetual undergraduate life on the Redmond “campus.”)

Microsoft has been accused of several unfair practices. First, as owner of the predominant operating system, Microsoft could always jiggle its code to make other applications slow or dysfunctional. The jingle “DOS isn’t done until Lotus won’t run” is supposed to have originated with Gates himself.

Second, Microsoft has been known to talk about collaboration with small companies, asking to see their software, and then “discovering” that Microsoft already had something very similar. In 1990, for example, Microsoft approached the Go Corporation, a small California company that had developed a technology for recognizing handwriting. Microsoft proposed a buy-out, but changed its mind after seeing Go’s software. Six months later, Microsoft announced its own operating software for handwriting recognition, developed by some of the same programmers who had examined Go’s software.