The rise of Microsoft from a small startup to one of the most influential tech giants began with Bill Gates’ shrewd acquisition of an operating system that would be known as MS-DOS In 1980, Gates paid just $50,000 to purchase a key asset that laid the foundation for Microsoft’s future growth and success
The Backstory Behind Microsoft’s Deal for DOS
In 1980, IBM was working on a secret project to develop a personal computer for the growing consumer market. As IBM sought an operating system for its new PC, discussions led the company to Digital Research and its CP/M OS. However, negotiations fell through between IBM and Digital Research founder Gary Kildall.
With no operating system secured, IBM turned to Bill Gates for help. Gates knew of Tim Paterson’s QDOS (Quick and Dirty Operating System), which had been created for an Intel 8086 processor kit. Sensing major opportunity, Gates, Paul Allen, and Microsoft struck a prescient deal with Paterson’s employer Seattle Computer Products to license QDOS for $50,000.
Microsoft purchased full rights to QDOS in July 1981. The company adapted it to run on IBM’s forthcoming PC, branding it MS-DOS (Microsoft Disk Operating System). A key provision allowed Microsoft to license MS-DOS to other computer manufacturers, which would prove tremendously lucrative
The Landmark IBM Deal for MS-DOS
When IBM launched its PC in August 1981, MS-DOS was chosen as the primary operating system for the new computer. Microsoft sold the license for MS-DOS to IBM for $430,000, including adaptations and consulting.
But thanks to Gates’ negotiating, Microsoft maintained rights to sell MS-DOS to other companies. The deal also featured one-sided terms that limited IBM’s ability to get out of the contract. Gates had wisely avoided per-copy royalty payments in exchange for Microsoft’s freedom to proliferate MS-DOS.
Microsoft’s purchase of QDOS for $50,000 gave the company control of the OS that would run on IBM’s new PCs. Licensing MS-DOS to IBM marked the big break that vaulted Microsoft onto the map as a major player in the booming personal computing industry.
The Huge Impact of Gates’ $50,000 Deal
Bill Gates’ shrewd acquisition and adaptation of QDOS for just $50,000 would prove to be one of the most significant business deals in history. It positioned Microsoft to dominate the world of personal computing for years to come in several key ways:
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IBM Deal – The IBM contract gave MS-DOS an immediate foothold as the key OS on what would become the standard PC platform.
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Clone Rise – As IBM PC clones running MS-DOS emerged, the OS became entrenched as the industry standard.
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Revenue Windfall – Microsoft earned huge revenues by licensing MS-DOS to multiple PC manufacturers.
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Windows Launchpad – MS-DOS served as the foundation for Microsoft’s then-revolutionary Windows operating system.
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Microsoft Dynasty – Microsoft’s growth and profits through the 1980s and 1990s stemmed from its MS-DOS windfall.
The Savvy Deal That Made Software King
Bill Gates’ shrewd acquisition of QDOS for just $50,000 and subsequent licensing to IBM turned MS-DOS into a cash cow for Microsoft. Revenue from MS-DOS licensing fueled Microsoft’s rise to dominate the personal computing software market through the 1980s and 1990s with Windows and Office.
Gates’ prescient deal got Microsoft into the operating system business, establishing the company’s ethos as a software firm rather than hardware firm. This strategy would pay off time and again as PCs became commoditized, putting profits in the hands of software companies.
Microsoft parlayed its initial MS-DOS fortunes into expansion into new technologies like graphical interfaces, productivity software, internet access, and gaming. The $50,000 deal for QDOS provided immense financial resources that enabled Microsoft’s growth into a multifaceted technology giant.
Bill Gates proved his business acumen with the incredibly lucrative deal for QDOS. His decision to acquire the OS and license it inexpensively to IBM vaulted Microsoft to the top of the booming personal computing industry. The $50,000 purchase price was miniscule compared to the massive revenues and market dominance Microsoft would gain from MS-DOS in the years to come.
The Deal That Changed the Tech World
When Bill Gates negotiated the landmark MS-DOS deal, few could have imagined the sheer magnitude of Microsoft’s rise. The deal set in motion Microsoft’s dominance in personal computing software and Gates’ ascent as the richest man in the world for over a decade.
Microsoft’s success made Bill Gates a celebrity and an icon of the emerging tech age. Gates used his massive wealth to create the Bill & Melinda Gates Foundation, the world’s largest private charitable foundation.
The MS-DOS deal transformed not just Microsoft, but the technology landscape. It established software as the lynchpin of the PC revolution and the most lucrative segment of the industry. Microsoft’s rise demonstrated the immense business potential of software.
Decades later, Gates’ $50,000 purchase still stands as one of the shrewdest and most impactful business deals ever struck. It catapulted Microsoft into the stratosphere, laid the foundation for the company’s wide-ranging dominance, and changed technology forever. The QDOS deal offers a powerful lesson about seizing transformative opportunities before competitors grasp their potential.
What Can We Learn From Gary’s Incredible (But Sad) Story
Deep down, probably many of us are scared to think we could make a similar mistake out of laziness or negligence. But hearing the way his co-workers talk about him can give us a completely different perspective.
At the time of these events, Microsoft was only a small startup company. It makes sense to think that someone so early in his career would see a deal with IBM as a huge opportunity, especially someone concerned more by the financial success of the company than driven by a desire to innovate.
On the other hand, Gary was already highly respected for his numerous contributions (besides CPM, he’s also responsible for developing the BIOS system and the CD-ROM technology containing the first-ever digital encyclopedia). Is it possible he chose to act according to his stellar work ethic by treating each opportunity equally?
Maybe Gary’s eagerness to openly share his knowledge and excitement about his inventions is sadly what made his downfall. Or maybe his mistake came in sharing his work with the wrong people.
Gary died at the age of 52, plagued by incessant judgments on his way of handling the IBM deal, driving him to depression and alcoholism.
The year prior to his death, he wrote a book called “Computer Connections” in which he apparently exposes his version of the story. Unfortunately, he passed away before it could go to print. The manuscript now belongs to his children who chose not to publish the book, apart from the first few chapters.
Is there more to this story than what we now remember?
In 1995, a TV documentary was released as a tribute to Gary’s life, who passed on July 11, 1994. In it, there are direct accounts of people who knew him personally and have their own take on the events of that day:
- Gary was, indeed, flying one of his private planes, but not because he disregarded the importance of the meeting. He was attending another important meeting with one of his employees, Tom Rolander. They then returned to Gary’s house and were, in fact, present when IBM arrived but their non-disclosure terms seemed so unacceptable, they refused to sign it.
- Gary’s friends and co-workers say he was someone with an incredibly open-minded work ethic. He was way ahead of his time in that matter and his ethics resembled more the one of the open-source community today, rather than one of a competitive businessman.
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Did Bill Gates Invent DOS?
FAQ
How much did Bill Gates pay for MS-DOS?
How much was DOS purchased for?
How much did IBM pay for DOS?
How did Bill Gates acquire DOS?
Why did Bill Gates give IBM a license?
The sticking point: IBM wanted to pay a flat $200,000 license fee to get a royalty-free license in perpetuity. Kildall wanted more. Bill Gates came up with a similar operating system. He gave DOS away to IBM for $50,000 and figured, correctly, that he could get rich by licensing the system to other computer manufacturers. Kildall was bitter.
Why did Bill Gates buy 86-DOS?
IBM approached a young Bill Gates for help. Gates shared plenty of ideas with IBM and even told them he’d write an operating system for them. Instead of writing one, Gates reached out to Paterson and purchased 86-DOS from him, allegedly for $50,000.
Did Gates sell Qdos to IBM?
Allen called Seattle Computer Products owner Rod Brock and licensed QDOS for $10,000 plus a royalty of $15,000 for every company that licensed the software. In Big Blues: The Unmaking of IBM, Sams is quoted as saying Gates told him about QDOS and offered it to IBM. “The question was: Do you want to buy it or do you want me to buy it?” Sams said.
Did Bill Gates fly on a business trip?
Gates is quoted in Fire in the Valley: The Making of The Personal Computer by Paul Freiberger and Michael Swain as saying “Gary was out flying” that day, but Kildall always denied the implication, telling the authors of Hard Drive: Bill Gates and the Making of the Microsoft Empire that he had flown on a business trip to the Bay Area.
How much did IBM Pay Microsoft?
According to Allen, under the contract signed that November, IBM agreed to pay Microsoft a total of $430,000, including $45,000 for what would end up being called DOS, $310,000 for the various 16-bit languages, and $75,000 for “adaptions, testing and consultation.”
Why did IBM buy 86-DOS?
Not that long before this historical purchase, IBM came a’knockin’ at Microsoft’s door, in search of a 16-bit OS to run on its early PCs. Microsoft apparently thought it wiser to buy an existing solution than to build its own, so at first it non-exclusively licensed what was then called 86-DOS, or QDOS, from Seattle Computer Systems.