How They Started (41 page)

Bill formally dropped out of Harvard. … He was absolutely convinced that computers would eventually enable people and businesses to save time and money, thus creating an enormous business opportunity, and he was determined to be part of this impending growth.

Before long, MITS was in decline and struggling, and in 1977 it was sold to Pertec Computer Corporation. Pertec wanted MITS for its rights to BASIC. Bill and Paul knew they had to wrestle control of their program back somehow, as their original contract with MITS had set a limit on how much they could get paid. They now knew that the market potential for it was substantially larger.

They consulted Bill’s father, the Seattle lawyer. A clause in their original contract stated that MITS had to use its “best efforts” to sub-license the BASIC program, and Microsoft was able to prove that by refusing to sign deals with other manufacturers, MITS was in breach of the contract. Microsoft used this to get the rights to its program back, after a three-week-long hearing. Microsoft then set about selling versions of its BASIC program to manufacturers of other computers, such as Commodore’s PET, Tandy’s TRS80, and Apple’s Apple II, which were all taking off. Bill, who was a voracious reader of business books, negotiated the deals, while Paul concentrated on programming.

In an astounding feat, Bill took the company to Japan when it was just two years old. He found a computer whiz kid there his own age, Kuzuhiko Nishi, and used him as an agent to build business with Japan’s growing computer companies.

At the time, Bill and Paul had what seemed extraordinarily ambitious goals for their company: they wanted a computer on every desk and envisioned a future with Microsoft on every computer. As these computers became more powerful, the demand for more powerful software grew. It was now possible, for example, to move words around documents in word-processing programs and to manipulate crude images at much faster speeds than previously possible.

Over the next three years the founders added new programs, mainly other programming languages. They continued to work long hours, with Bill getting involved with the programming as well as driving the sales efforts. He called several big corporations to persuade them to use his software and programming languages on their mainframe computers. This approach worked wonders: as more and more companies became interested in the company’s software, the business grew. Bill hired programmers to help with this expansion, many of whom he knew from his high school and college days.

At the time, Bill and Paul had what seemed extraordinarily ambitious goals for their company: they wanted a computer on every desk and envisioned a future with Microsoft on every computer.

By 1978, Microsoft had around a dozen employees, but Bill was finding it harder and harder to persuade programmers to move to Albuquerque. Since Microsoft had no more links with MITS, it didn’t seem to make sense to keep the business there. Subsequently, they decided to relocate the business, and although most technology companies at the time were located in California, they chose Seattle, close to where Bill was brought up and where his family still lived.

The move coincided with a rethink of the business. In keeping with the original vision, Bill knew that for Microsoft to thrive, he would need to come up with something bigger and more ambitious than BASIC software systems. He wanted to tap into the burgeoning market for operating system and word-processing software. Bill also needed to get more sales expertise on board, and he turned to his college friend Steve Ballmer. He joined Microsoft as business manager, and soon became an expert at promoting and marketing the business.

What would turn out to be one of the century’s greatest business opportunities presented itself toward the end of 1979. Bill had found out that hardware manufacturer IBM, the world’s leading manufacturer of mainframe computers, was looking for an operating system for a new PC that it was to launch shortly. This was IBM’s first attempt to make a substantial impact in the PC market, which it could see was growing rapidly. As IBM wanted the product made in a short space of time, it decided not to build its own computer from scratch but to buy different elements from other companies.

Bill decided that Microsoft should be the company to create the operating system IBM needed. Microsoft bought an existing software system from a company called Seattle Computer for a hotly negotiated one-off fee of $50,000 (and a few other minor rights—spare a thought for the people who sold it for relative peanuts) and used this as the basis for a new operating system called MS-DOS (Microsoft Disk Operating System). Microsoft put nearly half of its programmers (there were around 60 by this time) to work on this system over the course of a year.

Microsoft then attempted to license this software to IBM. It was a very competitive battle, with other software companies also very keen to work with IBM on what they all thought would be an enormously successful new product launch. In the end, Microsoft won, and it negotiated to license its operating system to IBM on a royalty basis. (Having learned from its experience with MITS, Microsoft insisted that it retain the rights to the program.) Every time a copy of MS-DOS was sold, IBM would pay a fee to Microsoft. IBM agreed and signed the deal that was the making of Microsoft as we now know it.

Microsoft’s ubiquitous software.

Just one year later, in 1981, MS-DOS became the industry standard and sales more than doubled at Microsoft, from $7 million in 1980 to $16 million a year later. Part of the reason for this rapid growth was that as IBM had used off-the-shelf parts to build its PCs, it was easy for other computer manufacturers to follow suit and build similar machines, all of which could run MS-DOS. Bill was quick to capitalize on this, supplying MS-DOS software to IBM competitors. By 1982, Microsoft’s revenues had grown to $32 million and the company had grown to around 200 employees.

Every time a copy of MS-DOS was sold, IBM would pay a fee to Microsoft. IBM agreed and signed the deal that was the making of Microsoft as we now know it.

Just a year later, however, Paul made the decision to leave. Having been diagnosed with Hodgkin’s disease, an illness that could be treated, he decided he wanted to focus on other interests.

Microsoft, MS-DOS, Windows and Office are trademarks of the Microsoft group of companies.