With the possible exception of the earliest pioneers of Silicon Valley, such as IBM, Xerox, and Bell Labs, it’s hard to think of a company that has had a more profound, lasting impact on the world of technology than Microsoft.
However, despite its role in fundamentally shaping the landscape of modern computing, Microsoft has an undeserved reputation as a boring company that makes boring products. In reality, nothing could be further from the truth. Microsoft’s journey from a scrappy, opportunistic startup in New Mexico to a global corporate software giant is a fascinating story of ambition, power, and hubris.
To understand Microsoft’s approach to product, we need to first understand the ideologies that shaped the company during its earliest days and how this drove Microsoft’s approach to growth. Like another Silicon Valley success story, that tale began in a Harvard dorm.
1980-1999: Building a Monopoly
In 1975, 22-year-old computer programmer Paul Allen got his hands on the January issue of Popular Electronics magazine. The cover featured an image of the “World’s First Minicomputer Kit to Rival Commercial Models,” the Altair 8800 microcomputer.
The magazine’s cover feature had given Allen an idea. With his copy of Popular Electronics in hand, Allen visited his childhood friend and fellow programming enthusiast, Bill Gates, at nearby Harvard University in Cambridge. Allen and Gates had been friends since their days at Lakeside School, a private preparatory school in Seattle, Washington, where the two boys had spent hours learning the intricacies of the school’s Teletype Model 33 ASR terminal and a huge, bulky General Electric mainframe.
Gates had been fascinated with computers since before grade school. As he learned—then mastered—a number of languages including FORTRAN and LISP, Gates flexed his programming muscles by modifying the code of a class scheduling program at Lakeside that placed Gates in classes with “a disproportionate number of interesting girls.” Gates and Allen became such accomplished programmers, they were hired by Information Sciences, Inc., to write a payroll program for the company in COBOL in 1971 when Gates was just 16 years old.
Allen’s idea was to adapt the Beginner’s All-purpose Symbolic Instruction Code—better known as BASIC—programming language for the Altair 8800. At the time, Allen was working at Honeywell, Inc., in Boston, while Gates was pre-law at Harvard after spending the previous summer alongside Allen at Honeywell. Allen successfully persuaded Gates to leave Harvard to pursue his business idea.
The Altair 8800 was a revolutionary machine. However, like many microcomputers of the age, the Altair 8800 lacked an interpreter, computer programs that executed the source code provided to them by the machine’s compiler. Allen’s idea to develop an interpreter built using BASIC was clever. A dedicated interpreter for the 8800 would make the microcomputer more appealing to hobbyist programmers like Allen and Gates. As Allen correctly predicted, it would also drive down the costs of microcomputers to the point at which developing commercial software for these machines would be a viable, profitable business. This was the real brilliance of Allen’s idea.
In March 1975, Allen and Gates contacted Ed Roberts, founder of Micro Instrumentation and Telemetry Systems (MITS), to offer him an in-person demonstration of their BASIC interpreter for the 8800. Roberts agreed, and Gates flew to MITS’ headquarters in Albuquerque, New Mexico, to present their interpreter. Roberts was impressed and agreed to distribute Altair BASIC.
On February 1, 1975, Allen and Gates sold their code to MITS for $3,000 (around $14,000 in 2018 dollars), plus a percentage of royalty payments up to $180,000 (roughly $843,000 in 2018 dollars). Allen and Gates formally registered their company name—then known as Micro-Soft, a hyphenated portmanteau of “microcomputer” and “software”—in 1976, and formally incorporated the company in New Mexico the following year.
Allen’s instincts had been right on the money. Micro-Soft’s 8800 interpreter was immensely popular with programming enthusiasts and computer hobbyists. By the end of 1976, Micro-Soft exceeded $16,000 in revenue, roughly $71k in 2018 currency. Just two years later in 1978, the newly rebranded Microsoft exceeded $1M in annual revenue thanks to the popularity of the 8800.
As the growing company’s need for skilled programmers increased, Allen and Gates made the decision to relocate from New Mexico to Washington State, having found it difficult to recruit skilled programmers in the Southwest. Microsoft officially opened its headquarters in Bellevue, Washington, on January 1, 1979. That same year, Gates negotiated an agreement with Kazuhiko Nishi and Keiichiro Tsukamoto to open Microsoft’s first international sales office in Japan, ASCII Microsoft.
Microsoft had leveraged an incredible business opportunity to essentially create an entirely new category within the nascent computing industry. However, the company’s big break wasn’t its initial agreement with MITS to develop its interpreter for the 8800, but rather, a similar agreement with IBM in 1980—a partnership that would propel Microsoft from a niche software development company to a household name.
Similar to the MITS deal, Microsoft was contracted to develop an operating system for the forthcoming IBM PC Model 5150 home computer. IBM had expressed interest in licensing a popular operating system known as CP/M (“Control Program for Microcomputers”), which was developed by Gary Kildall of the California software company Digital Research, Inc.
What happened next would cement Microsoft’s position as the world’s dominant software company for nearly two decades.
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