Acquired
Microsoft Volume I
Podcast summary created with Snipd AI
Quick takeaways
- Microsoft's rise was grounded in strategic partnerships and early industry standards.
- Congress' 1980 change in copyright law protected software as copyrightable, shaping Microsoft's future.
- Microsoft's per-copy licensing deals for DOS drove significant revenue growth through PC clones.
- Shift to Windows over OS 2 propelled Microsoft's industry dominance with strategic partnerships.
- Microsoft's enterprise success was built on a developer-friendly ecosystem and strategic alliances.
- Windows NT revolutionized enterprise computing, showcasing Microsoft's strategic adaptability.
Deep dives
Forming Microsoft and Licensing Agreement with MITS
Bill Gates and Paul Allen establish a partnership to create Microsoft with an initial focus on writing a BASIC interpreter for the Intel 8080 chip used in the Altair 8800 microcomputer. They sign an exclusive licensing agreement with MITS, where Microsoft licenses the BASIC interpreter to MITS for distribution. In this deal, MITS gains exclusive rights to distribute and sublicense the BASIC interpreter, resulting in limited control and revenue-sharing challenges for Microsoft.
Revenue and Software Piracy Challenges
In the early years, Microsoft's revenue is modest, with $16,000 in 1975 and $22,000 in 1976, reflecting the limitations of the exclusive licensing deal with MITS. The partnership faces a significant hurdle with software piracy as many users are copying BASIC without paying, leading Bill Gates to address the issue through open letters to hobbyists. The legal protection of software as a copyrightable work was not yet fully established at this time.
Software Copyright Establishment in 1980
The legal foundation for protecting software as a copyrightable work was formally established in 1980 when Congress included computer programs in the scope of copyright under Title 17. This change recognized computer programs as a set of instructions creating a specific result on a computer, defining them as copyrightable works. This legislative change provided the basis for protecting software creations under copyright law moving forward.
Microsoft's Licensing Strategy with IBM
Microsoft strikes a groundbreaking deal with IBM in 1980 to provide software for the IBM PC. While IBM pays a fixed price for software, Microsoft retains the rights to license the software to other computer manufacturers. This strategic move allows Microsoft to become the linchpin in the growing PC ecosystem, ensuring that their software becomes the industry standard.
Development of DOS through Seattle Computer Products
Seattle Computer Products develops a 16-bit operating system called QDOS, later known as DOS, for the 8086 processor. Microsoft acquires the rights to adapt and sell DOS to IBM for $75,000, facilitating its integration into the IBM PC. This move proves pivotal as DOS becomes a cornerstone of Microsoft's future success.
Impact of Clones and Licensing Strategy
The emergence of IBM PC clones, like Compaq, fueled by Microsoft's per-copy licensing agreements for DOS, propels Microsoft's revenue growth. By licensing DOS to multiple hardware manufacturers on a per-machine basis, Microsoft leverages the explosive demand for PCs to drive substantial revenue increases, setting the stage for their dominance in the software industry.
The Rise of Microsoft and the Reinvention of Windows
Microsoft strategically aligns itself with IBM in the development of OS 2, but shifts focus to Windows as a platform; Windows 3.0 becomes a game-changer in the market, elevating Microsoft above IBM and establishing Windows as the industry standard.
Developing a Strong Developer Ecosystem and OEM Partnerships
Microsoft invests heavily in building a developer-friendly ecosystem for Windows, promoting Windows 3.1 to developers who have not been targeting the platform; strategic partnerships with OEMs ensure increased adoption and installation of Windows on PCs, shifting away from DOS-centric installations.
Transitioning to Enterprise Sales and Innovation in Business Practices
Under Steve Ballmer's leadership, Microsoft transitions to selling to enterprises, focusing on building effective software for businesses; the shift to per processor licensing agreements presents both customer-friendly benefits and antitrust concerns, shaping Microsoft's enterprise strategy.
The PC Revolution and Business Transformation
The rise of personal computers alongside mainframe systems posed a challenge for businesses as PCs were not integrated. Microsoft embarked on a business transformation task convincing global Fortune 500 companies to adopt PCs. This involved partnerships with consulting firms, direct and indirect sales forces, distribution partners, and software vendors, setting the foundation for enterprise solutions like Windows NT, Exchange, and SQL Server.
Microsoft's Strategic Evolution with Windows NT and Windows 95
Windows NT, born out of the collaboration with Dave Cutler, shifted Microsoft's focus to an enterprise-ready operating system, challenging traditional enterprise computing approaches. Despite initial doubts, Windows NT became the foundation for Windows Server and later Azure, showcasing Microsoft's strategic flexibility. Windows 95, emphasizing user experience with a new 32-bit OS, capitalized on the consumer PC heyday, bolstering Microsoft's position as an industry leader.
Microsoft's Culture of Dedication and Responsibility
Former employees of Microsoft highlight the intense dedication and sense of personal responsibility they felt towards the company's success during the creation of Windows 95. Developers were given principles to guide product creation, emphasizing personal responsibility and passion for creating groundbreaking software.
Microsoft's Strategic Advantages in Scaling and Localization
Microsoft's strategic decisions, such as scaling through OEM partnerships and early international expansion, played a pivotal role in their success. Leveraging OEMs like HP and Dell allowed for efficient scaling, while early internationalization forced quick global readiness. Microsoft's emphasis on quality localization and strategic presence across different countries set them apart from industry norms, fostering a strong brand presence globally.
Microsoft. After nearly a decade of Acquired episodes, we are finally ready to tackle the most valuable company ever created. The company that put a computer on every desk and in every home. The company that invented the software business model. The company that so thoroughly and completely dominated every conceivable competitor that the United States government intervened and kneecapped it… yet it’s STILL the most valuable company in the world today.
This episode tells the story of Microsoft in its heyday, the PC Era. We cover its rise from a teenage dream to the most powerful business and technology force in history — the 20-year period from 1975 to 1995 that took Bill and Paul from the Lakeside high school computer room to launching Windows 95 alongside Jay Leno and the Rolling Stones. From BASIC to DOS, Windows, Office, Intel, IBM, Xerox PARC, Apple, Steve Jobs, Steve Ballmer… it’s all here, and it’s all amazing. Tune in and enjoy… Microsoft.
Sponsors:
Anrok: https://bit.ly/anrokacquired
Statsig: https://bit.ly/acquiredstatsig24
Anthropic: https://bit.ly/acqclaude
Links:
- Congress changing copyright law in 1980 to include “computer programs”
- Acquired “classic” on Microsoft’s 1987 acquisition of Forethought / PowerPoint
- Quartr's charts on Microsoft's revenues, market cap, IBM comparison, and more
- All episode sources
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