PART 5: Early Bussiness Career: 1975-1980 -Bill Gates
In the Fall of 1973 Gates enters Harvard where he was an indifferent student. He discovers Pong in 1974 and becomes obsessed with Atari's follow-on game Breakout Gates meets Steve Ballmer in the fall of 1974 at Harvard. Allen moves to Boston to work at Honeywell in the fall of 1974.
That December, the January, 1975 issue of Popular Electronics hit the newsstands with its front cover picture of the Altair 8800 Computer. The computer kit was made by MITS (Micro Instrumentation and Telemetry Systems) which was located in Albuquerque, NM.
The Altair used the Intel 8080 chip and had 256 Bytes of RAM. Programs had to be entered by flipping toggle switches on the front of the computer. The computer did not come with a terminal so most people hooked up a teletype to it in order to use it (you also needed an I/O card and a card to plug the I/O card into).Gates and Allen saw their opportunity. If they wrote BASIC for the 8080 MITS machine then they could make money selling it not only to Altair users but also to other 8080 based computers that were almost certainly going to emerge to compete with the Altair.
Their big advantage was that they had Allen's Intel 8008 simulator that they were confident could be quickly converted to an 8080 simulator and used to develop the BASIC Interpreter. After signing an agreement with their collaborator on the Traf-O-Data project freeing them to write software for unrelated projects, Gates and Allen write MITS on 2 January 1975 offering MITS a BASIC Interpreter for the Altair.
Allen immediately went to work on the 8080 simulator and Gates designed the BASIC and began writing the assembly language code. Monte Davidoff, a freshman at Harvard who they met accidentally, was hired to write the floating-point mathematical code.
By mid-February 1975 the BASIC was running on the 8080 simulator. They arranged to take the BASIC to New Mexico for a demonstration. It had never run on the Altair or any 8080 chip yet just on the simulator running on Harvard's PDP-10!The night before Allen was to fly down Gates stayed up all night checking the code before making the paper tape. The next morning Allen flew to Albuquerque and realized in mid-flight that he did not have a loader (the software to make the Altair talk to the teletype so the paper tape with the BASIC could be put into the computer). Allen wrote the loader in machine code on the flight down.
At MITS Allen entered the loader by flipping switches (binary code!) on the front panel, loaded the paper tape and the BASIC worked! (The future billionaire had to borrow $40 for his motel bill!) Gates and Allen had a deal and Allen was made "Vice President and Director of Software" at MITS.
On 22 July 1975 Gates (then 19 years old) and Allen sign a deal with MITS for $3000 plus a royalty for each copy of BASIC sold. MITS got the exclusive right to sublicense the software but agreed to use its "best efforts" to commercialize the program.Also in July 1975 Gates & Allen form a partnership, Micro-Soft, with Gates 60% and Allen 40%. Gates argued for the larger share based upon the fact that Allen was a full time employee of MITS. Their initial investments were $910 and $606 respectively (60-40).
This first business venture of Gates & Allen typified how Microsoft operated for many years. In the words of Stephen Manes & Paul Andrews: "Announcing a product that didn't exist, developing it on the model of the best version available elsewhere, demonstrating an edition that didn't fully work, and finally releasing the product in rather buggy form after a lengthy delay."
In October 1975 MITS decides to bring out the Altair 680 which used the Motorola 6800 processor. Gates & Allen, in a pattern that was to repeat time and time again, see an opportunity to rework an existing product (BASIC) for a new market. Allen wrote a simulator for the 6800 and Ric Weiland (another of their friends from Lakeside) rewrote Gates's BASIC for it.
Micosoft income for 1975 shot up to $16,005 but Gates became increasingly upset with the widespread piracy of Microsoft's during the early 1975-76 period. His response was his famous "An Open Letter to Hobbyists" that was sent out to every major computer publication in February 1976. In it he decried the practice which he regarded as simple theft and his statement caused a huge uproar.
One of the many (mostly hostile) responses Gates received was a suggestion that BASIC simply be put into ROM (Read Only Memory). Computer code burned into silicon rather than being on a paper tape would be very hard to pirate. Gates and Allen eventually become convinced that ROM-based software was the way to go but in the meantime they decide to begin selling BASIC outright to manufacturers on a non-exclusive basis for a flat fee.
Because MITS only had rights to the 8080 version of BASIC, Gates and Allen licensed the 6800 BASIC to MITS for a flat fee of $31,200 to be paid at $1300 a month for two years. In late 1976 Microsoft makes deal with Commodore International to put its BASIC in ROM in the Commodore PET (Personal Electronic Transactor - the first computer "straight out of the box!").
Micosoft income for 1976 touched $104,216 with pretax profit $22,496.
In November 1976 Allen quits MITS and Gates quits Harvard in February 1977 so that both work at Microsoft full time. On 3 February 1977 Gates & Allen make a new deal: Gates 64% Allen 36%.
During 1977 MITS, which was in the process of being taken over by Pertec, refused to license the 8080 BASIC to potential customers. On 20 April 1977 Gates & Allen sent a letter to MITS protesting their lack of making "best efforts" to commercialize the program. MITS responded by getting a judge to restrain Microsoft from disclosing 8080 BASIC code to any 3rd party and taking Microsoft to arbitration to force them to abide by the contract. Microsoft's income begins drying up that summer. They get bailed out in August by a $10,500 payment for the 6502 BASIC from Apple Computer for the Apple II.
At the beginning of September 1977 the arbitrator ruled that MITS had violated the contract with Microsoft and terminated the exclusive license. Microsoft was now free to sell its BASIC to all comers.
The result was a flurry of deals to sell BASIC -- the most important was to Radio Shack. Gates left "hooks" in the BASIC code that went into ROM in the TRS-80. This allowed Microsoft to load extra functions from cassette or disk and gave it an advantage over other software writers. This became a standard practice at Microsoft for many years.
That fall, Gates and Marc McDonald come up with the File Allocation Table (FAT) during the development of a version of BASIC for NCR. This later was crucial to Standalone BASIC.
During November 1977 Gates considers moving Microsoft to California and merging with Digital Research. Gary Kildall had released CP/M (Control Program for Microcomputers) that summer. Microsoft had just developed its first version of FORTRAN but it required an operating system CP/M in order to run (BASIC could serve as its own crude operating system). So a merger seemed like a good idea to Gates but it never got past some initial feelers.
For 1977, Microsoft revenue was $381,715 with a net income of $112,471.
Management at Microsoft was at best chaotic. Neither Gates nor Allen had ever managed a business and Microsoft simply was not organized. Microsoft did not own a word processor and its records were kept in a ledger book. Callers were often directed to "the person who wrote the BASIC". Differences of opinion were settled by shouting matches. Gates would yell and scream about how stupid some idea or approach was and instruct everyone on how to do it better.Gates' approach worked primarily because he was the hardest worker of them all. He had no social life and often slept on the floor in the office when he was into a project. Later he always had a housekeeper that took care of all mundane aspects of his life buying groceries, paying bills, etc. He was famous for losing credit cards. His main vice was driving very fast cars in a very dangerous way and collecting multiple speeding tickets.
Late 1978 work begins on BASIC for the new Intel 8086 chip.
December 1978 Microsoft moves to Bellevue, Washington. Sales for calendar 1978, $1,355,665.
By March 1979 Microsoft had 48 OEM (Original Equipment Manufacturer) customers for 8080 BASIC, 29 for FORTRAN, and 12 for COBOL, and PASCAL and APL were under development.
Dan Bricklin and Bob Frankston develop VisiCalc, the first spreadsheet and demonstrate it in May 1979. Gates comes close to buying the company that had the rights to VisiCalc but the deal falls apart.
In June 1979 at the National Computer Conference in NY Microsoft's Standalone BASIC was shown running on Tim Paterson's {who later wrote DOS} 8086 Seattle Computer CPU. Tim Paterson also worked on Paul Allen's "SoftCard" idea for Microsoft. It ran CP/M on the Apple and was a highly successful product for a time. Indeed, the SoftCard was the single most popular platform to run CP/M!
In August 1979 H. Ross Perot of EDS tries to buy Microsoft. Gates flies to Dallas and meets with EDS officials but is not impressed with their vision for microcomputers. Perot thought Gates wanted too much for the company and Gates was not really interested in selling. Perot regards his failure to meet Gates' price as business error.
his biggest In June 1980 Steve Ballmer comes to work at Microsoft for $50,000 per year and 5-10% of the Company depending upon revenue growth. His job as assistant to the President and he immediately begins to run the company in a much more business-like and orderly manner. Ballmer's downside was that, if anything, he was even more confrontational than Gates! And, he, unlike Gates, would get personal!
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